-----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, N/p4MRP4qm1iMLOI/T6UmSrdliuT9EuIuYoLKPIAt6EgAuwR3gsoFNrDPanONShf bsptrzWLmPinbCLmPlg7hA== 0000950123-97-010658.txt : 19971230 0000950123-97-010658.hdr.sgml : 19971230 ACCESSION NUMBER: 0000950123-97-010658 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971229 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-K405 SEC ACT: SEC FILE NUMBER: 001-08359 FILM NUMBER: 97745645 BUSINESS ADDRESS: STREET 1: 1415 WYCKOFF RD 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-K405 1 NEW JERSEY RESOURCES CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1997 Commission file number 1-8359 NEW JERSEY RESOURCES CORPORATION (Exact name of registrant as specified in its charter) NEW JERSEY 22-2376465 (State or other jurisdiction of (I.R.S. Employer Identification Number) 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) Securities registered pursuant to Section 12 (b) of the Act: COMMON STOCK - $2.50 PAR VALUE NEW YORK STOCK EXCHANGE (Title of each class) (Name of each exchange on which registered) Securities registered pursuant to Section 12 (g) of the Act: NONE 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: Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. YES: X NO: The aggregate market value of the Registrant's Common Stock held by non-affiliates was $644,934,951 based on the closing price of $36.25 per share on December 8, 1997. The number of shares outstanding of $2.50 par value Common Stock as of December 8, 1997 was 17,862,730. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's 1997 Annual Report to Stockholders are incorporated by reference into Part I and Part II of this report. Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held January 28, 1998, are incorporated by reference into Part I and Part III of this report. 2 TABLE OF CONTENTS
PART I Page ---- ITEM 1 - Business 1 Business Segments New Jersey Natural Gas Company General 2 Throughput 2 Seasonality of Gas Revenues 3 Gas Supply 3 Regulation and Rates 5 Franchises 7 Competition 7 NJR Energy Holdings Corporation 8 NJR Development Corporation 8 Environment 9 Employee Relations 10 Executive Officers of the Registrant 10 ITEM 2 - Properties 11 ITEM 3 - Legal Proceedings 12 ITEM 4 - Submission of Matters to a Vote of Security Holders 15 Information Concerning Forward Looking Statements 15 PART II ITEM 5 - Market for the Registrant's Common Stock and Related Stockholder Matters 16 ITEM 6 - Selected Financial Data 16 ITEM 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 16 ITEM 8 - Financial Statements and Supplementary Data 16 ITEM 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 16 PART III ITEM 10- Directors and Executive Officers of the Registrant 17 ITEM 11- Executive Compensation 17 ITEM 12- Security Ownership of Certain Beneficial Owners and Management 17 ITEM 13- Certain Relationships and Related Transactions 17 PART IV ITEM 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 17 Index to Financial Statement Schedules 18 Signatures 20 Independent Auditors' Consent and Report on Schedule 21 Exhibit Index 22
3 PART I ITEM 1. BUSINESS New Jersey Resources Corporation (the Company or NJR) is a New Jersey corporation formed in 1982 pursuant to a corporate reorganization. The Company is an exempt energy services holding company providing retail and wholesale natural gas and related energy services to customers from the Gulf Coast to New England. Its subsidiaries include: 1) New Jersey Natural Gas Company (NJNG), a natural gas distribution company that provides regulated energy and appliance services to 374,000 residential, commercial and industrial customers in central and northern New Jersey, and participates in capacity release and off-system sales programs; 2) NJR Energy Holdings Corporation (Energy Holdings), formerly known as NJR Energy Services Corporation, a sub-holding company of NJR formed in 1995 to better segregate the Company's energy-related operations. Energy Holdings includes the following wholly-owned subsidiaries: New Jersey Natural Energy Company (NJNE), formed in 1995 to participate in the unregulated retail and wholesale marketing of natural gas and fuel and capacity management services; and NJR Energy Services Company (Energy Services), formerly known as NJR Power Services Corporation, formed in 1996 to segregate the Company's unregulated fuel and capacity management and other wholesale marketing services from its unregulated retail marketing services; and NJR Energy Corporation (NJR Energy), an investor in energy-related ventures through its operating subsidiaries, New Jersey Natural Resources Company (NJNR) and NJNR Pipeline Company (Pipeline); 3) NJR Development Corporation, a sub-holding company of NJR, which includes the Company's remaining unregulated operating subsidiaries, as follows: Commercial Realty & Resources Corp. (CR&R), a commercial office real estate developer. See Note 2 to the Consolidated Financial Statements - Discontinued Operations in the Company's 1997 Annual Report, filed as Exhibit 13-1 hereto, for a discussion of the Company's decision to exit the oil and gas production business and no longer pursue investments in cogeneration and independent power production facilities. The Company is an exempt holding company under Section 3(a)(1) of the Public Utility Holding Company Act of 1935 (PUHCA). 1 4 BUSINESS SEGMENTS See Note 12 to the Consolidated Financial Statements - Business Segment Data in the Company's 1997 Annual Report, for business segment financial information. NEW JERSEY NATURAL GAS COMPANY General NJNG provides natural gas service to 374,000 customers. Its service territory encompasses 1,436 square miles, covering 104 municipalities with an estimated population of 1.3 million. NJNG's service territory is primarily suburban, with a wide range of cultural and recreational activities, highlighted by approximately 100 miles of New Jersey seacoast. It is in proximity to New York, Philadelphia and the metropolitan areas of northern New Jersey and is accessible through a network of major roadways and mass transportation. These factors have contributed to NJNG adding 11,708, 10,978 and 12,465 new customers in 1997, 1996 and 1995, respectively. This annual growth rate of more than 3% is expected to continue with projected additions of 35,000 new customers over the next three years. See Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Liquidity and Capital Resources-NJNG in the Company's 1997 Annual Report for a discussion of NJNG's projected capital expenditure program associated with this growth in 1998 and 1999. In assessing the potential for future growth in its service area, NJNG uses information derived from county and municipal planning boards which describes housing development in various stages of approval. In addition, builders in NJNG's service area are surveyed to determine their development plans for future time periods. Finally, NJNG uses information concerning its service territory and projected population growth rates from a periodic study prepared by outside consultants. In addition to customer growth through new construction, NJNG's business strategy includes aggressively pursuing conversions from other fuels, such as electricity and oil. It is estimated that approximately 40% of NJNG's projected customer growth will consist of conversions. NJNG will also continue to pursue off-system sales and non-peak sales, such as natural gas-fueled electric generating projects. Throughput For the fiscal year ended September 30, 1997, operating revenues and throughput by customer class were as follows:
Operating Revenues Throughput (Thousands) (Bcf) ----------- ----- Residential $317,500 57% 37.0 25% Commercial and other 70,315 12 8.7 6 Firm transportation 15,586 3 5.5 4 -------- --- ----- --- Total residential and commercial 403,401 72 51.2 35 Interruptible 7,996 1 9.7 7 -------- --- ----- --- Total system 411,397 73 60.9 42 Off-system 141,481 25 83.2 58 Appliance service revenues 8,712 2 -- -- -------- --- ----- --- Total $561,590 100% 144.1 100% ======== === ===== ===
2 5 See MD&A - NJNG Operations in the Company's 1997 Annual Report for a discussion of gas and transportation sales. Also see NJNG Operating Statistics in the Company's 1997 Annual Report for information on operating revenues and throughput for the past six years. During this period, no single customer represented more than 10% of operating revenues. Seasonality of Gas Revenues As a result of the heat-sensitive nature of NJNG's residential customer base, therm sales are largely affected by weather conditions. Specifically, customer demand substantially increases during the winter months when natural gas is used for heating purposes. See MD&A - Liquidity and Capital Resources - NJNG in the Company's 1997 Annual Report for a discussion of the effect of seasonality on cash flow. The impact of weather on the level and timing of NJNG's revenues and cash flows has been affected by a weather-normalization clause (WNC), which provides for a revenue adjustment if the weather varies by more than one-half of 1% from normal, or 20-year average, weather. The accumulated adjustment from one heating season (i.e., October-May) is billed or credited to customers in the subsequent year. See MD&A - NJNG Operations in the Company's 1997 Annual Report and Item 1. Business - State Regulation and Rates for additional information with regard to the WNC. Gas Supply A) Firm Natural Gas Supplies NJNG currently purchases a diverse gas supply portfolio consisting of long-term (over six months), winter-term (for the five winter months) and short-term contracts. In 1997, NJNG purchased gas from 55 suppliers under contracts ranging from less than one month to thirteen years. NJNG has eight long-term firm gas purchase contracts and purchased approximately 16% of its gas in 1997 under one long-term firm gas purchase contract with Alberta Northeast Gas Limited, which expires in 2006. NJNG does not purchase more than 10% of its total gas supplies under any other single long-term firm gas purchase contract. NJNG believes that its supply strategy should adequately meet its expected firm load over the next several years. B) Firm Transportation and Storage Capacity In order to deliver the above supplies, NJNG maintains agreements for firm transportation and storage capacity with several interstate pipeline companies. The pipeline companies that provide firm transportation service to NJNG's city gate stations in New Jersey, the maximum daily deliverability of that capacity and the contract expiration dates are as follows: 3 6
Maximum Daily Pipeline Deliverability (Dths) Expiration Date - -------- --------------------- --------------- Texas Eastern Transmission Corp. 277,949 Various dates after 2000 Iroquois Gas Transmission System, L.P. 40,000 2011 Transcontinental Gas Pipe Line Corp. 22,531 Various dates after 1998 Tennessee Gas Pipeline Co. 10,835 2003 Columbia Gas Transmission Corp. 10,000 2009 Algonquin Gas Transmission Co. 5,000 1997 ------- 366,315 =======
The pipeline companies that provide firm transportation service to NJNG, which feeds the above pipelines are: Texas Gas Transmission Corporation, CNG Transmission Corporation, Columbia Gulf Transmission Corporation, Equitrans, Inc. and Carnegie Interstate Pipeline Company. In addition, NJNG has storage and related transportation contracts that provide additional maximum daily deliverability of 102,941 Dths from storage fields in its Northeast market area. The significant storage suppliers, the maximum daily deliverability of that storage capacity and the contract expiration dates are as follows:
Pipeline Maximum Daily Deliverability (Dths) Expiration Date - -------- ----------------------------------- --------------- Texas Eastern Transmission Corp. 94,557 Various dates after 1997 Transcontinental Gas Pipe Line Corp. 8,384 2005 ------- 102,941 =======
NJNG also has significant storage contracts with CNG Transmission Corporation (maximum daily deliverability of 93,661 Dths) and Equitrans, Inc. (maximum daily deliverability of 9,996 Dths), but utilizes NJNG's existing transportation contracts to transport that gas from the storage fields to its city gate. C) Peaking Supply To meet its increased winter peak day demand, NJNG, in addition to utilizing the previously mentioned firm storage services, maintains two liquefied natural gas (LNG) facilities and purchases firm storage services. See Item 2 - Properties - NJNG for additional information regarding the LNG storage facilities. NJNG presently has LNG storage deliverability of 130,000 Dths per day, which represents approximately 22% of its peak day sendout. D) Future Supplies NJNG expects to be able to meet the current level of gas requirements of its existing and projected firm customers for the foreseeable future. Nonetheless, NJNG's ability to provide supply for its present and projected sales will depend upon its suppliers' ability to obtain and deliver additional supplies of natural gas, as well as NJNG's ability to acquire supplies directly from new sources. Factors beyond the control of NJNG, its suppliers and the independent suppliers who have obligations to provide gas to certain NJNG customers, may affect NJNG's ability to deliver such supplies. These factors include other parties having control over the drilling of new wells and the facilities to transport gas to NJNG's city gate, competition for the acquisition of gas, priority allocations, the regulatory and pricing policies of federal and state regulatory agencies, as well as the availability of Canadian reserves for export to the United States. 4 7 Regulation and Rates A) State NJNG is subject to the jurisdiction of the New Jersey Board of Public Utilities (BPU) with respect to a wide range of matters, such as rates, the issuance of securities, the adequacy of service, the manner of keeping its accounts and records, the sufficiency of gas supply, pipeline safety and the sale or encumbrance of its properties. Over the last five years, NJNG has been granted one increase in its base tariff rates, and various increases and decreases in its Levelized Gas Adjustment clause (LGA). Through its LGA billing factor, which is reviewed annually, NJNG recovers the cost of four adjustment clauses. They are the Gas Cost Recovery (GCR) factor which reflects purchased gas costs that are in excess of the level included in its base rates, Demand Side Management (DSM) factor for recovery of conservation-related costs, Remediation Adjustment (RA) factor which recovers the costs of remediating former manufactured gas plant sites and the WNC factor which credits or surcharges margins accrued from the past heating season weather. LGA recoveries do not include an element of profit and, therefore, have no effect on earnings. The following table sets forth information with respect to these rate changes:
($ in 000's) Annualized Annualized Amount Amount Date of Filing Type Per Filing Granted Effective Date - -------------- ---- ---------- ------- -------------- April 1993 Base Rates $26,900 $7,500 January 1994 July 1997 LGA 0 Pending July 1996 LGA 8,000 7,900 December 1996 July 1995 LGA (4,800) (5,200) December 1995 July 1994 LGA 8,800 0 December 1994 July 1993 LGA 4,800 4,800 December 1993 July 1992 LGA (15,814) (17,400)(A) January 1993
(A) Comprised of a $12 million billing credit and a $5.4 million reduction in annual LGA revenues. See Note 8 to the Consolidated Financial Statements - Regulatory Issues in the Company's 1997 Annual Report for additional information regarding NJNG's rate proceedings. In September 1991, the BPU adopted a conservation incentive rule which requires energy utilities to file a DSM plan. In June 1995, the BPU approved a Stipulation Agreement approving NJNG's DSM plan. In November 1997, the BPU extended NJNG's DSM plan to January 1999. In November 1992, NJNG filed a petition with the BPU for approval of a Gas Service Agreement (GSA) executed between NJNG and Freehold Cogeneration Associates L.P. (Freehold) in September 1992. The GSA would provide for NJNG to supply Freehold with between 21,800 and 26,000 Dths of natural gas per day over a twenty-year period. Freehold had planned to construct and operate a cogeneration facility in Freehold, New Jersey, and had executed a power purchase agreement with Jersey Central Power & Light Company (JCP&L). In November 1993, the BPU ruled that Freehold and JCP&L should attempt to renegotiate the power purchase agreement within 30 days of receipt of a 5 8 written order. In February 1994, the BPU approved the GSA conditioned by a side letter agreement in which Freehold and NJNG agreed to negotiate in good faith to amend the pricing terms of the GSA to conform it to changes, if any, in the power purchase agreement if it is renegotiated. The November 1993 BPU order was overturned in litigation not involving NJNG as a party. Freehold was successful in this litigation. In April 1996, JCP&L and Freehold reached an agreement in which JCP&L bought out its rights and obligations under the power purchase agreement for $120 million ("Buy Out Agreement"). Under the Buy Out Agreement, JCP&L indemnified Freehold against certain potential claims, including any potential claims NJNG may have against Freehold for breach of the GSA. JCP&L is seeking BPU authorization to recover an additional $10 million to satisfy all such claims. NJNG believes that by executing the Buy Out Agreement, Freehold has breached its obligations under the GSA. NJNG currently is examining possible avenues for legal redress. In December 1996, the BPU granted the Company a $7.9 million increase in the Company's GCR clause and permitted the Company to implement certain changes in the WNC that would better reflect customers' usage and weather, including changing the average weather calculation from 10 years to 20 years. The BPU also approved the 1996 RA, WNC and its Demand Side Management Adjustment Clause (DSMAC). The approval allowed recovery over seven years of gas remediation costs incurred through June 1996 of $5.2 million, the refund of $12 million of gross margin that was deferred in fiscal 1996 due to the impact of colder-than-normal weather on the WNC, and recovery of $1.9 in DSMAC costs for deferred and projected DSM program costs. The BPU also approved the continuation of NJNG's current margin sharing formulas associated with its non-firm sales until the effective date of the BPU Order in NJNG's 1998-99 LGA and a further extension of the Financial Risk Management pilot program, which includes an 80/20 sharing of the costs and results between customers and shareholders, respectively. In July 1997, NJNG filed with the BPU to extend the current $.1200 per therm LGA billing factor for a 24-month term rather than for 12 months. By using the 24-month LGA billing factor and the current estimate of gas costs for the 24-month period, the Company would provide price stability for customers while recovering an estimated $32.7 million underrecovery of gas costs. Further, the Company proposed a flexible LGA pricing mechanism to transition toward market-based pricing while providing price stability during the 24-month term. The use of the traditional 12-month period would have required a $.1607 per therm billing factor. The 24-month proposal is currently being discussed by the parties to the proceeding. NJNG also requested the collection of $2.9 million of WNC margins accrued but not collected due to the impact of warmer-than-normal weather during fiscal year 1997 and minimal adjustments to its RA and DSMAC factors. 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) Federal On the federal level, NJNG is subject to regulation by the Federal Energy Regulatory Commission (FERC). Since the mid-1980's, the FERC has issued a series of orders, regulations and policy statements (e.g., FERC Orders 380, 436, 451, 500, and 528) intended to transform the natural gas industry from a highly regulated industry to a less regulated, market-oriented industry. The culmination of the FERC's deregulatory effort was the issuance of Order 636 which established new rules mandating the unbundling of interstate pipeline sales for resale and transportation services. The 6 9 FERC instituted proceedings through which NJNG's interstate pipeline suppliers have restructured their services in response to Order 636. The transition to a more market-oriented interstate pipeline market may offer long-term benefits. Order 636 has provided NJNG with increased opportunities to purchase and manage its own, specifically-tailored gas supply portfolio and to resell its interstate pipeline capacity to other potential customers during off-peak periods. However, these long-term benefits have been offset by increases in interstate pipeline demand charges required by Order 636, in addition to the flow-through of transition costs that pipeline companies have incurred as a result of the restructuring of their existing gas purchase and sales arrangements. In the individual pipeline restructuring proceedings resulting from Order 636, all of NJNG's pipeline suppliers have settled transition cost recovery issues with their customers. These settlements provide for partial cost absorption by some of NJNG's pipeline suppliers and the orderly recovery of remaining costs from pipeline customers, including NJNG. NJNG continually reviews its gas supply portfolio requirements in the post-Order 636 environment. Because of its interconnections with multiple interstate pipelines, NJNG believes that the Order 636 proceedings will not have a material impact on its ability to obtain adequate gas supplies at market rates. However, no assurance can be given in this regard. Franchises NJNG holds non-exclusive franchises granted by the 104 municipalities it serves which gives it the right to lay, maintain and operate public utility property in order to provide natural gas service within these municipalities. Of these franchises, 47 are perpetual and the balance expire between 1999 and 2038. Competition Although its franchises are non-exclusive, NJNG is not currently subject to competition from other natural gas distribution utilities with regard to the transportation of natural gas in its service territory. Due to significant distances between NJNG's current large industrial customers and the nearest interstate natural gas pipelines, as well as the availability of its transportation tariff, NJNG currently does not believe it has significant exposure to the risk that its distribution system will be bypassed. Competition does exist from suppliers of oil, coal, electricity and propane. At the present time, natural gas enjoys an advantage over alternate fuels as the preferred choice of fuels in over 95% of new construction due to its efficiency and reliability. As deregulation of the natural gas industry continues, prices will be determined by market supply and demand, and while NJNG believes natural gas will remain competitive with alternate fuels, no assurance can be given in this regard. In October 1994, the BPU approved a Stipulation Agreement that provides NJNG's commercial and industrial customers an expanded menu of transportation and supplier choices. As a result of the BPU approval, NJNG's sales to its commercial and industrial customers are subject to competition from other suppliers of natural gas; however, NJNG continues to provide transportation service to these customers. Based on its rate design, NJNG's profits would not be negatively affected by a customer's decision to utilize a sales and transportation or a transportation only service. In January 1997, the BPU approved a Stipulation Agreement that provides residential customers the opportunity for two new service choices. First, NJNG is permitted to offer 20,000 residential customers a fixed price offer (FPO) over the next two years. The FPO would allow customers to 7 10 "lock-in" their per therm natural gas price for an annual period. The second choice for residential customers is to choose their gas supplier. Over a three-year period, 30,000 customers on a first come-first served basis (5,000 customers per semi-annual period) would be able to choose a competitive supplier. In April 1997, the first 5,000 residential customers switched to a transportation service. In September 1997, the BPU accelerated the schedule to allow the remaining 25,000 residential customers to chose its supplier starting January 2, 1998. See MD&A - NJNG Operations in the Company's 1997 Annual Report for a discussion of NJNG's financial results. NJR ENERGY HOLDINGS CORPORATION Energy Holdings includes the operations of NJNE and NJR Energy. NJNE was formed in 1995 to facilitate the unregulated marketing of natural gas to retail customers and provide fuel and capacity management services to wholesale customers. At September 30, 1997, NJNE marketed natural gas to 6,949 retail customers. In addition, through 1997 NJNE provided gas supply and capacity management services to GPU Service Inc., an electric utility based in Pennsylvania, and similar services to Gas Energy, Inc., an independent power producer operating in New York. In fiscal 1998, the Company's unregulated fuel and capacity management and other wholesale marketing services were transferred to Energy Services. NJR Energy and its subsidiaries were involved in oil and natural gas development, production, transportation, storage and other energy-related ventures. In 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 its affiliates, NJR Energy and NJNR, which was completed in 1996. As discussed in Note 2 to the Consolidated Financial Statements - Discontinued Operations in the Company's 1997 Annual Report, the Company has accounted for this segment as a discontinued operation. NJR Energy's continuing operations consist of Pipelines' 2.8% equity investment in the Iroquois Gas Transmission System, L.P., a 375-mile natural gas pipeline from the Canadian border to Long Island. In 1997, NJR Energy sold its interest in Market Hub Partners, L.P. for $9.1 million. Proceeds from the sale were used to reduce debt. See MD&A - Energy Services Operations in the Company's 1997 Annual Report for a discussion of NJNE and NJR Energy's consolidated financial results. NJR DEVELOPMENT CORPORATION NJR Development consists solely of CR&R's operations. As of September 30, 1997, CR&R's completed space totaled 284,000 square feet in two fully-occupied buildings. In October 1997, CR&R sold a 280,000 square-foot office building for $15.6 million, which resulted in a pre-tax gain of approximately $1.5 million. Accordingly, as of September 30, 1997, the net book value of the building has been classified as Assets Held for Sale, net on the Consolidated Balance Sheets. NJR used the proceeds to reduce outstanding debt. 8 11 Consistent with the Company's previously disclosed strategy to realign its asset base more closely with its core energy business, CR&R has sold a majority of its real estate buildings over the past two years. In conjunction with one of the real estate sales, CR&R granted options to the buyer to purchase approximately 165 of CR&R's 183 acres of undeveloped land. CR&R has retained limited rights to sell and develop the acreage that are subject to the options. The Company used the sale proceeds from the abovementioned transactions to pay down outstanding debt incurred to develop the real estate assets. The Company's future earnings from continuing operations will not be materially affected by the sales based upon the historical earnings generated by the real estate subsidiary. See Item 2 - Properties - NJR Development Corporation for additional information regarding CR&R's remaining real estate assets. See MD&A - NJR Development Operations in the Company's 1997 Annual Report for a discussion of CR&R's financial results. ENVIRONMENT The Company and its subsidiaries are subject to legislation and regulation by federal, state and local authorities with respect to environmental matters. The Company believes that it is in substantial compliance with all applicable environmental laws and regulations. CR&R is the owner of certain undeveloped acreage in the Monmouth Shores Corporate Park (MSCP), located in Monmouth County, New Jersey. This acreage is regulated by the provisions of the Freshwater Wetlands Protection Act (the Act), which restricts building in areas defined as "freshwater wetlands" and their transition areas. Based upon an environmental engineer's delineation of the wetland and transition areas in accordance with the provisions of the Act, CR&R will file for a Letter of Interpretation from the New Jersey Department of Environmental Protection (NJDEP) as parcels of land are selected for development. Based upon the environmental engineer's revised estimated developable yield for MSCP, the Company does not believe that a reserve against this property was necessary as of September 30, 1997. Although the Company cannot estimate with certainty future costs of environmental compliance, which among other factors are subject to changes in technology and governmental regulations, the Company does not presently anticipate any additional significant future expenditures, other than the activities described in Note 11 to the Consolidated Financial Statements - Commitments and Contingent Liabilities in the Company's 1997 Annual Report, for compliance with existing environmental laws and regulations which would have a material effect upon the capital expenditures, earnings or competitive position of the Company or its subsidiaries. See Item 3 - Legal Proceedings - b. Gas Remediation for additional information regarding environmental activities. 9 12 EMPLOYEE RELATIONS The Company and its subsidiaries employed 824 and 856 employees at September 30, 1997 and 1996, respectively. NJNG had 495 union employees at September 30, 1997 and 1996. In December 1997, NJNG reached agreement with the union on a three-year collective bargaining agreement which provides, among other things, for annual wage increases of 3.25%, 3% and 3%, effective December 3, 1997 and December 8, 1998 and 1999, respectively. EXECUTIVE OFFICERS OF THE REGISTRANT
First Elected Office(1) Name Age an Officer - --------- ---- --- ---------- Chairman, President and Chief Executive Officer Laurence M. Downes 40 1/86 Senior Vice President, General Counsel and Corporate Secretary Oleta J. Harden 48 6/84 Senior Vice President and Chief Financial Officer Glenn C. Lockwood 36 1/90 Vice President, Market Development Eva I. Szakal 49 6/97
(1) All terms of office are one year. There is no arrangement or understanding between the officers listed above and any other person pursuant to which they were selected as an officer. The following is a brief account of their business experience during the past five years: Laurence M. Downes Chairman, President and Chief Executive Officer Mr. Downes has held the position of Chairman since September 1996. He held the position of President and Chief Executive officer since July 1995. From January 1990 to July 1995, he held the position of Senior Vice President and Chief Financial Officer. Oleta J. Harden Senior Vice President, General Counsel and Corporate Secretary Mrs. Harden has held her present position since January 1987, except for the position of General Counsel which she has held since April 1996. 10 13 Glenn C. Lockwood Senior Vice President and Chief Financial Officer Mr. Lockwood has held the position of Senior Vice President since January 1996. He has held the position of Chief Financial Officer since September 1995. From January 1994 to September 1995, he held the position of Vice President, Controller and Chief Accounting Officer. From January 1990 to January 1994, he held the position of Assistant Vice President, Controller and Chief Accounting Officer. Eva I. Szakal Vice President, Market Development Ms. Szakal has held her present position since June 1997. From May 1994 to October 1996 she held various director level positions with Digital Equipment Corporation in marketing and strategic planning. Ms. Szakal was Vice President, Strategic Planning for National Liberty Insurance from March 1993 to February 1994, and prior thereto she held various positions with AT&T Corporation from 1975 to February 1992. ITEM 2. PROPERTIES NJNG (All properties are in New Jersey) NJNG owns 11,170 miles of distribution main and services, 325 miles of transmission main and approximately 385,400 meters. Mains are primarily located under public roads. Where mains are located under private property, NJNG has obtained easements from the owners of record. In addition to mains and services, NJNG owns and operates two LNG storage plants located in Stafford Township, Ocean County, and Howell Township, Monmouth County. The two LNG plants have an estimated maximum capacity of 19,200 and 150,000 Dths per day, respectively. These facilities are used for peaking supply and emergencies. NJNG owns four service centers located in Rockaway Township, Morris County; Atlantic Highlands and Wall Township, Monmouth County; and Lakewood, Ocean County. These service centers house storerooms, garages, gas distribution and appliance service operations and administrative offices. NJNG leases its headquarters facilities in Wall Township, customer service offices located in Asbury Park and Wall Township, Monmouth County and a service center in Manahawkin, Ocean County. These customer service offices support customer contact, marketing and other functions. NJNG also owns a storage facility in Long Branch, Monmouth County. Substantially all of NJNG's properties, not expressly excepted or duly released, are subject to the lien of an Indenture of Mortgage and Deed of Trust to Harris Trust and Savings Bank, Chicago, Illinois, dated April 1, 1952, as amended by twenty-seven supplemental indentures (Indenture), as security for NJNG's bonded debt, which totaled approximately $220 million at September 30, 1997. In addition, under the terms of its Indenture, NJNG could have issued approximately $222 million of additional first mortgage bonds as of September 30, 1997. In October 1997, NJNG issued $13.5 million of adjustable rate Series DD First Mortgage Bonds, due 2027 under its Indenture. The proceeds were used to redeem the $13.5 million 9% Series Q Bonds in December 1997. 11 14 Energy Holdings Pipeline has a 2.8% equity interest in the Iroquois Gas Transmission System, L.P. which owns and operates the Iroquois pipeline project, a 375-mile pipeline located from the Canadian border in upstate New York to Long Island. NJR Energy sold its interest in Market Hub Partners, L.P. in 1997. NJR Development Corporation (All properties are in New Jersey) At September 30, 1997, CR&R owned 183 acres of vacant land and two fully-occupied buildings. The buildings consisted of 284,000 square feet of commercial office and mixed-use commercial/industrial space, of which one 280,000 square-foot building was sold in October 1997. CR&R is currently constructing a 20,000 square-foot, build-to-suit office building which is supported by a ten-year lease and is expected to be completed in the second quarter of fiscal 1998. See Item 1. Business - NJR Development Corporation for a description of the sale of CR&R's properties. See Item 1. Environment for a discussion of regulatory matters concerning one of the business parks. Capital Expenditure Program See MD&A - Liquidity and Capital Resources in the Company's 1997 Annual Report for a discussion of the Company's anticipated 1998 and 1999 capital expenditures for each business segment. ITEM 3. LEGAL PROCEEDINGS a. Aberdeen Since June 1993, a total of six complaints, of which one is still pending, have been filed in New Jersey Superior Court against NJNG and its contractor by persons alleging injuries arising out of a natural gas explosion and fire on June 9, 1993, at a residential building in Aberdeen Township, New Jersey. The plaintiffs allege in their respective actions, among other things, that the defendants were negligent or are strictly liable in tort in connection with their maintaining, replacing or servicing natural gas facilities at such building. The plaintiffs separately seek compensatory damages from NJNG and its contractor. To date, NJNG and its contractors have received demands for damages totaling $25.2 million from various plaintiffs. In May 1994, the New Jersey Superior Court ordered that all causes of action relating to the Aberdeen Township explosion be consolidated for purposes of discovery. NJNG's liability insurance carriers are participating in the defense of these matters. NJNG is unable to predict the extent to which other claims will be asserted against, or liability imposed on, NJNG. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial condition or results of operations. 12 15 b. Gas Remediation NJNG has identified eleven former manufactured gas plant (MGP) sites, dating back to the late 1800's and early 1900's, and 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 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. See Note 11 to the Consolidated Financial Statements - Commitments and Contingent Liabilities in the Company's 1997 Annual Report for a discussion of the regulatory treatment of gas remediation costs. In March 1995, NJNG filed a complaint in New Jersey Superior Court against various insurance carriers for declaratory judgment and for damages arising from such defendants' breach of their contractual obligations to defend and/or indemnify NJNG against liability for claims and losses (including defense costs) alleged against NJNG relating to environmental contamination at the former MGP sites and other sites. NJNG is seeking (i) a declaration of the rights, duties and liabilities of the parties under various primary and excess liability insurance policies purchased from the defendants by NJNG from 1951 through 1985, and (ii) compensatory and other damages, including costs and fees arising out of defendants' obligations under such insurance policies. The complaint was amended in July 1996 to name Kaiser-Nelson Steel & Salvage Company (Kaiser-Nelson) and its successors as additional defendants. The Company is seeking (a) a declaration of the rights, duties and liabilities of the parties under agreements with respect to claims against the Company that allege property damage caused by various substances used, handled or generated by NJNG or the predecessor in title that were removed from several of the 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. c. South Brunswick Asphalt, L.P. NJNG has been named a defendant in a civil action commenced in New Jersey Superior Court by South Brunswick Asphalt, L.P. (SBA) and its affiliated companies seeking damages arising from alleged environmental contamination at three sites owned or occupied by SBA and its affiliated companies. Specifically, the suit charges that tar emulsion removed from 1979 through 1983 by an affiliate of SBA (Seal Tite, Inc.) from NJNG's former gas manufacturing plant sites has been alleged by the 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 NJDEP for permits to allow SBA to recycle the 13 16 tar emulsion/sand and gravel mixture at each site into asphalt, to be used as a paving material. These applications are currently under review by 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. d. 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 a petition for review with the Pennsylvania Supreme Court, which petition 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 which merely tolled the statute of limitations and preserved any claim People's may have against the defendants until resolution of the actions discussed above. On June 16, 1997, People's filed a complaint in equity against the Joint Venture, et al. in the Allegheny County Common Pleas Court. The complaint alleges, among other things, that the Joint Venture, et al. unlawfully provided natural gas services without prior authorization of the PaPUC and tortiously interfered with the contractual and business relations of various existing and potential Peoples' customers. The complaint seeks unspecified money damages and injunctive relief against the Joint Venture et al. NJNR is unable to predict the outcome of these matters. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial condition or results of operations. 14 17 In 1994, the Company wrote-off its $1 million investment in the Bessie-8 pipeline. e. Securities and Exchange Commission On December 19,1997, the Company submitted an Offer of Settlement (the December 19 Offer) to the Securities and Exchange Commission (SEC) in connection with the previously reported investigation by the SEC into certain transactions engaged in by subsidiaries of the Company in 1992. In the Offer, the Company agreed, without admitting or denying the SEC's findings, to consent to the entry of an administrative order finding that the Company had not fully complied with Sections 10(b), 13(a) and 13(b) of the Securities Exchange Act of 1934 (the Order). The Order agreed to by the Company does not impose any monetary penalty or require any restatement of the Company's financial statements. The Company previously had submitted a similar Offer of Settlement on October 10, 1997 (the October 10 Offer) that was accepted by the SEC. Following negotiations between the SEC and other parties, the Company and the SEC agreed to modify the proposed order that was the basis for the October 10 Offer. As of this date, the December 19 Offer has not been formally accepted by the SEC and the Order has not been filed. In addition, NJR's former Chairman and CEO, Oliver G. Richard III, and three current officers, Laurence M. Downes, Glenn C. Lockwood and Jay B. Corn, submitted Offers of Settlement to the SEC, without admitting or denying the SEC's findings, in which they consent to the entry of orders finding that they had caused the Company to not fully comply with Section 13(a) of the Securities Exchange Act of 1934. These orders do not impose any fines or penalties on these individuals. These offers also have not been formally accepted by the SEC. f. Various The Company is party to various other claims, legal actions and complaints arising in the ordinary course of business. In management's opinion, the ultimate disposition of these matters will not have a material adverse effect on its financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None INFORMATION CONCERNING FORWARD LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward-looking statements where those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statement. Certain of the statements contained in this report (other than the financial statements and other statements of historical fact), including, without limitation, statements as to management expectations and belief presented in Part I under the captions "New Jersey Natural Gas Company - General" and "Future Supplies", are forward-looking statements. Forward-looking statements are made based upon management's expectations and belief 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 financial results and capital requirements for fiscal 1998 and thereafter include many factors that are beyond the Company's ability to control or 15 18 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, and demographic changes in NJNG's service territory, fluctuations in energy commodity prices, conversion activity and other marketing efforts, the conservation efforts of NJNG's customers, the ability to extend certain fuel management contracts, the pace of deregulation of retail gas markets, competition for the acquisition of gas, the regulatory and pricing policies of federal and state regulatory agencies, the availability of Canada's reserves for export to the United States and other regulatory changes. While the Company periodically reassesses material trends and uncertainties affecting the Company's results of operations and financial condition in connection with its preparation of management's discussion and analysis of results of operations and financial condition contained in its quarterly and annual reports, the Company does not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. PART II Information for Items 5 through 9 of this report appears in the Company's 1997 Annual Report as indicated on the following table and is incorporated herein by reference, as follows:
Annual Report Page ---- ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters Market Information - Exchange Inside back cover - Stock Prices & Dividends 23 Dividend Restrictions 36 Holders of Common Stock 22 ITEM 6. Selected Financial Data 22 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 24-28 ITEM 8 Financial Statements and Supplementary Data 29-42 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - None
16 19 PART III Information for Items 10 through 13 of this report is incorporated herein by reference to the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on January 28, 1998, which is expected to be filed with the SEC pursuant to Regulation 14A on December 30, 1997.
Proxy Page ---------- ITEM 10. Directors and Executive Officers of the Registrant 3 - 6 ITEM 11. Executive Compensation 7 - 13 ITEM 12. Security Ownership of Certain Beneficial Owners and Management 2 ITEM 13. Certain Relationships and Related Transactions 6
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) The following Financial Statements of the Registrant and Independent Auditors' Report, included in the Company's 1997 Annual Report, are incorporated by reference in Item 8 above: Consolidated Balance Sheets as of September 30, 1997 and 1996 Consolidated Statements of Income for the Years Ended September 30, 1997, 1996 and 1995 Consolidated Statements of Cash Flows for the Years Ended September 30, 1997, 1996 and 1995 Consolidated Statements of Capitalization as of September 30, 1997 and 1996 Consolidated Statements of Common Stock Equity for the Years Ended September 30, 1997, 1996 and 1995 Notes to Consolidated Financial Statements Independent Auditors' Report (2) Financial Statement Schedules - See Index to Financial Statement Schedules on page 18. (3) Exhibits - See Exhibit Index on page 22. (b) No reports on Form 8-K were filed by the Company during the quarter ended September 30, 1997. 17 20 NEW JERSEY RESOURCES CORPORATION INDEX TO FINANCIAL STATEMENT SCHEDULES
Page ---- Schedule II - Valuation and qualifying accounts and reserves for each of the three years in the period ended September 30, 1997 19
Schedules other than those listed above are omitted because they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto. 18 21 Schedule II NEW JERSEY RESOURCES CORPORATION VALUATION AND QUALIFYING ACCOUNTS AND RESERVES YEARS ENDED SEPTEMBER 30, 1997, 1996 and 1995
BALANCE ADDITIONS BALANCE AT CHARGED AT END BEGINNING TO OF CLASSIFICATION OF YEAR EXPENSE OTHER YEAR - -------------- ------- ------- ----- ---- ($000) 1997: Reserves deducted from assets to which they apply Doubtful Accounts $878 $ 3,023 $ (2,374)(1) $1,527 ==== ======== ======== ====== Materials and Supplies $182 $ 320 -- $ 502 ==== ======== ======== ====== 1996: Reserves deducted from assets to which they apply Doubtful Accounts $422 $ 1,732 $ (1,276)(1) $ 878 ==== ======== ======== ====== Materials and Supplies $172 -- $ 10(2) $ 182 ==== ======== ======== ====== 1995: Reserves deducted from assets to which they apply Doubtful Accounts $657 $ 1,487 $ (1,722)(1) $ 422 ==== ======== ======== ====== Materials and Supplies $151 $ 12 $ 9(2) $ 172 ==== ======== ======== ======
Notes: (1) Uncollectible accounts written off, less recoveries. (2) Obsolete inventory written off, less salvage. 19 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 (Registrant) Date: December 29, 1997 By:/s/Glenn C. Lockwood -------------------- Glenn C. Lockwood Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated: Dec. 29, 1997 /s/Laurence M. Downes Dec. 29, 1997 /s/Lester D. Johnson ----------------------- -------------------- Laurence M. Downes Lester D. Johnson Chairman, President and Director Chief Executive Officer Dec. 29, 1997 /s/Glenn C. Lockwood Dec. 29, 1997 /s/ Dorothy K. Light ------------------------- ----------------------- Glenn C. Lockwood Dorothy K. Light Senior Vice President and Director Chief Financial Officer (Principal Accounting Officer) Dec. 29, 1997 /s/Bruce G. Coe Dec. 29, 1997 /s/ Charles G. Stalon ---------------- --------------------- Bruce G. Coe Charles G. Stalon Director Director Dec. 29, 1997 /s/Leonard S. Coleman Dec. 29, 1997 /s/John J. Unkles, Jr. ------------------------- ----------------------- Leonard S. Coleman John J. Unkles, Jr. Director Director Dec. 29, 1997 /s/Joe B. Foster Dec. 29, 1997 /s/ Gary W. Wolf ------------------------- ---------------- Joe B. Foster Gary W. Wolf Director Director Dec. 29, 1997 /s/Hazel S. Gluck Dec. 29, 1997 /s/ George R. Zoffinger ------------------------- ----------------------- Hazel S. Gluck George R. Zoffinger Director Director Dec. 29, 1997 /s/Warren R. Haas ------------------------- Warren R. Haas Director
20 23 EXHIBIT 23-1 INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE To The Shareholders and Board of Directors of New Jersey Resources Corporation: We consent to the incorporation by reference in Registration Statements No. 33-52409 and No. 33-57711 of New Jersey Resources Corporation on Forms S-8 and S-3, respectively, of our reports dated October 28, 1997 appearing in and incorporated by reference in this Annual Report on Form 10-K of New Jersey Resources Corporation for the year ended September 30, 1997. Our audits of the financial statements referred to in our aforementioned report also included the financial statement schedule of New Jersey Resources Corporation, listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Parsippany, New Jersey December 29, 1997 21 24
EXHIBIT INDEX Reg. S-K Previous Filing Exhibit Item 601 Registration No. Reference Document Description Number Exhibit - --- --------- -------------------- ------ ------- 3-1 3 Restated Certificate of Incorporation of the Note (8) 3-1 Company, as amended 3-2 By-laws of the Company, as presently in effect The Company's 5-1 Form 8-K filed on December 1, 1995 4-1 4 Specimen Common Stock Certificates 33-21872 4-1 4-2 Indenture of Mortgage and Deed of Trust 2-9569 4(g) with Harris Trust and Savings Bank, as Trustee, dated April 1, 1952 4-2A Eighteenth Supplemental Indenture, 33-30034 4-2R dated as of June 1, 1989 4-2B Nineteenth Supplemental Indenture, Note (3) 4-2S dated as of March 1, 1991 4-2C Twentieth Supplemental Indenture, Note (4) 4-2T dated as of December 1, 1992 4-2D Twenty-First Supplemental Indenture, Note (5) 4-2U dated as of August 1, 1993 4-2E Twenty-Second Supplemental Indenture, Note (5) 4-2V dated as of October 1, 1993 4-2F Twenty-Third Supplemental Indenture, Note (6) 4-2W dated as of August 15, 1994 4-2G Twenty-Fourth Supplemental Indenture, Note (6) 4-2X dated as of October 1, 1994 4-2H Twenty-Fifth Supplemental Indenture, Note (7) 4-2Y dated as of July 15, 1995 4-2I Twenty-Sixth Supplemental Indenture, Note (7) 4-2Z dated as of October 1, 1995 4-2J Twenty-Seventh Supplemental Indenture, dated as of September 1, 1997 (filed herewith)
22 25
EXHIBIT INDEX Reg. S-K Previous Filing Exhibit Item 601 Registration No. Reference Document Description Number Exhibit - --- --------- --------------------- ------ ------- 4-3 Term Loan Agreement between New Jersey Note (2) 4-3 Resources Corporation and Union Bank of Switzerland, dated January 31, 1987 4-4 Revolving Credit Agreement between New Jersey Note (2) 4-4 Resources Corporation and Swiss Bank Corporation, dated September 6, 1989 4-5 Amended and Restated Note and Credit The Company's 4-5 Agreement between New Jersey Resources Quarterly Report Corporation and First Union National Bank, on Form 10-Q for successor to First Fidelity Bank, dated May 7, 1993 the quarter ended June 30, 1993 4-5A Dated as of August 29, 1995 Note (8) 4-5A 4-5B Dated as of April 2, 1996 Note (8) 4-5B 4-5C Dated as of September 10, 1996 Note (8) 4-5C 4-5D Dated as of September 26, 1997 (filed herewith) 4-6 Revolving Credit Agreement between New Jersey Note (8) 4-6 Resources Corporation and Societe Generale, dated August 25, 1996 4-6A Dated as of September 30, 1997 (filed herewith) 4-7 Revolving Credit and Term Loan Agreement Note (3) 4-7 between New Jersey Resources Corporation and PNC Bank, successor to Midlantic Bank, N.A., dated December 20, 1990 4-7A Dated as of January 31, 1997 (filed herewith) 4-8 Revolving Credit Agreement between New Jersey Note (8) 4-8 Resources Corporation and Union Bank of Switzerland, dated August 27, 1996 4-9 Credit Agreement between New Jersey Resources Note (3) 4-9 Corporation and Morgan Guaranty Trust Company of New York, successor to J.P. Morgan Delaware, dated August 1, 1991
23 26 EXHIBIT INDEX
Reg. S-K Previous Filing Exhibit Item 601 Registration No. Reference Document Description Number Exhibit - --- --------- --------------------- ------ ------- 4-9A Dated September 1, 1993 (filed herewith) 4-9B Dated January 9, 1995 (filed herewith) 4-9C Dated July 1, 1996 (filed herewith) 4-9D Dated August 30, 1997 (filed herewith) 4-10 Shareholder Rights Plan The Company's Form 8-K filed on August 2, 1996 10-2 Retirement Plan for Represented Employees, as 2-73181 10(f) amended October 1, 1984 10-3 Retirement Plan for Non-Represented Employees, 2-73181 10(g) as amended October 1, 1985 10-4 Supplemental Retirement Plans covering all Note (1) 10-9 Executive Officers as described in the Registrant's definitive proxy statement incorporated herein by reference 10-5 Agreements between NJNG and Texas Eastern Transmission Company Note (8) 10-5 10-5A Dated June 21, 1995 Note (8) 10-5A 10-5B Dated June 21, 1995 Note (8) 10-5B 10-5C Dated November 15, 1995 Note (8) 10-5C 10-6 Officer Incentive Plan effective as of October 1, 1986 Note (8) 10-6 10-7 Lease Agreement between NJNG as Lessee Note (8) 10-7 and State Street Bank and Trust Company of Connecticut, National Association as Lessor for NJNG's Headquarters Building dated December 21, 1995 10-10 Long-term Incentive Compensation Plan Company's proxy as amended statement on 14A for the 1996 Annual Meeting
24 27
EXHIBIT INDEX Reg. S-K Previous Filing Exhibit Item 601 Registration No. Reference Document Description Number Exhibit - --- --------- -------------------------------------------------------- ---------------- ------- 10-12 Employment Continuation Agreement of Laurence Note (8) 10-12 M. Downes dated June 5, 1996 10-12A Amendment dated as of December 1, 1997 (filed herewith) 10-12B Revised Schedule of Officer Employee Continuation Agreements (filed herewith) 10-13 Agreements between NJNG and Alberta Northeast Note (4) 10-13 Gas Limited, dated February 7, 1991 10-14 Agreement between NJNG and Iroquois Gas Note (4) 10-14 Transmission System, L.P., dated February 7, 1991 10-15 Agreements between NJNG and CNG Transmission Note (8) 10-15 Corporation, 10-15A Dated December 1, 1993 Note (8) 10-15A 10-15B Dated December 1, 1993, as amended Note (8) 10-15B December 21, 1995 13-1 13 1997 Annual Report to Stockholders. Such Exhibit includes only those portions thereof which are expressly incorporated by reference in this Form 10-K (filed herewith) 21-1 21 Subsidiaries of the Registrant (filed herewith) 23-1 23 Independent Auditors' Consent and Report on Schedule (filed herewith) See page 21 27-1 27 Financial Data Schedule (filed herewith)
Note (1) 1986 Form 10-K File No. 1-8359 Note (2) 1989 Form 10-K File No. 1-8359 Note (3) 1991 Form 10-K File No. 1-8359 Note (4) 1992 Form 10-K File No. 1-8359 Note (5) 1993 Form 10-K File No. 1-8359 Note (6) 1994 Form 10-K File No. 1-8359 Note (7) 1995 Form 10-K File No. 1-8359 Note (8) 1996 Form 10-K File No. 1-8359 25 EX-4.2.J 2 TWENTY-SEVENTH SUPPLEMENTAL INDENTURE 1 EXHIBIT 4-2J MORTGAGE NEW JERSEY NATURAL GAS COMPANY To HARRIS TRUST AND SAVINGS BANK, As Trustee --------------------------- TWENTY-SEVENTH SUPPLEMENTAL INDENTURE Dated as of September 1, 1997 --------------------------- Supplemental to Indenture of Mortgage and Deed of Trust Dated April 1, 1952 Prepared by: William M. Libit Chapman and Cutler 111 W. Monroe Street Chicago, Illinois 60603 2 MORTGAGE TWENTY-SEVENTH SUPPLEMENTAL INDENTURE, dated as of September 1, 1997, between NEW JERSEY NATURAL GAS COMPANY, a corporation organized and existing under the laws of the State of New Jersey (hereinafter called the "Company"), having its principal office at 1415 Wyckoff Road, Wall, New Jersey, party of the first part, and HARRIS TRUST AND SAVINGS BANK, a corporation organized and existing under the laws of the State of Illinois and authorized to accept and execute trusts (hereinafter called the "Trustee"), having its principal office at 111 West Monroe Street, Chicago, Illinois, as Trustee under the Indenture of Mortgage and Deed of Trust hereinafter mentioned, party of the second part. WHEREAS, the Company has heretofore executed and delivered to the Trustee its Indenture of Mortgage and Deed of Trust dated April 1, 1952 (hereinafter sometimes called the "Original Indenture") to secure the payment of the principal of and the interest and premium (if any) on all Bonds at any time issued and outstanding thereunder, and to declare the terms and conditions upon which Bonds are to be issued thereunder; and WHEREAS, the Company thereafter executed and delivered to the Trustee its First Supplemental Indenture dated February 1, 1958, its Second Supplemental Indenture dated December 1, 1960, its Third Supplemental Indenture dated July 1, 1962, its Fourth Supplemental Indenture dated September 1, 1962, its Fifth Supplemental Indenture dated December 1, 1963, its Sixth Supplemental Indenture dated June 1, 1966, its Seventh Supplemental Indenture dated October 1, 1970, its Eighth Supplemental Indenture dated May 1, 1975, its Ninth Supplemental Indenture dated February 1, 1977, its Tenth Supplemental Indenture dated as of September 1, 1980, its Eleventh Supplemental Indenture dated as of September 1, 1983, its Twelfth Supplemental Indenture dated as of August 1, 1984, its Thirteenth Supplemental Indenture dated as of September 1, 1985, its Fourteenth Supplemental Indenture dated as of May 1, 1986, its Fifteenth Supplemental Indenture dated as of March 1, 1987, its Sixteenth Supplemental Indenture dated as of December 1, 1987, its Seventeenth Supplemental Indenture dated as of June 1, 1988, its Eighteenth Supplemental Indenture dated as of June 1, 1989, its Nineteenth Supplemental Indenture dated as of March 1, 1991, its Twentieth Supplemental Indenture dated as of December 1, 1992, its Twenty-First Supplemental Indenture dated as of August 1, 1993, its Twenty-Second Supplemental Indenture dated as of October 1, 1993, its Twenty-Third Supplemental Indenture dated as of August 15, 1994, its Twenty-Fourth Supplemental Indenture dated as of October 1, 1994, its Twenty-Fifth Supplemental Indenture dated as of July 15, 1995 and its Twenty-Sixth Supplemental Indenture dated as of October 1, 1995, supplementing and amending the Original Indenture; and WHEREAS, Bonds in the aggregate principal amount of Twelve Million Five Hundred Thousand Dollars ($12,500,000) were issued under and in accordance with the terms of the Original Indenture, as an initial series designated "First Mortgage Bonds, 4-1/4% Series A due 1977," herein sometimes called "1977 Series A Bonds," which 1977 Series A Bonds have since been paid and redeemed by the Company; and 3 WHEREAS, thereafter Bonds in the aggregate principal amount of Two Million Two Hundred Fifty Thousand Dollars ($2,250,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First Supplemental Indenture, as a second series designated "First Mortgage Bonds, 5% Series B due 1983", herein sometimes called "1983 Series B Bonds", which 1983 Series B Bonds have since been paid and redeemed by the Company; and WHEREAS, thereafter Bonds in the aggregate principal amount of Four Million Dollars ($4,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First Supplemental Indenture and the Second Supplemental Indenture, as a third series designated "First Mortgage Bonds, 5-1/8% Series C due 1985," herein sometimes called "1985 Series C Bonds," which 1985 Series C Bonds have since been paid and redeemed by the Company; and WHEREAS, thereafter Bonds in the aggregate principal amount of Five Million Dollars ($5,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Fourth Supplemental Indentures, inclusive, as a fourth series designated "First Mortgage Bonds, 4-7/8% Series D due 1987," herein sometimes called "1987 Series D Bonds," which 1987 Series D Bonds have since been paid and redeemed by the Company; and WHEREAS, thereafter Bonds in the aggregate principal amount of Four Million Five Hundred Thousand Dollars ($4,500,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Fifth Supplemental Indentures, inclusive, as a fifth series designated "First Mortgage Bonds, 4-3/4% Series E due 1988," herein sometimes called "1988 Series E Bonds," which 1988 Series E Bonds have since been paid and redeemed by the Company; and WHEREAS, thereafter Bonds in the aggregate principal amount of Fifteen Million Dollars ($15,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Seventh Supplemental Indentures, inclusive, as a sixth series designated "First Mortgage Bonds, 9-1/4% Series F due 1995," herein sometimes called "1995 Series F Bonds," which 1995 Series F Bonds have since been paid and redeemed by the Company; and WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Dollars ($10,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Eighth Supplemental Indentures, inclusive as a seventh series designated "First Mortgage Bonds, 10% Series G due 1987," herein sometimes called "1987 Series G Bonds," which 1987 Series G Bonds have since been paid and redeemed by the Company; and WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Dollars ($10,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Ninth Supplemental Indentures, inclusive, as an eighth series designated "First Mortgage Bonds, 9% Series H due 1992," -2- 4 herein sometimes called "1992 Series H Bonds," which 1992 Series H Bonds have since been paid and redeemed by the Company; and WHEREAS, thereafter Bonds in the aggregate principal amount of Nine Million Five Hundred Forty-Five Thousand Dollars ($9,545,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Tenth Supplemental Indentures, inclusive, as a ninth series designated "First Mortgage Bonds, 9-1/8% Series J due 2000," herein sometimes called "2000 Series J Bonds," which 2000 Series J Bonds have since been paid and redeemed by the Company; and WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Three Hundred Thousand Dollars ($10,300,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Eleventh Supplemental Indentures, inclusive, as a tenth series designated "First Mortgage Bonds, 10-3/8% Series K due 2013," herein sometimes called "2013 Series K Bonds," which 2013 Series K Bonds have since been paid and redeemed by the Company; and WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Five Hundred Thousand Dollars ($10,500,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twelfth Supplemental Indentures, inclusive, as an eleventh series designated "First Mortgage Bonds, 10-l/2% Series L due 2014," herein sometimes called "2014 Series L Bonds," which 2014 Series L Bonds have since been paid and redeemed by the Company; and WHEREAS, thereafter Bonds in the aggregate principal amount of Twelve Million Dollars ($12,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Thirteenth Supplemental Indentures, inclusive, as a twelfth series designated "First Mortgage Bonds, 10.85% Series M due 2000," herein sometimes called "2000 Series M Bonds," which 2000 Series M Bonds have since been paid and redeemed by the Company; and WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Dollars ($10,000,000) were issued under and in accordance with the terms of the Original Indenture as supplemented and amended by the First through the Fourteenth Supplemental Indentures, inclusive, as a thirteenth series designated "First Mortgage Bonds, 10% Series N due 2001," herein sometimes called "2001 Series N Bonds," which 2001 Series N Bonds have since been paid and redeemed by the Company; and WHEREAS, thereafter Bonds in the aggregate principal amount of Fifteen Million Dollars ($15,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Fifteenth Supplemental Indentures, inclusive, as a fourteenth series designated "First Mortgage Bonds, 8.50% Series P due 2002," herein sometimes called "2002 Series P Bonds," which 2002 Series P Bonds have since been paid and redeemed by the Company; and -3- 5 WHEREAS, thereafter Bonds in the aggregate principal amount of Thirteen Million Five Hundred Thousand Dollars ($13,500,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Sixteenth Supplemental Indentures, inclusive, as a fifteenth series designated "First Mortgage Bonds, 9% Series Q due 2017," herein sometimes called "2017 Series Q Bonds," of which Thirteen Million Five Hundred Thousand Dollars ($13,500,000) in principal amount are outstanding at the date hereof; and WHEREAS, thereafter Bonds in the aggregate principal amount of Twenty-Five Million Dollars ($25,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Seventeenth Supplemental Indentures, inclusive, as a sixteenth series designated "First Mortgage Bonds, 8.50% Series R due 2018," herein sometimes called "2018 Series R Bonds," which 2018 Series R Bonds have since been paid and redeemed by the Company; and WHEREAS, thereafter Bonds in the aggregate principal amount of Twenty Million Dollars ($20,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Eighteenth Supplemental Indentures, inclusive, as a seventeenth series designated "First Mortgage Bonds, 10.10% Series S due 2009," herein sometimes called "2009 Series S Bonds," of which Twenty Million Dollars ($20,000,000) in principal amount are outstanding at the date hereof; and WHEREAS, thereafter Bonds in the aggregate principal amount of Nine Million Five Hundred Forty-Five Thousand Dollars ($9,545,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Nineteenth Supplemental Indentures, inclusive, as an eighteenth series designated "First Mortgage Bonds, 7.05% Series T due 2016," herein sometimes called "2016 Series T Bonds," of which Nine Million Five Hundred Forty-Five Thousand Dollars ($9,545,000) in principal amount are outstanding at the date hereof; and WHEREAS, thereafter Bonds in the aggregate principal amount of Fifteen Million Dollars ($15,000,000) were authorized, of which Fifteen Million Dollars ($15,000,000) have been issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Nineteenth Supplemental Indentures, inclusive, as a nineteenth series designated "First Mortgage Bonds, 7.25% Series U due 2021," herein sometimes called "2021 Series U Bonds," of which Fifteen Million Dollars ($15,000,000) in principal amount are outstanding at the date hereof; and WHEREAS, thereafter Bonds in the aggregate principal amount of Twenty-Five Million Dollars ($25,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twentieth Supplemental Indentures, inclusive, as a twentieth series designated "First Mortgage Bonds, 7.50% Series V due 2002," herein sometimes called "2002 Series V Bonds," of which Twenty-Five Million Dollars ($25,000,000) in principal amount are outstanding at the date hereof; and -4- 6 WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Three Hundred Thousand Dollars ($10,300,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-First Supplemental Indentures, inclusive, as a twenty-first series designated "First Mortgage Bonds, 5-3/8% Series W due 2023," herein sometimes called "2023 Series W Bonds," of which Ten Million Three Hundred Thousand Dollars ($10,300,000) in principal amount are outstanding at the date hereof; and WHEREAS, thereafter Bonds in the aggregate principal amount of Thirty Million Dollars ($30,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Second Supplemental Indentures, inclusive, as a twenty-second series designated "First Mortgage Bonds, 6.27% Series X due 2008," herein sometimes called "2008 Series X Bonds," of which Thirty Million Dollars ($30,000,000) in principal amount are outstanding at the date hereof; and WHEREAS, thereafter Bonds in the aggregate principal amount of Ten Million Five Hundred Thousand Dollars ($10,500,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Third Supplemental Indentures, inclusive, as a twenty-third series designated "First Mortgage Bonds, 6.25% Series Y due 2024," herein sometimes called "2024 Series Y Bonds," of which Ten Million Five Hundred Thousand Dollars ($10,500,000) in principal amount are outstanding at the date hereof; and WHEREAS, thereafter Bonds in the aggregate principal amount of Twenty-Five Million Dollars ($25,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Fourth Supplemental Indentures, inclusive, as a twenty-fourth series designated "First Mortgage Bonds, 8.25% Series Z due 2004," herein sometimes called "2004 Series Z Bonds," of which Twenty-Five Million Dollars ($25,000,000) in principal amount are at the date hereof; and WHEREAS, thereafter Bonds in the aggregate principal amount of Twenty-Five Million Dollars ($25,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Fifth Supplemental Indentures, inclusive, as a twenty-fifth series designated "First Mortgage Bonds, Adjustable Rate Series AA due 2030," herein sometimes called "2030 Series AA Bonds," of which Twenty-Five Million Dollars ($25,000,000) in principal amount are outstanding at the date hereof; and WHEREAS, thereafter Bonds in the aggregate principal amount of Sixteen Million Dollars ($16,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Fifth Supplemental Indentures, inclusive, as a twenty-sixth series designated "First Mortgage Bonds, Adjustable Rate Series BB due 2030," herein sometimes called "2030 Series BB Bonds," of which Sixteen Million Dollars ($16,000,000) in principal amount are outstanding at the date hereof; and -5- 7 WHEREAS, thereafter Bonds in the aggregate principal amount of Twenty Million Dollars ($20,000,000) were issued under and in accordance with the terms of the Original Indenture, as supplemented and amended by the First through the Twenty-Sixth Supplemental Indentures, inclusive, as a twenty-seventh series designated "First Mortgage Bonds, 6-7/8 Series CC due 2010," herein sometimes called "2010 Series CC Bonds," of which Twenty Million Dollars ($20,000,000) in principal amount are outstanding at the date hereof; and WHEREAS, the Original Indenture provides that, subject to certain exceptions not presently relevant, such changes in or additions to the provisions of the Indenture (the term "Indenture" and other terms used herein having the meanings assigned thereto in the Original Indenture except as herein expressly modified) may be made to add to the covenants and agreements of the Company in the Indenture contained other covenants and agreements thereafter to be observed by the Company; and to provide for the creation of any series of Bonds, designating the series to be created and specifying the form and provisions of the Bonds of such series as in the Indenture provided or permitted; and WHEREAS, the Indenture further provides that the Company and the Trustee may enter into indentures supplemental to the Indenture to convey, transfer and assign unto the Trustee and to subject to the lien of the Indenture additional properties acquired by the Company; and WHEREAS, the Company has entered into a Loan Agreement dated as of September 1, 1997 (the "Loan Agreement") with the New Jersey Economic Development Authority (herein sometimes called the "EDA"), a public body corporate and politic of the State of New Jersey, pursuant to which the proceeds of the issuance by the EDA of Thirteen Million Five Hundred Thousand Dollars ($13,500,000) in aggregate principal amount of its Natural Gas Facilities Refunding Revenue Bonds, Series 1997A (New Jersey Natural Gas Company Project) (the "1997A EDA Bonds") are to be loaned to the Company to provide for the refinancing of certain natural gas and functionally related and subordinate facilities (consisting of the refunding of $13,500,000 in aggregate principal amount of the EDA's Natural Gas Facilities Revenue Bonds, Series 1987 (New Jersey Natural Gas Company Project)); and WHEREAS, the Company has duly determined to create a twenty-eighth series of Bonds, to be known as "First Mortgage Bonds, Adjustable Rate Series DD due 2027", herein sometimes called "2027 Series DD Bonds," to be issued and delivered (in conjunction with the assignment by the EDA of certain of its rights under the Loan Agreement) to First Union National Bank, as trustee (the "EDA Loan Trustee") pursuant to an indenture of trust dated as of September 1, 1997 (the "EDA Bond Indenture") between the EDA and the EDA Loan Trustee for the benefit and security of the holders of the 1997A Series EDA Bonds, all as herein provided, and to add to the covenants and agreements contained in the Indenture the covenants and agreements hereinafter set forth; and WHEREAS, the Company, in the exercise of the powers and authority conferred upon and reserved to it under the provisions of the Indenture and pursuant to appropriate -6- 8 resolutions of its Board of Directors (including the Executive Committee thereof), has duly resolved and determined to make, execute and deliver to the Trustee a Twenty-Seventh Supplemental Indenture in the form hereof for the purposes herein provided; and WHEREAS, all conditions and requirements necessary to make this Twenty-Seventh Supplemental Indenture a valid, binding and legal instrument have been done, performed and fulfilled and the execution and delivery hereof have been in all respects duly authorized. NOW, THEREFORE, THIS INDENTURE WITNESSETH: That NEW JERSEY NATURAL GAS COMPANY, by way of further assurance and in consideration of the premises and of the acceptance by the Trustee of the trusts hereby created and of One Dollar to it duly paid by the Trustee at or before the ensealing and delivery of these presents, the receipt whereof is hereby acknowledged, and in order to secure the payment of principal of and any premium which may be due and payable on and the interest on all Bonds at any time issued and outstanding under the Indenture according to their tenor and effect, and the performance and observance by the Company of all the covenants and conditions herein and therein contained, has granted, bargained, sold, warranted, aliened, remised, released, conveyed, assigned, transferred, mortgaged, pledged, set over and confirmed, and by these presents does grant, bargain, sell, warrant, alien, remise, release, convey, assign, transfer, mortgage, pledge, set over and confirm, unto the party of the second part, and to its successors in the trust, and to it and its assigns forever, and has granted and does hereby grant thereunto a security interest in, all of the property, real, personal and mixed, now owned by the Company and situated in the Counties of Burlington, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset and Sussex in the State of New Jersey, or wherever situate (except property specifically excepted from the lien of the Indenture by the terms of the Indenture) and also all of the property, real, personal and mixed, hereafter acquired by the Company wherever situate (except property specifically excepted from the lien of the Indenture by the terms of the Indenture), including both as to property now owned and property hereafter acquired, without in anywise limiting or impairing the enumeration of the same, the scope and intent of the foregoing or of any general or specific description contained in the Indenture, the following: I. FRANCHISES All and singular, the franchises, grants, permits, immunities, privileges and rights of the Company owned and held by it at the date of the execution hereof or hereafter acquired for the construction, maintenance, and operation of the gas plants and systems now or hereafter subject to the lien hereof, as well as all certificates, franchises, grants, permits, immunities, privileges, and rights of the Company used or useful in the operation of the property now or hereafter mortgaged hereunder, including all and singular the franchises, grants, permits, immunities, privileges, and rights of the Company granted by the governing authorities of any municipalities or other political subdivisions and all renewals, extensions and modifications of said certificates, franchises, grants, permits, privileges, and rights or any of them. -7- 9 II. GAS DISTRIBUTION SYSTEMS AND RELATED PROPERTY All gas generating plants, gas storage plants and gas manufacturing plants of the Company, all the buildings, erections, structures, generating and purifying apparatus, holders, engines, boilers, benches, retorts, tanks, instruments, appliances, apparatus, facilities, machinery, fixtures, and all other property used or provided for use in the generation, manufacturing and purifying of gas, together with the land on which the same are situated, and all other lands and easements, rights-of-way, permits, privileges, and sites forming a part of such plants or any of them or occupied, enjoyed or used in connection therewith. All gas distribution or gas transmission systems of the Company, all buildings, erections, structures, generating and purifying apparatus, holders, engines, boilers, benches, retorts, tanks, pipe lines, connections, service pipes, meters, conduits, tools, instruments, appliances, apparatus, facilities, machinery, fixtures, and all other property used or provided for use in the construction, maintenance, repair or operations of such distribution or transmission systems, together with all the certificates, rights, privileges, rights-of-way, franchises, licenses, easements, grants, liberties, immunities, permits of the Company, howsoever conferred or acquired, under, over, or upon any private property or any public streets or highways within as well as without the corporate limits of any municipal corporation. Without limiting the generality of the foregoing, there are expressly included the gas distribution or gas transmission systems located in the Counties of Burlington, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset and Sussex in the State of New Jersey, and in the following municipalities in said State and Counties: Aberdeen Township (formerly Matawan Township), Allenhurst Borough, City of Asbury Park, Atlantic Highlands Borough, Avon Borough, Barnegat Light Borough, Barnegat Township (formerly named Union Township), Bay Head Borough, Beach Haven Borough, Beachwood Borough, Belmar Borough, Berkeley Township, Boonton Town, Boonton Township, Bradley Beach Borough, Brick Township, Brielle Borough, Colts Neck Township, Deal Borough, Denville Township, Dover Town, Dover Township, Eagleswood Township, East Brunswick Township, Eatontown Borough, Englishtown Borough, Fair Haven Borough, Farmingdale Borough, Franklin Township in Somerset County, Freehold Borough, Freehold Township, Hanover Township, Harvey Cedars Borough, Hazlet Township, Highlands Borough, Holmdel Township, Hopatcong Borough, Howell Township, Interlaken Borough, Island Heights Borough, Jackson Township, Jefferson Township, Keansburg Borough, Keyport Borough, Lacey Township, Lakehurst Borough, Lakewood Township, Lavallette Borough, Lincoln Park Borough, Little Egg Harbor Township, Little Silver Borough, Loch Arbour Village, Long Beach Township, Long Branch City, Manalapan Township, Manasquan Borough, Manchester Township, Mantoloking Borough, Marlboro Township, Matawan Borough, Middletown Township, Milltown Borough, Mine Hill Township, Monmouth Beach Borough, Monroe Township, Montville Township, Morris Plains Borough, Mount Arlington Borough, Mount Olive Township, Mountain Lakes Borough, Neptune City Borough, Neptune Township, Netcong Borough, New Brunswick City, North Brunswick Township, Ocean Township in Monmouth County, Ocean Township in Ocean County, Ocean Gate Borough, Oceanport Borough, Old Bridge Township (formerly named Madison Township), Parsippany-Troy Hills Township, Pine Beach Borough, Point Pleasant Borough, Point -8- 10 Pleasant Beach Borough, Randolph Township, Red Bank Borough, Rockaway Borough, Rockaway Township, Roxbury Township, Rumson Borough, Sayreville Borough, Sea Bright Borough, Sea Girt Borough, Seaside Heights Borough, Seaside Park Borough, Ship Bottom Borough, Shrewsbury Borough, Shrewsbury Township, South Belmar Borough, South Brunswick Township, South River Borough, South Toms River Borough, Spring Lake Borough, Spring Lake Heights Borough, Stafford Township, Surf City Borough, Tinton Falls Borough (formerly named New Shrewsbury Borough), Tuckerton Borough, Union Beach Borough, Union Township, Victory Gardens Borough, Wall Township, Washington Township in Burlington County, Washington Township in Morris County, West Long Branch Borough, West Milford Township and Wharton Borough. III. CONTRACTS All of the Company's right, title and interest in and under all contracts, licenses or leases for the purchase of gas, either in effect at the date of execution hereof or hereafter made and any extension or renewal thereof. TOGETHER WITH ALL AND SINGULAR the tenements, hereditaments and appurtenances belonging or in anywise appertaining to the Trust Estate, or any part thereof, with the reversion or reversions, remainder and remainders, rents, issues, income and profits thereof, and all the right, title, interest and claim whatsoever, at law or in equity, which the Company now has or which it may hereafter acquire in and to the Trust Estate and every part and parcel thereof. TO HAVE AND TO HOLD the Trust Estate and all and singular the lands, properties, estates, rights, franchises, privileges and appurtenances hereby mortgaged, conveyed, pledged or assigned, or intended so to be, together with all the appurtenances thereto appertaining, unto the Trustee and its successors and assigns forever; SUBJECT, HOWEVER, as to property hereby conveyed, to Permitted Encumbrances; BUT IN TRUST, NEVERTHELESS, under and subject to the terms and conditions hereafter set forth, for the equal and proportionate use, benefit, security and protection of each and every person and corporation who may be or become the holders of the Bonds and coupons hereby secured, if any, without preference, priority or distinction as to the lien or otherwise of one Bond or coupon over or from the others by reason of priority in the issue or negotiation thereof, or by reason of the date of maturity thereof, or otherwise (except as any sinking, amortization, improvement, renewal or other analogous fund, established in accordance with the provisions of the Indenture, may afford additional security for the Bonds of any particular series and except as provided in Section 9.02 of the Indenture), and for securing the observance and performance of all the terms, provisions and conditions of the Indenture. THIS INDENTURE FURTHER WITNESSETH, that the Company has agreed and covenanted, and hereby does agree and covenant, with the Trustee and its successors and -9- 11 assigns and with the respective holders from time to time of the Bonds and coupons, or any thereof, as follows: ARTICLE I. CERTAIN AMENDMENTS OF INDENTURE Section 1.1. The Original Indenture, as heretofore amended, be and it hereby is further amended in the following respects, the section numbers specified below being the sections of the Indenture in which such amendments occur: Section l.01. The following definition be and it hereby is added immediately after the twenty-seventh sentence of Section 1.01B: "'TWENTY-SEVENTH SUPPLEMENTAL INDENTURE' shall mean the Supplemental Indenture dated as of September 1, 1997, supplemental to the Indenture." Section 1.01. The following definitions be and they hereby are added immediately after the twenty-eighth sentence of Section 1.01F: "'2027 SERIES DD BOND' shall mean one of the First Mortgage Bonds, Adjustable Rate Series DD due 2027, issued hereunder. Section 2.11. The following be and it hereby is added at the end of Section 2.11: "No charge except for taxes or governmental charges shall be made against any holder of any 2027 Series DD Bond for the exchange, transfer or registration of transfer thereof." Section 8.08. The period at the end of the first paragraph of Section 8.08 be and it hereby is deleted and the following words and figures be and they hereby are added thereto: ", and the 2027 Series DD Bonds shall be redeemed at the redemption price specified in Section 10.71." ARTICLE II. 2027 SERIES DD BONDS Section 2.1. There shall be a twenty-eighth series of Bonds, known as and entitled "First Mortgage Bonds, Adjustable Rate Series DD due 2027" or "First Mortgage Bonds, Adjustable Rate Series DD" (herein and in the Indenture referred to as the "2027 Series DD Bonds"), and the form thereof shall contain suitable provisions with respect to the matters hereinafter in this Section specified and shall in other respects be substantially as set forth in the preambles to the Original Indenture. -10- 12 The aggregate principal amount of 2027 Series DD Bonds which may be authenticated and delivered and outstanding under the Indenture is Thirteen Million Five Hundred Thousand Dollars ($13,500,000). The 2027 Series DD Bonds shall be payable to the EDA Loan Trustee, and shall be nontransferable except to a successor of the EDA Loan Trustee. The 2027 Series DD Bonds shall bear interest at the minimum rate per annum necessary to yield interest in amounts sufficient, when taken together with other amounts available therefor under the EDA Bond Indenture, to pay the interest from time to time payable on the 1997A EDA Bonds, computed on the same basis as the 1997A EDA Bonds (interest on overdue principal and premium, if any, and, to the extent legally enforceable, interest, being at the rate of six percent (6%) per annum), but in no event shall the interest rate on the 2027 Series DD Bonds exceed ten percent (10%) per annum; and the 2027 Series DD Bonds shall mature on September 1, 2027, subject to prior redemption as described herein. The amount of "annual interest charges" on the 2027 Series DD Bonds, within the meaning of any provision of the Indenture requiring a determination of said amount as a condition to the issuance of any Bonds thereunder (including, without limitation, the 2027 Series DD Bonds), shall mean the amount calculated by applying to the 2027 Series DD Bonds the interest rate of ten percent (10%) per annum; provided, however, that if the rate of interest on the 1997A EDA Bonds shall have become fixed and determined at a per annum rate lower than ten percent (10%) for a period not less than the remaining maturity of said 1997A EDA Bonds (whether said 1997A EDA Bonds shall mature at their stated maturity, by earlier redemption or otherwise), then said lower rate shall be used to determine the amount of the "annual interest charges" on the 2027 Series DD Bonds. The 2027 Series DD Bonds shall be in the form of registered Bonds without coupons of denominations of Five Thousand Dollars ($5,000) and any integral multiple thereof which may be authorized by the Company, the issue of a registered Bond without coupons in any such denomination to be conclusive evidence of such authorization. The 2027 Series DD Bonds shall be dated as provided in Section 2.05 of the Indenture. All 2027 Series DD Bonds shall bear interest from their respective dates, such interest to be payable, upon the terms of and otherwise in accordance with the 2027 Series DD Bonds, on the first business day preceding each date on which interest shall from time to time be payable on the 1997A EDA Bonds; provided, that the obligation of the Company to make payments with respect to the principal of, premium, if any, and interest on the 2027 Series DD Bonds shall be fully or partially, as the case may be, satisfied and discharged to the extent that at the time any such payment shall be due, the then due principal of, premium, if any, and interest on any of the 1997A EDA Bonds shall have been fully or partially paid from payments made by the Company under the Loan Agreement or from other moneys expressly available therefor in the principal and interest account for the 1997A EDA Bonds under the EDA Bond Indenture or, as far as principal is concerned, reduced by the principal amount of any of the 1997A EDA Bonds deemed paid pursuant to Article X of the EDA Bond Indenture. The principal of and the premium, if any, and interest on the 2027 Series DD Bonds shall be payable at the principal office of the Trustee, in the City of Chicago, Illinois, or, at the option of the Company, at the "Principal Office" (as that term is defined in the EDA Bond Indenture) of -11- 13 the EDA Loan Trustee, in any coin or currency of the United States of America which at the time of payment shall be legal tender for the payment of public and private debts. Notwithstanding any other provision of the Indenture or of the 2027 Series DD Bonds, payments of the principal of and the premium, if any, and interest on any 2027 Series DD Bond may be made directly to the registered holder thereof without presentation or surrender thereof or the making of any notation thereon if there shall be filed with the Trustee a Certificate of the Company to the effect that such registered holder (or the person for whom such registered holder is a nominee) and the company have entered into a written agreement that payment shall be so made; provided, however, that before such registered holder transfers or otherwise disposes of any 2027 Series DD Bond, such registered holder will, at its election, either endorse thereon (or on a paper annexed thereto) the principal amount thereof redeemed and the last date to which interest has been paid thereon or make such Bond available to the Company at the principal office of the Trustee for the purpose of making such endorsement thereon. The 2027 Series DD Bonds shall be subject to redemption at the option of the Company or otherwise, in the manner provided in the applicable provisions of Article Ten of the Indenture, as amended by Article III of this Supplemental Indenture. The 2027 Series DD Bonds shall be excluded from the benefits of, and shall not be subject to redemption through the operation of, a Mandatory Sinking Fund pursuant to Section 11.02 of the Indenture and shall also be excluded from the benefits of the covenants of Section 9.08 and Section 11.01 of the Indenture. Notwithstanding the provisions of Section 10.04 or any other provision of the Indenture, the selection of 2027 Series DD Bonds to be redeemed shall, in case fewer than all of the outstanding 2027 Series DD Bonds are to be redeemed, be made by the Trustee pro rata (to the nearest multiple of Five Thousand Dollars ($5,000)) among the registered holders of the 2027 Series DD Bonds in proportion, as nearly as practicable, to the respective unpaid principal amounts of 2027 Series DD Bonds registered in the names of such holders, with adjustments, to the extent practicable, to compensate for any prior redemption not made exactly in such proportion (or otherwise as may be specified by a written order signed by the registered holders of all outstanding 2027 Series DD Bonds). The definitive 2027 Series DD Bonds may be issued in the form of engraved Bonds or Bonds printed or lithographed on steel engraved borders or Bonds in typed form on normal bond paper. Subject to the foregoing provisions of this Section and the provisions of Section 2.11 of the Indenture, all definitive 2027 Series DD Bonds shall be fully exchangeable for other Bonds of the same series, of like aggregate principal amounts, and, upon surrender to the Trustee at its principal office, shall be exchangeable for other Bonds of the same series of a different authorized denomination or denominations, as requested by the holder surrendering the same. The Company will execute, and the Trustee shall authenticate and deliver, registered Bonds without coupons, whenever the same shall be required for any such exchange. -12- 14 Section 2.2. 2027 Series DD Bonds in the aggregate principal amount of Thirteen Million Five Hundred Thousand Dollars ($13,500,000) may forthwith upon the execution and delivery of this Supplemental Indenture, or from time to time thereafter, be executed by the Company and delivered to the Trustee, and shall thereupon be authenticated and delivered by the Trustee upon compliance by the Company with the provisions of Articles Four, Five or Six of the Indenture, without awaiting the filing or recording of this Supplemental Indenture. No additional 2027 Series DD Bonds shall be issued under Article Four, Five or Six without the consent in writing of the holders of all the outstanding 2027 Series DD Bonds. ARTICLE III REDEMPTION OF THE 2027 SERIES DD BONDS Section 3.1. The following Section 10.71 and Section 10.72 be and they hereby are added to Article Ten of the Indenture: "Section l0.71. The 2027 Series DD Bonds shall be subject to mandatory redemption as follows: payments of principal of and premium on the 2027 Series DD Bonds shall be made to the EDA Loan Trustee to redeem 2027 Series DD Bonds in such amounts as shall be necessary, in accordance with the provisions of the Loan Agreement, to provide funds under the Loan Agreement to (a) make, when due, payment at maturity (including, without limitation, maturity upon acceleration of the 1997A EDA Bonds) and (b) make, when due, any prepayment required by the Loan Agreement in connection with any mandatory or optional redemption of 1997A EDA Bonds; provided, however, that the obligation of the Company to make any redemption payments under this Section shall be fully or partially, as the case may be, satisfied and discharged to the extent that at any time such payment shall be due, the then due payment at maturity or redemption payment on any of the 1997A EDA Bonds shall have been fully or partially made from payments made by the Company under the Loan Agreement or from other moneys expressly available therefor in a redemption account or subaccount for the 1997A EDA Bonds under the EDA Bond Indenture or, as far as principal is concerned, reduced by the principal amount of any 1997A EDA Bonds deemed paid pursuant to Article X of the EDA Bond Indenture. Terms used and not defined in this Section shall have the respective meanings given to them in the Twenty-Seventh Supplemental Indenture dated as of September 1, 1997." "Section l0.72. In the case of the redemption of 2027 Series DD Bonds out of moneys deposited with the Trustee pursuant to Section 8.08, such 2027 Series DD Bonds shall, upon compliance with provisions of Section 10.04, and subject to the provisions of Section 2.1 of the Twenty-Seventh Supplemental Indenture, be redeemable at the principal amounts thereof, together with interest accrued thereon to the date fixed for redemption, without premium." -13- 15 ARTICLE IV MISCELLANEOUS Section 4.1. The Company is lawfully seized and possessed of all the real estate, franchises and other property described or referred to in the Indenture (except properties released from the lien of the Indenture pursuant to the provisions thereof) as presently mortgaged, subject to the exceptions stated therein, such real estate, franchises and other property are free and clear of any lien prior to the lien of the Indenture except as set forth in the Granting Clauses of the Indenture and the Company has good right and lawful authority to mortgage the same as provided in and by the Indenture. Section 4.2. The Trustee assumes no duties, responsibilities or liabilities by reason of this Supplemental Indenture other than as set forth in the Indenture, and this Supplemental Indenture is executed and accepted by the Trustee subject to all the terms and conditions of its acceptance of the trust under the Indenture, as fully as if said terms and conditions were herein set forth at length. Section 4.3. The terms used in this Supplemental Indenture shall have the meanings assigned thereto in the Indenture. Reference by number in this Supplemental Indenture to Articles or Sections shall be construed as referring to Articles or Sections contained in the Indenture, unless otherwise stated. Section 4.4. As amended and modified by this Supplemental Indenture, the Indenture is in all respects ratified and confirmed and the Indenture and this Supplemental Indenture shall be read, taken and construed as one and the same instrument. Section 4.5. Neither the approval by the Board of Public Utilities of the State of New Jersey of the execution and delivery of this Supplemental Indenture nor the approval by said Board of the issue of any Bonds under the Indenture shall in any way be construed as the approval by said Board of any other act, matter or thing which requires approval of said Board under the laws of the State of New Jersey; nor shall approval by said Board of the issue of any Bonds under the Indenture bind said Board or any other public body or authority of the State of New Jersey having jurisdiction in the premises in any future application for the issue of Bonds under the Indenture or otherwise. Section 4.6. This Supplemental Indenture may be executed in any number of counterparts and all said counterparts executed and delivered each as an original shall constitute but one and the same instrument. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) -14- 16 NEW JERSEY NATURAL GAS COMPANY HEREBY DECLARES THAT IT HAS READ THIS TWENTY-SEVENTH SUPPLEMENTAL INDENTURE, HAS RECEIVED A COMPLETELY FILLED-IN TRUE COPY OF IT WITHOUT CHARGE AND HAS SIGNED THIS TWENTY-SEVENTH SUPPLEMENTAL INDENTURE ON THE DATE CONTAINED IN ITS ACKNOWLEDGMENT HEREOF. IN WITNESS WHEREOF, NEW JERSEY NATURAL GAS COMPANY, party of the first part, has caused these presents to be signed in its corporate name by its President or a Vice President and its corporate seal to be hereunto affixed and attested by its Secretary or an Assistant Secretary, and HARRIS TRUST AND SAVINGS BANK, party of the second part, in evidence of its acceptance of the trust hereby created, has caused these presents to be signed in its corporate name by one of its Vice Presidents and its corporate seal to be hereunto affixed and attested by its Secretary or one of its Assistant Secretaries. NEW JERSEY NATURAL GAS COMPANY By ------------------------------------------ Name: Timothy C. Hearne Title: Senior Vice President, Financial and Administrative Services (Corporate Seal) ATTEST: - ------------------------------------ Oleta J. Harden Secretary -15- 17 Signed, sealed and delivered by NEW JERSEY NATURAL GAS COMPANY in the presence of: - ------------------------------------ Name: - ------------------------------------ Name: HARRIS TRUST AND SAVINGS BANK, as Trustee By ------------------------------------ Name: J. Bartolini Title: Vice President [Corporate Seal] ATTEST: - ------------------------------------ Name: M. Onischak Title: Assistant Secretary Signed, sealed and delivered by HARRIS TRUST AND SAVINGS BANK in the presence of: - ------------------------------------ Name: - ------------------------------------ Name: -16- 18 STATE OF NEW JERSEY ) ) SS: COUNTY OF MONMOUTH ) BE IT REMEMBERED that on this ----- day of October 1997, before me, the subscriber, an Attorney-at-Law of the State of New Jersey, and I hereby certify that I am such an Attorney-at-Law as witness my hand, personally appeared Oleta J. Harden to me known who, being by me duly sworn according to law, on her oath, does depose and make proof to my satisfaction that she is the Secretary of NEW JERSEY NATURAL GAS COMPANY, the grantor or mortgagor in the foregoing Supplemental Indenture named; that she well knows the seal of said corporation; that the seal affixed to said Supplemental Indenture is the corporate seal of said corporation, and that it was so affixed in pursuance of resolutions of the Board of Directors (including the Executive Committee of said Board) of said corporation; that Timothy C. Hearne is a Senior Vice President, Financial and Administrative Services of said corporation; that she saw said Timothy C. Hearne, as such Senior Vice President, Financial and Administrative Services, affix said seal thereto, sign and deliver said Supplemental Indenture, and heard him declare that he signed, sealed and delivered the same as the voluntary act and deed of said corporation, in pursuance of said resolutions, and that this deponent signed her name thereto, at the same time, as attesting witness. ------------------------------------ Oleta J. Harden Secretary Subscribed and sworn to before me, an Attorney-at-Law of the State of New Jersey, at Wall, New Jersey, the day and year aforesaid. - ------------------------------------ Name: Attorney-at-Law of the State of New Jersey -17- 19 STATE OF ILLINOIS ) ) SS: COUNTY OF COOK ) BE IT REMEMBERED that on this ----- day of October 1997, before me, the subscriber, a Notary Public of the State of Illinois, personally appeared M. Onischak to me known who, being by me duly sworn according to law, on her oath, does depose and make proof to my satisfaction that she is an Assistant Secretary of HARRIS TRUST AND SAVINGS BANK, the grantee or mortgagee and trustee in the foregoing Supplemental Indenture named; that she well knows the seal of said corporation; that the seal affixed to said Supplemental Indenture is the corporate seal of said corporation, and that it was so affixed in pursuance of a resolution of the Board of Directors of said corporation; that J. Bartolini is a Vice President of said corporation; that she saw said J. Bartolini as such Vice President affix said seal thereto, sign and deliver said Supplemental Indenture, and heard said J. Bartolini declare that she signed, sealed and delivered the same as the voluntary act and deed of said corporation, in pursuance of said resolution, and that this deponent signed her name thereto, at the same time, as attesting witness. ------------------------------------ Name: M. Onischak Title: Assistant Secretary Subscribed and sworn to before me a Notary Public of the State of Illinois at Chicago, the day and year aforesaid. - ------------------------------------ Notary Public of the State of Illinois [SEAL] -18- EX-4.5.D 3 AMENDED AND RESTATED NOTE & CREDIT AGREEMENT 1 EXHIBIT 4-5D FOURTH AMENDMENT (the "Amendment"), dated as of September 26, 1997, to the Amended and Restated Note and Credit Agreement, dated May 7, 1993, between NEW JERSEY RESOURCES CORPORATION (the "Borrower") and FIRST UNION NATIONAL BANK, successor by consolidation to First Fidelity Bank, National Association, New Jersey (the "Bank"), as amended (the "Agreement"). WITNESSETH: WHEREAS, the Borrower and the Bank are parties to the Agreement; and WHEREAS, the Borrower has requested the Bank to modify the Agreement, and the Bank is agreeable to such request; NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, the parties hereto hereby agree as follows: 1. DEFINITIONS. Except as otherwise stated, capitalized terms defined in the Agreement and used herein without definition shall have the respective meanings assigned to them in the Agreement. 2. AMENDMENTS TO THE AGREEMENT. (a) Section I (the Commitment) is hereby amended by deleting "April 30, 1998" and inserting in its place "October 1, 1999". (b) Section III.B.2 (Interest) is hereby amended by deleting "one half of one percent (.5%)" and inserting in its place "forty-seven one hundredths percent (.47%)". (c) Section IV.B (Commitment Fee) is hereby amended by deleting "three sixteenths percent (.1875%)" and inserting in its place "four twenty-fifths percent (.16%)". 3. REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into this Amendment, the Borrower hereby represents and warrants that: (a) The Borrower has the power, authority and legal right to make and deliver this Amendment and to perform its obligations under the Agreement, as amended by this Amendment, without any notice, consent, approval or authorization not already obtained, and the Borrower has taken all necessary action to authorize the same. 2 (b) The making and delivery of this Amendment and the performance of the Agreement as amended by this Amendment do not violate any provision of law, any regulation, the Borrower's charter or the Borrower's by-laws or result in the breach of or constitute a default under or require any consent under any indenture or other agreement or instrument to which the Borrower is a party or by which the Borrower or any of its property may be bound or affected. The Agreement as amended by this Amendment constitutes a legal, valid and binding obligation of the Borrower, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by any applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditor's rights generally. (c) The representations and warranties contained in Section IX of the Agreement are true and correct on and as of the date of this Amendment and after giving effect thereto. (d) No Event of Default or event which, with the giving of notice or lapse of time or both, would be an Event of Default has occurred and is continuing under the Agreement as of the date of this Amendment and after giving effect thereto. 4. EFFECTIVE DATE. This Amendment shall become effective as of the date hereof when all of the following shall have occurred: (a) The Bank shall have received counterparts of this Amendment, duly executed by each of the parties hereto. (b) The Bank shall have received a copy of the resolution of the Board of Directors of the Borrower authorizing the execution, delivery and performance of this Amendment, certified by an appropriate officer of the Borrower. (c) The Bank shall have received an opinion of counsel to the Borrower, dated the date hereof, to the effect that this Amendment has been duly authorized, executed and delivered by a duly authorized officer of the Borrower and that the Agreement, as amended by this Amendment, constitutes a valid obligation of the Borrower, legally binding upon it and enforceable (except as may be limited by any applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors' rights generally) in accordance with its terms as so amended. 3 5. COUNTERPARTS. This Amendment may be signed in any number of counterparts, each of which shall be an original and all of which taken together shall constitute a single instrument with the same effect as if the signatures thereto and hereto were upon the same instrument. 6. FULL FORCE AND EFFECT. Except as expressly modified by this Amendment, all of the terms and provisions of the Agreement shall continue in full force and effect, and all parties hereto shall be entitled to the benefits thereof. 7. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of New Jersey. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the date set forth above. NEW JERSEY RESOURCES CORPORATION FIRST UNION NATIONAL BANK By: /s/ Glenn C. Lockwood By: /s/ Linda C. Seigel ----------------------------- --------------------------- Name: Glenn C. Lockwood Name: Linda C. Seigel Title: Senior Vice President and Title: Senior Vice President Chief Financial Officer EX-4.6.A 4 DATED AS OF SEPTEMBER 30, 1997 1 EXHIBIT 4-6A FIRST AMENDMENT TO LETTER AGREEMENT FIRST AMENDMENT dated as of September 30, 1997 (this "Amendment") to Letter Agreement dated as of August 25, 1996 ( the "Agreement") by and between NEW JERSEY RESOURCES CORPORATION (the "Borrower") and SOCIETE GENERALE, NEW YORK BRANCH (the "Bank"). Capitalized terms used herein and not otherwise defined shall have the respective meanings assigned to such terms in the Agreement. WITNESSETH: WHEREAS, pursuant to the Agreement, the Bank has provided the Borrower with a revolving credit facility in the amount of U.S. $10,000,000; and WHEREAS, the Borrower and the Bank wish to amend the Agreement as herein provided: NOW, THEREFORE. the parties hereto agree as follows: I. Amendment to the Agreement On the Amendment Effective Date (as hereinafter defined), the Agreement shall be amended by deleting(2 the definition of the term "Termination Date" in Section 1. I thereof and inserting the following in lieu thereof: " "Termination Date" means September 30, 1998 or the earlier date of termination in whole of the Commitment pursuant to Section 3.2." II. Effectiveness This Amendment shall become effective on the date (the "Amendment Effective Date") when (i) this Amendment shall have been signed by the parties hereto and (ii) the Borrower shall have delivered to the Bank (a) a new Promissory Note (the "New Note") in the form of Exhibit A attached hereto, duly executed on its behalf, (b) an opinion of the General Counsel of the Borrower. in form and substance satisfactory to the Bank, confirming the authority for the Borrower to execute and deliver this Amendment and the New Note and to obtain Advances from the Bank to the Termination Date, as amended by this Amendment and (c) a certificate from the Secretary or Assistant Secretary of the Borrower as to the incumbency of the persons who are authorized to execute and deliver this Amendment and the New Note on its behalf and to request Advances pursuant to the Agreement. 2 III. Representations and Warranties In order to induce the Bank to amend the Agreement as provided for in this Amendment, the Borrower confirms, reaffirms and restates its representations and warranties set for-the in the Agreement. IV. Reference to and Effect on the Agreement 4.1 Upon the effectiveness of this Amendment, (i) each reference in the Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import shall mean and be a reference to the Agreement as amended hereby and (ii) each reference in the Agreement to "the Note" shall be deemed to be a reference to the New Note. 4.2 Except as specifically amended above, all of the terms of the Agreement shall remain unchanged and in full force and effect. 4.3 The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of the Agreement. V. Governing Law This Amendment and the rights and obligations of the parties hereunder shall be governed by and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above. NEW JERSEY RESOURCES CORPORATION By: /s/ Glenn C. Lockwood ------------------------- Name: Glenn C. Lockwood Title: Senior Vice President and Chief Financial Officer SOCIETE GENERALE, NEW YORK BRANCH By: /s/ Gordon Eadon ------------------------- Name: Gordon Eadon Title: Vice President 2 EX-4.7.A 5 DATED AS OF JANUARY 31, 1997 1 EXHIBIT 4-7A NEW JERSEY RESOURCES CORPORATION AMENDMENT TO CREDIT AGREEMENT This Amendment dated as of January 31, 1997 (this "Amendment"), is entered into between New Jersey Resources Corporation (the "Borrower") and PNC Bank, National Association, successor by merger to Midlantic, Bank, N.A. (the "Bank"). RECITALS A. The Borrower and the Bank are parities to a certain Revolving Credit Agreement and Term Loan Agreement, dated as of December 20, 1990, which has heretofore amended (as amended, the "Loan Agreement"). B. The Loan Agreement provides for certain loans to the Borrower and, as evidence of the loans, the Borrower has delivered its Revolving Credit Promissory Note, dated December 20, 1990 (the "Note") to the Bank, in the original principal amount of $20,000,000.00. C. The Borrower and the Bank wish to amend the Loan Agreement and the Note as set forth in this Amendment. D. Now, therefore, in consideration of the premises and the mutual agreements contained herein, the parties agree to amend the Loan Agreement and the Note on the following terms and conditions. 1. DEFINED TERMS. Unless otherwise defined in this Amendment, terms defined in the Loan Agreement shall be used herein with their defined meanings. 2. AMENDMENT TO LOAN AGREEMENT. The Loan Agreement is amended by: (a) Section 1.1 Definition and Interpretation, "Termination Date" is deemed amended to substitute as the relevant date "January 31, 1999". (b) Bank hereby waives the sixty (60) days' notice requirement of Section 3.4 (Extension of Termination Date). 3. NOTE. The Borrower and the Bank hereby agree that the Note is deemed amended to incorporate the amendments to the Loan Agreement as to amount and term of the Note, without the necessity of replacing said Note and that each reference to the "note" in the Loan Agreement and any document referred to therein shall refer to the Note as deemed amended hereby. 2 -2- 4. REPRESENTATIONS AND WARRANTIES. In order to induce the Bank to enter into this Amendment, the Borrower hereby represents and warrants to the Bank as follows: (a) The representations and warranties contained in Section 8 of the Loan Agreement are true and correct on and as of the date of this Agreement and, upon the Effective Date hereof and after giving effect hereto, no Event of Default or unmatured Event of Default will be in existence or will occur as a result of giving effect hereto. (b) The execution, delivery and performance of this Amendment will not violate any provision of any law or regulation, or of any writ or decree of any court or governmental instrumentality, or of the Undersigned's articles of incorporation or by-laws. (c) The Borrower has the power to execute, deliver and perform this Amendment and has taken all necessary corporate action to authorize the execution, delivery and performance of this Amendment and the performance of the Loan Agreement and the note as amended thereby. (d) The execution, delivery and performance of this Amendment does not require the consent of any other party or the consent, license, approval or authorization of, or registration or declaration with, any governmental body, authority, bureau or agency and this Amendment and the Loan Agreement and the Note as amended by the Amendment, constitute valid obligations of the Borrower, legally binding, upon it and enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditor's rights. 5. CONDITIONS PRECEDENT. This Amendment shall become effective (the "Effective Date") upon the satisfaction of the following conditions precedents: (a) This Amendment shall have been duly executed and delivered by the Borrower and the Bank. (b) All proceedings required to be taken by the Borrower in connection with the transactions contemplated by this Amendment shall be satisfactory in form and substance to the Bank and its counsel, and the Bank shall have received such counterpart originals or certified or other copies of such documents as the Bank may reasonably request. 6. GENERAL. (a) As herein amended or modified, the Loan Agreement shall remain in full force and effect and are hereby ratified, approved and confirmed in all respects. 3 -3- (b) After the date hereof, all references in the Loan Agreement, any collateral document and the Note to the "Loan Agreement," "Agreement" or "Note" shall refer to the Loan Agreement and the Note as herein amended or modified. (c) This Amendment shall be binding upon the Borrower, the Bank and their respective successors and assigns and shall inure to the benefit of the Borrower and the Bank. (d) This Amendment may be executed in any number of counterparts. This Amendment shall be governed by the laws of the State of New Jersey. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. PNC BANK, NATIONAL ASSOCIATION By: /s/ Edward M. Tessalone ---------------------------- Edward M. Tessalone Title: Vice President NEW JERSEY RESOURCES CORPORATION By: /s/ Glenn C. Lockwood ---------------------------- EX-4.9.A 6 DATED SEPTEMBER 1, 1993 1 Exhibit 4-9A FIRST AMENDMENT AGREEMENT FIRST AMENDMENT AGREEMENT dated as of September 1, 1993 amending that certain Credit Agreement dated as of August 1, 1991 (the "Agreement) between NEW JERSEY RESOURCES CORPORATION (the "Company") and J.P. MORGAN DELAWARE ("The "Bank"). W I T N E S S E T H : WHEREAS, Company and Bank are parties to the Agreement; and WHEREAS, Company and Bank wish to amend the Agreement in certain respects: NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. Except as otherwise specified herein, capitalized terms used herein and defined in the Agreement shall have the respective meanings ascribed thereto in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the effective date hereof refer to the Agreement as amended hereby. 2. Amendment. The Agreement is hereby amended as follows: (A) the definition of "Termination Date" in Section 1.1 is amended by deleting the date "July 31, 1994" and inserting the date "October 1, 1995" in its place; and (B) the definition of "Commitment" in Section 2.1 is amended by deleting the figure "$20,000,000" and inserting the figure "$25,000,000" in its place. 3. Representations. Borrower hereby represents and warrants to Bank that: (A) the representations set forth in Section 5 of the Agreement are true and correct in all respects as if made on the date hereof and as if each reference therein to the Agreement were a reference to the Agreement as amended by this First Amendment Agreement; (B) no Event of Default specified in Section 7 of the Agreement has occurred and is continuing; and (C) the making and performance by the Company of this First Amendment Agreement have been duly authorized by all necessary corporate action. 2 2 4. Miscellaneous. (A) Except as expressly amended hereby, the Agreement shall remain unmodified and in full force and effect. (B) The provisions of Section 2 of this First Amendment Agreement are hereby incorporated into and made a part of the Agreement as if fully set forth therein. (C) This First Amendment Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this First Amendment Agreement by signing any such counterpart. (D) This First Amendment Agreement shall be governed by and construed in accordance with the law of the State of Delaware. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. NEW JERSEY RESOURCES CORPORATION J.P. MORGAN DELAWARE By /s/ Glenn C. Lockwood By /s/ Philip S. Detjens - ------------------------- ------------------------- Title: AVP & Controller Title: Vice President 3 -iii- Exhibit A ..................................... Note Exhibit B ........................ Opinion of Counsel For the Borrower Exhibit C ............................. Subsidiaries Exhibit D ........................... Existing Liens Exhibit E ........................... Existing Debt
4 EXHIBIT A NOTE U.S. $20,000,000 August 1, 1991 New York, New York FOR VALUE RECEIVED, NEW JERSEY RESOURCES CORPORATION, a New Jersey corporation (the "Borrower"), hereby unconditionally promises to pay to the order of J. P. MORGAN DELAWARE (the "Bank") for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the last day of the Interest Period relating to such Loan. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States of America in Federal or other immediately available funds at the office of the Bank located at 902 Market Street, Wilmington, Delaware 19801. All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, prior to any transfer hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding shall be endorsed by the Bank on the schedule attached hereto and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is the Note referred to in the Credit Agreement dated as of August 1, 1991, between the Borrower and the Bank (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. NEW JERSEY RESOURCES CORPORATION By: /s/ Laurence M. Downes ---------------------------- Title: Senior Vice President 5 LOANS AND PAYMENTS OF PRINCIPAL
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EX-4.9.B 7 DATED JANUARY 9, 1995 1 EXHIBIT 4-9B SECOND AMENDMENT AGREEMENT SECOND AMENDMENT AGREEMENT dated as of January 9, 1995 between NEW JERSEY RESOURCES CORPORATION (the "Company") and J.P. MORGAN DELAWARE (the "Bank"). W I T N E S S E T H: WHEREAS, Company and Bank are parties to that certain Credit Agreement dated as of August 1, 1991, as amended by a First Amendment Agreement dated as of September 1, 1993 (as so amended, the "Agreement"); and WHEREAS, Company and Bank wish to further amend the Agreement in certain respects: NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. Except as otherwise specified herein, capitalized terms used herein and defined in the Agreement shall have the respective meanings ascribed thereto in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the effective date hereof refer to the Agreement as amended hereby. 2. Amendment. The definition of "Termination Date" is hereby amended by deleting the date "October 1, 1995" and inserting the date "October 1, 1996" in its place. 3. Representations. Company hereby represents and warrants to Bank that: (A) the representations and warranties set forth in Section 5 of the Agreement are true and correct in all respects as if made on the date hereof and as if each reference therein to the Agreement were a reference to the Agreement as amended by this Second Amendment Agreement; (B) no Event of Default specified in Section 7 of the Agreement has occurred and is continuing; and (C) the making and performance by the Company of this Second Amendment Agreement have been duly authorized by all necessary corporate action. 2 2 4. Miscellaneous. (A) Except as expressly amended hereby, the Agreement shall remain unmodified and in full force and effect. (B) The provisions of Section 2 of this Second Amendment Agreement are hereby incorporated into and made a part of the Agreement as if fully set forth therein. (C) This Second Amendment Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this First Amendment Agreement by signing any such counterpart. (D) This Second Amendment Agreement shall be governed by and construed in accordance with the law of the State of Delaware. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. NEW JERSEY RESOURCES CORPORATION J.P. MORGAN DELAWARE By /s/ Glenn C. Lockwood By /s/ Philip S. Detjens --------------------------- ------------------------ Title: Vice President & Controller Title: Vice President EX-4.9.C 8 DATED JULY 1, 1996 1 EXHIBIT 4-9C THIRD AMENDMENT AGREEMENT THIRD AMENDMENT AGREEMENT dated as of July 1, 1996 between NEW JERSEY RESOURCES CORPORATION (the "Company") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK (successor by merger to J.P. Morgan Delaware)(The "Bank"). W I T N E S S E T H : WHEREAS, Company and Bank are parties to that certain Credit Agreement dated as of August 1, 1991, as amended by a First Amendment Agreement dated as of September 1, 1993 and a Second Amendment Agreement dated as of January 9, 1995 (as so amended, the "Agreement"); and WHEREAS, Company and Bank wish to further amend the Agreement in certain respects: NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. Except as otherwise specified herein, capitalized terms used herein and defined in the Agreement shall have the respective meanings ascribed thereto in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each otter similar reference contained in the Agreement shall from and after the effective date hereof refer to the Agreement as amended hereby. 2. Amendment. The Agreement is hereby amended as follows: (a) The definition in Section 1.1 of "Termination Date" is hereby amended by deleting the date "October 1, 1996" and inserting the date "October 1, 1997" in its place, (b) The definition in Section 2.5(b) of "CD Margin" is amended to read in its entirety as follows: The "CD Margin" means (i) during such time as the Borrower's Debt Rating is greater than or equal to Baa2/BBB, the CD Rate for such day plus 0.475%, (ii) during such time as the Borrower's Debt Rating is greater than or equal to Ba2/BB but less than Baa2/BBB, the CD rate for such day plus 0.60%, and (iii) during such time as the Borrower's Debt Rating is less than Ba2/BB, the CD Rate for such day plus 0.85%. 2 2 (b) The definition in Section 2.5(c) of "Euro Dollar Margin" is amended to read in its entirety as follows: The "Euro-Dollar Margin" means (i) during such time as the Borrower's Debt Rating is greater than or equal to Baa2/BB, the Rate for such day plus 0.35%, (ii) during such time as the Borrower's Debt Rating is greater than or equal to Ba2/BB but less than Baa2/BBB, the Eurodollar Rate for such day plus 0.475%, and (iii) during such time as the Borrower's Debt Rating is less than Ba2/BB, the Eurodollar Rate for such day plus 0.725%. (c) Section 2.6 is amended to read in its entirety as follows: 2.6 Commitment Fee (a) The Borrower shall pay to the Bank a commitment fee computed at the rate of 0.15% per annum on the daily average amount by which the Commitment exceeds the aggregate outstanding principal amount of the Loans. Such commitment fee shall accrue from and including August 1, 1991 to but excluding the Termination Date and shall be payable quarterly in arrears on the last day of each March, June, September and December and upon the date of termination of the Commitment in its entirety. 3. Representations. Company hereby represents and warrants to Bank that: (A) the representations and warranties set forth in Section 5 of the Agreement are true and correct in all respects as if made on the date hereof and as if each reference therein to the Agreement were a reference to the Agreement as amended by this Third Amendment Agreement; (B) no Event of Default specified in Section 7 of the Agreement has occurred and is continuing; and (C) the making and performance by the Company of this Third Amendment Agreement have been duly authorized by all necessary corporate action. 4. Miscellaneous. (A) Except as expressly amended hereby, the Agreement shall remain unmodified and in full force and effect. 3 3 (B) The provisions of Section 2 of this Third Amendment Agreement are hereby incorporated into and made a part of the Agreement as if fully set forth therein. (C) This Third Amendment Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Third Amendment Agreement by signing any such counterpart. (D) This Third Amendment Agreement shall be governed by and construed in accordance with the law of the State of Delaware. IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. NEW JERSEY RESOURCES CORPORATION MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Glenn C. Lockwood By: /s/ Philip S. Detjens -------------------------- -------------------------- Title: Senior VP & CFO Title: Vice President EX-4.9.D 9 DATED AUGUST 30, 1997 1 EXHIBIT 4-9D FOURTH AMENDMENT AGREEMENT FOURTH AMENDMENT AGREEMENT dated as of August 30, 1997 between NEW JERSEY RESOURCES CORPORATION (the "Company") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK (the "Bank"). WITNESSETH: WHEREAS, Company and Bank are parties to that certain Credit Agreement dated as of August 1, 1991, as amended by a First Amendment Agreement dated as of September 1, 1993, a Second Amendment Agreement dated as of January 9, 1995 and a Third Amendment Agreement dated as of July 1, 1996 (as so amended, the "Agreement"); and WHEREAS, Company and Bank wish to further amend the Agreement in certain respects: NOW, THEREFORE, the parties hereto agree as follows: 1. Definitions. Except as otherwise specified herein, capitalized terms used herein and defined in the Agreement shall have the respective meanings ascribed thereto in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the effective date hereof refer to the Agreement as amended hereby. 2. Amendment. The definition in Section 1.1 of "Termination Date" is hereby amended by deleting the date "October 1, 1997" and inserting the date "October 1, 1998" in its place. 3. Representations. Company hereby represents and warrants to Bank that: (A) the representations and warranties set forth in Section 5 of the Agreement are true and correct in all respects as if made on the date hereof and as if each reference therein to the Agreement were a reference to the Agreement as amended by this Fourth Amendment Agreement; (B) no Event of Default specified in Section 7 of the Agreement has occurred and is continuing; and (C) the making and performance by the Company of this Fourth Amendment Agreement have been duly authorized by all necessary corporate action. 2 4. Miscellaneous. (A) Except as expressly amended hereby, the Agreement shall remain unmodified and in full force and effect. (B) The provisions of Section 2 of this Fourth Amendment Agreement are hereby incorporated into and made a part of the Agreement as if fully set for-therein. (C) This Fourth Amendment Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Fourth Amendment Agreement by signing any such counterpart. (D) This Fourth Amendment Agreement shall be governed by and construed in accordance with the law of the State of New York. IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. NEW JERSEY RESOURCES CORPORATION MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: /s/ Glenn C. Lockwood By: /s/ Philip S. Detjens --------------------------- -------------------------- Title: Senior Vice President & CFO Philip S. Detjens Vice President EX-10.12.A 10 AMENDMENT DATED AS OF DECEMBER 1, 1997 1 EXHIBIT 10-12A FIRST AMENDMENT TO THE EMPLOYMENT CONTINUATION AGREEMENT THIS AMENDMENT to the Employment Continuation Agreement between New Jersey Resources Corporation, a New Jersey corporation (the "Company"), and [NAME] (the "Executive"), dated as of this 1st day of December, 1997. W I T N E S S E T H : WHEREAS, the Company has employed the Executive in an officer position with the Company or affiliate thereof; WHEREAS, the Company, having determined that the Executive holds an important position with the Company and that his continued employment in the event of a Change of Control or Potential Change of Control (as defined in Section 2) is in the best interest of shareholders, entered into an employment continuation agreement with the Executive, dated [AGREEMENT DATE] (the "Agreement"); WHEREAS, the Company desires to assure itself of the Executive's services during the period in which it is confronting a Change of Control or Potential Change of Control, and to provide the Executive certain financial assurances to enable the Executive to perform the responsibilities of his position without undue distraction and to exercise his judgment without bias to his personal circumstances; WHEREAS, to achieve these objectives, the Company and the Executive desire to amend the Agreement, in accordance with Section 13(c), with respect to certain rights and obligations upon the occurrence of the Executive's employment termination under Section 7(c) following a Change of Control or a Potential Change of Control; NOW, THEREFORE, in consideration of the premises and mutual covenants contained in the Agreement and herein this Amendment, it is hereby agreed by and between the Company and the Executive to amend the Agreement by the deletion of Section 7(e) in its entirety and amended to read as follows: "(e) Certain Further Payments by the Company. (i) Application of Section 7(e). In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to the Executive by the Company or any affiliated company (collectively, the "Covered Payments"), are or become subject to the tax (the "Excise 2 Tax") imposed under Section 4999 of the Code or any similar tax that may hereafter be imposed, the Company shall pay to the Executive at the time specified in Section 7(e)(v) below an additional amount (the "Tax Reimbursement Payment") such that the net amount retained by Executive with respect to such Covered Payments, after deduction of any Excise Tax on the Covered Payments and any Federal, state and local income tax and Excise Tax on the Tax Reimbursement Payment provided for by this Section 7(e), but before deduction for any Federal, state or local income or employment tax withholding on such Covered Payments, shall be equal to the amount of the Covered Payments. (ii) Application of Section 280G. For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) such Covered Payments will be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as subject to the Excise Tax, unless, and except to the extent that, in the good faith judgment of the Company's independent certified public accountants appointed prior to the Effective Date or tax counsel selected by such accountants (the "Accountants"), the Company has a reasonable basis to conclude that such Covered Payments (in whole or in part) either do not constitute "parachute payments" or represent reasonable compensation for personal services actually rendered (within the meaning of Section 280G(b)(4)(B) of the Code) in excess of the "base amount," or such "parachute payments" are otherwise not subject to such Excise Tax, and (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (iii) Calculation of Tax Reimbursement Payment. For purposes of determining the amount of the Tax Reimbursement Payment, the Executive shall be deemed to pay: 2 3 (A) Federal income taxes at the highest applicable marginal rate of Federal income taxation for the calendar year in which the Tax Reimbursement Payment is to be made, and (B) any applicable state and local income taxes at the highest applicable marginal rate of taxation for the calendar year in which the Tax Reimbursement Payment is to be made, net of the maximum reduction in Federal incomes taxes which could be obtained from the deduction of such state or local taxes if paid in such year. (iv) Adjustments in Respect of Tax Reimbursement Payment. In the event that the Excise Tax is subsequently determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to be less than the amount taken into account hereunder in calculating the Tax Reimbursement Payment made, the Executive shall repay to the Company, at the time that the amount of such reduction in the Excise Tax is finally determined, the portion of such prior Tax Reimbursement Payment that would not have been paid if such Excise Tax had been applied in initially calculating such Tax Reimbursement Payment, plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion of the Tax Reimbursement Payment to be refunded to the Company has been paid to any Federal, state or local tax authority, repayment thereof shall not be required until actual refund or credit of such portion has been made to the Executive, and interest payable to the Company shall not exceed interest received or credited to the Executive by such tax authority for the period it held such portion. The Executive and the Company shall mutually agree upon the course of action to be pursued (and the method of allocating the expenses thereof) if the Executive's good faith claim for refund or credit is denied. In the event that the Excise Tax is later determined by the Accountants or pursuant to any proceeding or negotiations with the Internal Revenue Service to exceed the amount taken into account hereunder at the time the Tax Reimbursement Payment is made (including, but not limited to, by reason of any payment the existence or amount of which cannot be determined at the time of the Tax Reimbursement Payment), the Company shall make an additional Tax Reimbursement Payment in respect of such excess (plus any interest or penalty payable with respect to such excess) at the time that the amount of such excess is finally determined. 3 4 (v) Payment. The Tax Reimbursement Payment (or portion thereof) provided for in Section 7(e)(i) above shall be paid to the Executive not later than 10 business days following the payment of the Covered Payments; provided, however, that if the amount of such Tax Reimbursement Payment (or portion thereof) cannot be finally determined on or before the date on which payment is due, the Company shall pay to the Executive by such date an amount estimated in good faith by the Accountants to be the minimum amount of such Tax Reimbursement Payment and shall pay the remainder of such Tax Reimbursement Payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined, but in no event later than 45 calendar days after payment of the related Covered Payment. In the event that the amount of the estimated Tax Reimbursement Payment exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to the Executive, payable on the fifth business day after written demand by the Company for payment (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code)." 4 5 IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company has caused this Agreement to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary, all as of the day and year first above written. NEW JERSEY RESOURCES CORPORATION --------------------------------------------- By: LAURENCE M. DOWNES Title: President and Chief Executive Officer ATTEST: - ---------------------------- ------------------------------------ NAME 2 WITNESSED: - ---------------------------- 5 EX-10.12.B 11 REVISED SCHEDULE OF OFFICER EMPLOYEE CONT. AGMTS 1 EXHIBIT 10-12B SCHEDULE OF OFFICER EMPLOYMENT CONTINUATION AGREEMENTS Pursuant to Rule 12b-31, the following sets forth the material differences of all other Officer Employment Continuation Agreement from Mr. Downes', which was previously filed with Note (8) as Exhibit 10-12 and an amendment thereto filed herewith as Exhibit No. 10-12A.
NAME CAPACITY IN WHICH SERVED DATE OF AGREEMENT ---- ------------------------ ----------------- Hugo C. Bottino V. P., Human Resources June 5, 1996 Roy J. Churchman Asst. V. P., Business Planning & Analysis June 14, 1996 Francis X. Colford V. P. and Controller June 5, 1996 Jay B. Corn V. P., Corporate Development November 1, 1996 John A. Dorsey Asst. V. P., Public Affairs June 7, 1996 Gary A. Edinger Sr. V. P., Energy Delivery June 7, 1996 Oleta J. Harden Sr. V. P., General Counsel & Secretary June 5, 1996 Timothy C. Hearne Sr. V. P., Financial & Admin. Services June 5, 1996 David M. Klucsik V. P., External Affairs June 5, 1996 Thomas J. Kononowitz Sr. V. P., Marketing Services June 5, 1996 Glenn C. Lockwood Sr. V. P. & Chief Financial Officer June 14, 1996 James J. Maher Asst. V. P., Marketing June 26, 1996 MaryAnn Martin V. P., Consumer & Community Relations June 11, 1996 Kevin A. Moss V.P., Regulatory Affairs January 1, 1997 Joseph P. Shields Sr. V. P., Energy Services June 5, 1996 Eva I. Szakal V. P., Market Development June 23, 1997 Wayne K. Tarney Sr. V. P., Customer Services June 5, 1996 Deborah Zilai V. P., Information Systems and Services June 5, 1996
I. THE FOLLOWING APPLIES TO THE AGREEMENTS OF ALL THE OFFICERS LISTED ABOVE: If, during the Employment Period, the Company terminates the Executive's employment other than for Cause, or following a Change of Control the Executive terminates his employment for Good Reason, the Executive (and, to the extent applicable, his dependents) shall be entitled, after the Date of Termination until the earlier of (1) the second anniversary of the Date of Termination (the "End Date") and (2) the date the Executive becomes eligible for comparable benefits under a similar plan, policy or program of a subsequent employer, to continue participation in all of the Company's employee and executive welfare and fringe benefit plans (the "Benefit Plans"). -1- 2 II. The following officers' agreements provide for a Severance Amount that is equal to two-times the sum of his or her annual base salary and the average of the annual bonuses paid to him or her for the last three calendar years ended prior to the Change of Control: Bottino Hearne Moss Colford Klucsik Shields Corn Kononowitz Szakal Edinger Lockwood Tarney Harden Martin Zilai III. The following officers' agreements provide for a Severance Amount that is equal to one-times the sum of his or her annual base salary and the average of the annual bonuses paid to him or her for the last three calendar years ended prior to the Change of Control: Churchman Dorsey Maher IV. The following officers' agreements provide that, if the aggregate value of all compensation payments or benefits to be paid or provided to the Executive under his or her Agreement and any other plan, agreement or arrangement with the Company exceeds the amount which can be paid to the Executive without the Executive incurring an Excise Tax, then the amounts payable to the Executive under Section 7 shall be reduced (but not below zero) to the maximum amount which may be paid hereunder without the Executive becoming subject to such an Excise Tax. Bottino Corn Maher Churchman Dorsey Martin Colford Klucsik Moss -2- EX-13.1 12 1997 ANNUAL REPORT TO STOCKHOLDERS 1 Exhibit 13-1 FINANCIAL STATEMENTS Consolidated Financial Statistics 22 Operating Statistics and Stock History 23 Management's Discussion and Analysis 24 Independent Auditors' Report 29 Consolidated Statements of Income 30 Consolidated Statements of Common Stock Equity 30 Consolidated Statements of Cash Flows 31 Consolidated Balance Sheets 32 Consolidated Statements of Capitalization 33 Notes to Consolidated Financial Statements 34
[LOGO] 2 CONSOLIDATED FINANCIAL STATISTICS [NEW JERSEY RESOURCES LOGO] (Thousands, except per share data)
SELECTED FINANCIAL DATA Fiscal years ended September 30, 1997 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- ---- Operating Revenues $ 696,544 $ 554,753 $ 460,179 $ 501,961 $ 451,168 $ 395,606 -------------------------------------------------------------------------------- Operating Expenses Gas purchases 465,552 327,991 251,086 286,352 251,856 205,920 Operation and maintenance 79,408 75,729 64,819 69,080 62,025 59,452 Depreciation and amortization 25,797 23,229 23,022 21,236 21,237 19,757 Gross receipts tax, etc. 43,561 49,533 46,017 53,744 52,712 52,607 Federal income taxes 20,764 18,671 15,967 16,569 13,726 11,543 -------------------------------------------------------------------------------- Total operating expenses 635,082 495,153 400,911 446,981 401,556 349,279 -------------------------------------------------------------------------------- Operating Income 61,462 59,600 59,268 54,980 49,612 46,327 Other income, net 566 68 362 30 713 574 Interest charges, net 20,513 21,001 24,082 21,619 20,130 21,499 -------------------------------------------------------------------------------- Income before Preferred Stock Dividends 41,515 38,667 35,548 33,391 30,195 25,402 Preferred stock dividends 1,591 1,599 1,629 1,662 2,022 2,464 -------------------------------------------------------------------------------- Income from Continuing Operations 39,924 37,068 33,919 31,729 28,173 22,938 Loss from discontinued operations, net -- -- (9,134) 545 (1,011) (691) Cumulative effect of change in accounting for income taxes -- -- -- 721 -- -- -------------------------------------------------------------------------------- Net Income $ 39,924 $ 37,068 $ 24,785 $ 32,995 $ 27,162 $ 22,247 -------------------------------------------------------------------------------- Capitalization Common stock equity $ 278,436 $ 273,921 $ 258,919 $ 250,163 $ 230,313 $ 214,703 Redeemable preferred stock 20,760 20,880 21,004 22,070 22,340 32,610 Long-term debt 291,407 303,363 352,227 323,590 310,996 251,955 -------------------------------------------------------------------------------- Total Capitalization $ 590,603 $ 598,164 $ 632,150 $ 595,823 $ 563,649 $ 499,268 -------------------------------------------------------------------------------- Property, Plant and Equipment Utility plant $ 855,375 $ 811,484 $ 736,434 $ 691,757 $ 637,580 $ 588,908 Accumulated depreciation (216,302) (196,354) (182,080) (168,299) (155,618) (141,364) Real estate properties 22,897 45,010 49,509 104,309 102,369 99,522 Accumulated depreciation (2,610) (4,942) (7,728) (12,602) (10,660) (8,758) Oil and gas properties -- -- -- 63,224 64,576 57,398 Accumulated amortization -- -- -- (38,012) (32,597) (28,478) -------------------------------------------------------------------------------- Property, Plant and Equipment, Net $ 659,360 $ 655,198 $ 596,135 $ 640,377 $ 605,650 $ 567,228 -------------------------------------------------------------------------------- Capital Expenditures Utility plant $ 46,193 $ 48,216 $ 47,286 $ 54,506 $ 53,420 $ 37,864 Real estate properties 840 7,862 5,214 2,619 2,869 4,397 Equity investments 1,430 2,937 5,259 462 296 875 Oil and gas properties -- -- 1,250 1,517 9,216 5,333 -------------------------------------------------------------------------------- Total Capital Expenditures $ 48,463 $ 59,015 $ 59,009 $ 59,104 $ 65,801 $ 48,469 -------------------------------------------------------------------------------- Total Assets $ 879,061 $ 855,187 $ 826,364 $ 797,347 $ 738,662 $ 668,605 -------------------------------------------------------------------------------- COMMON STOCK DATA Earnings per share from continuing operations $ 2.22 $ 2.06 $ 1.93 $ 1.86 $ 1.70 $ 1.60 Earnings per share $ 2.22 $ 2.06 $ 1.41 $ 1.93 $ 1.64 $ 1.55 Dividends declared per share $ 1.60 $ 1.55 $ 1.52 $ 1.52 $ 1.52 $ 1.52 Payout ratio* 72% 75% 79% 82% 90% 95% Market price at year end $ 32.38 $ 28.00 $ 25.88 $ 21.13 $ 29.13 $ 22.38 Dividend yield at year end 4.9% 5.6% 5.9% 7.2% 5.2% 6.8% Price-earnings ratio 15 14 18 11 18 14 Book value per share $ 15.57 $ 15.15 $ 14.55 $ 14.46 $ 13.69 $ 13.18 Market to book ratio at year end 2.1 1.8 1.8 1.5 2.1 1.7 Shares outstanding at year end (thousands) 17,880 18,084 17,793 17,303 16,820 16,286 Average shares outstanding (thousands) 18,016 18,030 17,605 17,096 16,607 14,334 Number of shareowner accounts 18,514 19,423 19,896 19,218 19,319 18,521 -------------------------------------------------------------------------------- Return on Average Equity* 13.9% 13.4% 12.8% 12.7% 12.2% 12.7% Return on Average Equity 13.9% 13.4% 9.3% 13.2% 11.7% 12.3% --------------------------------------------------------------------------------
*Continuing operations 22 3 OPERATING STATISTICS [LOGO] NEW JERSEY NATURAL GAS COMPANY
Fiscal years ended September 30, 1997 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- ---- Operating Revenues (thousands) Residential $317,500 $311,081 $282,015 $308,196 $284,638 $263,108 Commercial and other 70,315 76,649 76,483 87,958 81,285 73,809 Firm transportation 15,586 13,316 4,864 255 -- -- -------- -------- -------- -------- -------- -------- Total residential and commercial 403,401 401,046 363,362 396,409 365,923 336,917 Interruptible 7,996 7,438 10,869 15,645 21,115 19,470 -------- -------- -------- -------- -------- -------- Total system 411,397 408,484 374,231 412,054 387,038 356,387 Off-system 141,481 65,904 52,431 68,267 49,549 26,716 Appliance service revenues 8,712 6,241 5,586 4,886 4,516 3,565 -------- -------- -------- -------- -------- -------- Total Operating Revenues $561,590 $480,629 $432,248 $485,207 $441,103 $386,668 ======== ======== ======== ======== ======== ======== Throughput (Bcf) Residential 37.0 40.1 33.9 38.5 36.3 34.9 Commercial and other 8.7 10.3 10.3 11.9 11.1 10.4 Firm transportation 5.5 4.5 1.6 .1 -- -- -------- -------- -------- -------- -------- -------- Total residential and commercial 51.2 54.9 45.8 50.5 47.4 45.3 Interruptible 9.7 9.8 12.4 8.2 7.6 6.9 -------- -------- -------- -------- -------- -------- Total system 60.9 64.7 58.2 58.7 55.0 52.2 Off-system and capacity release 83.2 61.6 62.6 46.7 20.8 11.8 -------- -------- -------- -------- -------- -------- Total Throughput 144.1 126.3 120.8 105.4 75.8 64.0 -------- -------- -------- -------- -------- -------- Customers at Year End Residential 343,520 338,906 329,237 318,003 309,215 300,327 Commercial and other 22,650 21,897 22,199 21,938 21,112 20,307 Firm transportation 7,647 2,002 880 27 -- -- -------- -------- -------- -------- -------- -------- Total residential and commercial 373,817 362,805 352,316 339,968 330,327 320,634 Interruptible 45 40 38 37 36 36 Off-system and capacity release 53 29 23 17 4 4 -------- -------- -------- -------- -------- -------- Total Customers at Year End 373,915 362,874 352,377 340,022 330,367 320,674 -------- -------- -------- -------- -------- -------- Interest Coverage Ratio 3.90 3.96 3.45 3.63 3.50 3.23 -------- -------- -------- -------- -------- -------- Average Therm Use per Customer Residential 1,061 1,184 1,031 1,211 1,175 1,158 Commercial 3,979 4,682 4,636 5,287 5,013 4,899 Degree Days 4,787 5,715 4,877 5,064 5,048 4,965 Weather as a Percent of Normal 97% 115% 98% 102% 103% 97% Maximum Day Sendout (Bcf) .5 .5 .5 .5 .4 .4 Number of Employees 789 827 827 814 796 771 -------- -------- -------- -------- -------- --------
[LOGO] NJ RESOURCES TWO YEAR STOCK HISTORY The range of high and low sales prices as reported in The Wall Street Journal and dividends paid per share were as follows:
1997 1996 Dividends Paid ---- ---- -------------- Fiscal Quarter High Low High Low 1997 1996 First $ 29 7/8 $ 26 3/4 $ 30 1/2 $ 24 1/4 $ .39 $ .38 Second $ 30 1/2 $ 28 1/8 $ 29 7/8 $ 26 3/4 $ .40 $ .38 Third $ 33 5/8 $ 28 1/4 $ 29 5/8 $ 26 5/8 $ .40 $ .39 Fourth $ 33 7/8 $ 31 $ 29 3/8 $ 26 $ .40 $ .39 ======== ======== ======== ======== ===== =====
23 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NEW JERSEY RESOURCES CORPORATION RESULTS OF OPERATIONS Consolidated Net income increased 8% to $39.9 million in 1997 compared with $37.1 million in 1996. Income from continuing operations and net income in 1995 totaled $33.9 million and $24.8 million, respectively. The increase each year was primarily the result of higher margins from New Jersey Natural Gas Company (NJNG), the principal subsidiary of New Jersey Resources Corporation (the Company). Earnings per share increased 8% to $2.22 in 1997 compared with $2.06 in 1996. Earnings per share from continuing operations and earnings per share in 1995 were $1.93 and $1.41, respectively. As discussed in Note 2 to the Consolidated Financial Statements - Discontinued Operations, the 1995 results included a loss of $9.1 million, or $.52 per share, associated primarily with the Company's exiting the oil and gas production business. Dividends declared per share increased 3% to $1.60 in 1997, compared with $1.55 in 1996 and $1.52 in 1995. NJNG OPERATIONS NJNG is a natural gas distribution company that provides regulated energy and appliance services to 374,000 residential and commercial customers in central and northern New Jersey, and participates in off-system sales and capacity release programs. NJNG's financial results are summarized as follows:
(Thousands) 1997 1996 1995 ---------------------------------- Gross margin Residential and commercial $151,311 $147,078 $141,245 Firm transportation 14,676 12,573 4,691 Off-system and capacity release 5,393 4,574 3,974 Interruptible 940 610 363 ---------------------------------- Total gross margin $172,320 $164,835 $150,273 Appliance service revenues $ 8,712 $ 6,241 $ 5,586 Operating income before income taxes $ 76,431 $ 71,976 $ 67,211 Net income $ 37,529 $ 35,606 $ 33,703 ----------------------------------
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 natural gas distribution operations than gross revenues, 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 sales at the base and Levelized Gas Adjustment (LGA) cost rates included in NJNG's tariff. The LGA clause allows NJNG to recover gas costs that exceed the level reflected in its base rates. GRFT are also calculated on a per-therm basis and exclude sales to other utilities and off-system sales. Effective January 1998 GRFT will be replaced with a state sales tax, a corporate business tax and a transitional energy facilities assessment. The revised tax structure will allow NJNG to be more competitive with other providers of energy, and should not adversely impact NJNG's net income. (See Note 1 to the Consolidated Financial Statements). Residential and Commercial Residential and commercial (i.e., firm) gross margin is subject to a Weather-Normalization Clause (WNC) which provides for a revenue adjustment if the weather varies by more than one-half of 1% from normal, or 20-year average, weather. The accumulated adjustment from one heating season (i.e., October-May) is billed or credited to customers in the subsequent year. This mechanism reduces the variability of both customer bills and NJNG's earnings due to weather fluctuations. NJNG added 11,708 and 10,978 new customers, and converted the heating systems of another 1,048 and 891 existing customers in 1997 and 1996, respectively. The growth in 1997 represents an annual increase of approximately 2.3 billion cubic feet (Bcf), or 5%, in sales to firm customers. Gross margin from sales to firm customers increased $4.2 million, or 3%, in 1997, and $5.8 million, or 4%, in 1996 due to customer growth and the impact of the WNC. Sales to firm customers were 45.7 Bcf in 1997, compared with 50.4 Bcf in 1996 and 44.2 Bcf in 1995. The decrease in sales in 1997 was due to 15% warmer weather, which more than offset customer growth. The weather in 1997 was 3% warmer than normal which, due to the WNC, resulted in $3.3 million of gross margin being accrued for future recovery from customers. In 1996, colder-than-normal weather resulted in $11.9 million of gross margin being deferred and credited to customers in 1997. In 1995, warmer-than-normal weather resulted in $1.9 million of gross margin being accrued and recovered from customers in 1996. 24 5 NEW JERSEY RESOURCES CORPORATION In both 1998 and 1999, NJNG's goal is to add 11,500 to 12,000 new customers, and convert an additional 950 existing customers to natural gas heat. Achieving these goals would represent a customer growth rate of more than 3% and result in a sales increase of approximately 1.8 Bcf per year, assuming normal weather and average use, and increase gross margin under present rates by approximately $5.5 million per year. These growth goals are based upon management's review of county and municipal planning board activity, builder surveys and studies of population growth rates in NJNG's service territory. However, future sales will be affected by the weather, economic conditions in NJNG's service territory, conversion activity, the impact of changing from a regulated to a competitive environment, and other marketing efforts, as has been the case in prior years. NJNG's goal is to continue to grow without increasing its base rates in order to remain competitive in the new environment. Firm Transportation The unbundling process has been brought to the local distribution company level, whereby NJNG's commercial and industrial customers, as well as many residential customers, now have a choice as to their energy supplier and continue to use NJNG to deliver their gas. NJNG's gross margin should not be impacted by customers who utilize the firm transportation service and purchase their gas from another supplier, as its tariffs are designed so no profit is earned on the commodity portion of sales to firm customers. Gross margin from firm transportation customers increased 17% to $14.7 million in 1997 as more customers unbundled and chose this service. NJNG transported 5.5 Bcf for its firm customers in 1997, compared with 4.5 Bcf in 1996 and 1.6 Bcf in 1995. At September 30, 1997 and 1996, NJNG provided firm transportation service to 7,647 and 2,002 customers, respectively. In 1997, approximately 5,000 residential customers chose this service. In January 1998, NJNG will give 25,000 additional residential customers the opportunity to choose this service. 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 outside its franchise territory. These off-system sales enable NJNG to spread its fixed demand costs, which are charged by pipelines to access their supplies year round, over a larger and more diverse customer base. NJNG also participates in the capacity release market on the interstate pipeline system when the capacity is not needed for its own system requirements. NJNG retains 20% of the gross margin from these sales, with the balance credited to firm customers through the LGA clause. This margin-sharing formula has been approved by the New Jersey Board of Public Utilities through fiscal 1998. NJNG's off-system sales totaled 44.7 Bcf and generated $3 million of gross margin in 1997, compared with 23.8 Bcf and $1.6 million of gross margin in 1996 and 24.6 Bcf and $1.6 million of gross margin in 1995. The gross margin generated by the capacity release program decreased to $2.4 million in 1997, compared with $3 million in 1996 and $2.4 million in 1995. The overall margin increase from both programs in 1997 was due primarily to an increase in sales arising from the availability of additional supply and capacity due to warmer weather in 1997. Interruptible NJNG serves 45 customers through interruptible sales and/or transportation tariffs. Interruptible sales are priced on market-sensitive oil and gas parity rates. Although gas sold and transported to interruptible customers represented 7% of total throughput in 1997 and 8% in 1996, they accounted for less than 1% of the total gross margin in each year due primarily 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 interruptible sales, with the balance credited to firm customers through the LGA clause. Interruptible sales were 1.5 Bcf in 1997, compared with 1.4 Bcf in 1996 and 3 Bcf in 1995. In addition, NJNG transported 8.2 Bcf, 8.4 Bcf and 9.4 Bcf in 1997, 1996 and 1995, respectively, for its interruptible customers. Appliance Service Revenues Revenues from appliance service contracts and service calls increased by 40% in 1997 due to an overall 30% increase in rates charged for such services effective April 1, 1996 and the addition of 5,800 service contracts during 1997, an increase of 6% over 1996. Costs related to this service work are primarily included in operation and maintenance expenses. Operating Income before Income Taxes Operating income before income taxes increased 6% to $76 million in 1997 and 7% to $72 million in 1996, primarily due to higher gross margin and appliance service revenues, which more than offset higher expenses. The increase in expenses was due to the impact of growth on operation and maintenance costs, and a higher level of depreciation expense on utility plant, which includes the capitalized costs of a new customer information and billing system (CIS), which was placed in service in 1997. With the implementation of its new CIS system, NJNG does not currently believe that the additional investment needed for its computer systems being Year 2000 compliant will have a material adverse affect on either its financial condition or results of operations. 25 6 NEW JERSEY RESOURCES CORPORATION Net Income Net income increased 5% to $37.5 million in 1997 and 6% to $35.6 million in 1996, consistent with the increases in operating income, which more than offset higher interest costs and income taxes. ENERGY SERVICES OPERATIONS NJR Energy Services Corporation's (Energy Services) consolidated financial results, which include New Jersey Natural Energy Company (NJNE), the Company's energy services subsidiary, and the continuing operations of NJR Energy Corporation (NJR Energy), which owns an equity investment in the Iroquois Gas Transmission System, L.P. (Iroquois), are summarized as follows:
(Thousands) 1997 1996 1995 ------------------------------------- Revenues $144,343 $81,076 $24,268 Gross margin $ 6,930 $ 5,974 $ 2,102 Operating income before income taxes $ 4,932 $ 5,668 $ 1,233 Net income (loss) $ 2,551 $ 2,884 $ (402) -------------------------------------
NJNE had 6,949 and 1,459 retail customers at September 30, 1997 and 1996, respectively. The increase is primarily due to participation in residential pilot programs. Retail sales were 9.1 Bcf in 1997, compared with 8.9 Bcf in 1996 and 4.6 Bcf in 1995. Retail gross margin totaled $2.9 million in 1997, compared with $3.4 million in 1996 and $1.7 million in 1995. The decrease in gross margin in 1997 reflects increased competition, which is expected to intensify in 1998 when state tax laws change and impose similar taxes on both utilities and energy marketers. (See Note 1 to the Consolidated Financial Statements for an explanation of the new state tax structure). In August 1995, NJNE entered into a three-year fuel management agreement with GPU Service Corporation (GPU) to manage their gas purchases and interstate pipeline capacity. Total wholesale volumes increased to 67.3 Bcf in 1997, compared with 28.7 Bcf in 1996 and 6.9 Bcf in 1995. Gross margin from wholesale gas marketing totaled $4 million in 1997, compared with $2.6 million in 1996 and $437,000 in 1995. The increases in gross margin are related to the GPU and other fuel management agreements, and increased wholesale marketing activity. Energy Services' operating income before income taxes decreased 13% to $4.9 million and net income decreased 12% to $2.6 million in 1997, primarily due to lower retail marketing results, which more than offset increased wholesale marketing results. Operating income before income taxes increased to $5.7 million and net income increased to $2.9 million in 1996 due to higher wholesale and retail marketing results, improved results from Iroquois and lower interest expense. Energy Services' results include interest expense related to debt remaining after the sale of its oil and gas reserves as discussed in Note 2 to the Consolidated Financial Statements. NJR Energy plans to further reduce such debt from cash flow generated by its equity investment in Iroquois. Future results are subject to the Company's ability to grow its retail customer base with more marketing services, expand its fuel management agreements and increase its wholesale marketing activity. NJR DEVELOPMENT OPERATIONS NJRDevelopment Corporation's financial results, which consist solely of Commercial Realty & Resources Corp.'s (CR&R) operations, are summarized as follows:
(Thousands) 1997 1996 1995 -------------------------------- Revenues $ 3,193 $ 4,272 $ 12,770 Operating income (loss) before income taxes $ 166 $ (323) $ 6,367 Net loss $ (320) $(1,494) $ (67) --------------------------------
In January 1997, CR&R sold a 76,000 square-foot fully occupied, flex-space building and 11 acres of undeveloped land in two separate transactions totaling $7 million, which approximated net book value. The net loss in 1997 was due primarily to interest costs related to debt remaining after the sale of certain of its real estate assets. The company will use proceeds from additional asset sales to further reduce debt. 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 $17.8 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, is leasing 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. In November 1995, CR&R sold certain of its real estate assets for $52.65 million in cash. This transaction required the one-time write-off of unamortized commissions and other costs totaling $1.8 million, which is reflected in operating income (loss) before income taxes and net loss in 1996. The transaction also included the issuance of options to the buyer to purchase adjacent undeveloped land parcels at various prices. In October 1997, CR&R sold a 280,000 square-foot building, for $15.6 million, which resulted in a pre-tax gain of $1.5 million. Accordingly, as of September 30, 1997, the net book value of the building has been classified as Assets held for sale, net on the Consolidated Balance Sheet. 26 7 NEW JERSEY RESOURCES CORPORATION LIQUIDITY AND CAPITAL RESOURCES CONSOLIDATED The Company obtains its common equity requirements, if any, through issuances of its common stock, including the proceeds from its Automatic Dividend Reinvestment Plan (DRP). In 1996, the DRP was amended to allow for the purchase of shares on the open market. Since July 1, 1996, shares needed for the DRP have been purchased on the open market. Prior to switching funding options, the Company raised $5.7 million and $10.8 million from the DRP in 1996 and 1995, respectively. The Company can switch funding options once in any three-month period. In September 1996, the Company implemented a one-million share-buyback program, and through September 30, 1997, has repurchased 273,900 shares. The Company provides the debt requirements for its unregulated companies, while NJNG satisfies its debt needs by issuing short-term and long-term debt based upon its own financial profile. In order to meet the working capital and external debt financing requirements of the unregulated companies, as well as its own working capital needs, the Company maintains committed credit facilities totaling $135 million with a number of banks and has a $10 million credit facility available on an offering basis. It is the Company's objective to maintain a consolidated capital structure that reflects the different characteristics of each business segment and provides adequate financial flexibility for accessing capital markets as required. Based upon its existing mix of investments, it is the Company's goal to achieve a common equity ratio of at least 50%. At September 30, the Company's consolidated capital structure was as follows:
1997 1996 ------------------ Common stock equity 47% 46% Preferred stock 4 3 Long-term debt 49 51 ------------------ Total 100% 100% ------------------
NJNG The seasonal nature of NJNG's operations creates large short-term cash requirements, primarily to finance gas purchases and customer accounts receivable. NJNG obtains working capital for these requirements, as well as for the temporary financing of construction expenditures, sinking fund needs and GRFT payments through the issuance of commercial paper and short-term bank loans. To support the issuance of commercial paper, NJNG maintains committed credit facilities totaling $75 million with a number of commercial banks and has an additional $20 million in lines of credit available on an offering basis. CAPITAL REQUIREMENTS NJNG's capital requirements for 1995 through 1997 and projected amounts through 1999 are as follows:
Maturities and Redemption Construction redemption of of preferred (Thousands) expenditures long-term debt stock Total - -------------------------------------------------------------------------- 1995 $47,286 $34,564 $ 1,066 $82,916 1996 $48,216 $ 7,364 $ 124 $55,704 1997 $46,193 $ 8,182 $ 120 $54,495 1998 $50,600 $38,045 $ 120 $88,765 1999 $45,700 $ 1,800 $20,120 $67,620 - --------------------------------------------------------------------------
The level of construction expenditures results primarily from the need for services, mains and meters to support NJNG's continued customer growth and general system maintenance. Optional redemption activity included $7 million, $6 million and $31 million of First Mortgage Bonds in 1997, 1996 and 1995, respectively. NJNG currently plans to redeem its $13.5 million 9% Series Q Bonds and, subject to market and other conditions, to optionally redeem its $9.5 million 7.05% Series T Bonds and $15 million 7.25% Series U Bonds in 1998 and its $20 million 7.72% Redeemable Preferred Stock in 1999. FINANCING
(Thousands) 1997 1996 1995 ------------------------------ Cash flow $68,781 $66,955 $59,778 External financing Common stock -- $ 5,037 $ 9,619 Long-term debt $ 6,500 $26,000 $53,500 ------------------------------
Cash flow, defined as net income adjusted for depreciation, amortization of deferred charges and the change in deferred income taxes, represents the cash generated from operations available for capital expenditures, dividends, working capital and other requirements. Cash flow increased 3% in 1997 and 12% in 1996 due primarily to higher earnings and deferred tax benefits. NJNG's external financing requirements in 1998 and 1999 are expected to average about $25 million annually and it is currently anticipated that they will be met through additional issuances of short-term and long-term debt. The timing and mix of these issuances will be geared toward maintaining a common equity ratio in a range of 50% to 55%, which is consistent with maintaining its current short-term and long-term credit ratings. 27 8 NEW JERSEY RESOURCES CORPORATION ENERGY SERVICES Energy Services' capital requirements and financing activity for 1995 through 1997 were as follows:
(Thousands) 1997 1996 1995 ---------------------------------- Capital expenditures and equity investments $ 1,430 $ 2,937 $ 6,509 Cash flow $ 2,694 $ 1,445 $ 5,306 Asset sales $ 9,087 $ 19,414 -- External financing Common stock -- $ 600 $ 1,200 Long-term debt $(9,765) $(22,222) $ (824) ----------------------------------
NJR Energy sold its interest in Market Hub Partners, L.P. for $9.1 million in 1997, which approximated book value. Proceeds from the sale were used to reduce debt. Energy Services' cash flow in 1997 improved due to lower tax payments. Proceeds from the sale of NJR Energy's oil and gas reserves totaled $19.4 million in 1996, which, net of related taxes and expenses, were used by the Company to reduce debt. NJR Energy's cash flow decreased in 1996 due to an increase in tax payments related to these sales. Energy Services does not currently expect any significant capital expenditures or external financing requirements in 1998. NJR DEVELOPMENT CR&R's capital requirements and financing activity for 1995 through 1997 were as follows:
(Thousands) 1997 1996 1995 --------------------------------- Capital expenditures $ 840 $ 7,862 $5,214 Cash flow $ (14) $(11,490) $2,611 Asset sales $ 7,031 $ 77,855 -- External financing Long-term debt $(2,596) $(58,379) $2,302 ---------------------------------
Proceeds from asset sales, net of related taxes and expenses, in 1997 and 1996 were used by the Company to reduce debt. Cash flow in each year reflects the tax payments related to the asset sales. In November 1996, CR&R completed construction of a 98,000 square-foot addition to an existing building at a cost of approximately $5.4 million, of which $691,000 was expended in 1997. This building was sold in 1997. CR&R currently has 183 acres of undeveloped land. Capital expenditures are projected to be $2 million in 1998 in connection with the construction of a 20,000 square-foot, build-to-suit office building, supported by a ten-year lease. These expenditures are expected to be funded through the Company's committed credit facilities. CR&R's future capital expenditures will be limited to the fit-up of existing tenant space, developing existing acreage and additional investments to preserve the value of its real estate holdings. EFFECTS OF INFLATION Under the ratemaking process, the recovery of utility plant costs through depreciation and the allowed return on plant investment are limited to levels based upon the historical cost of utility plant, which is significantly less than current replacement costs. The Company believes, based on past practices, that NJNG will be allowed to earn on the increased cost of its investment when replacement of the facilities is included in rate base. The Company's other operations have not been significantly affected by inflation. NEW ACCOUNTING STANDARDS See Note 1 to the Consolidated Financial Statements for a discussion of new accounting standards. 28 9 NEW JERSEY RESOURCES CORPORATION INFORMATION CONCERNING FORWARD LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward-looking statements where those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statement. Certain of the statements contained in this report (other than the financial statements and other statements of historical fact), including, without limitation, statements as to management expectations and belief presented in the Chairman's Letter, statements made in Management's Discussion and Analysis under the captions "NJNG Operations - Gross Margin; Residential and Commercial; - Firm Transportation; - Liquidity and Capital Resources" and statements made in the Notes to Consolidated Financial Statements under the captions "Summary of Significant Accounting Policies - Gross Receipts Tax, Etc.; - New Accounting Standards," "Financial Instruments and Risk Management", and "Commitments and Contingent Liabilities", are forward-looking statements. Forward-looking statements are made based upon management's expectations and belief 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 financial results and capital requirements 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, and demographic changes in NJNG's service territory, fluctuations in energy commodity prices, conversion activity and other marketing efforts, the conservation efforts of NJNG's customers, the ability to extend certain fuel management contracts, the pace of deregulation of retail gas markets, competition for the acquisition of gas, the regulatory and pricing policies of federal and state regulatory agencies, the availability of Canada's reserves for export to the United States and other regulatory changes. While the Company periodically reassesses material trends and uncertainties affecting the Company's results of operations and financial condition in connection with its preparation of management's discussion and analysis of results of operations and financial condition contained in its quarterly and annual reports, the Company does not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. INDEPENDENT AUDITORS' REPORT [Deloitte & Touche LLP Logo] To the Shareowners and Board of Directors of New Jersey Resources Corporation: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of New Jersey Resources Corporation and its subsidiaries as of September 30, 1997 and 1996 and the related consolidated statements of income, common stock equity and cash flows for each of the three years in the period ended September 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the companies at September 30, 1997 and 1996 and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1997 in conformity with generally accepted accounting principles. We have also previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheets and consolidated statements of capitalization as of September 30, 1995, 1994, 1993, and 1992, and the related consolidated statements of income, common stock equity and cash flows for the years ended September 30, 1994, 1993 and 1992 (none of which are presented herein) and we expressed unqualified opinions on those consolidated financial statements. In our opinion, the information set forth in the Selected Financial Data for each of the six years in the period ended September 30, 1997 for the Company, presented on page 22, is fairly stated in all material respects, in relation to the consolidated financial statements from which it has been derived. [Deloitte & Touche LLP sig] Parsippany, New Jersey October 28, 1997 29 10 CONSOLIDATED STATEMENTS OF INCOME NEW JERSEY RESOURCES CORPORATION (THOUSANDS, EXCEPT PER SHARE DATA)
- ------------------------------------------------------------------------------------------------ Fiscal years ended September 30, 1997 1996 1995 ----------------------------------- Operating Revenues $696,544 $554,753 $ 460,179 ----------------------------------- Operating Expenses Gas purchases 465,552 327,991 251,086 Operation and maintenance 79,408 75,729 64,819 Depreciation and amortization 25,797 23,229 23,022 Gross receipts tax, etc 43,561 49,533 46,017 Federal income taxes 20,764 18,671 15,967 ----------------------------------- Total operating expenses 635,082 495,153 400,911 ----------------------------------- Operating Income 61,462 59,600 59,268 ----------------------------------- Other Income, Net 566 68 362 ----------------------------------- Interest Charges, Net Long-term debt 18,626 20,123 22,630 Short-term debt and other 1,887 878 1,452 ----------------------------------- Total interest charges, net 20,513 21,001 24,082 ----------------------------------- Income before Preferred Stock Dividends 41,515 38,667 35,548 Preferred stock dividends 1,591 1,599 1,629 ----------------------------------- Income from Continuing Operations 39,924 37,068 33,919 Discontinued Operations Loss from operations, net -- -- (439) Loss from disposal, less income tax benefits of $4,681 -- -- (8,695) ----------------------------------- Net Income $ 39,924 $ 37,068 $ 24,785 ----------------------------------- Earnings per Common Share from Continuing Operations $ 2.22 $ 2.06 $ 1.93 Loss per common share from discontinued operations -- -- (.52) ----------------------------------- Earnings per Common Share $ 2.22 $ 2.06 $ 1.41 ----------------------------------- Dividends per Common Share $ 1.60 $ 1.55 $ 1.52 ----------------------------------- Average Shares Outstanding 18,016 18,030 17,605 ===================================
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY NEW JERSEY RESOURCES CORPORATION (THOUSANDS)
- --------------------------------------------------------------------------------------------------------------------- Number of Common Premium on Treasury Stock Retained Shares Stock Common Stock and Other Earnings ------------------------------------------------------------------------ Balance at September 30, 1994 17,303 $ 43,256 $193,914 $ -- $12,993 Net income 24,785 Common stock issued under stock plans 490 1,225 9,585 Cash dividends declared (26,790) Unearned compensation (49) ------------------------------------------------------------------------ Balance at September 30, 1995 17,793 44,481 203,499 (49) 10,988 Net income 37,068 Common stock issued under stock plans 325 814 6,017 Cash dividends declared (27,969) Treasury stock and other (34) (928) ------------------------------------------------------------------------ Balance at September 30, 1996 18,084 45,295 209,516 (977) 20,087 Net income 39,924 Common stock issued under stock plans 36 90 869 Cash dividends declared (28,807) Treasury stock and other (240) (7,561) ------------------------------------------------------------------------ Balance at September 30, 1997 17,880 $ 45,385 $210,385 $(8,538) $31,204 ========================================================================
The accompanying notes are an integral part of these statements. 30 11 CONSOLIDATED STATEMENTS OF CASH FLOWS NEW JERSEY RESOURCES CORPORATION (THOUSANDS)
- --------------------------------------------------------------------------------------------------------- Fiscal years ended September 30, 1997 1996 1995 ------------------------------------------ Cash Flows from Operating Activities Net income $ 39,924 $ 37,068 $ 24,785 Adjustments to reconcile net income to cash flows Depreciation and amortization 25,797 23,229 27,280 Amortization of deferred charges 1,118 3,385 2,022 Deferred income taxes 4,720 (7,211) 6,523 Loss from disposal of discontinued operations -- -- 8,695 Changes in working capital 5,485 3,232 9,458 Other, net (9,868) (1,924) (480) ------------------------------------------ Net cash flows from operating activities 67,176 57,779 78,283 ------------------------------------------ Cash Flows used in Financing Activities Proceeds from long-term debt -- 20,000 67,000 Proceeds from common stock 313 6,868 10,819 Payments of long-term debt (13,182) (81,564) (35,238) Payments of preferred stock (120) (124) (1,066) Purchases of treasury stock (7,410) -- -- Payments of common stock dividends (28,711) (27,663) (26,605) Net change in short-term debt 13,000 (1,400) (30,600) ------------------------------------------ Net cash flows used in financing activities (36,110) (83,883) (15,690) ------------------------------------------ Cash Flows (used in) from Investing Activities Expenditures for Utility plant (46,193) (48,216) (47,286) Real estate properties (840) (7,862) (5,214) Equity investments (1,430) (2,937) (5,259) Oil and gas properties -- -- (1,250) Cost of removal (4,062) (3,757) (4,470) Proceeds from sale of assets 16,118 98,619 -- ------------------------------------------ Net cash flows (used in) from investing activities (36,407) 35,847 (63,479) ------------------------------------------ Net change in cash and temporary investments (5,341) 9,743 (886) Cash and temporary investments at beginning of the year 10,808 1,065 1,951 ------------------------------------------ Cash and temporary investments at end of the year $ 5,467 $ 10,808 $ 1,065 ------------------------------------------ Changes in Components of Working Capital Construction fund $ 6,500 $ 6,000 $(12,500) Receivables (14,465) (4,805) (1,486) Inventories 7,179 (11,630) 5,480 Deferred gas costs (13,938) (3,380) 12,353 Purchased gas 24,241 2,402 14,154 Accrued and prepaid taxes, net 10,728 (734) (4,895) Customers' credit balances and deposits (10,319) 7,805 1,560 Other, net (4,441) 7,574 (5,208) ------------------------------------------ Total $ 5,485 $ 3,232 $ 9,458 ========================================== Supplemental Disclosures of Cash Flows Information Cash paid during the year for Interest (net of amounts capitalized) $ 18,297 $ 18,198 $ 23,067 Income taxes $ 5,891 $ 24,781 $ 8,426 Non-cash investing and financing activities Capital lease -- $ 31,850 -- ==========================================
The accompanying notes are an integral part of these statements 31 12 CONSOLIDATED BALANCE SHEETS NEW JERSEY RESOURCES CORPORATION (THOUSANDS)
- ----------------------------------------------------------------------------------- September 30, 1997 1996 --------------------------- Assets Property, Plant and Equipment Utility plant, at cost $ 855,375 $ 811,484 Real estate properties, at cost 22,897 45,010 --------------------------- 878,272 856,494 Accumulated depreciation and amortization (218,912) (201,296) --------------------------- Property, plant and equipment, net 659,360 655,198 --------------------------- Current Assets Cash and temporary investments 5,467 10,808 Construction fund -- 6,500 Customer accounts receivable 45,900 27,900 Unbilled revenues 3,998 6,884 Allowance for doubtful accounts (1,527) (878) Gas in storage, at average cost 34,152 39,484 Materials and supplies, at average cost 5,445 7,292 Prepaid state taxes 12,089 16,297 Deferred gas costs 15,070 20,478 Assets held for sale, net 13,386 -- Other 6,377 5,197 --------------------------- Total current assets 140,357 139,962 --------------------------- Deferred Charges and Other Equity investments 7,086 13,924 Regulatory assets 38,635 37,150 Other 33,623 8,953 --------------------------- Total deferred charges and other 79,344 60,027 --------------------------- Total Assets $ 879,061 $ 855,187 =========================== Capitalization and Liabilities Capitalization Common stock equity $ 278,436 $ 273,921 Redeemable preferred stock 20,760 20,880 Long-term debt 291,407 303,363 --------------------------- Total capitalization 590,603 598,164 --------------------------- Current Liabilities Current maturities of long-term debt 138 1,501 Short-term debt 48,000 35,000 Purchased gas 57,879 33,638 Accounts payable and other 28,632 32,183 Dividends payable 7,161 7,066 Accrued taxes 5,781 6,032 Customers' credit balances and deposits 13,526 23,845 --------------------------- Total current liabilities 161,117 139,265 --------------------------- Deferred Credits Deferred income taxes 63,501 52,010 Deferred investment tax credits 10,934 11,280 Deferred revenue 20,551 21,816 Other 32,355 32,652 --------------------------- Total deferred credits 127,341 117,758 --------------------------- Commitments and Contingent Liabilities (Note 11) Total Capitalization and Liabilities $ 879,061 $ 855,187 ===========================
The accompanying notes are an integral part of these statements. 32 13 CONSOLIDATED STATEMENTS OF CAPITALIZATION NEW JERSEY RESOURCES CORPORATION (THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------- September 30, 1997 1996 -------------------------- Common Stock Equity Common stock, $2.50 par value, authorized 50,000,000 shares; issued shares 1997 - 18,153,545; 1996 - 18,117,562 $ 45,385 $ 45,295 Premium on common stock 210,385 209,516 Treasury stock at cost and other; 1997 - 273,900 shares; 1996 - 33,400 shares (8,538) (977) Retained earnings 31,204 20,087 -------------------------- Total common stock equity 278,436 273,921 -------------------------- Redeemable Preferred Stock New Jersey Natural Gas Company $100 par value, cumulative; authorized shares 1997 - 517,600; 1996 - 518,800; outstanding shares 5.65% series - 1997 - 7,600; 1996 - 8,800 760 880 7.72% series - 1997 and 1996 - 200,000 20,000 20,000 -------------------------- Total redeemable preferred stock 20,760 20,880 --------------------------
Long-Term Debt New Jersey Natural Gas Company First mortgage bonds Maturity date 8.5% Series P March 1, 2002 -- 6,818 9% Series Q December 1, 2017 13,500 13,500 10.10% Series S June 1, 2009 20,000 20,000 7.05% Series T March 1, 2016 9,545 9,545 7.25% Series U March 1, 2021 15,000 15,000 7.50% Series V December 1, 2002 25,000 25,000 5.38% Series W August 1, 2023 10,300 10,300 6.27% Series X November 1, 2008 30,000 30,000 6.25% Series Y August 1, 2024 10,500 10,500 8.25% Series Z October 1, 2004 25,000 25,000 Variable Series AA August 1, 2030 25,000 25,000 Variable Series BB August 1, 2030 16,000 16,000 6.88% Series CC October 1, 2010 20,000 20,000 Capital lease obligation 31,562 31,700 --------------------- Total 251,407 258,363 --------------------- New Jersey Resources Corporation Revolving credit agreements, at floating rates October 1, 1998 - January 1, 1999 40,000 45,000 --------------------- Total long-term debt 291,407 303,363 --------------------- Total Capitalization $590,603 $598,164 =====================
The accompanying notes are an integral part of these statements. 33 14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NEW JERSEY RESOURCES CORPORATION 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF THE BUSINESS New Jersey Resources Corporation (the Company) is an energy services holding company providing retail and wholesale natural gas and related energy services to customers from the Gulf Coast to New England. Its principal subsidiary, New Jersey Natural Gas Company (NJNG), provides regulated natural gas services in central and northern New Jersey and participates in off-system sales and capacity release programs. Other operating subsidiaries include New Jersey Natural Energy Company (NJNE), an energy services company, NJR Energy Corporation (NJR Energy), an investor in energy-related ventures and Commercial Realty and Resources Corp. (CR&R), a commercial real estate developer. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated. REGULATORY ACCOUNTING NJNG maintains its accounts in accordance with the Uniform System of Accounts as prescribed by the New Jersey Board of Public Utilities (BPU). As a result of the ratemaking process, the accounting principles applied by NJNG differ in certain respects from those applied by unregulated businesses. UTILITY PLANT AND DEPRECIATION Depreciation is computed on a straight-line basis for financial statement purposes, using rates based on the estimated average lives of the various classes of depreciable property. The composite rate of depreciation was 3.25% of average depreciable property in 1997, 3.12% in 1996 and 3.05% in 1995. When depreciable properties are retired, the original cost thereof, plus cost of removal less salvage, is charged to accumulated depreciation. UTILITY REVENUES Customers are billed through monthly cycle billings on the basis of one month's actual or estimated usage. Revenues are based upon service rendered. GAS PURCHASES NJNG's tariff includes a Levelized Gas Adjustment (LGA) clause, which is normally revised on an annual basis. Under this clause, NJNG projects its cost of gas, net of supplier refunds and credits from non-firm sales and transportation activities, over the subsequent 12 months and recovers the excess, if any, of such projected costs over those included in its base rates through levelized charges to customers. Any under- or over-recoveries are deferred and reflected in the LGA clause in the subsequent year. GROSS RECEIPTS TAX, ETC. Gross receipts tax, etc. consists principally of New Jersey gross receipts and franchise taxes (GRFT), which are eventually paid to the municipalities in which NJNG has utility plant facilities, and a surtax paid to the state. These taxes are calculated on a per-therm basis and are paid in lieu of personal property and state income taxes. Such amounts represent approximately 90% of the Gross receipts tax, etc. figures. In July 1997, legislation was signed that will reform New Jersey's taxes affecting energy companies, effective January 1998. The legislation repealed the long-standing utility tax formula and replaced it with a state sales tax, a corporate business tax and a transitional energy facilities assessment. It required a rate filing in September 1997 designed to implement the new tax structure. The transitional energy facilities assessment will be gradually phased out starting in 1999 and ending in 2002. The new law requires that all providers of energy 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. FEDERAL INCOME TAXES Deferred federal income taxes are calculated in conformance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes" (SFAS 109) (See Note 7: Federal Income Taxes). Investment tax credits have been deferred and are being amortized as a reduction to the tax provision over the average lives of the related property. CAPITALIZED INTEREST The Company's capitalized interest totaled $1.3 million in 1997, $1.4 million in 1996 and $2.6 million in 1995. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Gains and losses related to qualifying hedges of firm commitments or anticipated transactions are deferred and recognized in income or as adjustments of carrying amounts when the hedged transaction occurs (See Note 10: Financial Instruments and Risk Management). 34 15 NEW JERSEY RESOURCES CORPORATION REGULATORY ASSETS Regulatory Assets at September 30, 1997 and 1996 consist of the following items:
(Thousands) 1997 1996 ----------------------- Remediation costs (Note 11) $35,316 $34,342 Postretirement costs (Note 9) 3,615 2,235 Other (296) 573 ----------------------- Total $38,635 $37,150 =======================
Included in Other Deferred Credits are the following items:
(Thousands) 1997 1996 ----------------------- Remediation costs (Note 11) $27,500 $28,300 Postretirement costs (Note 9) 3,524 2,302 ----------------------- Total $31,024 $30,602 =======================
STATEMENTS OF CASH FLOWS For purposes of reporting cash flows, all temporary investments with maturities of three months or less are considered cash equivalents. NEW ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 128 "Earnings Per Share" and SFAS No. 129 "Disclosure of Information about Capital Structure" which must be adopted by fiscal 1998. The Company currently believes that they will not have a material adverse effect on either its financial condition or results of operations. In June 1997, the FASB also issued SFAS No. 130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosure About Segments of an Enterprise and Related Information." The Company is evaluating the requirements of SFAS 130 and SFAS 131 which must be adopted by fiscal 1999. Since these statements primarily relate to disclosure information, it is management's opinion that they will not have a material adverse effect on either its financial condition or results of operations. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year reporting. Appliance service revenues have been reclassified to operating revenues from operation and maintenance expense. USE OF ESTIMATES The consolidated financial statements of the Company include estimates and assumptions of certain assets, liabilities, revenues and expenses and the disclosure of certain contingent assets and liabilities. Actual future results may differ from such estimates. 2. DISCONTINUED OPERATIONS In 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 its affiliates, NJR Energy and New Jersey Natural Resources Company. The Company accounted for this segment as a discontinued operation and recorded a loss from the disposal of $9.1 million, or $.52 per share. This charge was based on losses during the year prior to discontinued operations status, 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. The Company completed the sale of its oil and gas properties in 1996 for $19.4 million and used the proceeds 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 1995 for the discontinued operations is adequate. In 1995, the Company announced that its efforts in the wholesale electric power generation market would be focused on gas sales and fuel management services, rather than seeking long-term investments in gas-fired generating facilities. Accordingly, the Company accounted for its subsidiary in this business as a discontinued operation. 3. COMMON STOCK At September 30, 1997, there were 2,041,281 shares reserved for issuance under the Company's Automatic Dividend Reinvestment, Employee Stock Ownership and Retirement Savings Plans. A total of 750,000 shares are reserved for issuance to employees under the Long-Term Incentive Compensation Plan (the Plan) at the discretion of the Board of Directors. At September 30, 1997, there were 361,244 shares remaining for issuance or grant under the Plan. The Company issued 22,461 shares in 1997 with a related annual expense of approximately $224,000, which vest over a three-year period and are subject to the Company achieving certain performance targets. All options granted under the Plan have been non-qualified stock options. They give a right to purchase the Company's common stock at prices no less than the closing price on the date of grant. Generally no option can be exercised before one year or more than 10 years from the date of each grant. 35 16 NEW JERSEY RESOURCES CORPORATION A total of 175,000 shares are reserved for issuance to outside directors under the Restricted Stock and Stock Option Program for Outside Directors (the Program). Under the Program, each director received an award of 200 shares of restricted stock which vests over four years. Each director is also granted 5,000 options upon joining the Board and receives an annual grant of 1,000 options for as long as she or he remains on the board. In 1997, no shares were issued or forfeited. At September 30, 1997, there were 75,950 shares remaining for issuance or grant under the Program. All options granted under the Program allow for purchase of common stock at prices equal to the closing price on the date of grant, and generally no option can be exercised before one year or more than 10 years from the date of each grant. In 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). As permitted by SFAS 123, the Company will continue to apply Accounting Principles Board Opinion No. 25 and its related interpretations in accounting for its stock-based plans and provide the pro forma disclosures required by SFAS 123. No compensation expense has been recognized for its stock-based plans except for performance-based awards. If compensation expense had been determined based on the fair value of stock options at the date of grant consistent with the methodology of SFAS 123, the Company's net income and earnings per share would have been reduced by approximately $247,000, or $.02, and $47,000, or $.01, in 1997 and 1996, respectively. The following table summarizes the stock option activity for the past three years:
Weighted Average Exercise (Thousands) Shares Price Range Price ---------------------------------------------- Outstanding at September 30, 1994 138,489 $19.01 - $26.00 $23.16 Granted 139,672 22.875 - 24.375 23.10 Forfeited (68,094) 19.01 - 26.00 23.28 ---------------------------------------------- Outstanding at September 30, 1995 210,067 19.01 - 26.00 23.08 Granted 148,750 27.75 - 29.00 27.86 Exercised (54,027) 19.01 - 26.00 21.67 Forfeited (33,994) 22.25 - 27.75 24.31 ---------------------------------------------- Outstanding at September 30, 1996 270,796 22.25 - 29.00 25.83 Granted 119,420 29.25 - 33.75 31.60 Exercised (13,522) 22.25 - 23.125 23.06 Forfeited (9,339) 27.75 - 32.00 28.45 ---------------------------------------------- Outstanding at September 30, 1997 367,355 $22.25 - $33.75 $27.74 ---------------------------------------------- Exercisable at September 30, 1997 78,329 $22.01 - $29.00 $24.40 ----------------------------------------------
The weighted average remaining option contractual life is 6.8 years. The weighted average fair value of the options granted in 1997 is estimated at $4.26 per option on the date of grant using the Black-Scholes option pricing model, with the following assumptions: dividend yield 5.05%, volatility of 32.14% and expected life of 7.6 years. In September 1996, the Board of Directors authorized the repurchase of up to one million of the Company's common shares. As of September 30, 1997, the Company has repurchased 273,900 shares at a cost of $8.1 million. 4. REDEEMABLE PREFERRED STOCK The 7.72% series is subject to mandatory redemption in 2001 at par ($100 per share) and optional redemption from 1998 to 2000 at prices declining from $101.72 to $100 per share plus accumulated dividends. Preferred stockholders are entitled to one vote per share on all NJNG matters and have priority as to dividends. NJNG's certificate of incorporation prohibits the distribution of common stock dividends unless NJNG is in compliance with all its provisions. In addition, whenever preferred dividends are in arrears in an amount equal to four quarterly dividends, preferred stockholders may elect a number of directors necessary to constitute one less than a majority of NJNG's Board of Directors, until such dividends are paid in full. In July 1996, the Board of Directors adopted a shareholder rights plan that provides for the distribution of one right for each share of common stock outstanding on August 15, 1996. Each right entitles its holder to purchase 1/1000 of one share of the Series A Stock (as defined below), at an exercise price of $55. The rights plan provides that after a person or group acquires 10% or more of the Company's common stock, each of the rights, except for those held by the 10% holder, which became void once the holder reaches the 10% threshold, becomes the right to acquire shares of the Company's common stock having a market value equal to twice the exercise price. If a person or group acquires at least 10%, but less than 50%, the Board of Directors may exchange each right for one share of the Company's common stock. The rights may be redeemed for $.01 per right at any time prior to the first public announcement or communication to the Company that a person or group has crossed the 10% threshold. The Company has 400,000 shares of authorized and unissued $100 par value preferred stock. The Company has created and reserved for issuance 50,000 shares of Series A Junior Participating Cumulative Preferred Stock (Series A Stock) in connection with the adoption of the shareholder rights plan. 36 17 NEW JERSEY RESOURCES CORPORATION 5. LONG-TERM DEBT, DIVIDENDS AND RETAINED EARNINGS RESTRICTIONS Annual redemption requirements for the next five years are as follows: 1998, $138,000; 1999, $32 million; 2000, $12 million; 2001, $2.3 million; and 2002, $27.3 million. NJNG's mortgage secures its First Mortgage Bonds and represents a lien on substantially all its property, including gas supply contracts. Certain indentures supplemental to the mortgage include restrictions as to cash dividends and other distributions on NJNG's common stock, which restrictions apply so long as certain series of First Mortgage Bonds are outstanding. Under the most restrictive provision, approximately $44.2 million of NJNG's retained earnings was available for such purposes at September 30, 1997. In September 1997, under its loan agreement with the New Jersey Economic Development Authority (the Authority), NJNG received the final $6.5 million of the proceeds from the Authority's Series 1995B (EDA) bonds. In October 1997, NJNG entered into a loan agreement with the Authority under which the Authority issued $13.5 million of its variable rate Series 1997A Bonds due September 2027. To secure its loan from the Authority, NJNG issued $13.5 million of its First Mortgage Bonds with interest rates and maturity dates similar to those of the EDA Bonds. The proceeds will be used to redeem the $13.5 million 9% Series Q Bonds in December 1997. In March 1997, NJNG utilized short-term debt to redeem the remaining $8.2 million of its 8.5% Series P Bonds. In December 1995, the BPU approved NJNG's petition to enter into a master lease agreement for its headquarters building for a 25.5 year term with two five-year renewal options. The present value of the agreement's minimum lease payments is reflected as both a capital lease and a capital lease obligation, which are included in Utility Plant and Long-Term Debt, respectively, in the Consolidated Balance Sheets. In accordance with its ratemaking treatment, NJNG records rent expense as if the lease was an operating lease. Minimum annual lease payments are $2.3 million in 1998 and 1999, $2.4 million in 2000, and $2.6 million in 2001 and 2002, with $60.7 million over the remaining term of the lease. Approximately 21% of the building is presently subleased to other tenants. The Company has six committed revolving credit agreements totaling $135 million which provide for bank loans at negotiable rates at or below the prime rate. At September 30, 1997, a total of $40 million was outstanding under these agreements, of which $30 million matures in 1999 and $10 million matures in 2000. The Company has one interest rate swap agreement, having an aggregate notional amount of $15 million, to eliminate the impact of changes in interest rates on a portion of its floating rate long-term debt. The agreement effectively fixes the Company's interest rate on $15 million of its floating rate revolving credit facilities at 9.5% through 1999. In the event of nonperformance by the counterparty, the Company's interest cost on $15 million of long-term debt would revert to a floating rate. However, the Company does not anticipate nonperformance by the counterparty. The Company's remaining long-term debt outstanding under revolving credit agreements at September 30, 1997 and 1996 totaled $25 million and $30 million, with weighted average interest rates of 5.9% and 5.7%, respectively. 6. SHORT-TERM DEBT AND CREDIT FACILITIES Committed credit facilities of NJNG support the issuance of commercial paper and provide for bank loans at negotiable rates at or below the prime rate. These credit facilities total $75 million and require commitment fees on the unused amounts. In addition, the Company has $10 million and NJNG has $20 million in lines of credit that are available on an offering basis without incurring a commitment fee. A comparison of pertinent data follows:
(Thousands) 1997 1996 1995 -------------------------------- Bank credit facilities $75,000 $65,000 $65,000 Maximum amount outstanding $78,500 $44,100 $78,700 Average daily amount outstanding Notes payable to banks $ 5,800 $ 4,900 $ 6,600 Commercial paper $40,500 $13,100 $24,200 Weighted average interest rate Notes payable to banks 5.65% 5.73% 5.87% Commercial paper 5.53% 5.70% 5.63% Amount outstanding at year end Notes payable to banks -- -- $ 3,400 Commercial paper $48,000 $35,000 $33,000 Interest rate at year end Notes payable to banks -- -- 6.03% Commercial paper 5.59% 5.43% 5.83% --------------------------------
37 18 NEW JERSEY RESOURCES CORPORATION 7. FEDERAL INCOME TAXES The Company's federal income tax returns have been examined by the Internal Revenue Service through 1993 and all significant matters have been settled. Federal income tax expense applicable to continuing operations differs from the amount computed by applying the statutory rate to pre-tax income for the following reasons:
(Thousands) 1997 1996 1995 -------------------------------------- Tax expense at statutory rate of 35% $ 21,887 $ 20,081 $ 18,094 Increase (reduction) resulting from Depreciation and cost of removal (639) (854) (1,410) Amortization of investment tax credits (346) (348) (397) Section 1341 refunds -- -- (990) Other 116 (172) 862 -------------------------------------- Provision for Federal income taxes $ 21,018 $ 18,707 $ 16,159 ======================================
The provision for federal income taxes is composed of the following:
(Thousands) 1997 1996 1995 -------------------------------------- Current $ 3,314 $ 26,643 $ 11,561 -------------------------------------- Deferred Excess tax depreciation 6,011 6,329 6,460 Gain on sale of real estate 35 (12,255) -- Weather-normalization clause 5,183 (4,705) 1,545 Alternative minimum tax (1,511) 687 2,576 Deferred gas costs 4,475 2,305 (3,970) Coal gas costs and other 3,857 51 (1,616) -------------------------------------- Total deferred 18,050 (7,588) 4,995 -------------------------------------- Amortization of investment tax credits (346) (348) (397) -------------------------------------- Total provision $ 21,018 $ 18,707 $ 16,159 ====================================== Charged to: Operating expenses $ 20,764 $ 18,671 $ 15,967 Charged to: Other income, net 254 36 192 ====================================== Total provision $ 21,018 $ 18,707 $ 16,159 ======================================
The tax effects of significant temporary differences comprising the Company's net deferred income tax liability at September 30, 1997 and 1996, are as follows:
(Thousands) 1997 1996 ----------------------- Current Deferred gas costs $ 6,238 $ 8,431 Weather-normalization clause 1,024 (4,126) Other (1,634) (4,249) ----------------------- Current deferred tax liability, net $ 5,628 $ 56 ======================= Non-current Property-related items $ 79,150 $ 74,424 Gain on sale of real estate (12,220) (12,255) Customer contributions (3,778) (3,451) Capitalized overhead and interest (2,873) (4,587) Deferred gas costs 6,771 -- Unamortized investment tax credits (3,948) (4,315) Coal gas costs and other 399 2,194 ----------------------- Non-current deferred tax liability, net $ 63,501 $ 52,010 =======================
8. REGULATORY ISSUES NJNG's Weather-Normalization Clause (WNC) provides for a revenue adjustment if the weather varies by more than one-half of 1% from the 20-year average, or normal, weather. The accumulated adjustment from one heating season (i.e., October - May) is billed or credited to customers in the subsequent year. In December 1996, the BPU approved a Stipulation Agreement (the Stipulation) relating to the 1996 Remediation Rider (RA), WNC, Demand Side Management Adjustment Clause (DSMAC) and LGA clause. The approval of the Stipulation allowed recovery over seven years of gas remediation costs incurred through June 1996 of $5.2 million, the refund of $12.0 million of gross margin that was deferred in fiscal 1996 due to the impact of colder-than-normal weather on the WNC, and recovery of $1.9 million in DSMAC costs for deferred and projected demand side management program costs. 38 19 NEW JERSEY RESOURCES CORPORATION The Stipulation also settled the July 1996 LGA petition and included an increase of $21.3 million in gas costs, the continuation of NJNG's current margin-sharing formulas associated with its non-firm sales until the effective date of the BPU Order in NJNG's 1998-99 LGA. Also approved was an expansion of the Financial Risk Management (FRM) Pilot Program designed to provide price stability to NJNG's system supply portfolio. The FRM expansion also introduced an incentive mechanism designed to encourage the use of financial instruments to hedge its gas costs. As a result of the Stipulation, NJNG's residential rates increased by approximately 2%. On July 31, 1997, NJNG filed a Petition with the BPU for a stable LGA. The LGA filing included updates to its Gas Cost Recovery, WNC, RA and DSMAC factors. The proposed two-year plan is based upon NJNG purchasing a large portion of its gas commodity requirements on a fixed-price basis and included a two-year recovery of an estimated under-recovered balance of $32.7 million as of September 30, 1997. As a result of gas costs expected to be recovered in excess of one year, $19.3 million of deferred gas costs has been classified as Other Deferred Charges in the Consolidated Balance Sheet at September 30, 1997. In addition, NJNG proposed several modifications to the methodology for calculating the WNC. The filing also includes a flexible pricing mechanism that would allow the LGA billing factor to be adjusted, if the projected September 30, 1999 under- or over-recovered balance varies by more than $5 million. On January 8, 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 requires that publicly held companies change from the practice of accounting for OPEB on a pay as you go basis to an accrual basis of accounting. The BPU's generic proceeding provided for a Phase II proceeding in which each utility would address the particular impact of SFAS 106 on its revenue requirements. On July 23, 1997, NJNG filed a petition to recover an additional $900,000 in annual OPEB costs with a proposed effective date no later than September 30, 1998. 9. EMPLOYEE BENEFIT PLANS PENSION PLANS The Company has two trusteed, noncontributory defined benefit retirement plans covering all regular, full-time employees with more than one year of service. Plan benefits are based on years of service and average compensation during the last five years of employment. The Company makes annual contributions to the plans consistent with the funding requirements of federal law and regulations. The components of the net pension cost are as follows:
(Thousands) 1997 1996 1995 ----------------------------------- Service cost - benefits earned during the period $ 1,927 $ 1,748 $ 1,482 Interest cost on projected benefit obligation 3,573 3,147 2,989 Return on plan assets (4,186) (3,617) (3,326) Net amortization and deferral (152) (152) (172) ----------------------------------- Net cost $ 1,162 $ 1,126 $ 973 ===================================
Plan assets consist primarily of corporate equities and obligations, U.S. Government obligations and cash equivalents. A reconciliation of the funded status of the plans to the amounts recognized in the Consolidated Balance Sheets is presented below:
(Thousands) 1997 1996 ----------------------- Plan assets at fair value $ 59,172 $ 48,627 ----------------------- Actuarial present value of plan benefits Vested benefits (36,070) (33,239) Non-vested benefits (2,251) (2,231) Impact of estimated future compensation changes (12,626) (9,825) ----------------------- Projected plan benefits (50,947) (45,295) ----------------------- Plan assets in excess of projected plan benefits 8,225 3,332 Unrecognized net assets at beginning of the year (2,057) (2,363) Unrecognized prior service costs 1,644 1,799 Unrecognized net gain (10,773) (5,958) ----------------------- Net pension liability recognized in the Consolidated Balance Sheets $ (2,961) $ (3,190) =======================
The assumptions used in determining the actuarial present value of the projected benefit obligation are as follows:
1997 1996 ---------------- Discount rate 7.75% 7.75% Compensation increase 4.50% 4.50% Long-term rate of return on plan assets 9.50% 9.50% ----------------
39 20 NEW JERSEY RESOURCES CORPORATION Other Postretirement Benefits Effective October 1, 1993, the Company adopted SFAS 106, which requires an accrual method of accounting for postretirement benefits, similar to that presently in effect for pension plans. Previously, certain health care and life insurance benefits were charged to expense when paid. Under the accrual method, the cost of providing postretirement benefits will be recognized over the employee's service period. The Company's transition obligation associated with SFAS 106 was $8.6 million, which is being amortized over 20 years, and its annual expense has increased from approximately $400,000 to $1.5 million, of which over 95% relates to NJNG. As part of its January 1994 base rate order, NJNG was permitted to recover approximately 50% of its SFAS 106 expense currently and defer the balance, with ultimate expected recovery of the deferred portion no later than that prescribed by generally accepted accounting principles. SFAS 106 expenses deferred and included in Regulatory Assets in the Consolidated Balance Sheets were $3.6 million and $2.2 million at September 30, 1997 and 1996, respectively. A reconciliation of the accumulated postretirement benefit obligation (APBO) to the amounts recognized in the Consolidated Balance Sheets is presented below:
(Thousands) 1997 1996 ----------------------- Retirees $ (3,211) $ (1,939) Fully eligible participants (3,109) (2,694) Other active participants (8,046) (7,828) ----------------------- Total APBO (14,366) (12,461) Plan assets 1,645 1,000 Unrecognized net loss 1,214 659 Unrecognized transition obligation 6,880 7,310 Unrecognized prior service costs 1,351 1,448 ----------------------- Net liability recognized in the Consolidated Balance Sheets $ (3,276) $ (2,044) =======================
The components of the net postretirement benefit cost are as follows:
(Thousands) 1997 1996 ------------------- Service cost $ 539 $ 404 Interest cost 1,009 768 Amortization of transition obligation 430 430 Deferral of current expense (1,209) (833) ------------------- Total annual net expense $ 769 $ 769 ===================
The assumed health care cost trend rate used in measuring the APBO as of September 30, 1997 was 10%, declining by 1% each year until attaining an ultimate level of 6.25% in 2001, and then remaining constant thereafter for participants under age 65. For participants age 65 and older the trend rate was 7% in 1997, declining to 6.25% in 1998, and then remaining constant thereafter. A 1% increase in the trend rates would increase the APBO as of September 30, 1997, by $2.2 million and would increase the annual service and interest costs by $283,000. The assumed discount rate used in determining the APBO was 7.75% at September 30, 1997 and 1996. 10. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT NJNE enters into fixed-price contracts to sell natural gas. In order to hedge these contracts, as of September 30, 1997, NJNE entered into futures contracts to buy 5.2 Bcf of natural gas through September 1999 at prices ranging from $1.94 to $3.44 per MMbtu and had a deferred unrealized gain of $2.5 million related to these contracts. NJNE also entered into a natural gas swap agreement in order to hedge its risk for 2.8 Bcf of natural gas and as of September 30, 1997 had a deferred unrealized gain of approximately $1 million related to this agreement. As part of its FRM program, NJNG entered into futures contracts and options to buy and sell 11.3 Bcf of natural gas through September 1999 at prices ranging from $2.12 to $3.60 per MMbtu and had a deferred unrealized gain of approximately $432,000 related to these contracts. In March 1992, NJR Energy entered into long-term, fixed-price contracts to sell natural gas to a gas marketing company. In October 1994, in conjunction with a shift in capital allocation policy, NJR Energy entered into a swap agreement which hedged its risk for sales volumes under the contract which were in excess of the estimated production from natural gas reserves owned at that time. As discussed in Note 2: Discontinued Operations, NJR Energy has sold its natural gas reserves pursuant to a plan to exit the oil and gas production business. In order to hedge its risk for sales volumes under such contract that would have otherwise been fulfilled by its producing reserve base, NJR Energy entered into a second swap agreement in June 1995. In connection with the second swap, NJR Energy received $3.3 million, which is included in Deferred Revenue and is being amortized to income over the 15-year life of the agreement. Under the terms of the swap agreements, NJR Energy will pay to the counterparties the identical fixed price it receives from the gas marketing company (the fixed price) in exchange for the payment by the counterparties of an index price plus a spread per MMbtu (the floating price) for the total volumes under the gas sales contract. The swap agreements were effective as of November 1995, and will expire on the same date as the underlying gas sales contract. As of September 30, 1997, NJR Energy would have to pay approximately $15.4 million to terminate these swap agreements. 40 21 NEW JERSEY RESOURCES CORPORATION In order to secure the physical gas supply to meet the delivery requirements under its gas sales contracts, NJR Energy entered into a long-term purchase contract effective in November 1995, with a second gas marketing company for the identical volumes it is obligated to sell under the above-mentioned gas sales contract. NJR Energy has agreed to pay the supplier the identical floating price it is receiving under the swap agreements. In conjunction with this contract, NJR Energy received $1.9 million, which is included in Deferred Revenue and is being amortized to income over the life of the agreement. The net result of the above swap agreements and purchase contract is that NJR Energy has hedged both its price and volume risk associated with its long-term, fixed-price sales contracts. The respective obligations of NJR Energy and the counterparties under the swap agreements are guaranteed, subject to a maximum amount, by the Company and the respective counter-parties' parent corporations. In the event of nonperformance by the counterparties and their parent corporations, NJR Energy's financial results would be impacted by the difference, if any, between the fixed price it is receiving under the gas sales contracts compared with the floating price it is paying under the purchase contract. However, the Company does not anticipate nonperformance by the counterparties. The fair value of cash and temporary investments, accounts receivable, accounts payable, commercial paper and borrowings under revolving credit facilities are estimated to equal their carrying amounts due to the short maturity of those instruments. The estimated fair value of long-term debt is based on quoted market prices for similar issues and the fair value of interest rate swap agreements is based on the estimated amount the Company would receive or pay to terminate the agreements. The carrying amount of long-term debt was $259.8 million and $273 million with a fair market value of $266.3 million and $277.5 million at September 30, 1997 and 1996, respectively. The Company would have to pay approximately $1 million and $1.3 million to terminate its interest rate swap agreement at September 30, 1997 and 1996, respectively. 11. COMMITMENTS AND CONTINGENT LIABILITIES Capital expenditures are estimated at $52.6 million and $45.7 million in fiscal 1998 and 1999, respectively, and consist primarily of NJNG's construction program to support its customer growth and maintain its distribution system. NJNG is participating in environmental investigations and the preparation of proposals for remedial action at 11 former manufactured gas plant (MGP) sites. Through the RA approved by the BPU, NJNG is recovering expenditures incurred through June 1996 over a seven-year period. Costs incurred subsequent to June 30, 1996 will be reviewed annually and, subject to BPU approval, recovered over seven-year periods. In 1996, NJNG, with the assistance of an outside consulting firm, completed an environmental review of the sites, including a review of its potential liability for investigation and remedial action. On the basis of such review, NJNG estimated that, exclusive of any insurance recoveries, 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 any other, it is NJNG's policy to accrue the lower end of the range. Accordingly, in 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 of other responsible parties to pay and any insurance recoveries. NJNG will continue to seek recovery of such costs through the RA. NJNR Pipeline Company, a wholly-owned 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, natural gas pipeline from the Canadian border to Long Island. The Company has guaranteed a pro-rata share of a debt service letter of credit obtained by Iroquois which totaled $1 million at September 30, 1997. The Company does not expect to incur any cash requirements under the guarantee. The Company is a party to various claims, legal actions and complaints arising in the ordinary course of business and other investigations. In management's opinion, the ultimate disposition of these matters will not have a material adverse effect on either its financial condition or results of operations. 41 22 NEW JERSEY RESOURCES CORPORATION 12. BUSINESS SEGMENT DATA Information related to the Company's various business segments, excluding capital expenditures, which are presented in the Consolidated Statements of Cash Flows, is detailed below:
(Thousands) Fiscal years ended September 30, 1997 1996 1995 ----------------------------------------- Operating Revenues Natural gas distribution $ 561,590 $ 480,629 $ 432,248 Energy services 144,343 81,076 24,268 Real estate 3,193 4,272 12,770 Other -- 68 -- ----------------------------------------- Total before eliminations 709,126 566,045 469,286 Eliminations (intersegment revenues) (12,582) (11,292) (9,107) ----------------------------------------- Total $ 696,544 $ 554,753 $ 460,179 ========================================= Depreciation and Amortization Natural gas distribution $ 25,102 $ 22,513 $ 20,944 Energy services 192 92 2 Real estate 410 542 1,985 Other 93 82 91 ----------------------------------------- Total $ 25,797 $ 23,229 $ 23,022 ========================================= Operating Income before Income Taxes Natural gas distribution $ 76,431 $ 71,976 $ 67,211 Energy services 4,932 5,668 1,233 Real estate 166 (323) 6,367 Other 697 950 424 ----------------------------------------- Total $ 82,226 $ 78,271 $ 75,235 ========================================= Assets at Year End Natural gas distribution $ 805,440 $ 778,896 $ 690,566 Energy services 28,315 23,771 16,123 Real estate 34,205 40,414 95,572 Other 11,101 12,106 24,103 ----------------------------------------- Total $ 879,061 $ 855,187 $ 826,364 =========================================
13. SUBSEQUENT EVENT In October 1997, CR&R sold a 280,000 square-foot office building for $15.6 million, which resulted in a pre-tax gain of $1.5 million. Accordingly, as of September 30, 1997, the net book value of the building has been classified as Assets Held for Sale, Net on the Consolidated Balance Sheets. The Company used the proceeds to reduce outstanding debt. 14. SELECTED QUARTERLY DATA (UNAUDITED) A summary of financial data for each fiscal quarter of 1997 and 1996 follows. Due to the seasonal nature of the Company's natural gas business, quarterly amounts vary significantly during the year. In the opinion of management, the information furnished reflects all adjustments necessary for a fair presentation of the results of the interim periods.
(Thousands, except First Second Third Fourth per share data) Quarter Quarter Quarter Quarter - --------------------------------------------------------------------------- 1997 Operating revenues $188,601 $285,366 $121,150 $ 101,427 Operating income $ 18,548 $ 33,957 $ 7,572 $ 1,385 Net income $ 12,942 $ 28,503 $ 2,526 $ (4,047) Earnings per common share $ .72 $ 1.58 $ .14 $ (.23) =================================================== 1996 Operating revenues $161,547 $235,735 $ 95,707 $ 61,764 Operating income $ 18,288 $ 32,225 $ 7,767 $ 1,320 Net income $ 12,422 $ 26,941 $ 2,229 $ (4,524) Earnings per common share $ .69 $ 1.50 $ .12 $ (.25) ===================================================
42 23 DIRECTORS AND SENIOR OFFICERS New Jersey Resources Corporation
DIRECTORS SENIOR OFFICERS BRUCE G. COE, 67 (A,D,E) LESTER D. JOHNSON, 65 (A,C,D) LAURENCE M. DOWNES, 40 President (retired) Vice Chairman & Chief Financial Chairman of the Board & New Jersey Business & Industry Officer (retired) Chief Executive Officer (1985) Association (1984) Consolidated Natural Gas Company (1996) OLETA J. HARDEN, 48 LEONARD S. COLEMAN, 48 (B,E) DOROTHY K. LIGHT, 60 (A,B,E) Senior Vice President, General Counsel President Chairman & Chief Executive Officer & Corporate Secretary (1984) The National League of Professional Alden Enterprises, LLC (1990) Baseball Players (1995) GLENN C. LOCKWOOD, 36 CHARLES G. STALON, 68 (B,C) Senior Vice President & LAURENCE M. DOWNES, 40 (A) Independent Consultant on Energy Chief Financial Officer (1988) Chairman of the Board & Regulation (1994) Chief Executive Officer EVA I. SZAKAL, 49 New Jersey Resources Corporation (1985) JOHN J. UNKLES, JR., 66 (C,D,E) Vice President, Managing Director (retired) Market Development (1997) JOE B. FOSTER, 63 (C,D) Tucker Anthony, Inc. (1982) Chairman & Chief Executive Officer (A)Member of Executive Committee Newfield Exploration Company (1994) GARY W. WOLF, 59 (A,B,C) (B)Member of Audit Committee Senior Partner (C)Member of Financial Policy Committee HAZEL S. GLUCK, 63 (B,E) Cahill Gordon & Reindel (1996) (D)Member of Management Development President & Compensation Committee The GluckShaw Group (1995) GEORGE R. ZOFFINGER, 49 (A,C,D) (E)Member of Corporate Governance Committee President & Chief Executive Officer Date represents year of affiliation with an WARREN R. HAAS, 70 (B,D) Value Property Trust (1996) NJR Company. Vice President (retired) Merrill Lynch Specialists, Inc. (1987) DUNCAN THECKER, 82 President Duncan Thecker Associates
Director Emeritus (1982) EX-21.1 13 SUBSIDIARIES OF THE REGISTRANT 1 DIRECTORS AND SENIOR OFFICERS NEW JERSEY RESOURCES CORPORATION SUBSIDIARIES NEW JERSEY NATURAL GAS HUGO C. BOTTINO, 45 NJR ENERGY CORPORATION COMPANY Vice President, Human Resources (1981) LAURENCE M. DOWNES, 40 Directors President (1985) BRUCE G. COE FRANCIS X. COLFORD, 45 Laurence M. Downes Vice President & Controller (1978) GLENN C. LOCKWOOD, 36 Warren R. Haas Chief Financial Officer & Lester D. Johnson DAVID M. KLUCSIK, 42 Treasurer (1988) Dorothy K. Light Vice President, Government Affairs (1984) OLETA J. HARDEN, 48 Senior Officers Secretary (1984) LAURENCE M. DOWNES, 40 MARY ANN MARTIN, 62 Chairman of the Board & Vice President, JAY B. CORN, 38 Chief Executive Officer (1985) Consumer & Community Relations Vice President, (1959) Finance & Business Services (1990) GARY A. EDINGER, 47 Senior Vice President, KEVIN A. MOSS, 47 COMMERCIAL REALTY & Energy Delivery (1972) Vice President, RESOURCES CORP. Regulatory Affairs (1990) OLETA J. HARDEN, 48 JOHN LISHAK, JR., 57 Senior Vice President & DEBORAH G. ZILAI, 44 President (1981) Corporate Secretary (1984) Vice President, Information Systems & Services (1996) GLENN C. LOCKWOOD, 36 TIMOTHY C. HEARNE, 41 Vice President, Chief Financial Officer Senior Vice President, Financial NEW JERSEY NATURAL ENERGY & Treasurer (1988) & Administrative Services (1985) COMPANY OLETA J. HARDEN, 48 THOMAS J. KONONOWITZ, 55 LAURENCE M. DOWNES, 40 Secretary (1984) Senior Vice President, President (1985) Marketing Services (1963) GLENN C. LOCKWOOD, 36 JOSEPH P. SHIELDS, 40 Chief Financial Officer & Senior Vice President, Treasurer (1988) Energy Services (1983) OLETA J. HARDEN, 48 WAYNE K. TARNEY, 56 Secretary (1984) Senior Vice President, Customer Services (1996) JAY B. CORN, 38 Vice President, Finance & Business Services (1990)
EX-27.1 14 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW JERSEY RESOURCES CORPORATION'S 1997 ANNUAL REPORT TO STOCKHOLDERS INCLUDING THE CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED STATEMENTS OF CASH FLOWS, CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS SEP-30-1997 SEP-30-1997 PRO-FORMA 639,073 20,287 140,357 79,344 0 879,061 45,385 201,847 31,204 278,436 20,000 760 259,845 0 0 48,000 138 0 31,562 0 240,320 879,061 696,544 20,764 614,318 635,082 61,462 566 62,028 20,513 41,515 1,591 39,924 28,711 14,875 67,176 2.22 2.22
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