-----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, RjRfUcMznz8TyAlQJf09Ui2ojhPh2l7b716hq0XuV8YOECdUzYUHBULF/4DtDXEL gdi0hOQPKzdJWfD8XJqYeA== /in/edgar/work/20000811/0000950123-00-007464/0000950123-00-007464.txt : 20000921 0000950123-00-007464.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950123-00-007464 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW JERSEY RESOURCES CORP CENTRAL INDEX KEY: 0000356309 STANDARD INDUSTRIAL CLASSIFICATION: [4924 ] IRS NUMBER: 222376465 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08359 FILM NUMBER: 693355 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-Q 1 e10-q.txt NEW JERSEY RESOURCES CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 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) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES: [X] NO: [ ] The number of shares outstanding of $2.50 par value Common Stock as of August 7, 2000 was 17,677,785. 2 PART I-FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, 2000 1999 2000 1999 ---- ---- ---- ---- (Thousands, except per share data) OPERATING REVENUES ........................... $247,949 $159,486 $880,387 $731,391 -------- -------- -------- -------- OPERATING EXPENSES Gas purchases ............................... 205,287 119,756 667,447 525,512 Operation and maintenance ................... 19,850 18,347 63,188 60,616 Depreciation and amortization ............... 7,888 7,406 23,677 22,206 Energy and other taxes ...................... 5,982 5,842 30,823 32,354 -------- -------- -------- -------- Total operating expenses ..................... 239,007 151,351 785,135 640,688 -------- -------- -------- -------- OPERATING INCOME ............................. 8,942 8,135 95,252 90,703 Other income, net ............................ 227 677 791 1,575 Interest charges, net ........................ 4,305 4,849 14,324 15,170 -------- -------- -------- -------- INCOME BEFORE INCOME TAXES ................... 4,864 3,963 81,719 77,108 Income tax provision ......................... 1,741 895 30,569 28,450 -------- -------- -------- -------- INCOME BEFORE PREFERRED STOCK DIVIDENDS ...... 3,123 3,068 51,150 48,658 Preferred stock dividends .................... 7 8 22 109 -------- -------- -------- -------- INCOME FROM CONTINUING OPERATIONS ............ 3,116 3,060 51,128 48,549 Income from discontinued operations .......... -- -- 828 -- -------- -------- -------- -------- NET INCOME ................................... $ 3,116 $ 3,060 $ 51,956 $ 48,549 ======== ======== ======== ======== EARNINGS PER COMMON SHARE-BASIC INCOME FROM CONTINUING OPERATIONS .......... $ .18 $ .17 $ 2.89 $ 2.72 ======== ======== ======== ======== NET INCOME ................................. $ .18 $ .17 $ 2.93 $ 2.72 ======== ======== ======== ======== EARNINGS PER COMMON SHARE-DILUTED INCOME FROM CONTINUING OPERATIONS .......... $ .18 $ .17 $ 2.87 $ 2.70 ======== ======== ======== ======== NET INCOME ................................. $ .18 $ .17 $ 2.91 $ 2.70 ======== ======== ======== ======== DIVIDENDS PER COMMON SHARE ................... $ .43 $ .42 $ 1.29 $ 1.26 ======== ======== ======== ======== AVERAGE SHARES OUTSTANDING BASIC ...................................... 17,656 17,888 17,707 17,867 ======== ======== ======== ======== DILUTED .................................... 17,788 18,005 17,829 17,980 ======== ======== ======== ========
See Notes to Consolidated Financial Statements 1 3 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
NINE MONTHS ENDED JUNE 30, 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income ...................................... $ 51,956 $ 48,549 Adjustments to reconcile net income to cash flows Depreciation and amortization .................. 23,677 22,206 Amortization of deferred charges ............... 4,715 2,114 Deferred income taxes .......................... 6,912 3,263 Manufactured gas plant remediation costs ....... (18,184) (2,851) Change in working capital ...................... 43,030 48,310 Other, net ..................................... 3,066 (3,265) --------- --------- Net cash flows from operating activities ......... 115,172 118,326 --------- --------- CASH FLOWS USED IN FINANCING ACTIVITIES Proceeds from long-term debt .................... -- 7,800 Proceeds from common stock ...................... 6,062 6,873 Payments of long-term debt ...................... (3,582) (20,077) Repurchase of treasury stock .................... (10,466) (5,855) Payments of common stock dividends .............. (22,679) (22,321) Payments of preferred stock ..................... (120) (20,120) Net change in short-term debt ................... (44,100) (27,300) --------- --------- Net cash flows used in financing activities ...... (74,885) (81,000) --------- --------- CASH FLOWS USED IN INVESTING ACTIVITIES Expenditures for Utility plant .................................. (35,845) (35,251) Real estate properties and other ............... (786) (256) Equity investments ............................. (250) -- Cost of removal ................................ (3,796) (3,716) Proceeds from asset sales ....................... 831 1,900 --------- --------- Net cash flows used in investing activities ...... (39,846) (37,323) --------- --------- Net change in cash and temporary investments ..... 441 3 Cash and temporary investments at September 30 ... 2,123 2,476 --------- --------- Cash and temporary investments at June 30 ........ $ 2,564 $ 2,479 ========= ========= CHANGES IN COMPONENTS OF WORKING CAPITAL Receivables ..................................... $ (44,885) $ (31,239) Construction fund ............................... 4,500 3,900 Inventories ..................................... 13,294 36,222 Deferred gas costs .............................. 16,774 44,673 Purchased gas ................................... 49,865 4,551 Prepaid and accrued taxes, net .................. 4,282 6,314 Customers' credit balances and deposits ......... (6,322) (4,606) Accounts payable ................................ 3,527 (5,175) Other, net ...................................... 1,995 (6,330) --------- --------- Total ............................................ $ 43,030 $ 48,310 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION Cash paid for Interest (net of amounts capitalized) ........... $ 15,308 $ 16,223 Income taxes .................................... $ 15,965 $ 23,593
See Notes to Consolidated Financial Statements 2 4 CONSOLIDATED BALANCE SHEETS ASSETS
JUNE 30, SEPTEMBER 30, JUNE 30, 2000 1999 1999 (unaudited) (unaudited) ----------- ------------- ----------- (Thousands) PROPERTY, PLANT AND EQUIPMENT Utility plant, at cost .................. $ 976,084 $ 941,490 $ 929,616 Real estate properties and other, at cost 26,725 26,326 26,425 ----------- ----------- ----------- 1,002,809 967,816 956,041 Accumulated depreciation and amortization (280,077) (262,372) (258,100) ----------- ----------- ----------- Property, plant and equipment, net ..... 722,732 705,444 697,941 ----------- ----------- ----------- CURRENT ASSETS Cash and temporary investments .......... 2,564 2,123 2,479 Construction fund ....................... 7,600 12,100 12,100 Customer accounts receivable ............ 130,255 83,924 83,808 Allowance for doubtful accounts ......... (3,101) (1,684) (1,890) Gas in storage, at average cost ......... 22,335 35,718 16,813 Materials and supplies, at average cost . 3,806 3,717 3,608 Prepaid state taxes ..................... 8,904 4,749 9,497 Other ................................... 5,773 8,598 11,549 ----------- ----------- ----------- Total current assets ................... 178,136 149,245 137,964 ----------- ----------- ----------- DEFERRED CHARGES AND OTHER Equity investments ...................... 21,855 8,813 9,229 Regulatory assets ....................... 79,483 64,063 42,456 Long-term deferred gas costs ............ 3,147 9,744 -- Other ................................... 22,962 22,703 31,595 ----------- ----------- ----------- Total deferred charges and other ....... 127,447 105,323 83,280 ----------- ----------- ----------- Total assets ..................... $ 1,028,315 $ 960,012 $ 919,185 =========== =========== ===========
See Notes to Consolidated Financial Statements 3 5 CONSOLIDATED BALANCE SHEETS CAPITALIZATION AND LIABILITIES
JUNE 30, SEPTEMBER 30, JUNE 30, 2000 1999 1999 (unaudited) (unaudited) ----------- ------------- ----------- (Thousands) CAPITALIZATION Common stock equity ................... $ 335,836 $ 302,169 $ 318,255 Redeemable preferred stock ............ 400 520 520 Long-term debt ........................ 283,980 287,723 286,264 ---------- ---------- ---------- Total capitalization ................. 620,216 590,412 605,039 ---------- ---------- ---------- CURRENT LIABILITIES Current maturities of long-term debt .. 20,479 20,318 30,157 Short-term debt ....................... 17,600 61,700 33,400 Purchased gas ......................... 128,694 78,829 52,012 Accounts payable and other ............ 32,026 28,499 25,224 Dividends payable ..................... 7,590 7,465 7,507 Accrued taxes ......................... 18,403 2,138 8,697 Overrecovered gas costs ............... 13,546 3,369 -- Customers' credit balances and deposits 9,148 15,470 9,046 ---------- ---------- ---------- Total current liabilities ............ 247,486 217,788 166,043 ---------- ---------- ---------- DEFERRED CREDITS Deferred income taxes ................. 70,558 65,559 79,413 Deferred investment tax credits ....... 9,932 10,293 10,484 Deferred revenue ...................... 21,511 23,020 18,529 Long-term overrecovered gas costs ..... -- -- 5,558 Other ................................. 58,612 52,940 34,119 ---------- ---------- ---------- Total deferred credits ............... 160,613 151,812 148,103 ---------- ---------- ---------- Total capitalization and liabilities $1,028,315 $ 960,012 $ 919,185 ========== ========== ==========
See Notes to Consolidated Financial Statements 4 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. General The preceding financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). The September 30, 1999 balance sheet data is derived from the audited financial statements of New Jersey Resources Corporation (the Company). Although management believes that the disclosures are adequate to make the information presented not misleading, it is recommended that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's 1999 Annual Report on Form 10-K. In the opinion of management, the information furnished reflects all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results of the interim periods. Because of the seasonal nature of the Company's utility operations and other factors, the results of operations for the interim periods presented are not indicative of the results to be expected for the entire year. 2. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries -- New Jersey Natural Gas Company (NJNG), NJR Energy Holdings Corporation (Energy Holdings) and NJR Development Company (NJR Development). NJR Energy Services Company (Energy Services), New Jersey Natural Energy Company (Natural Energy) and NJR Energy Corporation (NJR Energy) are wholly-owned subsidiaries of Energy Holdings and Commercial Realty & Resources Corp. (CR&R), is a wholly-owned subsidiary of NJR Development. Significant intercompany accounts and transactions have been eliminated. 3. New Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative Investments and Hedging Activities," which must be adopted by the quarter ending December 31, 2000. The Company has created a project team that is performing a detailed evaluation of the effects of SFAS No. 133 on its financial condition and results of operations. The impact of SFAS No. 133 on the Company's future results will vary based on the use of derivative instruments during any given reporting period following the time of adoption. The Company has adopted Emerging Issues Task Force 98-10 "Accounting for Contracts Involved in Energy Trading and Risk Management Activities," the impact of which was immaterial to the Company's financial condition and results of operations. 5 7 4. Capitalized Interest The Company's capitalized interest totaled $272,000 and $186,000 for the three months ended June 30, 2000 and 1999, respectively, and $813,000 and $547,000 for the nine months ended June 30, 2000 and 1999, respectively. 5. Legal and Regulatory Proceedings a. Energy Deregulation Legislation In February 1999, the Electric Discount and Energy Competition Act (the Act), which provides the framework for the restructuring of New Jersey's energy markets, became law. In January 2000, the New Jersey Board of Public Utilities (the BPU), verbally approved a stipulation agreement among various parties to fully open NJNG's residential markets to competition, restructure its rates to segregate its Basic Gas Supply (BGS) Service and Delivery service prices as required by the Act, and expand an incentive for residential and small commercial customers to switch to transportation service. The stipulation agreement also extends incentives for NJNG's off-system sales and capacity management programs through December 31, 2002. Additionally, NJNG received approval to recover carrying costs on its expenditures associated with remediating its former manufactured gas plants. These expenditures are recovered over rolling seven-year periods and are subject to annual BPU review and approval. The Act also allows continuation of each utility's role as a gas supplier at least until December 31, 2002. The BPU must determine the ongoing role of each utility in providing gas supply services by January 1, 2002. The Act allows natural gas utilities to provide competitive services (e.g., appliance services). By December 31, 2000 the BPU is expected to decide whether certain customer account services (i.e., meter reading, billing and collections) should be competitive. On July 12, 2000 NJNG filed a stipulation agreement among various parties resolving the customer account service proceedings. The stipulation continues NJNG's current third party billing policies and delays until January 2003 any further decision on meter reading and other potentially competitive account services. The stipulation also provides for NJNG's existing appliance service business to be transferred from NJNG to an unregulated subsidiary of the Company. NJNG expects the BPU to make a decision by December 31, 2000. b. Levelized Gas Adjustment (LGA) and Other Adjustment Clauses In July 2000, NJNG amended a September 1999 filing in response to a significant increase in the wholesale cost of gas. The amended filing seeks an approximate 16% increase in rates for firm sales customers through an increase of the Gas Cost Recovery (GCR) and Remediation Adjustment (RA) factors which is slightly offset by a decrease in the Prior Gas Cost Adjustment (PGCA) and Transportation Education and Implementation (TEI) factors. The filing proposes the Demand Side Management (DSM) and Weather Normalization Clause (WNC) factors remain the same. The rate restructuring mandated by the Act discussed in Note 5a. Energy Deregulation Legislation, above, did not impact the rates of any of the individual clauses. In August 1999, NJNG filed a Comprehensive Resource Analysis (CRA) plan pursuant to a BPU order. The CRA, which will replace NJNG's current DSM program, includes funding for class I renewables (e.g., fuel cells), and has a program cost of $2.9 million recoverable through rates. The BPU is currently evaluating two separate stipulations filed in this proceeding. 6 8 c. Gas Remediation NJNG has identified eleven former manufactured gas plant (MGP) sites, dating back to the late 1800's and early 1900's, which contain contaminated residues from the former gas manufacturing operations. Ten of the eleven sites in question were acquired by NJNG in 1952. All of the gas manufacturing operations ceased at these sites at least by the mid-1950's and in some cases had been discontinued many years earlier, and all of the old gas manufacturing facilities were subsequently dismantled by NJNG or the former owners. NJNG is currently involved in administrative proceedings with the New Jersey Department of Environmental Protection (NJDEP) and local government authorities with respect to the plant sites in question, and is participating in various studies and investigations by outside consultants to determine the nature and extent of any such contaminated residues and to develop appropriate programs of remedial action, where warranted. Since October 1989, NJNG has entered into Administrative Consent Orders or Memoranda of Agreement with the NJDEP covering all eleven sites. These documents establish the procedures to be followed by NJNG in developing a final remedial clean-up plan for each site. Most of the cost of such studies and investigations is being shared under an agreement with the former owner and operator of ten of the MGP sites. Through a Remediation Rider approved by the BPU, NJNG is recovering its expenditures incurred through June 30, 1998 over a seven-year period. Costs incurred subsequent to June 30, 1998, including carrying costs on the deferred expenditures, as noted above, will be reviewed annually and recovered over rolling seven-year periods, subject to BPU approval. In September 1999, NJNG filed for recovery of expenditures incurred through June 30, 1999 and a BPU decision is expected by December 31, 2000. In March 1995, NJNG filed a complaint in New Jersey Superior Court against various insurance carriers for declaratory judgment and for damages arising from such defendants' breach of their contractual obligations to defend and/or indemnify NJNG against liability for claims and losses (including defense costs) alleged against NJNG relating to environmental contamination at the former MGP sites and other sites. NJNG is seeking (i) a declaration of the rights, duties and liabilities of the parties under various primary and excess liability insurance policies purchased from the defendants by NJNG from 1951 through 1985, and (ii) compensatory and other damages, including costs and fees arising out of defendants' obligations under such insurance policies. The complaint was amended in July 1996 to name Kaiser-Nelson Steel & Salvage Company (Kaiser-Nelson) and its successors as additional defendants. The Company is seeking (a) a declaration of the rights, duties and liabilities of the parties under agreements with respect to claims against the Company that allege property damage caused by various substances used, handled or generated by NJNG or the predecessor in title that were removed from several of the MGP sites by Kaiser-Nelson, and (b) money damages or compensatory relief for the harm caused by Kaiser-Nelson's aforementioned actions. Discovery is proceeding in this matter. There can be no assurance as to the outcome of these proceedings. 7 9 d. South Brunswick Asphalt, L.P. NJNG has been named as 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 to 1983 by an affiliate of SBA (Seal Tite Corp.) 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 tar emulsion/sand and gravel mixture at each site into asphalt, to be used as a paving materials. In July 1998, SBA filed an amended complaint adding NJDEP to the proceedings to facilitate the resolution of these applications. Following service of SBA's amended complaint, NJDEP filed a motion for dismissal of the amended complaint, but has not formally granted or denied SBA's permit applications. In March 1999, the court granted NJDEP's motion in part and denied NJDEP's motion in part, and directed SBA to file a more definite statement of its claims for equitable relief against NJDEP, including its request that a mandatory injunction be imposed compelling NJDEP to issue the subject permits. SBA has filed a more definite statement of its claims, and NJDEP has renewed its motion to dismiss the amended complaint. In its motion, NJDEP alleges, among other things, that it has not acted upon SBA's applications for permits to recycle the tar emulsion/sand and gravel mixture because SBA has not submitted completed applications for these permits. This allegation is denied by SBA. NJDEP's motion to dismiss is pending in the Superior Court and it is not known when the Court will issue a decision. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial condition or results of operations. e. Combe Fill South Landfill NJNG has been joined as a third-party defendant in two civil actions commenced in October 1998 in the U.S. District Court for the District of New Jersey by the U.S. Environmental Protection Agency and NJDEP. These two actions seek recovery of costs expended in connection with, and for continuation of the cleanup of, the Combe Fill South Landfill, a Superfund site in Chester, New Jersey. The plaintiffs claim that hazardous waste NJNG is alleged to have generated was sent to the site. There are approximately 180 defendants and third-party defendants in the actions thus far. Each third-party complaint seeks damages under CERCLA Section 113 and the New Jersey Spill Act, declaratory relief holding each third-party defendant strictly liable, and contribution and indemnification under the common law of the United States and New Jersey. No specific monetary demands or scope of cleanup work have been set forth to date. NJNG is in the process of investigating the allegations, formulating its position with respect thereto and has agreed to participate in an alternate dispute resolution process encouraged by the Court. Its insurance carriers have been notified and one has agreed to assume responsibility for the legal expenses, while reserving its rights with regard to liability. NJNG is currently unable to predict the extent, if any, to which it may have cleanup or other liability with respect to these civil actions, but would seek recovery of any such costs through the ratemaking process. No assurance can be given as to the timing or extent of the ultimate recovery of any such costs. 8 10 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. 6. Earnings Per Share The Company has adopted SFAS No. 128 "Earnings per Share" which establishes standards for computing and presenting basic and diluted earnings per share (EPS). The incremental shares required for inclusion in the denominator for the diluted EPS calculation were 132,078 and 116,093 for the three months ended June 30, 2000 and 1999, respectively, and 121,931 and 113,265 for the nine months ended June 30, 2000 and 1999, respectively. These shares relate to stock options and restricted stock and were calculated using the treasury stock method. The numerator for each applicable basic and diluted calculation was income from continuing operations and net income, respectively. 7. Long-Term Debt In April 1998, NJNG entered into a loan agreement whereby the New Jersey Economic Development Authority loaned NJNG the proceeds from its $18 million Natural Gas Facilities Revenue Bonds, Series 1998C, which were deposited into a construction fund. NJNG may draw down these funds in reimbursement for certain qualified expenditures. In April 1999 and 2000, NJNG drew down $3.9 million and $4.5 million, respectively, from the construction fund and issued a like amount of its Series GG Bonds. 8. Discontinued Operations In May 1995, the Company adopted a plan to exit the oil and natural gas production business and pursue the sale of the reserves and related assets of NJR Energy and its subsidiary, New Jersey Natural Resources Company (NJNR). The Company accounted for this segment as a discontinued operation and in fiscal 1995 recorded an after-tax charge of $8.7 million, or $.49 per share. This charge was based on estimates of the anticipated loss from operations until the assets were sold, the estimated loss on the sale of the remaining reserves and other costs related to the closing of its offices in Dallas and Tulsa. Based upon actual proceeds received from the sale of the assets and costs incurred, net of insurance recoveries received in January 2000, the Company closed out its reserve balance and reported income from discontinued operations of $828,000 in the quarter ended March 31, 2000. 9 11 9. Segment Reporting
Three Months Ended Nine Months Ended June 30, June 30, 2000 1999 2000 1999 ---- ---- ---- ---- (Thousands) Operating Revenues Natural gas distribution $ 147,763 $ 113,209 $ 618,106 $ 548,178 Energy holdings 100,374 48,423 262,840 190,285 Real estate 285 239 840 723 --------- --------- --------- --------- Subtotal 248,422 161,871 881,786 739,186 Intersegment revenues (473) (2,385) (1,399) (7,795) --------- --------- --------- --------- Total $ 247,949 $ 159,486 $ 880,387 $ 731,391 ========= ========= ========= ========= Operating Income Natural gas distribution $ 7,506 $ 5,972 $ 89,191 $ 84,852 Energy holdings 24 1,348 2,910 4,147 Real estate (153) (110) (679) (337) Other 1,565 925 3,830 2,041 --------- --------- --------- --------- Total $ 8,942 $ 8,135 $ 95,252 $ 90,703 ========= ========= ========= =========
As of As of As of June 30, 2000 September 30, 1999 June 30, 1999 ------------- ------------------ ------------- (Thousands) Assets Natural gas distribution $ 925,331 $ 883,072 $ 844,859 Energy holdings 70,769 46,371 33,810 Real estate 22,441 22,396 22,294 Other 9,774 8,173 18,222 ---------- ---------- ---------- Total $1,028,315 $ 960,012 $ 919,185 ========== ========== ==========
10. Investments Equity investments, which were purchased as long-term investments, are classified as available for sale and are carried at the estimated fair value with any unrealized gains or losses included in other comprehensive income, a component of stockholders equity. Included in equity investments is the Company's less than 1% ownership interest in the Capstone Turbine Corporation, a developer of microturbines, which issued its initial public offering in June 2000. Based on its market value on June 30, this investment generated $8.1 million of after-tax other comprehensive income in the three and nine months ended June 30, 2000. 10 12 11. Comprehensive Income
Three Months Ended Nine Months Ended June 30, June 30, 2000 1999 2000 1999 ---- ---- ---- ---- (Thousands) Net income $ 3,116 $ 3,060 $51,128 $48,549 Unrealized gains on equity investments, net of tax 7,959 2,855 8,128 904 ------- ------- ------- ------- Comprehensive income $11,075 $ 5,915 $59,256 $49,453 ======= ======= ======= =======
12. Other At June 30, 2000 there were 17,650,470 shares of common stock outstanding and the book value per share was $19.02. Certain reclassifications have been made of previously reported amounts to conform with current year classifications. 11 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED JUNE 30, 2000 A. RESULTS OF OPERATIONS Consolidated income from continuing operations for the quarter ended June 30, 2000 increased 1.8% to $3.1 million, compared with $3 million for the same period last year. Basic and diluted EPS from continuing operations increased 5.9% to $.18, compared with $.17 last year. Consolidated income from continuing operations for the nine months ended June 30, 2000 increased 5.4% to $51.1 million, compared with $48.5 million for the same period last year. Basic EPS from continuing operations increased 6.3% to $2.89, compared with $2.72 last year. Diluted EPS from continuing operations also increased 6.3% to $2.87, compared with $2.70 last year. The increase in consolidated earnings from continuing operations in both the three and nine months ended June 30, 2000 was primarily attributable to continued profitable customer growth at the Company's principal subsidiary, NJNG, and improved wholesale natural gas marketing results. Consolidated net income for the nine months ended June 30, 2000 includes $828,000, or $.05 per share, of income from discontinued operations representing the final reconciliation of the Company's reserve established in 1995 in conjunction with exiting the gas exploration and production business. This income represents the excess of proceeds received from the sale of the assets and the costs incurred, net of insurance recoveries received in January 2000, compared with the estimates made in 1995. NJNG OPERATIONS NJNG's financial results are summarized as follows:
Three Months Ended Nine Months Ended June 30, June 30, 2000 1999 2000 1999 ---- ---- ---- ---- (Thousands) Gross margin Residential and commercial $ 26,671 $ 24,109 $137,559 $132,453 Firm transportation 6,182 6,099 27,768 24,498 -------- -------- -------- -------- Total firm margin 32,853 30,208 165,327 156,951 Interruptible 219 162 637 460 Off-system and capacity management 1,294 813 4,136 3,828 -------- -------- -------- -------- Total gross margin $ 34,366 $ 31,183 $170,100 $161,239 ======== ======== ======== ======== Appliance service revenues $ 1,881 $ 1,566 $ 8,011 $ 7,485 ======== ======== ======== ======== Operating income $ 7,506 $ 5,972 $ 89,191 $ 84,852 ======== ======== ======== ======== Net income $ 2,529 $ 2,470 $ 48,505 $ 46,520 ======== ======== ======== ========
12 14 Gross Margin Gross margin is defined as gas revenues less gas costs, sales tax and a Transitional Energy Facilities Assessment (TEFA). Gross margin provides a more meaningful basis for evaluating utility operations, since gas costs, sales tax and TEFA are passed through to customers and, therefore, have no effect on earnings. Gas costs are charged to operating expenses on the basis of therm sales at the rates included in NJNG's tariff. The LGA clause allows NJNG to recover gas costs that exceed the level reflected in its base rates. Sales tax is calculated at 6% of revenue and excludes off-system sales, sales to other utilities and federal accounts. TEFA is calculated on a per therm basis and excludes sales to other utilities, off-system sales and federal accounts. Firm Margin Residential and commercial (i.e., firm) gross margin is subject to the 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 WNC does not fully protect NJNG from factors such as unusually warm weather and declines in customer usage patterns, which were set at the conclusion of NJNG's last base rate case in January 1994. The accumulated adjustment from one heating season (i.e., October-May) is billed or credited to customers in subsequent periods. This mechanism reduces the variability of both customer bills and NJNG's earnings due to weather fluctuations. The components of gross margin from firm customers are being impacted by customers switching from sales service to firm transportation service. NJNG's total gross margin is not negatively impacted by customers who utilize its firm transportation service and purchase their gas from another supplier. This is due to NJNG's tariff which is designed such that no profit is earned on the commodity portion of sales to firm customers, and all customers who purchase gas from another supplier continue to utilize NJNG for transportation. Total firm margin increased by 8.8% and 5.3% for the three and nine months ended June 30, 2000, respectively, compared with the same periods last year, reflecting customer growth and higher average customer usage. The weather for the nine months ended June 30, 2000 was 7% warmer than normal, which, in accordance with the WNC, resulted in $7.9 million of gross margin being accrued for future recovery from customers. At June 30, 2000, NJNG had $18 million in accrued WNC margin to be collected from its customers in fiscal 2001 and 2002. Gross margin from sales to firm customers increased $2.6 million, or 10.6%, and $5.1 million, or 3.9%, for the three and nine months ended June 30, 2000, respectively, compared with the same periods last year. Sales to firm customers were 6.8 billion cubic feet (Bcf) and 39.9 Bcf for the three and nine months ended June 30, 2000, compared with 5.8 Bcf and 38.5 Bcf for the same periods last year. The increase in gross margin and sales for both periods was primarily due to the impact of 12,318 customer additions during the twelve months ended June 30, 2000. 13 15 Gross margin from firm transportation increased $83,000, or 1.4%, and $3.3 million, or 13.3%, for the three and nine months ended June 30, 2000, respectively, compared with the same periods last year as more customers chose this service. NJNG transported 1.5 Bcf and 9.5 Bcf for the three and nine months ended June 30, 2000, respectively, compared with 1.6 Bcf and 8.3 Bcf, in the same periods last year. The number of firm transportation customers is primarily due to NJNG's participation in an open, competitive market which allows residential customers to change natural gas suppliers. Under this program 31,120 and 29,779 residential customers and 4,108 and 4,270 commercial customers were using this service at June 30, 2000 and 1999, respectively. Interruptible NJNG services 53 customers through interruptible sales and/or transportation tariffs. Sales made under the interruptible sales tariff are priced on market-sensitive oil and gas parity rates. Although therms sold and transported to interruptible customers represented 4.4% and 3.8% of total therm throughput in the nine months ended June 30, 2000 and 1999, respectively, they accounted for less than 1% of the total gross margin in each period due to the regulated margin-sharing formulas that govern these sales. Under these formulas, NJNG retains 10% of the gross margin from the interruptible sales and 5% of the gross margin from transportation sales, with the balance credited to firm sales customers through the LGA clause. Off-System and Capacity Management 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 when the gas is not needed for system requirements. These sales enable NJNG to spread its fixed demand costs, which are charged by pipelines to access their supplies year round, over a larger and more diverse customer base. NJNG also participates in the capacity release market on the interstate pipeline network when the capacity is not needed for its own system requirements. Effective October 1, 1998 through December 31, 2002, NJNG will retain 15% of the gross margin from these sales with the balance credited to firm sales customers through the LGA clause. In order to reduce the fixed cost of NJNG's gas supply portfolio, savings achieved through the permanent reduction or replacement of capacity or other services will be shared between customers and shareholders. Under this program, NJNG retains 40% of the savings for the first 12 months following any transaction and retains 15% of the savings for the remaining period through December 31, 2002, with the balances credited to firm sales customers through the LGA clause. NJNG's off-system and capacity management sales totaled 34.9 Bcf and generated $1.3 million of gross margin, and 103.2 Bcf and $4.1 million of gross margin, for the three and nine months ended June 30, 2000, respectively, compared with 33.1 Bcf and $813,000 of gross margin, and 113.4 Bcf and $3.8 million of gross margin, in the respective periods last year. The increase in margins for both periods was primarily due to higher margins per therm which resulted from an increase in the market value of interstate pipeline capacity. 14 16 Operating Income Operating income increased $1.5 million, or 25.6%, and $4.3 million, or 5.1%, for the three and nine months ended June 30, 2000, respectively, compared with the same periods last year, primarily due to the increase in gross margin discussed above and increased appliance service revenues, which more than offset an increase in operation and maintenance and depreciation expenses. Net Income Net income increased $59,000, or 2.4%, and $2 million, or 4.3%, for the three and nine months ended June 30, 2000, respectively, compared with the same periods last year, primarily due to the higher operating income discussed above, which more than offset lower other income. In the three and nine months ended June 30, 1999, other income, net of tax, included $472,000 associated with settlement of a contract to service a cogeneration project which was subsequently cancelled. ENERGY HOLDINGS OPERATIONS Energy Holdings' consolidated financial results, which include Energy Services and Natural Energy, the Company's unregulated fuel and capacity management and retail marketing subsidiaries, respectively, and the operations of NJR Energy, which consist primarily of its equity investments in the Capstone Turbine Corporation and the Iroquois Gas Transmission System, L.P., are summarized as follows:
Three Months Ended Nine Months Ended June 30, June 30, 2000 1999 2000 1999 ---- ---- ---- ---- (Thousands) Revenues $100,374 $48,423 $262,840 $190,285 ======== ======= ======== ======== Operating income $ 24 $ 1,348 $ 2,910 $ 4,147 ======== ======= ======== ======== Net income $ 371 $ 463 $ 3,237 $ 1,809 ======== ======= ======== ========
Energy Holdings' operating income is being impacted by a shift in Energy Services' operations whereby a larger percentage of profits are being generated through storage transactions, which results in positive cash flow and higher interest income. Energy Holdings operating income decreased for the three and nine months ended June 30, 2000, compared with the same period last year, primarily due to this shift in operations. Net income for the three months ended June 30, 2000, compared with last year decreased by $92,000 primarily due to lower margins from the retail marketing operations which more than offset higher results from Energy Services' wholesale operations. Net income for the nine months ended June 30, 2000 increased by $1.4 million compared with last year reflecting higher results from our investment in the Iroquois Gas Transmission System, L.P. and improved wholesale results. Energy Holdings' gas sales and managed gas totaled 29.9 Bcf and 85.3 Bcf, and retail gas sales totaled .8 Bcf and 3.2 Bcf for the three and nine months ended June 30, 2000, respectively, compared with gas sales and managed gas of 25.7 Bcf and 94 Bcf, and retail gas sales of 1.6 Bcf and 6.6 Bcf in the comparable periods last year. The increase in gas sales for the three months ended June 30, 2000 was primarily due to increased deliveries to electric generators. The decrease in gas under management for the 15 17 nine months ended June 30, 2000 was primarily due to the expiration of a fuel management contract. The decrease in retail gas sales is primarily due to the November 1999 sale by Natural Energy of its commercial customer contracts. Natural Energy currently serves approximately 14,500 residential customers. NJR DEVELOPMENT OPERATIONS NJR Development's consolidated financial results, which consist solely of CR&R's operations, are summarized as follows:
Three Months Ended Nine Months Ended June 30, June 30, 2000 1999 2000 1999 ---- ---- ---- ---- (Thousands) Revenues $285 $239 $ 840 $723 ==== ==== ===== ==== Other income, net $ 97 $102 $ 258 $307 ==== ==== ===== ==== Net income (loss) $ (3) $ 16 $(195) $ 33 ==== ==== ===== ====
In 1996, CR&R entered into a sale-leaseback transaction which generated a pre-tax gain of $17.8 million, which is included in Deferred revenue and is being amortized to Other income, net over 25 years, the term of the lease. The primary tenant of the facility, NJNG, is leasing the building under a long-term master lease agreement and continues to occupy a majority of the space in the building. The decrease in net income for the three and nine months ended June 30, 2000 compared with the same periods last year is primarily due to marketing costs associated with CR&R's remaining undeveloped land portfolio. In June 2000, CR&R completed the sale of 7.7 acres of undeveloped land in Wall Township for $275,000. In connection with this transaction, CR&R accrued a $75,000 pre-tax loss in the quarter ended December 31, 1999. YEAR 2000 ISSUES The Company developed and implemented a plan to address Year 2000 issues facing the Company. The Company has not experienced any material incidents during the transition to Year 2000, and to date all computers, infrastructure and business systems have been running smoothly. The Company will continue to closely monitor Year 2000 issues and does not believe that there will be any future incidents. B. LIQUIDITY AND CAPITAL RESOURCES In order to meet the working capital and external debt financing requirements of its unregulated subsidiaries, as well as its own working capital needs, the Company maintains committed credit facilities with a number of banks totaling $90 million. At June 30, 2000, $55.3 million was outstanding under these agreements. NJNG satisfies its debt needs by issuing short-term and long-term debt based upon its own financial profile. The Company meets the common equity requirements of each subsidiary, if any, through new issuances of the Company's common stock, including the proceeds from its Automatic Dividend Reinvestment Plan (DRP). The DRP also allows for the purchase of shares in the open market to satisfy the plan's needs. The Company can switch funding options every 90 days. 16 18 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 energy tax payments, through the issuance of commercial paper and short-term bank loans. To support the issuance of commercial paper, NJNG maintains committed credit facilities totaling $100 million. Remaining fiscal 2000 construction expenditures are estimated at $14.6 million. These expenditures will be incurred for services, mains and meters to support NJNG's continued customer growth, and general system renewals and improvements. NJNG has incurred $18.2 million in remediating its former manufactured gas plants through the nine months ended June 30, 2000. NJNG estimates additional remediation expenditures of approximately $7 million for the remaining three months of fiscal 2000. NJNG expects to finance these expenditures through the issuance of short-term debt. NJNG's goal is to maintain a capital structure which is consistent with maintaining its current short-term and long-term credit ratings. ENERGY HOLDINGS Energy Holdings does not currently expect any significant capital expenditures or external financing requirements in fiscal 2000. NJR DEVELOPMENT CR&R's capital expenditures are projected to be $600,000 in 2000 and $2.9 million in 2001 in connection with the construction of a 35,000 square-foot build-to-suit office building. CR&R is simultaneously negotiating the sale of the building and adjacent undeveloped acreage, the terms of which would at least recover the construction costs and land investment. 17 19 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FINANCIAL RISK MANAGEMENT Commodity Market Risks The regulated and unregulated natural gas businesses of the Company and its subsidiaries are subject to market risk due to fluctuations in the price of natural gas. To hedge against such fluctuations, the Company and its subsidiaries have entered into futures contracts, options agreements and over-the-counter swap agreements. The Company's natural gas businesses are conducted through three of its operating subsidiaries. First, NJNG is a regulated utility whose recovery of gas costs is protected by the LGA, but to further hedge against price fluctuations, utilizes futures and options through its financial risk management program. Second, Energy Services has also hedged its commitments to purchase natural gas for sale to retail marketers and hedged purchases and sales of storage gas and fixed price sales to wholesale customers. Finally, NJR Energy has entered into a long-term, fixed-price contract to sell approximately 23.2 Bcf of natural gas to a gas marketing company at prices ranging from $2.73 to $4.41 per Mmbtu. Natural gas is a nationally traded commodity, and its prices are effectively determined by the New York Mercantile Exchange (NYMEX) and over-the-counter markets. The prices on the NYMEX and over- the-counter markets generally reflect the notional balance of natural gas supply and demand, but are also influenced significantly from time to time by other events. Summary of NJNG & NJRES commodity derivatives:
Deferred Unrealized Volume Price per Gain/(Loss) in Bcf Mmbtu in Thousands ------ ----- ------------ NJNG Futures 11.2 $2.33-$4.485 $15,205 Swaps (5.5) $ (267) Options 1.2 $2.75-$5.00 428 Energy Services Futures 15.9 $2.125-$4.69 $18,377 Swaps 6.3 $ 6,317 Options (1.6) $2.25-$4.50 $(6,440)
NJR Energy has hedged both its price and physical delivery risks associated with its long-term, fixed-price sales contract with a gas marketing company (the "Gas Sale Contract"). To hedge its price risk, NJR Energy entered into two swap agreements. Under the terms of these two swap agreements, NJR Energy will pay to the counterparties the identical fixed price it receives from the gas marketing company in exchange for the payment by the counterparties of an index price plus a spread per Mmbtu for the total 18 20 volumes under the Gas Sale Contract. The swap agreements were effective as of November 1995. In order to hedge its physical delivery risk, NJR Energy entered into a purchase contract with a second gas marketing company for the identical volumes it is obligated to sell under the Gas Sale Contract. NJR Energy has agreed to pay this second gas marketing company the identical floating price it receives under the swap agreements mentioned above. To manage these instruments, the Company has well-defined risk management policies and procedures, which include volumetric limits and monetary guidelines. All of the futures contracts, options and swap agreements described above are held for hedging rather than trading purposes. With respect to futures contracts, options and swap agreements, the Company has performed a sensitivity analysis to estimate its exposure to market risk arising from natural gas price fluctuations using the net futures positions and the net swaps positions. Futures contracts, options and swap agreements are substantially all settled at the NYMEX settlement date and the related natural gas quantity is purchased or sold in the physical market and, therefore, their notional values, which represent the absolute sum of all outstanding natural gas futures contracts or swap agreements, as the case may be, are not accurate measurements of risk to the Company from those futures contracts or swap agreements. Summary of effects of theoretical 10% change in market value:
June 30, 2000 1999 ---- ---- (Thousands) Futures $8,432 $4,600 Swaps $6,396 $ 698 Options $1,224 $ 49
Any such additional changes in value under the futures contracts and the swap agreements would be substantially offset by a corresponding change on the related underlying contracts that are being hedged. Interest Rate Risk NJNG has total variable rate debt of $97 million, of which $56 million has been hedged by the purchase of a 6.5% interest rate cap through the year 2003. According to the Company's sensitivity analysis, NJNG's annual interest rate exposure on the $56 million, based on the difference between current average rates and the 6.5% interest rate cap, is limited to $1.1 million, net of tax. If interest rates were to change by 100 basis points on the remaining $41 million of variable rate debt, NJNG's interest expense, net of tax, would change by $242,000. The Company also has variable rate debt of $55 million. If interest rates were to change by 100 basis points, annual interest expense, net of tax, would change by $326,000. 19 21 INFORMATION CONCERNING FORWARD LOOKING STATEMENTS Certain of the statements contained in this report (other than the financial statements and other statements of historical fact), including, without limitation, expected disposition of legal and regulatory proceedings, effect of new accounting standards, impact of the Year 2000 computer issue, and expected sale of the office building are forward-looking statements. Forward-looking statements can also be identified by the use of forward-looking terminology such as "may," "intend," "expect," or "continue" or comparable terminology and are made based upon management's expectations and beliefs concerning future developments and their potential effect upon the Company. There can be no assurance that future developments will be in accordance with management's expectations or that the effect of future developments on the Company will be those anticipated by management. The Company wishes to caution readers that the assumptions which form the basis for forward-looking statements with respect to or that may impact earnings for fiscal 2000 and thereafter include many factors that are beyond the Company's ability to control or estimate precisely, such as estimates of future market conditions and the behavior of other market participants. Among the factors that could cause actual results to differ materially from estimates reflected in such forward-looking statements are weather conditions, economic conditions in NJNG's service territory, fluctuations in energy-related commodity prices, conversion activity and other marketing efforts, the conservation efforts of NJNG's customers, the pace of deregulation of retail gas markets, competition for the acquisition of gas, the regulatory and pricing policies of federal and state regulatory agencies, changes due to legislation at the federal and state levels, 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. 20 22 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings Information required by this Item is incorporated herein by reference to Part I, Item 1, Note 5 - Legal and Regulatory Proceedings. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 27-1 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ended June 30, 2000. 21 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEW JERSEY RESOURCES CORPORATION Date: August 11, 2000 /s/Glenn C. Lockwood -------------------- Glenn C. Lockwood Senior Vice President and Chief Financial Officer 22 EX-27.1 2 ex27-1.txt FINANCIAL DATA SCHEDULE
OPUR1 This schedule contains summary financial information extracted from New Jersey Resources Corporations June 30, 2000 Form 10-Q, including the consolidated statements of income, consolidated statements of cash flows and consolidated balance sheets and is qualified in its entirety by reference to such financial statements. 9-MOS SEP-30-2000 JUN-30-2000 PER-BOOK 699,966 22,766 178,136 127,447 0 1,028,315 46,232 202,581 87,023 335,836 0 400 253,145 0 0 17,600 20,479 0 30,835 0 370,020 1,028,315 880,387 30,569 30,823 785,135 95,252 791 96,043 14,324 51,150 22 51,128 22,679 11,469 115,172 2.89 2.87
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