-----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, M+fF590h0US8MAovpitAg1+h5/Qa7iI5umUQEEMivxszwCtlLWCjY7lyt5yINyzR +aRpB6avt4nw6w9NvIRHIQ== 0000950123-98-005026.txt : 19980515 0000950123-98-005026.hdr.sgml : 19980515 ACCESSION NUMBER: 0000950123-98-005026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW JERSEY RESOURCES CORP CENTRAL INDEX KEY: 0000356309 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 222376465 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08359 FILM NUMBER: 98620748 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 FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 Commission file number 1-8359 NEW JERSEY RESOURCES CORPORATION (Exact name of registrant as specified in its charter) NEW JERSEY 22-2376465 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1415 WYCKOFF ROAD, WALL, NEW JERSEY - 07719 732-938-1480 (Address of principal executive offices) (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES: /X/ NO: / / The number of shares outstanding of $2.50 par value Common Stock as of May 6, 1998 was 17,815,959 2 PART I-FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (unaudited)
- -------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, 1998 1997 1998 1997 - -------------------------------------------------------------------------------------------------------------- (Thousands, except per share data) OPERATING REVENUES ........... $266,586 $285,366 $486,981 $473,968 -------- -------- -------- -------- OPERATING EXPENSES Gas purchases ............... 174,922 189,758 329,997 314,545 Operation and maintenance ... 19,853 21,076 40,070 40,728 Depreciation and amortization 7,058 6,183 14,115 12,312 Energy and other taxes ...... 14,134 18,725 27,033 31,767 State income taxes .......... 4,528 128 4,985 140 Federal income taxes ........ 13,006 15,539 18,934 21,971 -------- -------- -------- -------- Total operating expenses ... 233,501 251,409 435,134 421,463 -------- -------- -------- -------- OPERATING INCOME ............. 33,085 33,957 51,847 52,505 Other income, net ............ 457 79 1,775 159 Interest charges, net ........ 4,635 5,134 10,102 10,422 -------- -------- -------- -------- INCOME BEFORE PREFERRED STOCK DIVIDENDS .............. 28,907 28,902 43,520 42,242 Preferred stock dividends .... 396 399 793 797 -------- -------- -------- -------- NET INCOME ................... $ 28,511 $ 28,503 $ 42,727 $ 41,445 ======== ======== ======== ======== EARNINGS PER COMMON SHARE BASIC .................. $ 1.61 $ 1.58 $ 2.40 $ 2.29 ======== ======== ======== ======== DILUTED ................ $ 1.60 $ 1.57 $ 2.39 $ 2.29 ======== ======== ======== ======== DIVIDENDS PER COMMON SHARE ... $ .41 $ .40 $ .82 $ .80 ======== ======== ======== ======== AVERAGE SHARES OUTSTANDING BASIC .................. 17,763 18,076 17,804 18,080 ======== ======== ======== ======== DILUTED ................ 17,871 18,119 17,903 18,112 ======== ======== ======== ========
See Notes to Consolidated Financial Statements 1 3 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
- ------------------------------------------------------------------------------------------- SIX MONTHS ENDED MARCH 31, 1998 1997 - ------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ...................................... $ 42,727 $ 41,445 Adjustments to reconcile net income to cash flows Depreciation and amortization .................. 14,115 12,312 Amortization of deferred charges ............... 421 704 Deferred income taxes .......................... 2,988 4,113 Change in working capital ...................... (30,500) (22,093) Other, net ..................................... (6,100) (5,481) -------- -------- Net cash flows from operating activities ......... 23,651 31,000 -------- -------- CASH FLOWS USED IN FINANCING ACTIVITIES Proceeds from long-term debt .................... 46,345 3,900 Proceeds from common stock ...................... 2,159 208 Payments of long-term debt ...................... (38,045) (8,182) Repurchase of treasury stock .................... (6,409) (1,539) Payments of common stock dividends .............. (14,484) (14,299) Net change in short-term debt ................... (580) 3,300 -------- -------- Net cash flows used in financing activities ...... (11,014) (16,612) -------- -------- CASH FLOWS USED IN INVESTING ACTIVITIES Expenditures for Utility plant .................................. (18,538) (21,284) Real estate properties ......................... (1,541) (522) Equity investments and other ................... (5,248) (750) Cost of removal ................................ (1,587) (2,430) Proceeds from asset sales ....................... 15,600 7,031 -------- -------- Net cash flows used in investing activities ...... (11,314) (17,955) -------- -------- Net change in cash and temporary investments ..... 1,323 (3,567) Cash and temporary investments at September 30 ... 5,467 10,808 -------- -------- Cash and temporary investments at March 31 ....... $ 6,790 $ 7,241 ======== ======== CHANGES IN COMPONENTS OF WORKING CAPITAL Receivables ..................................... $(85,197) $(99,893) Inventories ..................................... 16,692 31,899 Deferred gas costs .............................. 15,926 3,990 Purchased gas ................................... 1,134 20,600 Prepaid and accrued taxes, net .................. 35,478 41,772 Customers' credit balances and deposits ......... (10,354) (15,474) Other, net ...................................... (4,179) (4,987) -------- -------- Total ............................................ $(30,500) $(22,093) ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION Cash paid for Interest (net of amounts capitalized) ........... $ 8,966 $ 12,258 Income taxes .................................... $ 3,946 $ 4,556
See Notes to Consolidated Financial Statements 2 4 CONSOLIDATED BALANCE SHEETS ASSETS
- ----------------------------------------------------------------------------------------------------------- MARCH 31, SEPTEMBER 30, MARCH 31, 1998 1997 1997 (unaudited) (unaudited) - ----------------------------------------------------------------------------------------------------------- (Thousands) PROPERTY, PLANT AND EQUIPMENT Utility plant ........................... $ 871,755 $ 855,375 $ 830,682 Real estate properties .................. 24,421 22,897 37,593 --------- --------- --------- 896,176 878,272 868,275 Accumulated depreciation and amortization (229,756) (218,912) (209,590) --------- --------- --------- Property, plant and equipment, net ..... 666,420 659,360 658,685 --------- --------- --------- CURRENT ASSETS Cash and temporary investments .......... 6,790 5,467 7,241 Construction fund ....................... -- -- 6,500 Customer accounts receivable ............ 123,375 45,900 118,134 Unbilled revenues ....................... 14,459 3,998 18,107 Allowance for doubtful accounts ......... (2,728) (1,527) (2,442) Gas in storage, at average cost ......... 17,754 34,152 8,559 Materials and supplies, at average cost . 5,151 5,445 6,318 Deferred gas costs ...................... 18,766 15,070 16,488 Prepaid state taxes ..................... -- 12,089 -- Assets held for sale, net ............... -- 13,386 -- Other ................................... 9,722 6,377 6,794 --------- --------- --------- Total current assets ................... 193,289 140,357 185,699 --------- --------- --------- DEFERRED CHARGES AND OTHER Equity investments ...................... 7,107 7,086 15,685 Regulatory assets ....................... 38,283 38,635 37,765 Long-term deferred gas costs ............ -- 19,622 226 Other ................................... 23,127 14,001 9,384 --------- --------- --------- Total deferred charges and other ....... 68,517 79,344 63,060 --------- --------- --------- Total assets ..................... $ 928,226 $ 879,061 $ 907,444 ========= ========= =========
See Notes to Consolidated Financial Statements 3 5 CONSOLIDATED BALANCE SHEETS CAPITALIZATION AND LIABILITIES
- ----------------------------------------------------------------------------------------------------- MARCH 31, SEPTEMBER 30, MARCH 31, 1998 1997 1997 (unaudited) (unaudited) - ----------------------------------------------------------------------------------------------------- (Thousands) CAPITALIZATION Common stock equity .................... $306,799 $278,436 $300,172 Redeemable preferred stock ............. 20,760 20,760 20,880 Long-term debt ......................... 299,635 291,407 300,377 -------- -------- -------- Total capitalization ................. 627,194 590,603 621,429 -------- -------- -------- CURRENT LIABILITIES Current maturities of long-term debt ... 137 138 137 Short-term debt ........................ 47,420 48,000 38,300 Purchased gas .......................... 59,013 57,879 54,238 Accounts payable and other ............. 27,154 28,632 27,254 Dividends payable ...................... 7,287 7,161 7,238 Accrued taxes .......................... 35,941 5,781 31,507 Customers' credit balances and deposits. 3,172 13,526 8,371 -------- -------- -------- Total current liabilities ............. 180,124 161,117 167,045 -------- -------- -------- DEFERRED CREDITS Deferred income taxes .................. 59,718 63,501 56,123 Deferred investment tax credits ........ 10,818 10,934 11,106 Deferred revenue ....................... 19,962 20,551 21,164 Other .................................. 30,410 32,355 30,577 -------- -------- -------- Total deferred credits ................ 120,908 127,341 118,970 -------- -------- -------- Total capitalization and liabilities $928,226 $879,061 $907,444 ======== ======== ========
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, 1997 balance sheet data is derived from the audited financial statements of New Jersey Resources Corporation (the Company). Although management believes that the disclosures are adequate to make the information presented not misleading, it is recommended that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's 1997 Annual Report on Form 10-K. In the opinion of management, the information furnished reflects all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results of the interim periods. Because of the seasonal nature of the Company's utility operations and other factors, the results of operations for the interim periods presented are not indicative of the results to be expected for the entire year. 2. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries -- New Jersey Natural Gas Company (NJNG), NJR Energy Holdings Corporation (Energy Holdings) and NJR Development Company (NJR Development). New Jersey Natural Energy Company (Natural Energy), NJR Energy Services Company (Energy Services) and NJR Energy Corporation (NJR Energy) are wholly-owned subsidiaries of Energy Holdings and Commercial Realty & Resources Corp. (CR&R), is a wholly-owned subsidiary of NJR Development. Significant intercompany accounts and transactions have been eliminated. 3. Discontinued Operations In May 1995, the Company adopted a plan to exit the oil and natural gas production business and pursue the sale of the reserves and related assets of NJR Energy and its subsidiary, New Jersey Natural Resources Company. The Company has accounted for this segment as a discontinued operation and in fiscal 1995 recorded an after-tax charge of $8.7 million, or $.49 per share. This charge was based on estimates of the anticipated loss from operations until the assets were sold, the estimated loss on the sale of the remaining reserves and other costs related to the closing of its offices in Dallas and Tulsa. In fiscal 1996 NJR Energy sold its interests in all of its oil and gas properties in three transactions for $19.6 million. The proceeds from these sales were used to reduce outstanding debt. Based upon the results of the asset sales and costs incurred to date, the Company currently estimates that the reserve established in fiscal 1995 for the discontinued operations is adequate. 5 7 4. New Accounting Standards The Company has adopted SFAS No. 128 "Earnings per Share" which establishes standards for computing and presenting basic and diluted earnings per share (EPS). SFAS No. 128 is effective for periods ending after December 15, 1997 and requires that all prior-period data presented to be restated. The incremental shares, which relate to stock options and restricted stock, using the treasury stock method, that were required for inclusion in the denominator for the diluted EPS calculation were 107,783 and 99,672 for the three months ended March 31, 1998 and 1997, respectively, and 43,576 and 32,572 for the six months ended March 31, 1998 and 1997, respectively. The numerator for both the basic and diluted calculation was net income. The impact was a one-cent dilutive effect for the three and six months ended March 31, 1998 and the three months ended March 31, 1997 and no impact for the six months ended March 31, 1997. In June 1997, the Financial Accounting Standards Boards (FASB) issued SFAS No. 130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosure About Segments of an Enterprise and Related Information." In February 1998, the FASB also issued SFAS No. 132 "Employers Disclosures about Pensions and Other Postretirement Benefits." These satements must be adopted by fiscal 1999. It is management's opinion that these statements will not have a material effect on either its financial condition or results of operations. 5. Capitalized Interest The Company's capitalized interest totaled $183,000 and $311,000 for the three months ended March 31, 1998 and 1997, respectively, and $376,000 and $729,000 for the six months ended March 31, 1998 and 1997, respectively. 6. Legal and Regulatory Proceedings a. Levelized Gas Adjustment (LGA) In January 1998, the New Jersey Board of Public Utilities (BPU) approved an interim settlement, representing an increase of approximately $13 million in LGA revenues. This included the approval to collect $3.4 million of weather normalization clause (WNC) margins accrued due to the impact of warmer-than-normal weather during fiscal year 1997 and minimal adjustments to its Remediation Adjustment and Demand Side Management Adjustment Clause factors. The parties to the settlement are discussing the resolution of additional matters such as expanding customer choice, extending margin-sharing incentives and the allocation of LGA underrecovery among customer classes. The BPU is currently performing an audit of NJNG's gas costs and related accounts for the fiscal years 1991 through 1995. The Company expects this audit to be finalized in fiscal 1998 and does not believe that the ultimate resolution will have a material adverse effect on its consolidated financial condition or results of operations. 6 8 b. Postretirement Benefits Other Than Pensions In January 1997, the BPU concluded a generic proceeding related to the implementation of the provisions of SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (OPEB). SFAS 106 required that publicly held companies change from the practice of accounting for OPEB costs on a pay as you go basis to an accrual basis of accounting. The BPU's generic proceeding provided for a Phase II proceeding in which each utility would address the particular impact of SFAS 106 on its revenue requirements. In July 1997, NJNG filed a petition to recover an additional $900,000 in annual OPEB costs with a proposed effective date no later than September 30, 1998. In November 1997, NJNG revised the requested annual OPEB costs to $1.2 million to reflect updated actuarial results and the imposition of state sales tax. NJNG expects to receive approval to collect the additional annual cost by the end of fiscal year 1998. c. Gas Remediation NJNG has identified eleven former manufactured gas plant (MGP) sites, dating back to the late 1800's and early 1900's, which contain contaminated residues from the former gas manufacturing operations. Ten of the eleven sites in question were acquired by NJNG in 1952. All of the gas manufacturing operations ceased at these sites at least since the mid-1950's and in some cases had been discontinued many years earlier, and all of the old gas manufacturing facilities were subsequently dismantled by NJNG or the former owner. NJNG is currently involved in administrative proceedings with the New Jersey Department of Environmental Protection (NJDEP) and local government authorities with respect to the plant sites in question, and is participating in various studies and investigations by outside consultants to determine the nature and extent of any such contaminated residues and to develop appropriate programs of remedial action, where warranted. Since October 1989, NJNG has entered into Administrative Consent Orders or Memoranda of Agreement with the NJDEP covering all eleven sites. These documents establish the procedures to be followed by NJNG in developing a final remedial clean-up plan for each site. Most of the cost of such studies and investigations is being shared under an agreement with the former owner and operator of ten of the MGP sites. Through a Remediation Rider approved by the BPU, NJNG is recovering its expenditures incurred through June 1997 over a seven-year period. Costs incurred subsequent to June 30, 1997 will be reviewed annually and, subject to BPU approval, recovered over seven-year periods. In March 1995, NJNG filed a complaint in New Jersey Superior Court against various insurance carriers for declaratory judgment and for damages arising from such defendants' breach of their contractual obligations to defend and/or indemnify NJNG against liability for claims and losses (including defense costs) alleged against NJNG relating to environmental contamination at the former MGP sites and other sites. NJNG is seeking (i) a declaration of the rights, duties and liabilities of the parties under various primary and excess liability insurance policies purchased from the defendants by NJNG from 1951 through 1985, and (ii) compensatory and other damages, including costs and fees arising out of defendants' obligations under such insurance policies. The complaint was amended in July 1996 to name Kaiser-Nelson Steel & Salvage Company (Kaiser-Nelson) and its successors as additional defendants. In the amended complaint NJNG is seeking (a) a declaration of the rights, duties and liabilities of the parties under agreements with respect to claims against NJNG that allege property damage caused by various 7 9 substances used, handled or generated by NJNG, or the predecessor in title, that were removed from several of the MPG sites by Kaiser-Nelson, and (b) money damages or compensatory relief for the harm caused by Kaiser-Nelson's aforementioned actions. Discovery is proceeding in this matter. There can be no assurance as to the outcome of these proceedings. d. South Brunswick Asphalt, L.P. NJNG has been named a defendant in a civil action commenced in New Jersey Superior Court by South Brunswick Asphalt, L.P. (SBA) and its affiliated companies, and two other non-affiliated companies, seeking damages arising from alleged environmental contamination at three sites owned or occupied by the plaintiffs. Specifically, the suit charges that tar emulsion removed from 1979 through 1983 by an affiliate of SBA (Seal Tite, Inc.) from NJNG's former gas manufacturing plant sites has been alleged by the NJDEP to constitute a hazardous waste and that the tar emulsion has contaminated the soil and ground water at the three sites in question. In February 1991, the NJDEP issued letters classifying the tar emulsion/sand and gravel mixture at each site as dry industrial waste, a non-hazardous classification. In April 1996, in a meeting with all parties to the litigation and the judge assigned to the case, the NJDEP confirmed the non-hazardous classification, which will allow for conventional disposal. In May 1997, SBA submitted applications to the NJDEP for permits to allow SBA to recycle the tar emulsion/sand and gravel mixture at each site into asphalt, to be used as a paving material. These applications are currently under review by the NJDEP. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial condition or results of operations. e. Bessie-8 New Jersey Natural Resources Company (NJNR), a subsidiary of NJR Energy, and others (the Joint Venture, et al.) were named in a complaint filed by the People's Natural Gas Company (People's) before the Pennsylvania Public Utility Commission (PaPUC). People's sought a determination that the Joint Venture, et al. were a public utility subject to the jurisdiction of the PaPUC and an order prohibiting natural gas service by the Joint Venture, et al. until proper PaPUC authorization was obtained. In June 1997, People's filed a complaint in equity against the Joint Venture, et al. in the Allegheny County Common Pleas Court. The complaint alleged, among other things, that the Joint Venture, et al. unlawfully provided natural gas services without prior authorization of the PaPUC and tortiously interfered with the contractual and business relations of various existing and potential Peoples' customers. The complaint sought unspecified money damages and injunctive relief against the Joint Venture et al. On February 28, 1998, Peoples, NJNR and others entered into a release and settlement agreement whereby the parties settled all claims arising out of the past operation of the Joint Venture. As a result, Peoples dismissed with prejudice the complaint filed in the Court of Common Pleas of Allegheny County. All costs related to this settlement had previously been reserved for in the financial statements of the Company. f. Various The Company is party to various other claims, legal actions and complaints arising in the ordinary course of business. In management's opinion, the ultimate disposition of these matters will not have a material adverse effect on its financial condition or results of operations. 8 10 7. State of New Jersey Tax Reform In July 1997, legislation was signed that reformed New Jersey's taxes affecting energy companies. The legislation repealed the long-standing utility gross receipts and franchise tax formula and replaced it with a state sales tax, a corporate business tax and a transitional energy facilities assessment which would become effective in January 1998. It required a rate filing by each utility in September 1997 designed to implement the new tax structure. In December 1997, the BPU approved NJNG's new rates implementing the new tax structure on an interim basis. The BPU is expected to issue its final order in July 1998. The transitional energy facilities assessment will be gradually phased out starting in 1999 and ending in 2002. The new law requires that all providers of energy in the state be subject to the sales and corporate business taxes. Previously, non-utility providers of energy were not subject to a state sales tax. 8. Long-Term Debt NJNG has entered into loan agreements with the New Jersey Economic Development Authority (the Authority) in which the Authority issues bonds to the public. To secure its loans from the Authority, NJNG issues First Mortgage Bonds with interest rates and maturity dates similar to the Authority's Bonds. Under these agreements NJNG issued variable rate Series DD Bonds in October 1997 for $13.5 million and utilizing the proceeds from the series DD Bonds, redeemed its $13.5 million 9% Series Q Bonds in December 1997. In January 1998, NJNG issued variable rate Series EE and Series FF Bonds for $9.5 million and $15 million, respectively. The proceeds were utilized to redeem the $9.5 million 7.05% Series T and the $15 million 7.25% Series U Bonds on March 1, 1998. In April 1998, NJNG entered into a loan agreement whereby the Authority loaned NJNG the proceeds from its $18 million Natural Gas Facilities Revenue Bonds, Series 1998C (the Revenue Bonds, collectively, the EDA Bonds). The rates of interest on the EDA Bonds are variable, currently set at a weekly mode, and may be changed by NJNG to daily, weekly, flexible or long-term interest rate modes, not to exceed 10% per annum. The EDA Bonds mature on April 1, 2033. The proceeds from the Revenue Bonds were deposited into a project construction fund with the indenture trustee for the EDA Bonds. NJNG may obtain such funds in reimbursement of its qualified expenditures relating to the project upon delivering an equivalent amount of its Adjustable Rate Series GG First Mortgage Bonds (Series GG Bonds) to the indenture trustee. On April 1, 1998, NJNG drew down $2 million from the construction fund and issued $2 million of its Series GG Bonds. 9. Other At March 31, 1998 there were 17,774,344 shares of common stock outstanding and the book value per share was $17.26. Certain reclassifications have been made of previously reported amounts to conform with current year classifications. 9 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED MARCH 31, 1998 A. RESULTS OF OPERATIONS Consolidated net income for the quarters ended March 31, 1998 and 1997 was $28.5 million. Basic earnings per share (EPS) increased 2% to $1.61, compared with $1.58 last year. Diluted EPS also increased 2% to $1.60, compared with $1.57 last year. The increase in EPS was due to lower average shares outstanding due to the Company's share repurchase program. Consolidated net income for the six months ended March 31, 1998 increased by 3% to $42.7 million, compared with $41.4 million for the same period last year. Basic EPS increased 5% to $2.40, compared with $2.29 last year. Diluted EPS increased 4% to $2.39, compared with $2.29 last year. The increase in consolidated earnings was attributed primarily to continued profitable customer growth at the Company's principal subsidiary, NJNG, cost control measures and the gain on the sale of a real estate property. NJNG OPERATIONS NJNG's financial results are summarized as follows:
Three Months Ended Six Months Ended March 31, March 31, 1998 1997 1998 1997 ------------------------------------------------------------------- (Thousands) Gross margin Residential and commercial $66,273 $64,433 $107,823 $105,835 Firm transportation 6,286 4,892 11,884 8,818 Interruptible 188 364 318 504 Off-system and capacity release 1,706 2,164 3,062 3,922 ------- ------- -------- -------- Total gross margin $74,453 $71,853 $123,087 $119,079 ======= ======= ======== ======== Appliance service revenues $ 2,645 $ 2,595 $ 5,520 $ 5,028 ======= ======= ======== ======== Operating income before federal income taxes $49,290 $47,849 $ 70,409 $ 71,746 ======= ======= ======== ======== Net income $27,900 $27,722 $ 41,635 $ 40,460 ======= ======= ======== ========
Gross Margin As discussed in Note 7, effective January 1, 1998, changes in state tax laws have impacted the amount and type of state taxes that are charged on a per therm basis. Therefore, effective January 1, 1998 gross margin, is defined as gas revenues less gas costs, sales tax and a transitional energy facilities assessment (TEFA), which provides a more meaningful basis for evaluating utility operations, since gas costs, sales tax and TEFA are passed through to customers and, therefore, have no effect on earnings. Gas costs are charged to operating expenses on the basis of therm sales at the base and LGA cost rates included in NJNG's tariff. The LGA clause allows NJNG to recover gas costs that exceed the level reflected in its base rates. Sales tax is calculated at 6% of revenue and excludes sales to other utilities off-system sales 12 and federal accounts while TEFA is calculated on a per-therm basis and excludes sales to other utilities and off-system sales. Previous to January 1, 1998, gross margin was defined as gas revenues less gas costs and gross receipts and franchise taxes (GRFT), which provided a more meaningful basis for evaluating utility operations, since gas costs and GRFT were passed through to customers and, therefore, had no effect on earnings. The gross margin when compared to prior periods will be different due to the impact of the state law change described above. Residential and Commercial Since fiscal 1993, NJNG's margin has been substantially protected from the effects of warm winter weather through a weather-normalization clause (WNC) which provides for a revenue adjustment if the weather varies by more than one-half of one percent from normal, or 20-year average weather. The WNC does not protect the Company from declines in customer usage patterns. Customer levels used in the WNC calculation were set at the conclusion of NJNG's last base rate case in January 1994. The accumulated adjustment from one heating season is billed or credited to customers in the subsequent year. Gross margin from sales to firm customers increased by $1.8 million, or approximately 3%, and $2 million, or approximately 2%, for the three and six months ended March 31, 1998, respectively, compared with the same periods last year. These increases were due to the impact of 12,388 customer additions during the twelve months ended March 31, 1998 and the aforementioned change in state taxes which more than offset lower therm sales. Firm therm sales for the six months decreased by 6% compared with last year due to 8% warmer weather, and the impact of residential, commercial and industrial customers switching to firm transportation service, as described below. The weather for the six months ended March 31, 1998 was 21% warmer than normal, or the 20-year average. The impact of warmer weather on gross margin was partially reduced by the WNC. Under this rate mechanism, a total of $9.8 million of gross margin was accrued for future collection from customers. Firm Transportation Gross margin from firm transportation increased by $1.4 million, or 28%, and $3 million, or 35%, for the three and six months ended March 31, 1998, respectively, compared with the same periods last year. Transportation sales increasedto 48 billion cubic feet (Bcf) from 36.6 Bcf for the six months ended March 31, 1998 and 1997, respectively. This increase is due to the number of residential, commercial and industrial customers utilizing this service totaling 8,587 and 2,238 at March 31, 1998 and 1997, respectively. NJNG's total gross margin is not negatively impacted by customers who utilize the firm transportation service and purchase their gas from another supplier, as its tariffs are designed such that no profit is earned on the commodity portion of sales to firm customers and all customers who do purchase gas from another supplier continue to utilize NJNG for transportation. Interruptible NJNG services 47 customers through interruptible sales and/or transportation tariffs. Sales made under the interruptible sales tariff are priced on market-sensitive oil and gas parity rates. Although therms sold and transported to interruptible customers represented 5% of total therm throughput in the six months ended March 31, 1998 and 1997, they accounted for less than 1% of the total gross margin in each period 11 13 due to the regulated margin-sharing formulas that govern these sales. Under these formulas, NJNG retains 5% of the gross margin from transportation sales and 10% of the gross margin from the interruptible sales, with the balance credited to residential and commercial sales customers through the LGA clause. Off-System and Capacity Release In order to reduce the overall cost of its gas supply commitments, NJNG has entered into contracts to sell gas to customers who are outside of its franchise territory. These sales enable NJNG to spread its fixed demand costs, which are charged by pipelines to access their supplies year-round, over a larger and more diverse customer base. NJNG also participates in the capacity release market on the interstate pipeline network when the capacity is not needed for its own system requirements. NJNG retains 20% of the gross margin from these sales. NJNG's off-system sales totaled 21.6 Bcf and generated $1.1 million of gross margin, and 36.3 Bcf and $1.9 million of gross margin, for the three and six months ended March 31, 1998, respectively, compared with 17.1 Bcf and $1.5 million of gross margin, and 27 Bcf and $2.5 million gross margin, in the respective periods last year. The capacity release program generated gross margin of $594,000 and $1.2 million in the three and six months ended March 31, 1998, respectively, compared with $639,000 and $1.4 million in the same respective periods last year. The decreases were due primarily to the warm winter weather which resulted in lower margins per therm. Operating Income Before Federal Income Taxes and Net Income Operating income before federal income taxes increased by $1.4 million, or 3%, and net income increased by $178,000, or 1%, in the second quarter of fiscal 1998, compared with the same period last year due primarily to customer growth and lower operation and maintenance expenses, which more than offset an increase in depreciation expense and interest charges from higher short-term debt levels. The increase in depreciation is due primarily to a higher depreciable plant balance, which includes a new customer information and billing system (CIS) which was placed into service in August 1997. Operating income before federal income taxes increased by $3 million, or 4%, and net income increased by $1.2 million, or 3%, for the six months ended March 31, 1998, compared with the same period last year due to customer growth, increased appliance service revenue and lower operating and maintenance expenses. The Year 2000 Issue The Company has been evaluating the extent to which its computer systems will be affected by the Year 2000 issue. There could be unforeseen costs that may arise due to unexpected disruptions of the Company's operations if its computer system is not Year 2000 compliant. Additionally, there could be adverse effects on the Company due to the potential Year 2000 problems of vendors with whom the Company conducts business. The Company has commenced discussions with its major vendors regarding their plans to address the Year 2000 issue with a view to help minimize any potential problems. With the implementation of NJNG's new CIS system, the Company does not currently believe that the additional 12 14 investment needed for its computer systems to be fully Year 2000 compliant will have a material adverse affect on either its financial condition or results of operations. ENERGY HOLDINGS OPERATIONS Energy Holdings' consolidated financial results, which include Natural Energy and Energy Services, the Company's unregulated marketing and fuel and capacity management subsidiaries, and the continuing operations of NJR Energy, which consist primarily of its equity investment in the Iroquois Gas Transmission System, L.P., are summarized as follows:
Three Months Ended Six Months Ended March 31, March 31, 1998 1997 1998 1997 ------------------------------------------------------------------ (Thousands) Revenues $52,989 $43,972 $105,295 $79,848 ======= ======= ======== ======= Operating income before federal income taxes $ 586 $ 2,032 $ 1,335 $ 2,689 ======= ======= ======== ======= Net income $ 256 $ 1,152 $ 657 $ 1,356 ======= ======= ======== =======
Energy Holdings' revenues increased for the three and six months ended March 31, 1998, compared to the same period last year, reflecting primarily higher fuel and capacity management sales. Operating income before federal income taxes and net income decreased due primarily to lower margins from daily gas sales and fuel management agreements combined with lower margin from retail sales. Energy Holdings' gas under management totaled 23.7 Bcf and 47 Bcf, and retail gas sales totaled 2.2 Bcf and 4.3 Bcf for the three and six months ended March 31, 1998, respectively, compared with gas under management of 16.3 Bcf and 30.6 Bcf, and retail gas sales of 3.5 Bcf and 5.9 Bcf in the comparable periods last year. NJR DEVELOPMENT OPERATIONS NJR Development's consolidated financial results, which consist solely of CR&R's operations, are summarized as follows:
Three Months Ended Six Months Ended March 31, March 31, 1998 1997 1998 1997 ----------------------------------------------------------- (Thousands) Revenues $212 $ 615 $ 367 $ 1,712 ==== ===== ====== ======= Other income, net $372 $ 172 $1,407 $ 172 ==== ===== ====== ======= Net income (loss) $252 $(145) $ 524 $ (150) ==== ===== ====== =======
In October 1997, CR&R sold a 280,000 square-foot office building for $15.6 million. Included in Other income, net is an after-tax gain of $900,000 related to this transaction. 13 15 In December 1995, CR&R sold a 157,000 square foot, office building for $31.85 million, in a sale-leaseback transaction. CR&R's pre-tax gain on this transaction was approximately $17.8 million which is included in deferred revenue on the consolidated balance sheet and is being amortized over 25 years in accordance with generally accepted accounting principles and is included in Other income, net. The primary tenant of the facility, NJNG, is leasing the building under a long-term master lease agreement and continues to occupy a majority of the space in the building. Prior to the transaction, NJNG leased about 79% of the building under a long-term lease. NJR used the proceeds from these sales to reduce outstanding debt. B. LIQUIDITY AND CAPITAL RESOURCES` In order to meet the working capital and external debt financing requirements of its unregulated subsidiaries, as well as its own working capital needs, the Company maintains committed credit facilities with a number of banks totaling $135 million and has a $10 million credit facility available on an offering basis. At March 31, 1998, $48.3 million was outstanding under these agreements. NJNG satisfies its debt needs by issuing short-term and long-term debt based upon its own financial profile. The Company meets the common equity requirements of each subsidiary, if any, through new issuances of the Company's common stock, including the proceeds from its Automatic Dividend Reinvestment Plan (DRP). In April 1996, the DRP was amended to allow for the purchase of shares in the open market to satisfy the plan's needs. The Company can switch funding options every 90 days. NJNG The seasonal nature of NJNG's operations creates large short-term cash requirements, primarily to finance gas purchases and customer accounts receivable. NJNG obtains working capital for these requirements, as well as for the temporary financing of construction expenditures, sinking fund needs and state tax payments, through the issuance of commercial paper and short-term bank loans. To support the issuance of commercial paper, NJNG maintains committed credit facilities totaling $90 million with a number of commercial banks and has an additional $10 million in lines of credit available on an offering basis. Remaining fiscal 1998 construction expenditures are estimated at $31.1 million. These expenditures will be incurred for services, mains and meters to support NJNG's continued customer growth, and general system renewals and improvements. NJNG expects to finance these expenditures through internal generation and the issuance of short-term debt. NJNG will pursue the refinancing of other existing long-term debt and potentially issue new long-term debt, the amount and timing of which will be affected by market conditions and other factors. ENERGY HOLDINGS Energy Holdings does not currently expect any significant capital expenditures or external financing requirements in fiscal 1998. 14 16 NJR DEVELOPMENT Remaining capital expenditures in fiscal 1998 are projected to be $500,000 in connection with the construction of a 20,000 square-foot, build-to-suit office building, supported by a ten-year lease. These expenditures are expected to be funded through the Company's committed credit facilities. CR&R's future capital expenditures will be limited to the fit-up of existing tenant space, developing existing acreage and additional investments to preserve the value of its existing real estate holdings. INFORMATION CONCERNING FORWARD LOOKING STATEMENTS Certain of the statements contained in this report (other than the financial statements and other statements of historical fact), including, without limitation, statements as to the adequacy of established reserves for the discontinued operations, expected disposition of legal and regulatory proceedings, effect of new accounting standards and impact of the Year 2000 computer issue are forward-looking statements. Forward-looking statements are made based upon management's expectations and beliefs concerning future developments and their potential effect upon the Company. There can be no assurance that future developments will be in accordance with management's expectations or that the effect of future developments on the Company will be those anticipated by management. The Company wishes to caution readers that the assumptions which form the basis for forward-looking statements with respect to or that may impact earnings for fiscal 1998 and thereafter include many factors that are beyond the Company's ability to control or estimate precisely, such as estimates of future market conditions and the behavior of other market participants. Among the factors that could cause actual results to differ materially from estimates reflected in such forward-looking statements are weather conditions, economic conditions in NJNG's service territory, fluctuations in energy-related commodity prices, conversion activity and other marketing efforts, the conservation efforts of NJNG's customers, the pace of deregulation of retail gas markets, competition for the acquisition of gas, the regulatory and pricing policies of federal and state regulatory agencies, the availability of Canada's reserves for export to the United States and other regulatory changes. While the Company periodically reassesses material trends and uncertainties affecting the Company's results of operations and financial condition in connection with its preparation of management's discussion and analysis of results of operations and financial condition contained in its quarterly and annual reports, the Company does not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. 15 17 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings Information required by this Item is incorporated herein by reference to Part I, Item 1, Note 6-Legal and Regulatory Proceedings. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 27-1 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ended March 31, 1998. 16 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEW JERSEY RESOURCES CORPORATION Date: May 14, 1998 /s/Glenn C. Lockwood -------------------- Glenn C. Lockwood Senior Vice President and Chief Financial Officer 17 EX-27.1 2 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NEW JERSEY RESOURCES CORPORATION'S MARCH 31, 1998 FORM 10-Q, INCLUDING THE CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED STATEMENTS OF CASH FLOWS, CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF COMMON STOCK EQUITY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS SEP-30-1998 MAR-31-1998 PER-BOOK 644,621 21,799 193,289 68,517 0 928,226 45,527 202,494 58,778 306,799 20,000 760 268,145 0 1,620 45,800 137 0 31,490 0 253,475 928,226 486,981 23,919 411,215 435,134 51,847 1,775 53,622 10,102 43,520 793 42,727 14,484 14,048 (23,651) 2.40 2.39
EX-27.2 3 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NEW JERSEY RESOURCES CORPORATION'S MARCH 31, 1998 FORM 10-Q, INCLUDING THE CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED STATEMENTS OF CASH FLOWS, CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF COMMON STOCK EQUITY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS 9-MOS 6-MOS 3-MOS SEP-30-1998 SEP-30-1998 SEP-30-1998 SEP-30-1998 SEP-30-1997 JUN-30-1997 MAR-30-1997 DEC-31-1996 PER-BOOK PER-BOOK PER-BOOK PER-BOOK 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2.22 2.44 2.29 0.72 2.21 2.44 2.29 0.71
EX-27.3 4 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE NEW JERSEY RESOURCES CORPORATION'S MARCH 31, 1998 FORM 10-Q, INCLUDING THE CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED STATEMENTS OF CASH FLOWS, CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF COMMON STOCK EQUITY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS 9-MOS 6-MOS 3-MOS SEP-30-1998 SEP-30-1998 SEP-30-1998 SEP-30-1998 SEP-30-1996 JUN-30-1996 MAR-31-1996 DEC-31-1995 PER-BOOK PER-BOOK PER-BOOK PER-BOOK 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2.06 2.31 2.19 0.69 2.05 2.31 2.19 0.69
-----END PRIVACY-ENHANCED MESSAGE-----