-----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, IAur1jFSXL1x/3197yoqIauvdmVI5G0phs73GJBpSl995GFfzbcWElmgRnZLnxxr +ikO56xeV2J3qVK5aS2s4A== 0000950123-98-007511.txt : 19980814 0000950123-98-007511.hdr.sgml : 19980814 ACCESSION NUMBER: 0000950123-98-007511 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 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: 98685912 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 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, 1998 Commission file number 1-8359 NEW JERSEY RESOURCES CORPORATION (Exact name of registrant as specified in its charter) NEW JERSEY 22-2376465 (State or other jurisdiction (I.R.S. Employer Identification Number) of incorporation or organization) 1415 WYCKOFF ROAD, WALL, NEW JERSEY - 07719 732-938-1480 (Address of principal executive offices) (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES: X NO: The number of shares outstanding of $2.50 par value Common Stock as of August 6, 1998 was 17,808,038. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED JUNE 30, JUNE 30, 1998 1997 1998 1997 -------- -------- -------- -------- (Thousands, except per share data) OPERATING REVENUES ................. $113,432 $121,150 $600,413 $595,118 -------- -------- -------- -------- OPERATING EXPENSES Gas purchases ..................... 74,089 80,459 404,086 395,004 Operation and maintenance ......... 18,151 18,405 58,221 59,133 Depreciation and amortization ..... 7,069 6,168 21,184 18,480 Energy and other taxes ............ 5,676 7,317 32,709 39,137 State income taxes ................ 289 141 5,274 228 Federal income taxes .............. 403 1,088 19,337 23,059 -------- -------- -------- -------- Total operating expenses ........ 105,677 113,578 540,811 535,041 -------- -------- -------- -------- OPERATING INCOME ................... 7,755 7,572 59,602 60,077 Other income, net .................. 379 348 2,154 507 Interest charges, net .............. 4,843 4,996 14,945 15,418 -------- -------- -------- -------- INCOME BEFORE PREFERRED STOCK DIVIDENDS .......................... 3,291 2,924 46,811 45,166 Preferred stock dividends .......... 397 398 1,190 1,195 -------- -------- -------- -------- NET INCOME ......................... $ 2,894 $ 2,526 $ 45,621 $ 43,971 ======== ======== ======== ======== EARNINGS PER COMMON SHARE BASIC ..................... $ .16 $ .14 $ 2.56 $ 2.44 ======== ======== ======== ======== DILUTED ................... $ .16 $ .14 $ 2.55 $ 2.43 ======== ======== ======== ======== DIVIDENDS PER COMMON SHARE ......... $ .41 $ .40 $ 1.23 $ 1.20 ======== ======== ======== ======== AVERAGE SHARES OUTSTANDING BASIC ..................... 17,790 17,957 17,799 18,039 ======== ======== ======== ======== DILUTED ................... 17,899 18,025 17,902 18,086 ======== ======== ======== ========
See Notes to Consolidated Financial Statements 1 3 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
NINE MONTHS ENDED JUNE 30, 1998 1997 -------- -------- (Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income ....................................... $ 45,621 $ 43,971 Adjustments to reconcile net income to cash flows Depreciation and amortization ................... 21,184 18,480 Amortization of deferred charges ................ 617 930 Deferred income taxes ........................... 13,895 5,678 Change in working capital ....................... (58,585) (3,994) Other, net ...................................... (5,465) (6,756) -------- -------- Net cash flows from operating activities ......... 17,267 58,309 -------- -------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Proceeds from long-term debt ..................... 78,445 -- Proceeds from common stock ....................... 4,240 291 Payments of long-term debt ....................... (38,165) (12,802) Purchases of treasury stock ...................... (7,789) (6,168) Payments of common stock dividends ............... (21,770) (21,537) Net change in short-term debt .................... (5,200) (1,600) -------- -------- Net cash flows from (used in) financing activities .................................. 9,761 (41,816) -------- -------- CASH FLOWS USED IN FROM INVESTING ACTIVITIES Expenditures for Utility plant .................................. (28,029) (32,426) Real estate properties ......................... (1,648) (696) Equity investments and other ................... (11,488) (1,430) Cost of removal ................................ (2,260) (2,924) Proceeds from asset sales ........................ 15,600 16,118 -------- -------- Net cash flows used in investing activities ...... (27,825) (21,358) -------- -------- Net change in cash and temporary investments ..... (797) (4,865) Cash and temporary investments at September 30 ... 5,467 10,808 -------- -------- Cash and temporary investments at June 30 ........ $ 4,670 $ 5,943 ======== ======== CHANGES IN COMPONENTS OF WORKING CAPITAL Receivables ...................................... $ (8,020) $(26,452) Construction Fund ................................ (16,000) -- Inventories ...................................... (5,021) 27,205 Deferred gas costs ............................... 8,967 955 Purchased gas .................................... (15,759) 9,728 Prepaid and accrued taxes, net ................... (1,563) 10,482 Customers' credit balances and deposits .......... (8,982) (17,102) Accounts payable ................................. (4,256) (8,463) Other, net ....................................... (7,951) (347) -------- -------- Total ............................................ $(58,585) $ (3,994) ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION Cash paid for Interest (net of amounts capitalized) ........... $ 15,770 $ 16,603 Income taxes .................................... $ 6,163 $ 7,558
See Notes to Consolidated Financial Statements 2 4 CONSOLIDATED BALANCE SHEETS ASSETS
JUNE 30, SEPTEMBER 30, JUNE 30, 1998 1997 1997 (unaudited) (unaudited) --------- --------- --------- (Thousands) PROPERTY, PLANT AND EQUIPMENT Utility plant ........................... $ 880,224 $ 855,375 $ 841,543 Real estate properties .................. 24,528 22,897 22,772 --------- --------- --------- 904,752 878,272 864,315 Accumulated depreciation and amortization .......................... (235,089) (218,912) (213,207) --------- --------- --------- Property, plant and equipment, net ..... 669,663 659,360 651,108 --------- --------- --------- CURRENT ASSETS Cash and temporary investments .......... 4,670 5,467 5,943 Construction fund ....................... 16,000 -- 6,500 Customer accounts receivable ............ 50,719 45,900 60,550 Unbilled revenues ....................... 8,213 3,998 1,961 Allowance for doubtful accounts ......... (2,541) (1,527) (2,153) Gas in storage, at average cost ......... 40,422 34,152 13,731 Materials and supplies, at average cost . 4,196 5,445 5,840 Deferred gas costs ...................... 14,038 15,070 19,523 Prepaid state taxes ..................... 11,926 12,089 15,041 Asset held for sale, net ................ -- 13,386 13,475 Other ................................... 7,872 6,377 6,369 --------- --------- --------- Total current assets ................... 155,515 140,357 146,780 --------- --------- --------- DEFERRED CHARGES AND OTHER Equity investments .................... 9,087 7,086 6,921 Regulatory assets ..................... 39,234 38,635 38,357 Long-term deferred gas costs .......... 11,687 19,622 -- Other ................................. 34,599 14,001 11,454 --------- --------- --------- Total deferred charges and other .... 94,607 79,344 56,732 --------- --------- --------- Total assets ...................... $ 919,785 $ 879,061 $ 854,620 ========= ========= =========
See Notes to Consolidated Financial Statements 3 5 CONSOLIDATED BALANCE SHEETS CAPITALIZATION AND LIABILITIES
JUNE 30, SEPTEMBER 30, JUNE 30, 1998 1997 1997 (unaudited) (unaudited) -------- -------- -------- (Thousands) CAPITALIZATION Common stock equity ................... $301,540 $278,436 $291,419 Redeemable preferred stock ............ 20,640 20,760 20,760 Long-term debt ........................ 331,735 291,407 291,977 -------- -------- -------- Total capitalization ................. 653,915 590,603 604,156 -------- -------- -------- CURRENT LIABILITIES Current maturities of long-term debt .. 137 138 137 Short-term debt ....................... 42,800 48,000 33,400 Purchased gas ......................... 42,120 57,879 43,366 Accounts payable and other ............ 24,376 28,632 23,612 Dividends payable ..................... 7,305 7,161 7,174 Accrued taxes ........................ 10,826 5,781 15,258 Customers' credit balances and deposits ........................ 4,544 13,526 6,743 -------- -------- -------- Total current liabilities ............ 132,108 161,117 129,690 -------- -------- -------- DEFERRED CREDITS Deferred income taxes ................. 70,625 63,501 57,688 Deferred investment tax credits ....... 10,702 10,934 11,019 Deferred revenue ...................... 19,669 20,551 20,859 Other ................................. 32,766 32,355 31,208 -------- -------- -------- Total deferred credits ............... 133,762 127,341 120,774 -------- -------- -------- Total capitalization and liabilities ........................ $919,785 $879,061 $854,620 ======== ======== ========
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 (NJNR). The Company accounted for this segment as a discontinued operation and in fiscal 1995 recorded an after-tax charge of $8.7 million, or $.49 per share. This charge was based on estimates of the anticipated loss from operations until the assets were sold, the estimated loss on the sale of the remaining reserves and other costs related to the closing of its offices in Dallas and Tulsa. In fiscal 1996 NJR Energy sold its interests in all of its oil and gas properties in three transactions for $19.6 million. The proceeds from these sales were used to reduce outstanding debt. Based upon the results of the asset sales and costs incurred to date, the Company currently estimates that the reserve established in fiscal 1995 for the discontinued operations is adequate. 4. New Accounting Standards The Company has adopted SFAS No. 128 "Earnings per Share" which establishes standards for computing and presenting basic and diluted earnings per share (EPS). SFAS No. 128 is effective for periods ending after December 15, 1997 and requires that all prior-period data presented to be restated. The incremental shares, which relate to stock options and restricted stock, using the treasury stock method, that were required for inclusion in the denominator for the diluted EPS calculation were 109,191 and 68,025 for the three months ended June 30, 1998 and 1997, respectively, and 102,368 and 40,965 for the nine months ended June 30, 1998 and 1997, respectively. The numerator for both the basic and diluted calculation was net income. The impact was a one-cent dilutive 5 7 effect for the nine months ended June 30, 1998 and 1997 and no impact for the three months ended June 30, 1998 and 1997. In June 1997, the Financial Accounting Standards Boards (FASB) issued SFAS No. 130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosure About Segments of an Enterprise and Related Information." In February 1998, the FASB also issued SFAS No. 132 "Employers Disclosures about Pensions and Other Postretirement Benefits." These statements must be adopted by fiscal 1999. It is management's opinion that these statements will not have a material effect on either its financial condition or results of operations. In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative Investments and Hedging Activities." This statement must be adopted for the quarter ended December 31, 1999. The Company is currently evaluating the effects of SFAS No. 133 on its financial condition and results of operations, which will vary based on the Company's use of derivative instruments at the time of adoption. 5. Capitalized Interest The Company's capitalized interest totaled $163,000 and $242,000 for the three months ended June 30, 1998 and 1997, respectively. Capitalized interest totaled $539,000 and $971,000 during the nine months ended June 30, 1998 and 1997, respectively. 6. Legal and Regulatory Proceedings a. Levelized Gas Adjustment (LGA) In January 1998, the New Jersey Board of Public Utilities (BPU) approved an interim settlement, representing an increase of approximately $13 million in LGA revenues. This included the approval to collect $3.4 million of weather normalization clause (WNC) margins accrued due to the impact of warmer-than-normal weather during fiscal year 1997 and minimal adjustments to its Remediation Adjustment and Demand Side Management Adjustment Clause factors. The parties to the settlement are discussing the resolution of additional matters such as expanding customer choice, extending margin-sharing incentives and the allocation of LGA underrecovery among customer classes. The BPU is currently performing an audit of NJNG's gas costs and related accounts for the fiscal years 1991 through 1995. The Company expects this audit to be finalized in fiscal 1998 and does not believe that the ultimate resolution will have a material adverse effect on its consolidated financial condition or results of operations. b. Postretirement Benefits Other Than Pensions In January 1997, the BPU concluded a generic proceeding related to the implementation of the provisions of SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (OPEB). SFAS 106 required that publicly held companies change from the practice of accounting for OPEB costs on a pay as you go basis to an accrual basis of accounting. The BPU's generic proceeding provided for a Phase II proceeding in which each utility would address the particular impact of SFAS 106 on its revenue requirements. In July 1997, NJNG filed a petition to recover an additional $900,000 in annual OPEB costs with a proposed effective date no later than September 30, 1998. In November 1997, NJNG revised the requested annual OPEB costs to $1.2 million to reflect updated actuarial results and the imposition of state sales tax. NJNG expects to receive approval to collect the additional annual cost by the end of fiscal year 1998. 6 8 c. Gas Remediation NJNG has identified eleven former manufactured gas plant (MGP) sites, dating back to the late 1800's and early 1900's, which contain contaminated residues from the former gas manufacturing operations. Ten of the eleven sites in question were acquired by NJNG in 1952. All of the gas manufacturing operations ceased at these sites at least since the mid-1950's and in some cases had been discontinued many years earlier, and all of the old gas manufacturing facilities were subsequently dismantled by NJNG or the former owner. NJNG is currently involved in administrative proceedings with the New Jersey Department of Environmental Protection (NJDEP) and local government authorities with respect to the plant sites in question, and is participating in various studies and investigations by outside consultants to determine the nature and extent of any such contaminated residues and to develop appropriate programs of remedial action, where warranted. Since October 1989, NJNG has entered into Administrative Consent Orders or Memoranda of Agreement with the NJDEP covering all eleven sites. These documents establish the procedures to be followed by NJNG in developing a final remedial clean-up plan for each site. Most of the cost of such studies and investigations is being shared under an agreement with the former owner and operator of ten of the MGP sites. Through a Remediation Rider approved by the BPU, NJNG is recovering its expenditures incurred through June 1997 over a seven-year period. Costs incurred subsequent to June 30, 1997 will be reviewed annually and, subject to BPU approval, recovered over seven-year periods. In March 1995, NJNG filed a complaint in New Jersey Superior Court against various insurance carriers for declaratory judgment and for damages arising from such defendants' breach of their contractual obligations to defend and/or indemnify NJNG against liability for claims and losses (including defense costs) alleged against NJNG relating to environmental contamination at the former MGP sites and other sites. NJNG is seeking (i) a declaration of the rights, duties and liabilities of the parties under various primary and excess liability insurance policies purchased from the defendants by NJNG from 1951 through 1985, and (ii) compensatory and other damages, including costs and fees arising out of defendants' obligations under such insurance policies. The complaint was amended in July 1996 to name Kaiser-Nelson Steel & Salvage Company (Kaiser-Nelson) and its successors as additional defendants. In the amended complaint NJNG is seeking (a) a declaration of the rights, duties and liabilities of the parties under agreements with respect to claims against NJNG that allege property damage caused by various substances used, handled or generated by NJNG, or the predecessor in title, that were removed from several of the MPG sites by Kaiser-Nelson, and (b) money damages or compensatory relief for the harm caused by Kaiser-Nelson's aforementioned actions. Discovery is proceeding in this matter. There can be no assurance as to the outcome of these proceedings. d. South Brunswick Asphalt, L.P. NJNG has been named a defendant in a civil action commenced in New Jersey Superior Court by South Brunswick Asphalt, L.P. (SBA) and its affiliated companies, and two other non-affiliated companies, seeking damages arising from alleged environmental contamination at three sites owned or occupied by the plaintiffs. Specifically, the suit charges that tar emulsion removed from 1979 through 1983 by an affiliate of SBA (Seal Tite, Inc.) from NJNG's former gas manufacturing plant sites has been alleged by the NJDEP to constitute a hazardous waste and that the tar emulsion has contaminated the soil and ground water at the three sites in question. In February 1991, the NJDEP issued letters classifying the tar emulsion/sand and gravel mixture at each site as dry industrial waste, a non-hazardous classification. In April 1996, in a meeting with all parties to the litigation and the judge assigned to the case, the NJDEP confirmed the non-hazardous classification, which will allow for conventional disposal. In May 1997, SBA submitted applications to the NJDEP for permits to allow SBA to recycle the tar emulsion/sand and gravel mixture at each site into asphalt, to be used as a paving material. These 7 9 applications are currently under review by the NJDEP. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial condition or results of operations. e. Various The Company is party to various other claims, legal actions and complaints arising in the ordinary course of business. In management's opinion, the ultimate disposition of these matters will not have a material adverse effect on its financial condition or results of operations. 7. State of New Jersey Tax Reform In July 1997, legislation was signed that reformed New Jersey's taxes affecting energy companies. The legislation repealed the long-standing utility gross receipts and franchise tax formula and replaced it with a state sales tax, a corporate business tax and a transitional energy facilities assessment which became effective in January 1998. It required a rate filing by each utility in September 1997 designed to implement the new tax structure. In December 1997, the BPU approved NJNG's new rates implementing the new tax structure on an interim basis. The BPU issued its final order in July 1998 directing small changes to the interim rates effective January 1, 1999. The transitional energy facilities assessment will be gradually phased out starting in 1999 and ending in 2002. The new law requires that all providers of energy in the state be subject to the sales and corporate business taxes. Previously, non-utility providers of energy were not subject to a state sales tax. 8. Long-Term Debt NJNG has entered into loan agreements with the New Jersey Economic Development Authority (the Authority) in which the Authority issues bonds to the public. To secure its loans from the Authority, NJNG issues First Mortgage Bonds with interest rates and maturity dates similar to the Authority's Bonds. Under these agreements NJNG issued variable rate Series DD Bonds in October 1997 for $13.5 million and utilizing the proceeds from the series DD Bonds, redeemed its $13.5 million 9% Series Q Bonds in December 1997. In January 1998, NJNG issued variable rate Series EE and Series FF Bonds for $9.5 million and $15 million, respectively. The proceeds were utilized to redeem the $9.5 million 7.05% Series T and the $15 million 7.25% Series U Bonds on March 1, 1998. In April 1998, NJNG entered into a loan agreement whereby the Authority loaned NJNG the proceeds from its $18 million Natural Gas Facilities Revenue Bonds, Series 1998C (the EDA Bonds). The rates of interest on the EDA Bonds are variable, currently set at a weekly mode, and may be changed by NJNG to daily, weekly, flexible or long-term interest rate modes, not to exceed 10% per annum. The EDA Bonds mature on April 1, 2033. The proceeds from the EDA Bonds were deposited into a project construction fund. NJNG may obtain such funds in reimbursement of its qualified expenditures relating to the project upon delivering an equivalent amount of its Adjustable Rate Series GG First Mortgage Bonds (Series GG Bonds) to the indenture trustee. On April 1, 1998, NJNG drew down $2 million from the construction fund and issued $2 million of its Series GG Bonds. 9. Other At June 30, 1998 there were 17,771,807 shares of common stock outstanding and the book value per share was $16.97. Certain reclassifications have been made of previously reported amounts to conform with current year classifications. 8 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED JUNE 30, 1998 A. RESULTS OF OPERATIONS Consolidated net income for the quarter ended June 30, 1998 increased by 15% to $2.9 million, compared with $2.5 million for the same period last year. Basic and diluted earnings per share (EPS) increased by 14% to $.16, compared with $.14 last year. Consolidated net income for the nine months ended June 30, 1998 increased by 4% to $45.6 million, compared with $44 million for the same period last year. Basic EPS increased 5% to $2.56, compared with $2.44 last year. Diluted EPS also increased 5% to $2.55, compared with $2.43 last year. The increase in consolidated earnings was primarily attributed to continued profitable customer growth at the Company's principal subsidiary, NJNG, cost control efforts and the gain on the sale of a real estate property. NJNG OPERATIONS NJNG's financial results are summarized as follows:
Three Months Ended Nine Months Ended June 30, June 30, 1998 1997 1998 1997 ------- ------- -------- -------- (Thousands) Gross margin Residential and commercial ............... $26,887 $25,324 $134,710 $131,160 Firm transportation ...................... 2,229 3,525 14,113 12,343 Interruptible ............................ 145 316 463 820 Off-system and capacity release .......... 960 718 4,022 4,640 ------- ------- -------- -------- Total gross margin ......................... $30,221 $29,883 $153,308 $148,963 ======= ======= ======== ======== Appliance service revenues ................. $ 1,583 $ 1,798 $ 7,103 $ 6,825 ======= ======= ======== ======== Operating income before federal income taxes .................................... $ 6,067 $ 7,322 $ 76,476 $ 79,068 ======= ======= ======== ======== Net income ................................. $ 1,817 $ 1,880 $ 43,452 $ 42,340 ======= ======= ======== ========
Gross Margin As discussed in Note 7 of the consolidated financial statements, effective January 1, 1998, changes in state tax laws have impacted the amount and type of state taxes that are charged on a per therm basis. Therefore, effective January 1, 1998 gross margin, is defined as gas revenues less gas costs, sales tax and a transitional energy facilities assessment (TEFA), which provides a more meaningful basis for evaluating utility operations, since gas costs, sales tax and TEFA are passed through to customers and, therefore, have no effect on earnings. Gas costs are charged to operating expenses on the basis of therm sales at the base and LGA cost rates included in NJNG's tariff. The LGA clause allows NJNG to recover gas costs that exceed the level reflected in its base rates. Sales tax is calculated at 6% of revenue and excludes sales to other utilities, off-system sales and federal accounts while TEFA is calculated on a per-therm basis and excludes sales to other utilities and off-system sales. Prior to January 1, 1998, gross margin was defined as gas revenues less gas costs and gross receipts and franchise taxes (GRFT), which provided a more meaningful basis for evaluating utility operations, since gas costs and GRFT were passed through to customers and, therefore, had no effect on earnings. 9 11 The comparison of gross margin between periods will be impacted by the state tax changes described above. Residential and Commercial Since fiscal 1993, NJNG's margin has been substantially protected from the effects of warm winter weather through a weather-normalization clause (WNC) which provides for a revenue adjustment if the weather varies by more than one-half of one percent from normal, or 20-year average weather. The WNC does not protect the Company from declines in customer usage patterns. Customer levels used in the WNC calculation were set at the conclusion of NJNG's last base rate case in January 1994. The accumulated adjustment from one heating season is billed or credited to customers in the subsequent year. Gross margin from sales to firm customers increased by $1.6 million, or 6%, and $3.6 million, or 3%, for the three and nine months ended June 30, 1998, respectively, compared with the same periods last year. These increases were due to the impact of 12,652 customer additions during the twelve months ended June 30, 1998 and the aforementioned changes in state taxes which more than offset lower therm sales. Firm therm sales for the nine months decreased by 8% compared with last year due to 11% warmer weather, and the impact of residential, commercial and industrial customers switching to firm transportation service, as described below. The weather for the nine months ended June 30, 1998 was 11% warmer than normal, or the 20-year average. The impact of warmer weather on gross margin was partially reduced by the WNC. Under this rate mechanism, a total of $11.6 million of gross margin was accrued for future collection from customers. Firm Transportation Gross margin from firm transportation customers decreased by $1.3 million, or 37% for the three months ended June 30, 1998 compared with the same period last year, primarily due to the recording of imbalance volumes with marketers. Gross margin from firm transportation customers increased by $1.8 million, or 14%, for the nine months ended June 30, 1998, compared with the same periods last year, primarily due to increased sales. Transportation sales increased to 5.6 billion cubic feet (Bcf) from 4.8 Bcf for the nine months ended June 30, 1998 and 1997, respectively. At June 30, 1998 and 1997, NJNG provided firm transportation service to 11,823 and 2,442 residential, commercial and industrial customers, respectively. NJNG's total gross margin is not negatively impacted by customers who utilize its firm transportation service and purchase their gas from another supplier, as NJNG's tariffs are designed such that no profit is earned on the commodity portion of sales to firm customers, and all customers who do purchase gas from another supplier continue to utilize NJNG for transportation. Interruptible NJNG services 49 customers through interruptible sales and/or transportation tariffs. Sales made under the interruptible sales tariff are priced on market-sensitive oil and gas parity rates. Although therms sold and transported to interruptible customers represented 5% of total therm throughput in the nine months ended June 30, 1998 and 1997, respectively, they accounted for less than 1% of the total gross margin in each period due to the regulated margin-sharing formulas that govern these sales. Under these formulas, NJNG retains 5% of the gross margin from transportation sales and 10% of the gross margin from the interruptible sales, with the balance credited to residential and commercial customers through the LGA clause. Off-System and Capacity Release In order to reduce the overall cost of its gas supply commitments, NJNG has entered into contracts to sell gas to customers who are outside of its franchise territory when the gas is not needed for system requirements. These sales enable NJNG to spread its fixed demand costs, which are charged by pipelines to access their supplies year-round, over a larger and more diverse customer base. NJNG also participates in the capacity release market 10 12 on the interstate pipeline network when the capacity is not needed for its own system requirements. NJNG retains 20% of the gross margin from these sales. NJNG's off-system sales totaled 11.8 Bcf and generated $414,000 of gross margin and 48.1 Bcf and $2.3 million of gross margin in the three and nine months ended June 30, 1998, respectively, compared with 9.4 Bcf and $178,000 of gross margin and 36.4 Bcf and $2.7 million gross margin in the respective periods last year. The capacity release program generated gross margin of $546,000 and $1.7 million in the three and nine months ended June 30, 1998, compared with $540,000 and $1.9 million in the comparable periods last year. The decreases were due primarily to the warmer weather which resulted in lower margins per therm. Operating Income Before Federal Income Taxes and Net Income Operating income before federal income taxes decreased by $1.3 million, or 17%, and net income decreased by $63,000, or 3%, for the three months ended June 30, 1998, compared with the same period last year due to warmer weather and increased depreciation expense due primarily to the new customer information and billing system (CIS) which was placed in service in August 1997. Operating income before federal income taxes decreased by $2.6 million, or 3% for the nine months ended June 30, 1998, compared with the same period last year, primarily due to the impact of warmer weather and higher depreciation expense which more than offset customer growth, increased appliance service revenues and lower operation and maintenance expense. Net income increased by $1.1 million, or 3%, for the nine months ended June 30, 1998, compared with the same period last year, primarily due to lower interest expense and lower federal income taxes which more than offset the lower operating income before federal income taxes. ENERGY HOLDINGS OPERATIONS Energy Holdings' consolidated financial results, which include Natural Energy and Energy Services, the Company's unregulated marketing and fuel and capacity management subsidiaries, and the continuing operations of NJR Energy, which consists primarily of its equity investment in the Iroquois Gas Transmission System, L.P., are summarized as follows:
Three Months Ended Nine Months Ended June 30, June 30, --------------------- ----------------------- 1998 1997 1998 1997 ------- ------- -------- -------- (Thousands) Revenues $25,502 $30,108 $130,797 $109,956 ======= ======= ======== ======== Operating income before federal income taxes $ 1,588 $ 1,256 $ 2,923 $ 3,945 ======= ======= ======== ======== Net income $ 820 $ 775 $ 1,477 $ 2,131 ======= ======= ======== ========
Energy Holdings' operating income before federal income taxes and net income increased for the three months ended June 30, 1998, compared to the same period last year, reflecting primarily higher margins from daily gas sales and fuel management agreements. Operating income before federal income taxes and net income decreased for the nine months ended June 30, 1998, reflecting higher gas costs on Natural Energy's retail marketing operation, which more than offset higher margin from its fuel and capacity management services. Energy Holdings' gas under management totaled 14.6 Bcf and 61.6 Bcf, and retail gas sales totaled 1.4 Bcf and 5.7 Bcf for the three and nine months ended June 30, 1998, respectively, compared with gas under management of 19.8 Bcf and 50.4 Bcf, and retail gas sales of 1.9 Bcf and 7.7 Bcf in the comparable periods last year. 11 13 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, 1998 1997 1998 1997 ----- ----- ------ ------- (Thousands) Revenues $ 190 $ 708 $ 557 $ 2,420 ===== ===== ====== ======= Other income, net $ 113 $ 113 $1,520 $ 285 ===== ===== ====== ======= Net (loss) income $ (13) $ (57) $ 511 $ (207) ===== ===== ====== =======
In October 1997, CR&R sold a 280,000 square-foot office building for $15.6 million. Included in Other income, net for the nine months ended June 30, 1998, is an after-tax gain of $900,000 related to this transaction. In December 1995, CR&R sold a 157,000 square foot, office building for $31.85 million, in a sale-leaseback transaction. CR&R's pre-tax gain on this transaction was approximately $17.8 million which is included in deferred revenue on the consolidated balance sheet and is being amortized to Other income, net over 25 years in accordance with generally accepted accounting principles. The primary tenant of the facility, NJNG, is leasing the building under a long-term master lease agreement and continues to occupy a majority of the space in the building. Prior to the transaction, NJNG leased about 79% of the building under a long-term lease. NJR used the proceeds from these sales to reduce outstanding debt. THE YEAR 2000 ISSUE The Company has been evaluating the extent to which its computer systems will be affected by the Year 2000 issue. There could be unforeseen costs that may arise due to unexpected disruptions of the Company's operations if its computer system is not Year 2000 compliant. Additionally, there could be adverse effects on the Company due to the potential Year 2000 problems of vendors with whom the Company conducts business. The Company has commenced discussions with its major vendors regarding their plans to address the Year 2000 issue with a view to help minimize any potential problems. With the implementation of NJNG's new CIS system, the Company currently believes that the additional investment needed for its computer systems to be fully Year 2000 compliant will not have a material adverse affect on either its financial condition or results of operations. B. LIQUIDITY AND CAPITAL RESOURCES In order to meet the working capital and external debt financing requirements of its unregulated subsidiaries, as well as its own working capital needs, the Company maintains committed credit facilities with a number of banks totaling $135 million and has a $10 million credit facility available on an offering basis. At June 30, 1998, $62.4 million was outstanding under these agreements. NJNG satisfies its debt needs by issuing short-term and long-term debt based upon its own financial profile. The Company meets the common equity requirements of each subsidiary, if any, through new issuances of the Company's common stock, including the proceeds from its Automatic Dividend Reinvestment Plan (DRP). In April 1996, the DRP was amended to allow for the purchase of shares in the open market to satisfy the plan's needs. The Company can switch funding options every 90 days. 12 14 NJNG The seasonal nature of NJNG's operations creates large short-term cash requirements, primarily to finance gas purchases and customer accounts receivable. NJNG obtains working capital for these requirements, as well as for the temporary financing of construction expenditures, sinking fund needs and GRFT payments, through the issuance of commercial paper and short-term bank loans. To support the issuance of commercial paper, NJNG maintains committed credit facilities totaling $90 million with a number of commercial banks and has an additional $10 million in lines of credit available on an offering basis. Remaining fiscal 1998 construction expenditures are estimated at $16 million. These expenditures will be incurred for services, mains and meters to support NJNG's continued customer growth general system renewals and improvements, and technology systems. NJNG expects to finance these expenditures through internal generation and the issuance of short-term debt. ENERGY HOLDINGS Energy Holdings invested $2 million in May 1998 for an equity interest in Capstone Turbine Corporation. Capstone is a developer of energy efficient gas-fired microturbine units which produce electricity. Energy Holdings does not currently expect any significant capital expenditures or external financing requirements during the remainder of fiscal 1998. NJR DEVELOPMENT CR&R's future capital expenditures will be limited to the fit-up of existing tenant space, developing existing acreage and additional investments to preserve the value of its existing real estate. CR&R does not currently expect any significant capital expenditures or external financing requirements during the remainder of fiscal 1998. INFORMATION CONCERNING FORWARD LOOKING STATEMENTS Certain of the statements contained in this report (other than the financial statements and other statements of historical fact), including, without limitation, statements as to the adequacy of established reserves for the discontinued operations, expected disposition of legal and regulatory proceedings, effect of new accounting standards and impact of the Year 2000 computer issue are forward-looking statements. Forward-looking statements are made based upon management's expectations and beliefs concerning future developments and their potential effect upon the Company. There can be no assurance that future developments will be in accordance with management's expectations or that the effect of future developments on the Company will be those anticipated by management. The Company wishes to caution readers that the assumptions which form the basis for forward-looking statements with respect to or that may impact earnings for fiscal 1998 and thereafter include many factors that are beyond the Company's ability to control or estimate precisely, such as estimates of future market conditions and the behavior of other market participants. Among the factors that could cause actual results to differ materially from estimates reflected in such forward-looking statements are weather conditions, economic conditions in NJNG's service territory, fluctuations in energy-related commodity prices, conversion activity and other marketing efforts, the conservation efforts of NJNG's customers, the pace of deregulation of retail gas markets, competition for the acquisition of gas, the regulatory and pricing policies of federal and state regulatory agencies, the availability of Canada's reserves for export to the United States and other regulatory changes. 13 15 While the Company periodically reassesses material trends and uncertainties affecting the Company's results of operations and financial condition in connection with its preparation of management's discussion and analysis of results of operations and financial condition contained in its quarterly and annual reports, the Company does not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events PART II - OTHER INFORMATION ITEM 1. Legal Proceedings Information required by this Item is incorporated herein by reference to Part I, Item 1, Note 6 - Legal and Regulatory Proceedings. ITEM 2. Changes in Securities and Use of Proceeds (c) Unregistered Sales At the Company's 1996 Annual Meeting of Stockholders, The Company's Long-Term Incentive Compensation Plan (the "Plan") was amended to include all full-time employees of the Company and its subsidiaries as eligible Plan participants. In the past, Company common stock offered pursuant to the terms of the Plan was not registered with the SEC due to the fact that the Plan participants were accredited investors and, accordingly, sales of stock under the Plan were exempt from registration requirements. However, due to the 1996 amendment to the Plan, some of the current Plan participants are not accredited investors. Prior to the Company's recent filing of a Registration Statement on Form S-8 with respect to shares of common stock to be offered under the Plan, the Company inadvertently engaged in two nonexempt unregistered sales of common stock pursuant to the exercise of stock options under the Plan. Specifically, 45 shares of common stock were acquired on December 11, 1997 for $29.50 and 48 shares of common stock were acquired on April 7, 1998 for $29.50. On July 14, 1998, the Company filed a Registration Statement on Form S-8 (Reg. No. 333-59013) with respect to shares of common stock to be offered under the Plan and, accordingly, there will be no further unregistered sales under the Plan. ITEM 5. OTHER INFORMATION The Securities and Exchange Commission (the Commission) recently amended certain rules under the Securities Exchange Act of 1934, as amended, affecting the use of discretionary proxy voting authority with respect to stockholder proposals submitted to the Company for consideration at the Company's next annual meeting. Pursuant to the Company's bylaws and amended Rules 14a-5(e)(2) and 14a-4(c)(1), stockholder proposals submitted to the Company outside the processes of Rule 14a-8 (i.e., the procedures for placing a stockholder's proposal in the Company's proxy materials) with respect to the Company's 1999 annual meeting of stockholders will be considered untimely if not received by the Company 75 days prior to the first anniversary of the preceding year's meeting, that is November 13, 1998. If the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice by the stockholder, to be timely, must be delivered not later than the 75th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is made. Accordingly, the proxy with respect to the Company's 1999 annual meeting of shareholders will confer discretionary authority to vote on any stockholder proposals received by the Company after such date. 14 16 ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 27-1 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ended June 30, 1998. 15 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEW JERSEY RESOURCES CORPORATION Date: August 13, 1998 /s/Glenn C. Lockwood -------------------- Glenn C. Lockwood Senior Vice President and Chief Financial Officer 16 EX-27.1 2 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM NEW JERSEY RESOURCES CORPORATION'S JUNE 30, 1998 FORM 10-Q, INCLUDING THE CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED STATEMENTS OF CASH FLOWS AND CONSOLIDATED BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS SEP-30-1998 JUN-30-1998 PER-BOOK 647,775 21,888 155,515 94,607 0 919,785 45,664 201,419 54,457 301,540 20,000 640 300,245 0 0 42,800 137 0 31,490 0 222,933 919,785 600,413 24,611 516,200 540,811 59,602 2,154 61,756 14,945 46,811 1,190 45,621 21,770 13,711 17,267 2.56 2.55
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