-----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, TmaJ+etl3DAEXMBlYcM54zAbh/aRGLYBk0qCcFcpUpEIyqbXFJbeTjDVtcUK6EbR CZkxkJkSG2F0ub/8Jl1yRw== 0000950123-99-011190.txt : 19991229 0000950123-99-011190.hdr.sgml : 19991229 ACCESSION NUMBER: 0000950123-99-011190 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW JERSEY RESOURCES CORP CENTRAL INDEX KEY: 0000356309 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 222376465 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08359 FILM NUMBER: 99781693 BUSINESS ADDRESS: STREET 1: 1415 WYCKOFF RD STREET 2: PO BOX 1468 CITY: WALL STATE: NJ ZIP: 07719 BUSINESS PHONE: 9089381494 MAIL ADDRESS: STREET 1: 1350 CAMPUS PKWY STREET 2: P O BOX 1468 CITY: WALL STATE: NJ ZIP: 07719 10-K405 1 NEW JERSEY RESOURCES CORPORATION 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1999 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 incorporation or organization) (I.R.S. Employer Identification Number) 1415 WYCKOFF ROAD, WALL, NEW JERSEY - 07719 732-938-1480 (Address of principal executive offices) (Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act:
COMMON STOCK - $2.50 PAR VALUE NEW YORK STOCK EXCHANGE (Title of each class) (Name of each exchange on which registered)
Securities registered pursuant to Section 12 (g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES: X NO: Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. YES: X NO: The aggregate market value of the Registrant's Common Stock held by non-affiliates was $708,102,400 based on the closing price of $40.00 per share on December 8, 1999. The number of shares outstanding of $2.50 par value Common Stock as of December 8, 1999 was 17,785,380. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's 1999 Annual Report to Stockholders are incorporated by reference into Part I and Part II of this report. Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held January 26, 2000, are incorporated by reference into Part I and Part III of this report. 2 TABLE OF CONTENTS
PART I Page ---- ITEM 1 - Business 1 Business Segments New Jersey Natural Gas Company General 2 Throughput 2 Seasonality of Gas Revenues 3 Gas Supply 3 Regulation and Rates 5 Franchises 6 Competition 6 NJR Energy Holdings Corporation 7 NJR Development Corporation 8 Environment 9 Employee Relations 10 Executive Officers of the Registrant 10 ITEM 2 - Properties 11 ITEM 3 - Legal Proceedings 12 ITEM 4 - Submission of Matters to a Vote of Security Holders 14 Information Concerning Forward Looking Statements 14 PART II ITEM 5 - Market for the Registrant's Common Stock and Related Stockholder Matters 16 ITEM 6 - Selected Financial Data 16 ITEM 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations 16 ITEM 7a- Quantitative and Qualitative Disclosures about Market Risk 16 ITEM 8 - Financial Statements and Supplementary Data 16 ITEM 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 16 PART III ITEM 10- Directors and Executive Officers of the Registrant 17 ITEM 11- Executive Compensation 17 ITEM 12- Security Ownership of Certain Beneficial Owners and Management 17 ITEM 13- Certain Relationships and Related Transactions 17 PART IV ITEM 14 - Exhibits, Financial Statement Schedules and Reports on Form 8-K 17 Index to Financial Statement Schedules 18 Signatures 20 Independent Auditors' Consent and Report on Schedule 21 Exhibit Index 22
3 PART I ITEM 1. BUSINESS New Jersey Resources Corporation (the Company or NJR) is a New Jersey corporation formed in 1982 pursuant to a corporate reorganization. The Company is an exempt energy services holding company providing retail and wholesale natural gas and related energy services to customers from the Gulf Coast to New England. Its subsidiaries include: 1) New Jersey Natural Gas Company (NJNG), a natural gas distribution company that provides regulated energy service to more than 397,000 residential and commercial customers in central and northern New Jersey, appliance service to more than 113,000 customers and participates in the off-system sales and capacity management markets; 2) NJR Energy Holdings Corporation (Energy Holdings), a sub-holding company of NJR formed in 1995 to better segregate the Company's energy-related operations. Energy Holdings includes the following wholly-owned subsidiaries: NJR Energy Services Company (Energy Services), formed in 1996, provides unregulated fuel and capacity management and other wholesale marketing services; and New Jersey Natural Energy Company (Natural Energy), formed in 1995, participates in the unregulated retail marketing of natural gas; and NJR Energy Corporation (NJR Energy), an investor in energy-related ventures through its operating subsidiaries, New Jersey Natural Resources Company (NJNR) and NJNR Pipeline Company (Pipeline); 3) NJR Development Corporation, a sub-holding company of NJR, which includes the Company's remaining unregulated operating subsidiary, Commercial Realty & Resources Corp. (CR&R), a commercial real estate developer. The Company is an exempt holding company under Section 3(a)(1) of the Public Utility Holding Company Act of 1935. 1 4 BUSINESS SEGMENTS See Note 11 to the Consolidated Financial Statements - Business Segment Data in the Company's 1999 Annual Report, for business segment financial information. NEW JERSEY NATURAL GAS COMPANY General NJNG provides natural gas service to more than 397,000 customers. Its service territory encompasses 1,436 square miles, covering 104 municipalities with an estimated population of 1.3 million. NJNG's service territory is primarily suburban, with a wide range of cultural and recreational activities, highlighted by approximately 100 miles of New Jersey seacoast. It is in proximity to New York, Philadelphia and the metropolitan areas of northern New Jersey and is accessible through a network of major roadways and mass transportation. These factors have contributed to NJNG adding 11,890, 11,819 and 11,708 new customers in 1999, 1998 and 1997, respectively. This annual growth rate of 3% is expected to continue with projected additions of 38,000 new customers over the next three years. See Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) - Liquidity and Capital Resources-NJNG in the Company's 1999 Annual Report for a discussion of NJNG's projected capital expenditure program associated with this growth in 2000 and 2001. In assessing the potential for future growth in its service area, NJNG uses information derived from county and municipal planning boards which describes housing developments in various stages of approval. In addition, builders in NJNG's service area are surveyed to determine their development plans for future time periods. In addition to customer growth through new construction, NJNG's business strategy includes aggressively pursuing conversions from other fuels, such as electricity and oil. It is estimated that approximately 40% of NJNG's projected customer growth will consist of conversions. NJNG will also continue to pursue off-system sales and non-peak sales, such as natural gas-fueled electric generating projects. Throughput For the fiscal year ended September 30, 1999, operating revenues and throughput by customer class were as follows:
Operating Revenues Throughput ------------------ ---------- (Thousands) (Bcf) ----------- ----- Residential $303,884 47% 34.2 17% Commercial and other 60,954 10 7.3 3 Firm transportation 33,319 5 9.4 5 -------- -------- ----- -------- Total residential and commercial 398,157 62 50.9 25 Interruptible 7,558 1 9.8 5 -------- -------- ----- -------- Total system 405,715 63 60.7 30 Off-system 228,849 35 143.7 70 Appliance service revenues 9,986 2 -- -- -------- -------- ----- -------- Total $644,550 100% 204.4 100% ======== ======== ===== ========
2 5 See MD&A - NJNG Operations in the Company's 1999 Annual Report for a discussion of gas and transportation sales. Also see NJNG Operating Statistics in the Company's 1999 Annual Report for information on operating revenues and throughput for the past six years. During this period, no single customer represented more than 10% of operating revenues. Seasonality of Gas Revenues As a result of the heat-sensitive nature of NJNG's residential customer base, therm sales are significantly affected by weather conditions. Specifically, customer demand substantially increases during the winter months when natural gas is used for heating purposes. See MD&A - Liquidity and Capital Resources - NJNG in the Company's 1999 Annual Report for a discussion of the effect of seasonality on cash flow. The impact of weather on the level and timing of NJNG's revenues and cash flows has been affected by a weather-normalization clause (WNC), which provides for a revenue adjustment if the weather varies by more than one-half of 1% from normal, or 20-year average, weather. The WNC does not fully protect the Company from factors such as unusually warm weather and declines in customer usage patterns, which were set in January 1994. The accumulated adjustment from one heating season (i.e., October-May) is billed or credited to customers in subsequent periods. See MD&A - NJNG Operations in the Company's 1999 Annual Report and Item 1. Business - State Regulation and Rates for additional information with regard to the WNC. Gas Supply A) Firm Natural Gas Supplies NJNG currently purchases a diverse gas supply portfolio consisting of long-term (over seven months), winter-term (for the five winter months) and short-term contracts. In 1999 NJNG purchased gas from 62 suppliers under contracts ranging from one month to twelve years. NJNG has 6 long-term firm gas purchase contracts and purchased approximately 10% of its gas in 1999 under one long-term firm gas purchase contract with Alberta Northeast Gas Limited, which expires in 2006. NJNG does not purchase more than 10% of its total gas supplies under any other single long-term firm gas purchase contract. NJNG believes that its supply strategy should adequately meet its expected firm load over the next several years. B) Firm Transportation and Storage Capacity In order to deliver the above supplies, NJNG maintains agreements for firm transportation and storage capacity with several interstate pipeline companies. The pipeline companies that provide firm transportation service to NJNG's city gate stations in New Jersey, the maximum daily deliverability of that capacity and the contract expiration dates are as follows: 3 6
Maximum Daily Pipeline Deliverability (Dths) Expiration Date - -------- --------------------- --------------- Texas Eastern Transmission Corp. 277,949 Various dates after 2000 Iroquois Gas Transmission System, L.P. 40,000 2011 Transcontinental Gas Pipe Line Corp. 22,531 Various dates after 1999 Tennessee Gas Pipeline Co. 10,894 2003 Columbia Gas Transmission Corp. 10,000 2009 Algonquin Gas Transmission Co. 5,000 2000 --------- 366,374 =========
The pipeline companies that provide firm transportation service to NJNG, which feeds the above pipelines are: Texas Gas Transmission Corporation, CNG Transmission Corporation, Columbia Gulf Transmission Corporation, Equitrans, Inc. and Carnegie Interstate Pipeline Company. In addition, NJNG has storage and related transportation contracts that provide additional maximum daily deliverability of 216,000 dekatherms (Dths) from storage fields in its Northeast market area. The significant storage suppliers, the maximum daily deliverability of that storage capacity and the contract expiration dates are as follows:
Pipeline Maximum Daily Deliverability (Dths) Expiration Date - -------- ----------------------------------- --------------- Texas Eastern Transmission Corp. 94,557 Various dates after 1999 Transcontinental Gas Pipe Line Corp. 8,384 2005 ------- 102,941 =======
NJNG also has storage contracts with CNG Transmission Corporation (maximum daily deliverability of 103,661 Dths) and Equitrans, Inc. (maximum daily deliverability of 9,996 Dths), but utilizes NJNG's existing transportation contracts to transport that gas from the storage fields to its city gate. C) Peaking Supply To meet its increased winter peak day demand, NJNG, in addition to utilizing the previously mentioned firm storage services, maintains two liquefied natural gas (LNG) facilities and purchases firm storage services. See Item 2 Properties - - NJNG for additional information regarding the LNG storage facilities. NJNG presently has LNG storage deliverability of 140,000 Dths per day, which represents approximately 22% of its peak day sendout. D) Future Supplies NJNG expects to be able to meet the current level of gas requirements of its existing and projected firm customers for the foreseeable future. Nonetheless, NJNG's ability to provide supply for its present and projected sales will depend upon its suppliers' ability to obtain and deliver additional supplies of natural gas, as well as NJNG's ability to acquire supplies directly from new sources. Factors beyond the control of NJNG, its suppliers and the independent suppliers who have obligations to provide gas to certain NJNG customers, may affect NJNG's ability to deliver such supplies. These factors include other parties' control over the drilling of new wells and the facilities to transport gas to NJNG's city gate, competition for the acquisition of gas, priority allocations, the regulatory and pricing policies of federal and state regulatory agencies, as well as the availability of Canadian reserves for export to the United States. Proposed energy deregulation legislation discussed immediately below may increase 4 7 competition among natural gas utilities and impact the quantities of natural gas requirements needed for residential services. If NJNG's gas requirements decrease, NJNG expects to resell any unnecessary supplies that it is required to purchase under existing agreements with its suppliers. Regulation and Rates A) State NJNG is subject to the jurisdiction of the Board of Public Utilities (the BPU) with respect to a wide range of matters, such as rates, the issuance of securities, the adequacy of service, the manner of keeping its accounts and records, the sufficiency of gas supply, pipeline safety and the sale or encumbrance of its properties. Over the last five years, NJNG has been granted one increase in its base tariff rates, and various increases and decreases in its Levelized Gas Adjustment clause (LGA). The base rate increase related to the recognition of costs for postretirement benefits other than pensions (OPEB). Through its LGA billing factor, which is reviewed annually, NJNG recovers the cost of six adjustment clauses. They are: (i) the Gas Cost Recovery (GCR) factor, which reflects purchased gas costs that are in excess of the level included in its base rates, (ii) Prior Gas Cost Adjustment Surcharge (PGCA) factor, which is designed to recover $34.9 million of unrecovered gas costs from September 1997 and earlier, (iii) Demand Side Management (DSM) factor for recovery of conservation-related costs, (iv) Remediation Adjustment (RA) factor, which recovers the costs of remediating former manufactured gas plant sites, (v) Transportation Education and Implementation (TEI) factor for recovery of incremental costs incurred in administering a transportation program and (vi) the WNC factor, which credits or surcharges margins accrued from the past heating season weather. LGA recoveries do not include an element of profit and, therefore, have no effect on earnings. The following table sets forth information with respect to these rate changes:
($ in 000's) Annualized Annualized Amount Amount Date of Filing Type Per Filing Granted Effective Date - -------------- ---- ---------- ------- -------------- July 1997 Base Rates-OPEB $1,300 $900 October 1998 September 1999 LGA (1,900) Pending September 1998 LGA 0 (11,300) July 1999 July 1997 LGA 0 11,600 October 1998 July 1997 LGA 0 11,100 January 1998 July 1996 LGA 8,000 7,900 December 1996 July 1995 LGA (4,800) (5,200) December 1995 July 1994 LGA 8,800 0 December 1994
See Note 7 to the Consolidated Financial Statements - Regulatory Issues in the Company's 1999 Annual Report for additional information regarding NJNG's rate proceedings. In September 1999, NJNG filed to reduce its LGA by less than 1%, reflecting a proposal to decrease the PGCA, TEI and DSM factors, partially offset by a minor increase to its Remediation Adjustment (RA) factor. No change was proposed for the GCR and WNC factors. 5 8 In August 1999, NJNG filed a Comprehensive Resource Analysis (CRA) plan pursuant to a BPU order. The CRA, which will replace NJNG's current DSM program, includes a program cost of $2.9 million recoverable through rates. NJNG expects the BPU to rule on the filing in February 2000. In April 1999, NJNG filed a rate unbundling petition pursuant to a BPU order which re-labels its current charges and provides new service options. Effective January 2000, the BPU implemented residential choice as required by the Act. The BPU is expected to rule upon NJNG's rate re-labeling proposal during the second quarter of fiscal 2000. The proposal is not expected to result in a change in overall margin. In July 1999, the BPU approved a settlement agreement that provided for a decrease in NJNG's GCR level and an increase in its WNC, RA, DSM and TEI factors. As a result of this settlement, sales customers received a rate decrease of approximately 3% and transportation customers experienced an increase of approximately 2%. The BPU also approved a Flexible Pricing Mechanism (FPM), which permits NJNG to adjust its GCR prices during the November through April period to help prevent significant under- or over- recoveries. The FPM is subject to certain monthly and annual limitations and requires a five day notice period to the BPU and the Ratepayer Advocate. B) Federal The Federal Energy Regulatory Commission (FERC) regulates rates charged by interstate pipeline companies for the transportation and storage of natural gas, which affects NJNG agreements for the purchase of such services with several interstate pipeline companies. 6 9 Franchises NJNG holds non-exclusive franchises granted by the 104 municipalities it serves which gives it the right to lay, maintain and operate public utility property in order to provide natural gas service within these municipalities. Application has been made for an additional non-exclusive franchise, and the process has begun to renew 3 franchises that expired in 1999. Of the remaining 101 franchises, 47 are perpetual and the balance expire between 2002 and 2038. Competition Although its franchises are non-exclusive, NJNG is not currently subject to competition from other natural gas distribution utilities with regard to the transportation of natural gas in its service territory. Due to significant distances between NJNG's current large industrial customers and the nearest interstate natural gas pipelines, as well as the availability of its transportation tariff, NJNG currently does not believe it has significant exposure to the risk that its distribution system will be bypassed. Competition does exist from suppliers of oil, coal, electricity and propane. At the present time, natural gas enjoys an advantage over alternate fuels as the preferred choice of fuels in over 95% of new construction due to its efficiency and reliability. As deregulation of the natural gas industry continues, prices will be determined by market supply and demand, and while NJNG believes natural gas will remain competitive with alternate fuels, no assurance can be given in this regard. In January 1997, the BPU approved a Stipulation Agreement that provides residential customers the option to choose their gas supplier. In April 1997, the first 5,000 residential customers switched to a transportation service. In September 1997, the BPU accelerated the schedule to allow an additional 25,000 residential customers to chose its supplier starting January 2, 1998. On December 16, 1998 the BPU allowed for the expansion of NJNG's residential supplier choice pilot to accept an additional 10,000 customers. On December 22, 1999 the BPU allowed all customers the ability to choose their natural gas supplier beginning January 1, 2000. Based on its current and projected level of transportation customers, the Company does not expect any problems with meeting its obligations under its firm transportation and storage capacity agreements. In February 1999, the Electric Discount and Energy Competition Act (the Act), which provides the framework for the restructuring of New Jersey's energy markets, became law. The Act includes various provisions relating to natural gas utilities which provide all customers with the ability to choose their natural gas supplier beginning January 1, 2000, which the BPU approved on December 22, 1999. The Act also allows continuation of each utility's role as a gas supplier at least until December 31, 2002, when the BPU must determine the ongoing role of each utility in providing gas supply services. The Act allows natural gas utilities to provide competitive services (e.g., appliance services), and customers to choose their provider of account services (i.e., meter reading, billing and collections) beginning January 1, 2000. The BPU is continuing to issue standards and rules to implement the Act. At September 30, 1999 NJNG had 31,569 residential and 4,331 commercial and industrial customers utilizing the transportation service. See MD&A - NJNG Operations in the Company's 1999 Annual Report for a discussion of NJNG's financial results. 7 10 NJR ENERGY HOLDINGS CORPORATION Energy Holdings includes the operations of Energy Services, Natural Energy and NJR Energy. Natural Energy markets natural gas to retail customers. As of September 30, 1999, Natural Energy marketed natural gas to 15,492 residential, 2,350 commercial and 33 interruptible customers. In November 1999, Natural Energy sold the commercial contracts to a third party. Energy Services provides fuel and capacity management services to wholesale customers including GPU Service, Inc., an electric utility based in Pennsylvania, GEI Development Corp. and Calpine Corporation, independent power producers operating in New York. Energy Services also purchases natural gas for Natural Energy and trades natural gas and pipeline capacity, under risk management guidelines, primarily in Northeast markets. NJR Energy and its subsidiaries were involved in oil and natural gas development, production, transportation, storage and other energy-related ventures. In 1996, the Company exited the oil and natural gas production business and sold the reserves and related assets of NJR Energy and NJNR. NJR Energy's continuing operations consist primarily of Pipeline's 2.8% equity investment in the Iroquois Gas Transmission System, L.P., a 375-mile natural gas pipeline from the Canadian border to Long Island. See MD&A - Energy Holdings in the Company's 1999 Annual Report for a discussion of Energy Services, Natural Energy and NJR Energy's consolidated financial results. NJR DEVELOPMENT CORPORATION NJR Development consists solely of CR&R's operations. Consistent with the Company's previously disclosed strategy to realign its asset base more closely with its core energy business, CR&R has sold a majority of its real estate buildings over the past four years. As of September 30, 1999, CR&R's remaining portfolio consisted of two fully-occupied buildings totaling 25,000 square feet and 183 acres of undeveloped land. The Company used the sale proceeds from the abovementioned transactions to pay down outstanding debt incurred to develop the real estate assets. The Company's future earnings from operations will not be materially affected by these sales based upon the historical earnings generated by the real estate subsidiary. See Item 2 - Properties - NJR Development Corporation for additional information regarding CR&R's remaining real estate assets. See MD&A - NJR Development Operations in the Company's 1999 Annual Report for a discussion of CR&R's financial results. 8 11 ENVIRONMENT The Company and its subsidiaries are subject to legislation and regulation by federal, state and local authorities with respect to environmental matters. The Company believes that it is in substantial compliance with all applicable environmental laws and regulations. CR&R is the owner of certain undeveloped acreage in the Monmouth Shores Corporate Park (MSCP), located in Monmouth County, New Jersey. This acreage is regulated by the provisions of the Freshwater Wetlands Protection Act (the Act), which restricts building in areas defined as "freshwater wetlands" and their transition areas. Based upon an environmental engineer's delineation of the wetland and transition areas in accordance with the provisions of the Act, CR&R will file for a Letter of Interpretation from the New Jersey Department of Environmental Protection (NJDEP) as parcels of land are selected for development. Based upon the environmental engineer's revised estimated developable yield for MSCP, the Company does not believe that a reserve against this property was necessary as the estimated future cash flows from the development of each site exceeds the current investment in each site as of September 30, 1999. Although the Company cannot estimate with certainty future costs of environmental compliance, which among other factors are subject to changes in technology and governmental regulations, the Company does not presently anticipate any additional significant future expenditures, other than the activities described in Note 10 to the Consolidated Financial Statements - Commitments and Contingent Liabilities in the Company's 1999 Annual Report, for compliance with existing environmental laws and regulations which would have a material effect upon the capital expenditures, earnings or competitive position of the Company or its subsidiaries. See Item 3 - Legal Proceedings - a. Gas Remediation for additional information regarding environmental activities. 9 12 EMPLOYEE RELATIONS The Company and its subsidiaries employed 776 and 791 employees at September 30, 1999 and 1998, respectively. NJNG had 452 and 466 union employees at September 30, 1999 and 1998, respectively. In December 1997, NJNG reached agreement with the union on a three-year collective bargaining agreement which provides, among other things, for annual wage increases of 3.25%, 3% and 3%, effective December 3, 1997 and December 8, 1998 and 1999, respectively. The current three-year collective bargaining agreement expires on December 7, 2000. EXECUTIVE OFFICERS OF THE REGISTRANT
First Elected Office(1) Name Age an Officer - --------- ---- --- ---------- Chairman, President and Chief Executive Officer Laurence M. Downes 42 1/86 Senior Vice President, General Counsel and Corporate Secretary Oleta J. Harden 50 6/84 Senior Vice President and Chief Financial Officer Glenn C. Lockwood 38 1/90 Senior Vice President and Chief Information Officer Barry M. Pelletteri 44 3/99
(1) All terms of office are one year. There is no arrangement or understanding between the officers listed above and any other person pursuant to which they were selected as an officer. The following is a brief account of their business experience during the past five years: Laurence M. Downes Chairman, President and Chief Executive Officer Mr. Downes has held the position of Chairman since September 1996. He has held the position of President and Chief Executive Officer since July 1995. From January 1990 to July 1995, he held the position of Senior Vice President and Chief Financial Officer. Additional information concerning Mr. Downes appears at page 5 in, and is incorporated herein by reference from, the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on January 26, 2000, which was filed with the Securities and Exchange Commission (SEC) pursuant to Regulation 14A on December 23, 1999. Oleta J. Harden Senior Vice President, General Counsel and Corporate Secretary Mrs. Harden has held her present position since January 1987, except for the position of General Counsel which she has held since April 1996. 10 13 Glenn C. Lockwood Senior Vice President and Chief Financial Officer Mr. Lockwood has held the position of Chief Financial Officer since September 1995 and the added position of Senior Vice President since January 1996. From January 1994 to September 1995, he held the position of Vice President, Controller and Chief Accounting Officer. From January 1990 to January 1994, he held the position of Assistant Vice President, Controller and Chief Accounting Officer. In December 1997, Mr. Lockwood (along with three other current or former officers of the Company) entered into a settlement with the SEC in which he consented without admitting or denying the SEC's findings, to an administrative order finding that he was a cause of the Company not fully complying with Section 13(a) of the Securities Exchange Act of 1934 in connection with the Company's reporting of certain 1992 Company subsidiary transactions. No fines or monetary penalties were imposed on him, nor was his ability to act as an officer or director of a public company otherwise limited. Barry M. Pelletteri Senior Vice President and Chief Information Officer Mr. Pelletteri joined the Company in March 1999 and is responsible for managing and expanding the Company's technology requirements. Before joining the Company he was Chief Information Officer, Human Resources Division from April 1995 to February 1999 with AT&T, a telecommunications company. Prior to that time Mr. Pelletteri served as Business Consultant/Chief Information Officer, from August 1992 through April 1995, with AT&T Personal Communication Services, a new venture wireless communication business. ITEM 2. PROPERTIES NJNG (All properties are in New Jersey) NJNG owns 11,616 miles of distribution main and services, 325 miles of transmission main and approximately 399,471 meters. Mains are primarily located under public roads. Where mains are located under private property, NJNG has obtained easements from the owners of record. In addition to mains and services, NJNG owns and operates two LNG storage plants located in Stafford Township, Ocean County, and Howell Township, Monmouth County. The two LNG plants have an estimated maximum capacity of 19,200 and 150,000 Dths per day, respectively. These facilities are used for peaking supply and emergencies. NJNG owns four service centers located in Rockaway Township, Morris County; Atlantic Highlands and Wall Township, Monmouth County; and Lakewood, Ocean County. These service centers house storerooms, garages, gas distribution and appliance service operations and administrative offices. NJNG leases its headquarters facilities in Wall Township, customer service offices located in Asbury Park and Wall Township, Monmouth County and a service center in Manahawkin, Ocean County. These customer service offices support customer contact, marketing and other functions. NJNG also owns an equipment storage facility in Long Branch, Monmouth County. 11 14 Substantially all of NJNG's properties, not expressly excepted or duly released, are subject to the lien of an Indenture of Mortgage and Deed of Trust to Harris Trust and Savings Bank, Chicago, Illinois, dated April 1, 1952, as amended by twenty-nine supplemental indentures (Indenture), as security for NJNG's bonded debt, which totaled approximately $218 million at September 30, 1999. In addition, under the terms of its Indenture, NJNG could have issued approximately $276 million of additional first mortgage bonds as of September 30, 1999. See Note 4 to the Consolidated Financial Statements - Long-Term Debt, Dividends and Retained Earnings Restrictions in the Company's 1999 for additional information regarding NJNG's bonded debt. Energy Holdings Pipeline has a 2.8% equity interest in the Iroquois Gas Transmission System, L.P. which owns and operates the Iroquois pipeline project, a 375-mile pipeline located from the Canadian border in upstate New York to Long Island. NJR Development Corporation (All properties are in New Jersey) At September 30, 1999, CR&R owned 183 acres of undeveloped land and two fully-occupied buildings. The buildings consisted of 25,000 square feet of commercial office and mixed-use commercial/industrial space. See Item 1. Environment for a discussion of regulatory matters concerning one of the business parks. Capital Expenditure Program See MD&A - Liquidity and Capital Resources in the Company's 1999 Annual Report for a discussion of the Company's anticipated 2000 and 2001 capital expenditures for each business segment. ITEM 3. LEGAL PROCEEDINGS a. Gas Remediation NJNG has identified eleven former manufactured gas plant (MGP) sites, dating back to the late 1800's and early 1900's, which contain contaminated residues from the former gas manufacturing operations. Ten of the eleven sites in question were acquired by NJNG in 1952. All of the gas manufacturing operations ceased at these sites at least by the mid-1950's and in some cases had been discontinued many years earlier, and all of the old gas manufacturing facilities were subsequently dismantled by NJNG or the former owners. NJNG is currently involved in administrative proceedings with the New Jersey Department of Environmental Protection (NJDEP) and local government authorities with respect to the plant sites in question, and is participating in various studies and investigations by outside consultants to determine the nature and extent of any such contaminated residues and to develop appropriate programs of remedial action, where warranted. Since October 1989, NJNG has entered into Administrative Consent Orders or Memoranda of Agreement with the NJDEP covering all eleven sites. These documents establish the procedures to be followed by NJNG in developing a final remedial clean-up plan for each site. 12 15 Most of the cost of such studies and investigations is being shared under an agreement with the former owner and operator of ten of the MGP sites. Through a Remediation Rider approved by the BPU, NJNG is recovering its expenditures incurred through June 30, 1998 over a seven-year period. Costs incurred subsequent to June 30, 1998 will be reviewed annually and, subject to BPU approval, recovered over seven-year periods. See Note 10 to the Consolidated Financial Statements - Commitments and Contingent Liabilities in the Company's 1999 Annual Report for additional information regarding estimated costs of remediation. In March 1995, NJNG filed a complaint in New Jersey Superior Court against various insurance carriers for declaratory judgment and for damages arising from such defendants' breach of their contractual obligations to defend and/or indemnify NJNG against liability for claims and losses (including defense costs) alleged against NJNG relating to environmental contamination at the former MGP sites and other sites. NJNG is seeking (i) a declaration of the rights, duties and liabilities of the parties under various primary and excess liability insurance policies purchased from the defendants by NJNG from 1951 through 1985, and (ii) compensatory and other damages, including costs and fees arising out of defendants' obligations under such insurance policies. The complaint was amended in July 1996 to name Kaiser-Nelson Steel & Salvage Company (Kaiser-Nelson) and its successors as additional defendants. The Company is seeking (a) a declaration of the rights, duties and liabilities of the parties under agreements with respect to claims against the Company that allege property damage caused by various substances used, handled or generated by NJNG or the predecessor in title that were removed from several of the MGP sites by Kaiser-Nelson, and (b) money damages or compensatory relief for the harm caused by Kaiser-Nelson's aforementioned actions. Discovery is proceeding in this matter. There can be no assurance as to the outcome of these proceedings. b. South Brunswick Asphalt, L.P. NJNG has been named as a defendant in a civil action commenced in New Jersey Superior Court by South Brunswick Asphalt, L.P. (SBA) and its affiliated companies seeking damages arising from alleged environmental contamination at three sites owned or occupied by SBA and its affiliated companies. Specifically, the suit charges that tar emulsion removed from 1979 to 1983 by an affiliate of SBA (Seal Tite Corp.) from NJNG's former gas manufacturing plant sites has been alleged by the NJDEP to constitute a hazardous waste and that the tar emulsion has contaminated the soil and ground water at the three sites in question. In February 1991, the NJDEP issued letters classifying the tar emulsion/sand and gravel mixture at each site as dry industrial waste, a non-hazardous classification. In April 1996, in a meeting with all parties to the litigation and the judge assigned to the case, the NJDEP confirmed the non-hazardous classification, which will allow for conventional disposal. In May 1997, SBA submitted applications to NJDEP for permits to allow SBA to recycle the tar emulsion/sand and gravel mixture at each site into asphalt, to be used as a paving materials. In July 1998, SBA filed an amended complaint adding NJDEP to the proceedings to facilitate the resolution of these applications. Following service of SBA's amended complaint, NJDEP filed a motion for dismissal of the amended complaint, but has not formally granted or denied SBA's permit applications. In March 1999, the court granted NJDEP's motion in part and denied NJDEP's motion in part, and directed SBA to file a more definite statement of its claims for equitable relief against NJDEP, including its request that a mandatory injunction be imposed compelling NJDEP to issue the subject permits. SBA's more definite statement of its claims has not yet been filed. 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 13 16 c. Combe Fill South Landfill NJNG has been joined as a third-party defendant in two civil actions commenced in October 1998 in the U.S. District Court for the District of New Jersey by the U.S. Environmental Protection Agency and NJDEP. These two actions seek recovery of costs expended in connection with and for continuation of the cleanup of the Combe Fill South Landfill, a Superfund site in Chester, New Jersey. The plaintiffs claim that hazardous waste NJNG is alleged to have generated was sent to the site. There are approximately 180 defendants and third-party defendants in the actions thus far. Each third-party complaint seeks damages under CERCLA Section 113 and the New Jersey Spill Act, declaratory relief holding each third-party defendant strictly liable, and contribution and indemnification under the common law of the United States and New Jersey. No specific monetary demands or scope of cleanup work have been set forth to date. NJNG is in the process of investigating the allegations, formulating its position with respect thereto and has agreed to participate in an alternate dispute resolution process encouraged by the Court. Its insurance carriers have been notified and one has agreed to assume responsibility for the legal expenses, while reserving its rights with regard to liability. NJNG is currently unable to predict the extent, if any, to which it may have cleanup or other liability with respect to these civil actions, but would seek recovery of any such costs through the ratemaking process. No assurance can be given as to the timing or extent of the ultimate recovery of any such costs. d. Various The Company is party to various other claims, legal actions and complaints arising in the ordinary course of business. In management's opinion, the ultimate disposition of these matters will not have a material adverse effect on its financial condition or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS Certain statements contained in this report (other than the financial statements and other statements of historical fact), including, without limitation, statements as management expectations and belief presented in Part I under the captions "New Jersey Natural Gas Company - General; - Gas Supply; - Energy Deregulation Legislation; Regulation and Rates; - Competition," "Environment" and "Legal Proceedings", are forward looking statements. Forward-looking statements can also be identified by the use of forward-looking terminology such as "may", "intend", "expect", or "continue" or comparable terminology and are made based upon management's expectations and beliefs concerning future developments and their potential effect upon the Company. There can be no assurance that future developments will be in accordance with management's expectations or that the effect of future developments on the Company will be those anticipated by management. The Company wishes to caution readers that the assumptions which form the basis for forward-looking statements with respect to or that may impact financial results and capital requirements for fiscal 2000 and thereafter include many factors that are beyond the Company's ability to control or estimate precisely, such as estimates of future market conditions and the behavior of other market participants. Among the factors that could cause actual results to differ materially from estimates reflected in such forward-looking statements are weather conditions, economic conditions, and 14 17 demographic changes in NJNG's service territory, fluctuations in energy commodity prices, energy conversion activity and other marketing efforts, the conservation efforts of NJNG's customers, the ability to extend certain fuel management contracts, unexpected Year 2000 issues, the pace of deregulation of retail gas markets, competition for the acquisition of gas, the regulatory and pricing policies of federal and state regulatory agencies, changes due to legislation at the federal and state levels, the availability of Canada's reserves for export to the United States and other regulatory changes. While the Company periodically reassesses material trends and uncertainties affecting the Company's results of operations and financial condition in connection with its preparation of management's discussion and analysis of results of operations and financial condition contained in its quarterly and annual reports, the Company does not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. 15 18 PART II Information for Items 5 through 9 of this report appears below or in the Company's 1999 Annual Report as indicated on the following table and is incorporated herein by reference, as follows:
Annual Report Page ---- ITEM 5. Market for the Registrant's Common Equity and Related Stockholder Matters Market Information - Exchange Inside back cover - Stock Prices & Dividends 31 Dividend Restrictions 45 Holders of Common Stock - 17,735 Shareowner accounts ITEM 6. Selected Financial Data 30 ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 32-37 ITEM 7a. Quantitative and Qualitative Disclosures about Market Risk 36-37 ITEM 8 Financial Statements and Supplementary Data 32-50 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - None
16 19 PART III Information for Items 10 through 13 of this report is incorporated herein by reference to the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on January 26, 2000, which was filed with the SEC pursuant to Regulation 14A on December 23, 1999.
Proxy Page ---------- ITEM 10. Directors and Executive Officers of the Registrant 3 - 7 ITEM 11. Executive Compensation 8 - 15 ITEM 12. Security Ownership of Certain Beneficial Owners and Management 2 ITEM 13. Certain Relationships and Related Transactions 4
PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) The following Financial Statements of the Registrant and Independent Auditors' Report, included in the Company's 1999 Annual Report, are incorporated by reference in Item 8 above: Consolidated Balance Sheets as of September 30, 1999 and 1998 Consolidated Statements of Income for the Years Ended September 30, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the Years Ended September 30, 1999, 1998 and 1997 Consolidated Statements of Capitalization as of September 30, 1999 and 1998 Consolidated Statements of Common Stock Equity for the Years Ended September 30, 1999, 1998 and 1997 Notes to Consolidated Financial Statements Independent Auditors' Report (2) Financial Statement Schedules - See Index to Financial Statement Schedules on page 18. (3) Exhibits - See Exhibit Index on page 22. (b) No reports on Form 8-K were filed by the Company during the quarter ended September 30, 1999. 17 20 NEW JERSEY RESOURCES CORPORATION INDEX TO FINANCIAL STATEMENT SCHEDULES
Page ---- Schedule II - Valuation and qualifying accounts and reserves for each of the three years in the period ended September 30, 1999 19
Schedules other than those listed above are omitted because they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto. 18 21 Schedule II NEW JERSEY RESOURCES CORPORATION VALUATION AND QUALIFYING ACCOUNTS AND RESERVES YEARS ENDED SEPTEMBER 30, 1999, 1998 and 1997
- --------------------------------------------------------------------------------- CLASSIFICATION BALANCE AT ADDITIONS OTHER BALANCE BEGINNING CHARGED AT END OF OF YEAR TO EXPENSE YEAR - --------------------------------------------------------------------------------- ($000) 1999: Reserves deducted from assets to which they apply Doubtful Accounts $ 1,907 $ 2,269 $(2,492)(1) $ 1,684 ======= ======= ======= ======= 1998: Reserves deducted from assets to which they apply Doubtful Accounts $ 1,527 $ 1,755 $(1,375)(1) $ 1,907 ======= ======= ======= ======= 1997: Reserves deducted from assets to which they apply Doubtful Accounts $ 878 $ 3,023 $(2,374)(1) $ 1,527 ======= ======= ======= =======
Notes: (1) Uncollectible accounts written off, less recoveries. 19 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NEW JERSEY RESOURCES CORPORATION (Registrant) Date: December 27, 1999 By:/s/Glenn C. Lockwood -------------------------- Glenn C. Lockwood Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated: Dec. 27, 1999 /s/ Laurence M. Downes Dec. 27, 1999 /s/ James T. Hackett ------------------------ -------------------- Laurence M. Downes James T. Hackett Chairman, President and Director Chief Executive Officer Dec. 27, 1999 /s/ Glenn C. Lockwood Dec. 27, 1999 /s/ Lester D. Johnson ------------------------ --------------------- Glenn C. Lockwood Lester D. Johnson Senior Vice President and Director Chief Financial Officer (Principal Accounting Officer) Dec. 27, 1999 /s/ Nina Aversano Dec. 27, 1999 /s/ Dorothy K. Light ----------------- -------------------- Nina Aversano Dorothy K. Light Director Director Dec. 27, 1999 /s/ Bruce G. Coe Dec. 27, 1999 /s/ John J. Unkles, Jr. ----------------- ----------------------- Bruce G. Coe John J. Unkles, Jr. Director Director Dec. 27, 1999 /s/ Leonard S. Coleman Dec. 27, 1999 /s/ Gary W. Wolf -------------------------- ---------------- Leonard S. Coleman Gary W. Wolf Director Director Dec. 27, 1999 /s/ Joe B. Foster Dec. 27, 1999 /s/ George R. Zoffinger ------------------------------- ----------------------- Joe B. Foster George R. Zoffinger Director Director Dec. 27, 1999 /s/ Hazel S. Gluck ------------------------------- Hazel S. Gluck Director
20 23 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors of New Jersey Resources Corporation: We have audited the consolidated financial statements of New Jersey Resources Corporation as of September 30, 1999 and 1998 and for each of the three years in the period ended September 30, 1999, and have issued our report thereon dated October 26, 1999; such consolidated financial statements and report are included in your 1999 Annual Report and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of New Jersey Resources Corporation, listed in Item 14. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Parsippany, New Jersey October 26, 1999 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-52409 and No. 333-59013 on Form S-8 and No. 33-57711 on Form S-3 of New Jersey Resources Corporation of our reports dated October 26, 1999 included in and incorporated by reference in this Annual Report on Form 10-K of New Jersey Resources Corporation for the year ended September 30, 1999. DELOITTE & TOUCHE LLP Parsippany, New Jersey December 27, 1999 21 24 EXHIBIT INDEX
Reg. S-K Previous Filing Exhibit Item 601 Registration No. Reference Document Description Number Exhibit - ------------------------------------------------------------------------------------------------------------------------- 3-1 3 Restated Certificate of Incorporation of the Note (8) 3-1 Company, as amended 3-2 By-laws of the Company, as presently in effect 333-59013 5-1 4-1 4 Specimen Common Stock Certificates 33-21872 4-1 4-2 Indenture of Mortgage and Deed of Trust 2-9569 4(g) with Harris Trust and Savings Bank, as Trustee, dated April 1, 1952 4-2A Twenty-First Supplemental Indenture, Note (5) 4-2U dated as of August 1, 1993 4-2B Twenty-Second Supplemental Indenture, Note (5) 4-2V dated as of October 1, 1993 4-2C Twenty-Third Supplemental Indenture, Note (6) 4-2W dated as of August 15, 1994 4-2D Twenty-Fourth Supplemental Indenture, Note (6) 4-2X dated as of October 1, 1994 4-2E Twenty-Fifth Supplemental Indenture, Note (7) 4-2Y dated as of July 15, 1995 4-2F Twenty-Sixth Supplemental Indenture, Note (7) 4-2Z dated as of October 1, 1995 4-2G Twenty-Seventh Supplemental Indenture, Note (9) 4-2J dated as of September 1, 1997 4-2H Twenty-Eighth Supplemental Indenture, Note (10) 4-2K dated as of January 1, 1998 4-2I Twenty-Ninth Supplemental Indenture, Note (10) 4-2L dated as of April 1, 1998 4-5 Amended and Restated Note and Credit The Company's 4-5 Agreement between New Jersey Resources Quarterly Report Corporation and First Union National Bank, on Form 10-Q for successor to First Fidelity Bank, dated May 7, 1993 the quarter ended June 30, 1993
22 25 EXHIBIT INDEX
Reg. S-K Previous Filing Exhibit Item 601 Registration No. Reference Document Description Number Exhibit - ------------------------------------------------------------------------------------------------------------------------- 4-5A Dated as of August 29, 1995 Note (8) 4-5A 4-5B Dated as of April 2, 1996 Note (8) 4-5B 4-5C Dated as of September 10, 1996 Note (8) 4-5C 4-5D Dated as of September 26, 1997 Note (9) 4-5D 4-5E Dated as of August 10, 1999 (filed herewith) 4-7 Revolving Credit and Term Loan Agreement Note (3) 4-7 between New Jersey Resources Corporation and PNC Bank, successor to Midlantic Bank, N.A., dated December 20, 1990 4-7A Dated as of January 31, 1997 Note (9) 4-7A 4-7B Dated as of January 31, 1998 Note (10) 4-7B 4-9 Credit Agreement between New Jersey Resources Note (3) 4-9 Corporation and Morgan Guaranty Trust Company of New York, successor to J.P. Morgan Delaware, dated August 1, 1991 4-9A Dated September 1, 1993 Note (9) 4-9A 4-9B Dated January 9, 1995 Note (9) 4-9B 4-9C Dated July 1, 1996 Note (9) 4-9C 4-9D Dated August 30, 1997 Note (9) 4-9D 4-9E Dated September 14, 1998 Note (10) 4-9E 4-9F Dated September 23, 1999 (filed herewith)
23 26 EXHIBIT INDEX
Reg. S-K Previous Filing Exhibit Item 601 Registration No. Reference Document Description Number Exhibit - ------------------------------------------------------------------------------------------------------------------------------- 4-10 Shareholder Rights Plan The Company's Form 8-K filed on August 2, 1996 Note (3) 4-9 4-11 Credit Agreement between New Jersey Resources Corporation and Summit Bank of New Jersey, dated December 22, 1999 (filed herewith) 10-2 Retirement Plan for Represented Employees, as 2-73181 10(f) amended October 1, 1984 10-3 Retirement Plan for Non-Represented Employees, 2-73181 10(g) as amended October 1, 1985 10-4 Supplemental Retirement Plans covering all Note (1) 10-9 Executive Officers as described in the Registrant's definitive proxy statement incorporated herein by reference 10-5 Agreements between NJNG and Texas Eastern Transmission Company Note (8) 10-5 10-5A Dated June 21, 1995 Note (8) 10-5A 10-5B Dated June 21, 1995 Note (8) 10-5B 10-5C Dated November 15, 1995 Note (8) 10-5C 10-6 Officer Incentive Plan effective as of October 1, 1986 Note (8) 10-6 10-7 Lease Agreement between NJNG as Lessee Note (8) 10-7 and State Street Bank and Trust Company of Connecticut, National Association as Lessor for NJNG's Headquarters Building dated December 21, 1995 10-10 Long-Term Incentive Compensation Plan Company's proxy as amended statement on 14A for the 1996 Annual Meeting 10-12 Employment Continuation Agreement of Laurence Note (8) 10-12 M. Downes dated June 5, 1996
24 27 EXHIBIT INDEX
Reg. S-K Previous Filing Exhibit Item 601 Registration No. Reference Document Description Number Exhibit - -------------------------------------------------------------------------------------------------------------------------- 10-12A Amendment dated as of December 1, 1997 Note (9) 10-12A 10-12B Revised Schedule of Officer Employee Continuation Note (9) 10-12B Agreements 10-13 Agreements between NJNG and Alberta Northeast Note (4) 10-13 Gas Limited, dated February 7, 1991 10-14 Agreement between NJNG and Iroquois Gas Note (4) 10-14 Transmission System, L.P., dated February 7, 1991 10-15 Agreements between NJNG and CNG Transmission Note (8) 10-15 Corporation, 10-15A Dated December 1, 1993 Note (8) 10-15A 10-15B Dated December 1, 1993, as amended Note (8) 10-15B December 21, 1995 13-1 13 1999 Annual Report to Stockholders. Such Exhibit includes only those portions thereof which are expressly incorporated by reference in this Form 10-K 21-1 21 Subsidiaries of the Registrant (filed herewith) 23-1 23 Independent Auditors' Consent and Report on Schedule (filed herewith) See page 21 27-1 27 Financial Data Schedule (filed herewith)
Note (1) 1986 Form 10-K File No. 1-8359 Note (2) 1989 Form 10-K File No. 1-8359 Note (3) 1991 Form 10-K File No. 1-8359 Note (4) 1992 Form 10-K File No. 1-8359 Note (5) 1993 Form 10-K File No. 1-8359 Note (6) 1994 Form 10-K File No. 1-8359 Note (7) 1995 Form 10-K File No. 1-8359 Note (8) 1996 Form 10-K File No. 1-8359 Note (9) 1997 Form 10-K File No. 1-8359 Note (10) 1998 Form 10-K File No. 1-8359 25 EX-4.5.E 2 5TH AMENDMENT TO A/R NOTE AND CREDIT AGREEMENT 1 Exhibit 4-5E FIFTH AMENDMENT (the "Amendment"), dated as of August 10, 1999, to the Amended and Restated Note and Credit Agreement, dated May 7, 1993, between NEW JERSEY RESOURCES CORPORATION (the "Borrower") and FIRST UNION NATIONAL BANK, successor by consolidation to First Fidelity Bank, National Association, New Jersey (the "Bank"), as amended (the "Agreement"). WITNESSETH: WHEREAS, the Borrower and the Bank are parties to the Agreement; and WHEREAS, the Borrower has requested the Bank to modify the Agreement, and the Bank is agreeable to such request; NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, the parties hereto hereby agree as follows: ACKNOWLEDGMENT OF BALANCE. Borrower acknowledges that as of July 28, 1999, the outstanding principal balance under the Agreement was $20,000,000.00. 1. DEFINITIONS. Except as otherwise stated, capitalized terms defined in the Agreement and used herein without definition shall have the respective meanings assigned to them in the Agreement. 2. AMENDMENTS TO THE AGREEMENT. (a) Section I THE COMMITMENT is hereby amended by deleting "October 1, 1999" from the last sentence of the first paragraph and substituting the following date therefore: "August 8, 2001". (b) Section X. COVENANTS. is hereby amended by adding the following provisions; P. YEAR 2000 COMPATIBILITY. The Borrower shall take all action necessary to assure that the Borrower's computer based systems are able to operate and effectively process data including dates on and after January 1, 2000. At the request of the Bank, the Borrower shall provide the Bank assurance of the Borrower's Year 2000 readiness. (c) Section XIV. ARBITRATION is hereby added to the Agreement: XIV. ARBITRATION. Upon demand of any party hereto, whether made before or after institution of any judicial proceeding, any claim or controversy arising out of or relating to the Loan Documents between parties hereto (a "Dispute") shall be resolved by binding arbitration conducted under and governed by the Commercial Financial Disputes Arbitration Rules (the "Arbitration Rules") of the American Arbitration 2 Exhibit 4-5E Association (the "AAA") and the Federal Arbitration Act. Disputes may include, without limitation, tort claims, counterclaims, a dispute as to whether a matter is subject to arbitration, claims brought as class actions, or claims arising from documents executed in the future. A judgment upon the award may be entered in any court having jurisdiction. Notwithstanding the foregoing, this arbitration provision does not apply to disputes under or related to swap agreements. SPECIAL RULES. All arbitration hearings shall be conducted in either Charlotte, North Carolina or Newark, New Jersey. A hearing shall begin within 90 days of demand for arbitration and all hearings shall conclude within 120 days of demand for arbitration. These time limitations may not be extended unless a party shows cause for extension and then for no more than a total of 60 days. The expedited procedures set forth in Rule 51 et seq. of the Arbitration Rules shall be applicable to claims of less than $1,000,000.00. Arbitrators shall be licensed attorneys selected from the Commercial Financial Dispute Arbitrators Panel of the AAA. The parties do not waive applicable Federal or state substantive law except as provided herein. WAIVER OF EXEMPLARY DAMAGES. The parties agree that they shall not have a remedy of punitive or exemplary damages against each other in any Dispute and hereby waive any right or claim to punitive or exemplary damages they have now or which may arise in the future in connection with any Dispute whether the Dispute is resolved by arbitration or judicially. WAIVER OF JURY TRIAL. THE PARTIES ACKNOWLEDGE THAT BY AGREEING TO BINDING ARBITRATION THEY HAVE IRREVOCABLY WAIVED ANY RIGHT THEY MAY HAVE TO JURY TRIAL WITH REGARD TO A DISPUTE. (d) Section XV. PRESERVATION AND LIMITATION OF REMEDIES is hereby added to the Agreement: XV. PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding arbitration provisions, the parties agree to preserve, without diminution, certain remedies that any party may exercise before or after an arbitration proceeding is brought. The parties shall have the right to proceed in any court of proper jurisdiction or by self-help to exercise or prosecute the following remedies, as applicable: (i) all rights to foreclose against any real or personal property or other security by exercising a power of sale or under applicable law by judicial foreclosure including a proceeding to confirm the sale; (ii) all rights of self-help including peaceful occupation of real property and collection of rents, set-off, and peaceful possession of personal property, (iii) obtaining provisional or ancillary remedies including injunctive relief, sequestration, garnishment, attachment, appointment of receiver and filing a voluntary bankruptcy proceeding, and (iv) when applicable, a judgment by confession of judgment. Any claim or controversy with regard to any party's entitlement to such remedies is a Dispute. 3. REPRESENTATIONS AND WARRANTIES. To induce the Bank to enter into this Amendment, the Borrower hereby represents and warrants that: 3 Exhibit 4-5E (a) The Borrower has the power, authority and legal right to make and deliver this Amendment and to perform its obligations under the Agreement, as amended by this Amendment, without any notice, consent, approval or authorization not already obtained, and the Borrower has taken all necessary action to authorize the same. (b) The making and delivery of this Amendment and the performance of the Agreement as amended by this Amendment do not violate any provision of law, any regulation, the Borrower's charter or the Borrower's by-laws or result in the breach of or constitute a default under or require any consent under any indenture or other agreement or instrument to which the Borrower is a party or by which the Borrower or any of its property may be bound or affected. The Agreement as amended by this Amendment constitutes a legal, valid and binding obligation of the Borrower, enforceable against it in accordance with its terms. (c) The representations and warranties contained in Section IX of the Agreement are true and correct on and as of the date of this Amendment and after giving effect thereto. (d) No Event of Default or event which, with the giving of notice or lapse of time or both, would be an Event of Default has occurred and is continuing under the Agreement as of the date of this Amendment and after giving effect thereto. 4. EFFECTIVE DATE. This Amendment shall become effective as of the date hereof when all of the following shall have occurred: (a) The Bank shall have received counterparts of this Amendment, duly executed by each of the parties hereto. (b) The Bank shall have received a copy of the resolution of the Board of Directors of the Borrower authorizing the execution, delivery and performance of this Amendment, certified by an appropriate officer of the Borrower. (c) The Bank shall have received an opinion of counsel to the Borrower, dated the date hereof, to the effect that this Amendment has been duly authorized, executed and delivered by a duly authorized officer of the Borrower and that the Agreement, as amended by this Amendment, constitutes a valid obligation of the Borrower, legally binding upon it and enforceable (except as may be limited by any applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws affecting creditors' rights generally) in accordance with its terms as so amended. 4 Exhibit 4-5E 5. COUNTERPARTS. This Amendment may be signed in any number of counterparts, each of which shall be an original and all of which taken together shall constitute a single instrument with the same effect as if the signatures thereto and hereto were upon the same instrument. 6. FULL FORCE AND EFFECT. Except as expressly modified by this Amendment, all of the terms and provisions of the Agreement shall continue in full force and effect, and all parties hereto shall be entitled to the benefits thereof. 7. GOVERNING LAW. This Amendment shall be governed by and construed in accordance with the internal laws (and not the law of conflicts) of the State of New Jersey. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the date set forth above. PLACE OF EXECUTION AND DELIVERY. Borrower hereby certifies that this Amendment was executed in the State of New Jersey and delivered to Bank in the State of North Carolina. NEW JERSEY RESOURCES CORPORATION FIRST UNION NATIONAL BANK By: ________________________________ By:_________________________________ Name: Glenn C. Lockwood Name: Michael Kolusowski Title: SVP & CFO Title: VP EX-4.9.F 3 AMENDMENT #6 TO CREDIT AGREEMENT 1 Exhibit 4-9F AMENDMENT NO. 6 TO CREDIT AGREEMENT Amendment, dated as of September 23, 1999 to the Credit Agreement dated as of August 1, 1991, as amended by a First Amendment Agreement dated as of September 1, 1993, a Second Amendment Agreement dated as of January 9, 1995, a Third Amendment Agreement dated as of July 1, 1996, a Fourth Amendment Agreement dated as of August 30, 1997 and a Fifth Amendment Agreement dated as of September 14, 1998 (as so amended, the "Agreement") between NEW JERSEY RESOURCES CORPORATION (the "Borrower") and MORGAN GUARANTY TRUST COMPANY OF NEW YORK (the "Bank"). The parties hereto desire to amend the Agreement subject to the terms and conditions of this Amendment, as hereinafter provided. Accordingly, the parties hereto agree as follows: I. Definitions. Except as otherwise defined herein, capitalized terms used herein and defined in the Agreement shall have the respective meanings ascribed thereto in the Agreement. Each reference to "hereof", "hereunder", "herein" and "hereby" and each other similar reference and each reference to "this Agreement" and each other similar reference contained in the Agreement shall from and after the effective date hereof refer to the Agreement as amended hereby. 2. Amendment. The definition in Section 1.1 of "Termination Date" is hereby amended by deleting the date "October 1, 1999" and inserting the date "October 1, 2000" in its place. 3. Representations. The Borrower hereby represents and warrants to the Bank that: (A) the representations and warranties set forth in Section 5 of the Agreement are true and correct in all respects as if made on the date hereof and as if each reference therein to the Agreement were a reference to the Agreement as amended by this Sixth Amendment Agreement. (B) no Event of Default specified in Section 7 of the Agreement has occurred and is continuing; (C) the making and performance by the Borrower of this Sixth Amendment Agreement have been duly authorized by all necessary corporate action; and (D) the Borrower has (i) initiated a review and assessment of all areas within the business and operations of the Borrower and each of its Subsidiaries (including those areas affected by suppliers and vendors) that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by it or any of its Subsidiaries (or their respective suppliers or vendors) may be unable to recognize and perform properly date-sensitive functions involving certain dates 2 prior to and any date after December 31, 1999). (ii) developed a plan and timeline for addressing the Year 2000 Problem on a timely basis and (iii) to date, implemented such plan in accordance with such timetable. The Borrower reasonably believes that all of the Borrower's computer applications (and the majority of the computer applications of the Borrower's suppliers and vendors) that are material to the business or operations of the Borrower or any of its Subsidiaries will on a timely basis be able to perform properly date-sensitive functions for all dates before and from and after January 1, 2000 (that is, be "Year 2000 compliant"), except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. "Material Averse Effect" means (i) any material adverse effect on the business on the business, financial position, results of operations, properties, assets or prospects of the Borrower and its Subsidiaries, taken as a whole: (ii) any material adverse effect on the ability of the Borrower to perform any of its obligations under this Agreement and the Note or (iii) any material adverse affect on the rights and remedies of the Bank under this Agreement and the Note. 4. Agreement as Amended. Except as expressly amended hereby, the Agreement shall continue in full force and effect in accordance with the terms hereof. 5. Governing Law. This Amendment, and the Agreement as amended hereby, shall be construed in accordance with and governed by the laws of the State of New York. 6. Severability. In case any one or more of the provisions contained in this Amendment would be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 7. Counterparts; Effective Date This amendment may be executed in any number of counterparts, each of which shall constitute an original but all of which when taken together shall constitute one and the same instrument. This Amendment shall become effective as of the date first above written upon receipt by the Bank of counterparts hereof executed by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Sixth Amendment Agreement to executed their duly authorized officers as of the day and year first above written. NEW JERSEY RESOURCES CORPORATION MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: Glenn C. Lockwood By: Kathryn Sayko-Yanes Senior Vice President & CFO EX-4.11 4 CREDIT AGREEMENT: NJ RESOURCES/SUMMIT BANK 1 Exhibit 4-11 MASTER ADVANCE NOTE $15,000,000.00 October 13, 1999 LOAN FOR VALUE RECEIVED, the Undersigned ("BORROWER"), unconditionally (and jointly and severally, if more than one) promise(s) to pay to SUMMIT BANK ("BANK"), or order, at its offices at 750 Walnut Avenue, Cranford, New Jersey, or at such other place as may be designated in writing by Bank, the principal aggregate sum of fifteen million ($15,000,000.00) Dollars or such lesser amount of advances as may have been borrowed, repaid and reborrowed, (or for such other financial accommodations as may have been made) together with interest from the date hereof on the unpaid principal balance hereunder, computed daily, at the RATE per annum indicated below, payable in accordance with the particular PAYMENT SCHEDULE indicated below. Any advance(s) shall be conclusively presumed to have been made to and for the benefit and at the request of Borrower when (1) deposited or credited to an account of Borrower with Bank, notwithstanding that such advance was requested, orally or in writing, by someone other than Borrower or that someone other than Borrower is authorized to draw on such account and may or does withdraw the whole or any part of such advance, or (2) made in accordance with the oral or written instructions of Borrower, or of any one of them if more than one, or of any one signing below for or on behalf of Borrower. __X_ If this line is checked, Borrower authorized Bank to effect payment of sums due under the Note by means of debiting Borrower's checking account. ____ If this line is checked, Borrower is an individual and the proceeds of this loan are to be used for business purposes. RATE A RATE based on the "Prevailing Base Rate" of Bank will change each time and as of the date that the Prevailing Base Rate of Bank changes. The Prevailing Base Rate of Bank means the fluctuating Base Rate of interest established by Bank from time to time whether or not such rate shall be otherwise published. The Prevailing Base Rate is established for the convenience of Bank. It is not necessarily Bank's lowest rate. In the event that there should be a change in the Prevailing Base Rate of Bank, such change shall be effective on the date of such change without notice to Borrower or any Guarantor, Endorser or Surety. Any such change will not effect or alter any other terms or conditions of this Note. 2 Interest will be calculated on the basis of the actual number of days elapsed over a year of 360 days, unless otherwise prohibited by law. To the extent permitted by law, whenever there is any Event of Default under this Note, or non-payment upon demand, the RATE of interest on the unpaid principal balance shall, at the option of Bank, be 2% over the interest RATE provided herein. Borrower acknowledges that (i) such default rate is a material inducement to Bank to make the loan, (ii) Bank would not have made the loan in absence of the agreement of the Obligators (as defined in Section 1 of the Additional Terms and Conditions hereto) to pay such default rate and (iii) such default rate is not a penalty and represents a reasonable estimate of the cost to Bank in allocating its resources (both personnel and financial) to the on-going review, monitoring, administration and collection of the loan. Notwithstanding any other limitations contained in this Note, Bank does not intend to charge and Borrower shall not be required to pay any interest or other fees or charges in excess of the maximum permitted by applicable law. Any payments in excess of such maximum shall be refunded to Borrower or credited against principal. ____ The RATE shall be the Prevailing Base Rate of Bank plus _____%. ____ The RATE shall be _____% __X_ The RATE shall be negotiable at the time of borrowing. PAYMENT SCHEDULE In the event that any payment shall not be received by Bank within TEN (10) days of the due date, Borrower shall, to the extent permitted by law, pay Bank a late charge of 5% of the overdue payment (but in no event to be less than $25.00 nor more than $2,500.00) Any such late charge assessed is immediately due and payable. All payments received hereunder may be applied first to the payment of any expenses or charges payable hereunder and accrued interest and the balance only applied to principal. 3 Principal shall be paid: _____ On Demand X In a single payment on October 11, 2000 _____ In equal _____ monthly; _______ quarterly; installments of $_____________ each, commencing on _____________________, 19_____, and continuing on the same day of each successive ________ month; _______ quarter; thereafter, with a final payment of all unpaid principal on ________________________, 19_____. Interest shall be paid: _____ monthly; X quarterly; commencing on January, 2000 and continuing on the same day of each successive quarter; thereafter with a final payment of all unpaid interest at the time of the final payment of the unpaid principal. SECURITY As security for this Note, or any modifications, extensions and/or renewals, Borrower grants to Bank a lien on, a continuing security interest in, and a right to set-off at any time, without notice, all property and deposit accounts at, under the control of or in transit to Bank which belong to Borrower, any Guarantor or Endorser hereof. ____ If this line is checked, this Note and any subsequent modifications, extension and/or renewals hereof are also secured by and/or entitled to the benefit of a Security Agreement, and/or Mortgage dated __________________, ______ (or any subsequent modification, extension or renewal thereof). WAIVER OF JURY TRIAL BORROWER WAIVES TRIAL BY JURY AND CONSENTS TO AND CONFERS PERSONAL JURISDICTION ON COURTS OF THE STATE OF NEW JERSEY OR THE FEDERAL GOVERNMENT, AND EXPRESSLY 4 WAIVES ANY OBJECTIONS AS TO VENUE IN ANY OF SUCH COURTS, AND AGREES THAT SERVICE OF PROCESS MAY BE MADE ON BORROWER BY MAILING COPY OF THE SUMMONS TO BORROWER AT BORROWER'S ADDRESS. BANK LIKEWISE WAIVES TRIAL BY JURY. 5 THE ADDITIONAL TERMS AND CONDITIONS SET FORTH IN THIS NOTE ARE A PART OF THIS NOTE WITNESS BORROWER: New Jersey Resources Corporation - ----------------------------------- ------------------------------------------ Glenn Lockwood CFO - ----------------------------------- ------------------------------------------ Borrower ATTEST BORROWER - ----------------------------------- ------------------------------------------ Manager Manager ATTEST BORROWER - ----------------------------------- ------------------------------------------ Secretary President
with its place of business or chief executive office (if it has more than one place of business) at 1415 Wyckoff Road, Wall, New Jersey 07719 ADDITIONAL TERMS AND CONDITIONS 1. The Borrower and any Co-Borrowers, or Guarantor, or any Endorser hereof (collectively "Obligors") and each of them: (i) waive(s) presentment, dishonor, demand, notice of demand, protest, notice of protest and notice of non-payment and any other notice required to be given under the law to any Obligors in connection with the delivery, acceptance, performance, default or enforcement of this Note, of any endorsement or guaranty of this Note or of any document or instrument evidencing any security for payment of this Note; (ii) consent(s) to any and all delays, extensions, renewals or other modifications of this Note or waivers of any term hereof or release or discharge by Bank of any Obligors or release, substitution or exchange of any security for the 6 payment hereof or the failure to act on the part of Bank or any indulgence shown by Bank from time to time and in one or more instances, (without notice to or further assent from any of Obligors) and agree(s) that no such action, failure to act or failure to exercise any right or remedy on the part of Bank shall in any way affect or impair the obligations of any Obligors or be construed as a waiver by Bank of, or otherwise affect, any of Bank's rights under this Note, under any endorsement or guaranty of this Note or under any document or instrument evidencing any security for payment of this Note; and (iii) (jointly and severally, if more than one) agree(s) to pay, on demand, all costs and expenses of collection of this Note or of any endorsement or any guaranty hereof and/or the enforcement of Bank's rights with respect to, or the administration, of Bank's rights with respect to, or the administration, supervision, preservation, protection of, or realization upon, any property securing payment hereof (including any costs and expenses incurred in any bankruptcy or other insolvency proceedings of any Obligors), including reasonable attorney's fees (whether or not such attorney is a regularly salaried employee of Bank, any parent corporation or any subsidiary or affiliate thereof, whether now existing or hereafter created), not to exceed 20% of all liabilities hereunder, which shall be deemed reasonable. 2. This Note is delivered in and shall be construed under the laws of the State of New Jersey and in any litigation in connection with, or enforcement of this Note or of any endorsement or guaranty of this Note or any security given for payment hereof. The term "Bank" as used in this Note shall include Bank's successors, endorsers and assigns. 3. The occurrence of any one or more of the following events shall constitute an Event of Default hereunder: (i) failure to pay any principal, interest or any of the Obligations as and when due; (ii) failure to pay or perform any Obligation of any of the Obligors to Bank, whether by maturity or acceleration, set forth in this Note or in any Loan Document; (iii) any change in ownership in any Obligor or the death of any Obligor (if an individual); (iv) a proceeding being filed or commenced against any Obligor for dissolution or liquidation; or any of the Obligors voluntarily or involuntarily terminating or dissolving or being terminated or dissolved; (v) insolvency of any Obligor, or any Obligor fails to pay its debts as they become due in the ordinary course of business; or a creditor's committee is appointed for the business of any Obligor, or any Obligor makes an assignment for the benefit of creditors, or a petition in bankruptcy or for reorganization or to effect a plan of arrangement with creditors is filed by any Obligor; or any Obligor applies for or permits the appointment of a receiver or trustee for any or all or its property, assets or rights or any such receiver or trustee shall have been appointed for any or all of its property, assets or rights or any of the above actions or proceedings whatsoever are commenced by or against any Obligor; (vi) any attachments, liens or additional security interests being placed upon any of the Collateral; (vii) acquisition at any time or from time to time of title to the whole or any part of the Collateral by any person, partnership, limited liability company or corporation other than any of the Obligors; (viii) any final judgment, order or decree rendered against any Obligor exceeding $250,000 and remaining undischarged, unstayed or outstanding against any Obligor for a period of one hundred eighty (180) days; (ix) any Reportable Event occurs or if any Employee Benefit Plan is terminated or Bank reasonably believes such plan may be terminated pursuant to and as defined in the Employee Retirement Income Security Act of 1974, as amended; (x) Bank reasonably deems itself insecure; the occurrence of a material adverse change in the business, properties, prospects, operation or condition (financial or otherwise) of any Obligor; or a material adverse occurrence; (xi) any member of an Obligor that is a limited liability company resigns or any such member's interest terminates. 4. If any Event of Default shall occur, then or any time thereafter, while such Event of Default shall continue, for 30 days after notice thereof, Bank may declare all Obligations to be due and pay- 7 able, without notice, protest, presentment, dishonor, or demand, all of which are hereby expressly waived by Obligors. Failure of Bank to declare all Obligations due and payable upon the occurrence of an Event of Default shall not be deemed a waiver, and no rights of Bank hereunder shall be deemed to have been waived by an act or knowledge of Bank, its agents, officers or employees, unless such waiver is contained in an instrument in writing signed by an officer of Bank and directed to Borrower specifying such waiver. No waiver by Bank of any of its rights shall operate as a waiver of any other of its rights or any of its rights on a future occasion. 5. In the event any one of more of the provisions of this Note shall for any reason be held to be invalid, illegal or unenforceable, in whole or in part or in any respect or in the event that any one or more of the provisions of this Note operate or would prospectively operate to invalidate this Note, then and in either of those events, such provision or provisions only shall be deemed null and void and shall not effect any other provision of this Note and the remaining provisions of this Note shall remain operative and in full force and effect and shall in no way be affected, prejudiced or discharged thereby. EX-13 5 1999 ANNUAL RPEORT: SELECT INFORMATION 1 1999 Financial Statements
Page ---- Consolidated Financial Statistics 30 Operating Statistics and Stock History 31 Management's Discussion and Analysis 32 Independent Auditors' Report 38 Consolidated Statements of Income 39 Consolidated Statements of Common Stock Equity 39 Consolidated Statements of Cash Flows 40 Consolidated Balance Sheets 41 Consolidated Statements of Capitalization 42 Notes to Consolidated Financial Statements 43
New Jersey Resources Corporation -- 1999 Annual Report 29 2 CONSOLIDATED FINANCIAL STATISTICS NJR Logo (Thousands, except per share data)
Fiscal years ended September 30, 1999 1998 1997 1996 1995 1994 --------- --------- --------- --------- ---------- ---------- SELECTED FINANCIAL DATA Operating Revenues $ 904,268 $ 710,342 $ 696,544 $ 554,753 $ 460,179 $ 501,961 --------- --------- --------- --------- ---------- ---------- Operating Expenses Gas purchases 669,835 483,715 465,552 327,991 251,086 286,352 Operation and maintenance 81,390 77,990 79,408 75,729 64,819 69,080 Depreciation and amortization 29,455 27,835 25,797 23,229 23,022 21,236 Energy and other taxes 36,071 36,758 43,240 49,357 45,900 53,670 --------- --------- --------- --------- ---------- ---------- Total operating expenses 816,751 626,298 613,997 476,306 384,827 430,338 --------- --------- --------- --------- ---------- ---------- Operating Income 87,517 84,044 82,547 78,447 75,352 71,623 Other income, net 2,407 2,353 566 68 362 30 Interest charges, net 19,557 19,633 20,513 21,001 24,082 21,619 --------- --------- --------- --------- ---------- ---------- Income before Income Taxes 70,367 66,764 62,600 57,514 51,632 50,034 Income tax provision 25,445 23,422 21,085 18,847 16,084 16,643 --------- --------- --------- --------- ---------- ---------- Income before Preferred Stock Dividends 44,922 43,342 41,515 38,667 35,548 33,391 Preferred stock dividends 116 1,585 1,591 1,599 1,629 1,662 --------- --------- --------- --------- ---------- ---------- Income from Continuing Operations 44,806 41,757 39,924 37,068 33,919 31,729 Loss from discontinued operations, net -- -- -- -- (9,134) 545 Cumulative effect of change in accounting -- -- -- -- -- 721 --------- --------- --------- --------- ---------- ---------- Net Income $ 44,806 $ 41,757 $ 39,924 $ 37,068 $ 24,785 $ 32,995 --------- --------- --------- --------- ---------- ---------- Capitalization Common stock equity $ 302,169 $ 290,804 $ 278,436 $ 273,921 $ 258,919 $ 250,163 Redeemable preferred stock 520 20,640 20,760 20,880 21,004 22,070 Long-term debt 287,723 326,741 291,407 303,363 352,227 323,590 --------- --------- --------- --------- ---------- ---------- Total Capitalization $ 590,412 $ 638,185 $ 590,603 $ 598,164 $ 632,150 $ 595,823 --------- --------- --------- --------- ---------- ---------- Property, Plant and Equipment Utility plant $ 941,490 $ 895,321 $ 855,375 $ 811,484 $ 736,434 $ 691,757 Accumulated depreciation (258,666) (237,150) (216,302) (196,354) (182,080) (168,299) Real estate properties and other 26,326 25,838 24,024 46,011 50,339 105,080 Accumulated depreciation (3,706) (3,535) (3,282) (5,506) (8,187) (12,988) Oil and gas properties -- -- -- -- -- 63,224 Accumulated amortization -- -- -- -- -- (38,012) --------- --------- --------- --------- ---------- ---------- Property, Plant and Equipment, Net $ 705,444 $ 680,474 $ 659,815 $ 655,635 $ 596,506 $ 640,762 --------- --------- --------- --------- ---------- ---------- Capital Expenditures Utility plant $ 48,196 $ 42,847 $ 46,193 $ 48,216 $ 47,286 $ 54,506 Real estate properties and other 676 1,830 967 8,052 5,283 2,619 Equity investments -- 9,498 7,242 2,937 5,259 462 Oil and gas properties -- -- -- -- 1,250 1,517 --------- --------- --------- --------- ---------- ---------- Total Capital Expenditures $ 48,872 $ 54,175 $ 54,402 $ 59,205 $ 59,078 $ 59,104 --------- --------- --------- --------- ---------- ---------- Total Assets $ 960,012 $ 943,018 $ 879,061 $ 855,187 $ 826,364 $ 797,347 --------- --------- --------- --------- ---------- ---------- COMMON STOCK DATA Earnings per share from continuing operations -- Basic $ 2.51 $ 2.35 $ 2.22 $ 2.06 $ 1.93 $ 1.86 Earnings per share from continuing operations -- Diluted $ 2.49 $ 2.33 $ 2.21 $ 2.05 $ 1.93 $ 1.85 Earnings per share -- Basic $ 2.51 $ 2.35 $ 2.22 $ 2.06 $ 1.41 $ 1.93 Earnings per share -- Diluted $ 2.49 $ 2.33 $ 2.21 $ 2.05 $ 1.41 $ 1.93 Dividends declared per share $ 1.68 $ 1.64 $ 1.60 $ 1.55 $ 1.52 $ 1.52 Payout ratio* 67% 70% 72% 75% 79% 82% Market price at year end $ 40.00 $ 35.63 $ 32.38 $ 28.00 $ 25.88 $ 21.13 Dividend yield at year end 4.2% 4.6% 4.9% 5.6% 5.9% 7.2% Price-earnings ratio 16 15 15 14 18 11 Book value per share $ 17.03 $ 16.33 $ 15.57 $ 15.15 $ 14.55 $ 14.46 Market to book ratio at year end 2.3 2.2 2.1 1.8 1.8 1.5 Shares outstanding at year end 17,741 17,811 17,880 18,084 17,793 17,303 Average shares outstanding -- Basic 17,852 17,798 18,001 18,030 17,605 17,096 Average shares outstanding -- Diluted 17,984 17,894 18,052 18,052 17,607 17,107 Return on average equity* 14.5% 14.2% 13.9% 13.4% 12.8% 12.7%
*Continuing operations 30 New Jersey Resources Corporation -- 1999 Annual Report 3 OPERATING STATISTICS NJR Logo
Fiscal years ended September 30, 1999 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- -------- Operating Revenues (thousands) Residential $303,884 $307,994 $317,500 $311,081 $282,015 $308,196 Commercial and other 60,954 60,746 70,315 76,649 76,483 87,958 Firm transportation 33,319 19,500 15,586 13,316 4,864 255 -------- -------- -------- -------- -------- -------- Total residential and commercial 398,157 388,240 403,401 401,046 363,362 396,409 Interruptible 7,558 8,360 7,996 7,438 10,869 15,645 -------- -------- -------- -------- -------- -------- Total system 405,715 396,600 411,397 408,484 374,231 412,054 Off-system 228,849 169,903 141,481 65,904 52,431 68,267 Appliance service revenues 9,986 9,468 8,712 6,241 5,586 4,886 -------- -------- -------- -------- -------- -------- Total Operating Revenues $644,550 $575,971 $561,590 $480,629 $432,248 $485,207 -------- -------- -------- -------- -------- -------- Throughput (Bcf) Residential 34.2 35.2 37.0 40.1 33.9 38.5 Commercial and other 7.3 7.4 8.7 10.3 10.3 11.9 Firm transportation 9.4 6.6 5.5 4.5 1.6 .1 -------- -------- -------- -------- -------- -------- Total residential and commercial 50.9 49.2 51.2 54.9 45.8 50.5 Interruptible 9.8 10.6 9.7 9.8 12.4 8.2 -------- -------- -------- -------- -------- -------- Total system 60.7 59.8 60.9 64.7 58.2 58.7 Off-system and capacity management 143.7 104.9 83.2 61.6 62.6 46.7 -------- -------- -------- -------- -------- -------- Total Throughput 204.4 164.7 144.1 126.3 120.8 105.4 -------- -------- -------- -------- -------- -------- Customers at Year End Residential 338,984 346,605 343,520 338,906 329,237 318,003 Commercial and other 22,379 22,088 22,650 21,897 22,199 21,938 Firm transportation 35,900 16,495 7,647 2,002 880 27 -------- -------- -------- -------- -------- -------- Total residential and commercial 397,263 385,188 373,817 362,805 352,316 339,968 Interruptible 51 49 45 40 38 37 Off-system and capacity management 28 43 53 29 23 17 -------- -------- -------- -------- -------- -------- Total Customers at Year End 397,342 385,280 373,915 362,874 352,377 340,022 -------- -------- -------- -------- -------- -------- Interest Coverage Ratio 4.89 4.16 3.90 3.96 3.45 3.63 -------- -------- -------- -------- -------- -------- Average Therm Use per Customer Residential 1,002 998 1,064 1,184 1,030 1,211 Commercial and other 5,169 5,145 5,475 6,183 5,153 5,480 Degree Days 4,470 4,354 4,787 5,715 4,877 5,064 Weather as a Percent of Normal 92% 89% 97% 115% 98% 102% Number of Employees 739 755 789 827 827 814
TWO-YEAR STOCK HISTORY NJR Logo The range of high and low sales prices as reported in The Wall Street Journal and dividends paid per share were as follows:
1999 1998 Dividends Paid ---- ---- -------------- Fiscal Quarter HIGH LOW High Low 1999 1998 First $39 7/8 $36 3/16 $41 1/2 $31 15/16 $.41 $.40 Second $39 7/8 $33 3/4 $39 3/16 $34 3/4 $.42 $.41 Third $38 3/4 $35 5/8 $40 1/16 $34 3/16 $.42 $.41 Fourth $40 1/8 $37 7/8 $37 3/16 $32 7/8 $.42 $.41
New Jersey Resources Corporation -- 1999 Annual Report 31 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS New Jersey Resources Corporation RESULTS OF OPERATIONS CONSOLIDATED Net income increased 7% to $44.8 million in 1999, compared with $41.8 million in 1998 and $39.9 million in 1997. The increase each year was primarily attributable to continued profitable customer growth in New Jersey Natural Gas Company (NJNG), the principal subsidiary of New Jersey Resources Corporation (the Company). Basic earnings per share increased 6.8% to $2.51 in 1999, compared with $2.35 in 1998 and $2.22 in 1997. Diluted earnings per share were $2.49, $2.33 and $2.21 in 1999, 1998 and 1997, respectively. Dividends declared per share increased 2.4% to $1.68 in 1999, compared with $1.64 in 1998 and $1.60 in 1997. NJNG OPERATIONS NJNG is a natural gas distribution company that provides regulated energy service to more than 397,000 residential and commercial customers in central and northern New Jersey, appliance service to more than 113,000 customers and participates in the off-system sales and capacity management markets. In February 1999, the Electric Discount and Energy Competition Act (the Act), which provides the framework for the restructuring of New Jersey's energy markets, became law. The Act includes various provisions relating to natural gas utilities which provide all customers with the ability to choose a natural gas supplier other than their incumbent utility beginning January 1, 2000. The Act also allows continuation of each utility's role as a gas supplier at least until December 31, 2002, when the New Jersey Board of Public Utilities (the BPU) must determine the ongoing role of each utility in providing gas supply services. The Act allows natural gas utilities to provide competitive services (e.g., appliance services), and customers to choose their provider of account services (i.e., meter reading, billing and collections) beginning January 1, 2000. The BPU is continuing to issue standards and rules to implement the Act. NJNG's financial results are summarized as follows:
(Thousands) 1999 1998 1997 ---- ---- ---- Gross margin Residential and commercial $148,089 $152,781 $151,311 Transportation 29,719 18,288 14,676 -------- -------- -------- Total firm margin 177,808 171,069 165,987 Off-system and capacity management 4,942 4,888 5,393 Interruptible 671 645 940 -------- -------- -------- Total gross margin $183,421 $176,602 $172,320 ======== ======== ======== Appliance service revenues $9,986 $9,468 $8,712 Operating income $82,096 $79,969 $76,431 Net income $42,748 $39,105 $37,529
GROSS MARGIN Effective January 1, 1998, gross margin is defined as gas revenues less gas costs, sales tax and a Transitional energy facilities assessment (TEFA). Gross margin provides a more meaningful basis for evaluating utility operations, since gas costs, sales tax and TEFA are passed through to customers and, therefore, have no effect on earnings. Gas costs are charged to operating expenses on the basis of therm sales at the rates included in NJNG's tariff. The Levelized Gas Adjustment (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. TEFA is calculated on a per therm basis and excludes sales to other utilities, off-system sales and federal accounts. Prior to January 1, 1998, gross margin was defined as gas revenues less gas costs and gross receipts and franchise taxes, which were replaced by the state sales and income tax and TEFA. The revised tax structure allows NJNG to be more competitive with other energy providers, and has not adversely impacted NJNG's net income. (See Note 1: Summary of Significant Accounting Policies - State of New Jersey Tax Reform). The comparison of gross margin between periods will be impacted by the state tax change described above. FIRM MARGIN Residential and commercial (i.e., firm) gross margin is subject to a Weather Normalization Clause (WNC), which provides for a revenue adjustment if the weather varies by more than one-half of 1% from normal, or 20-year average, weather. The WNC does not fully protect NJNG from factors such as unusually warm weather and declines in customer usage patterns, which were set at the conclusion of NJNG's last base rate case in January 1994. The accumulated adjustment from one heating season (i.e., October-May) is billed or credited to customers in subsequent periods. This mechanism reduces the variability of both customer bills and NJNG's earnings due to weather fluctuations. The components of gross margin from firm customers are being impacted by customers switching from sales service to transportation service. NJNG's total gross margin is not negatively impacted by customers who utilize its transportation service and purchase their gas from another supplier.This is due to NJNG's tariff which is designed such that no profit is earned on the commodity portion of sales to firm customers, and all customers who purchase gas from another supplier continue to utilize NJNG for transportation. Total firm margin increased $6.7 million, or 4%, in 1999 and $5.1 million, or 3%, in 1998 primarily due to customer growth. NJNG added 11,890 and 11,819 new customers, and converted the heating systems of another 1,015 and 865 existing customers in 1999 and 1998, respectively. The growth in 1999 represents an annual increase of approximately 2 billion cubic feet (Bcf), or 4.6%, in sales to firm customers. Gross margin from sales to firm customers decreased $4.7 million, or 3%, in 1999 and increased $1.5 million, or 1%, in 1998. The decrease 32 New Jersey Resources Corporation -- 1999 Annual Report 5 in 1999 was due to customers switching to transportation service which offset the impact of 11,890 customer additions in 1999. Sales to firm customers were 41.5 Bcf in 1999, compared with 42.6 Bcf in 1998 and 45.7 Bcf in 1997. The decreases in sales were due to the impact of 19,405 and 9,130 customers switching to transportation service, which more than offset customer growth in 1999 and 1998, respectively. Gross margin from transportation increased $11.4 million, or 63%, in 1999 and $3.6 million, or 25%, in 1998 as more customers chose this service. NJNG transported 9.4 Bcf for its firm customers in 1999, compared with 6.6 Bcf in 1998 and 5.5 Bcf in 1997. The growth in the number of transportation customers was primarily due to NJNG's residential pilot program which allows up to 40,000 residential customers to change natural gas suppliers. Under this program, 31,569 and 12,508 residential customers were using this service at September 30, 1999 and 1998, respectively. The number of customers switching from sales to transportation may continue to grow as all residential customers will have the ability to switch to transportation service beginning January 1, 2000. The weather in 1999 was 8% warmer than normal, which, in accordance with the WNC, resulted in $8.7 million of gross margin being accrued for future recovery from customers. In 1998, 11% warmer-than-normal weather resulted in $12.2 million of gross margin being accrued and recovered from customers in the future. In 1997, 3% warmer-than-normal weather resulted in $3.3 million of gross margin being accrued and recovered from customers in 1998. As of September 30, 1999, NJNG had $17.6 million in accrued WNC margins to be collected from its customers in 2000 and 2001. In 2000 and 2001, NJNG's goal is to add 12,000 and 13,200 new customers, and convert an additional 950 existing customers each year to natural gas heat. Achieving these goals would represent a customer growth rate of more than 3% and result in a sales increase of approximately 2 Bcf per year, assuming normal weather and average use. It is expected that this will increase gross margin under present rates by approximately $5.8 million per year. These growth goals are based upon management's review of county and municipal planning board activity, builder surveys and studies of population growth rates in NJNG's service territory. However, future sales will be affected by the weather, economic conditions in NJNG's service territory, conversion and conservation activity, the impact of changing from a regulated to a competitive environment, and other marketing efforts, as has been the case in prior years. In April 1999, NJNG filed a rate unbundling, pursuant to a BPU order, which re-labels its current charges and provides new service options. The filing is not expected to result in a change to overall rates and it is expected that the BPU will adopt these rates to implement residential choice by December 31, 1999, as required by the Act. NJNG's goal is to continue its growth without increasing its base rates in order to remain competitive as the energy industry transitions to a more market-based environment. OFF-SYSTEM AND CAPACITY MANAGEMENT In order to reduce the overall cost of its gas supply commitments, NJNG has entered into contracts to sell gas to customers outside its franchise territory when the gas is not needed for system requirements. These off-system sales enable NJNG to spread its fixed demand costs, which are charged by pipelines to access their supplies year round, over a larger and more diverse customer base. NJNG also participates in the capacity release market on the interstate pipeline network when the capacity is not needed for its own system requirements. Through September 30, 1998, NJNG retained 20% of the gross margin from these sales, with the balance credited to firm sales customers through the LGA clause. Effective October 1, 1998 through December 31, 2001, NJNG retains 15% of the gross margin from these sales. A new incentive mechanism designed to reduce the fixed cost of NJNG's gas supply portfolio became effective October 1, 1998. Any savings achieved through the permanent reduction or replacement of capacity or other services will be shared between customers and shareowners. Under this program, NJNG retains 40% of the savings for the first 12 months following any transaction and retains 15% for the remaining period through December 31, 2001, with the balances credited to firm sales customers through the LGA clause. NJNG's off-system sales and capacity management programs totaled 143.7 Bcf and generated $4.9 million of gross margin in 1999, compared with 104.9 Bcf and $4.9 million of gross margin in 1998 and 83.2 Bcf and $5.4 million of gross margin in 1997. The changes in margin each year were primarily due to warmer-than-normal weather, which increased the availability of supply and capacity, resulting in lower margins per therm. INTERRUPTIBLE NJNG serves 51 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 throughput in 1999, 6% in 1998 and 7% in 1997, they accounted for less than 1% of the total gross margin in each year due to the margin-sharing formulas that govern these sales. Under these formulas, NJNG retains 10% of the gross margin from interruptible sales and 5% of the gross margin from transportation sales, with the balance credited to firm sales customers through the LGA clause. Interruptible sales were 1.5 Bcf in 1999, compared with 2 Bcf in 1998 and 1.5 Bcf in 1997. In addition, NJNG transported 8.3 Bcf, 8.6 Bcf and 8.2 Bcf in 1999, 1998 and 1997, respectively, for its interruptible customers. APPLIANCE SERVICE REVENUES Revenues from appliance service contracts and service calls increased 5% in 1999 to $10 million, and 10% in 1998 to $9.5 million, due to the addition of 6,770 and 9,400 service contracts, respectively. Costs related to this service work are primarily included in operation and maintenance expenses. New Jersey Resources Corporation -- 1999 Annual Report 33 6 OPERATING INCOME Operating income increased 3% and 5% in 1999 and 1998, respectively. These increases were primarily due to the increases in firm gross margin and increased appliance service revenues,which more than offset higher operating expenses, which primarily consisted of payroll, fringe benefits and depreciation. NET INCOME Net income increased 9%, to $42.7 million, in 1999 and 4%, to $39.1 million, in 1998. These increases were the result of the increased operating income as discussed above, and lower financing costs primarily due to refinancing activity. In addition, Other income, net in 1999 included $472,000 related to the settlement of a contract to serve a cogeneration project that was subsequently cancelled, and the resolution of an informal review by the BPU's Audit Division staff of gas purchases related to a long-term contract to provide gas supply to the project. ENERGY HOLDINGS OPERATIONS The consolidated financial results of NJR Energy Holdings Corporation (Energy Holdings) include: NJREnergy Services Company (Energy Services) and New Jersey Natural Energy Company (Natural Energy), the Company's unregulated fuel, capacity management and retail marketing subsidiaries; and, the continuing operations of NJR Energy Corporation (NJR Energy), which primarily consist of an equity investment in the Iroquois Gas Transmission System, L.P. (Iroquois), and are summarized as follows:
(Thousands) 1999 1998 1997 ---- ---- ---- Revenues $268,599 $151,118 $144,343 Gross margin $6,988 $5,122 $6,930 Operating income $3,473 $3,578 $5,300 Net income $1,364 $1,740 $2,551
Energy Holdings' revenues and related working capital accounts increased due to growth in Energy Services' wholesale marketing activities. Gas under management increased to 131.1 Bcf in 1999, compared with 82.9 Bcf in 1998 and 67.3 Bcf in 1997. Retail gas sales were 8 Bcf in 1999, compared with 6.7 Bcf in 1998 and 9.1 Bcf in 1997. Natural Energy had 17,875 retail customers at September 30, 1999, compared with 7,502 and 6,949 at September 30, 1998 and 1997, respectively. The increase is due to participation in residential pilot programs. In November 1999, Natural Energy assigned its commercial customers to a third party. The decrease in Energy Holdings' operating income and net income in 1999 was primarily due to lower margins from retail sales, which more than offset higher margins from daily gas sales and fuel management agreements. Operating income and net income decreased in 1998, primarily due to the impact of warmer weather, changes in state tax laws and increased competition. NJR Energy's results include interest expense related to debt remaining after the discontinuance of the oil and natural gas production business in 1994. The Company plans to further reduce such debt from cash flow generated by its equity investment in Iroquois. Future results are subject to Energy Holdings' ability to expand its fuel management agreements and increase its wholesale and retail marketing activities. NJR DEVELOPMENT OPERATIONS The financial results of NJRDevelopment Corporation consist solely of the operations of Commercial Realty & Resources Corp. (CR&R), and are summarized as follows:
(Thousands) 1999 1998 1997 ---- ---- ---- Revenues $989 $758 $3,193 Other income, net $409 $1,494 $397 Net income (loss) $76 $487 $(320)
The decrease in net income in 1999 was due to the sale of a 280,000 square-foot office building which generated $900,000 of other income, net in 1998. In 1996, CR&R entered into a sale-leaseback transaction, which generated a pre-tax gain of $17.8 million, which is included in Deferred revenue and is being amortized to Other income, net over 25 years 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 the majority of the space in the building. OTHER Other income, net in 1999 included a $617,000 gain associated with the sale of certain securities by the Company. THE YEAR 2000 ISSUE GOAL AND STATUS The Company's overall goal is to be Year 2000 ready. "Year 2000 ready" means that critical systems, devices, applications or business relationships have been evaluated and are expected to be suitable for continued use into and beyond the Year 2000, or contingency plans are in place. The Company began addressing the Year 2000 issue in 1994 by assessing its enterprise computer systems, such as general ledger, payroll, inventory control, accounts receivable and Customer Information and Billing System (CIS). These systems, other than CIS, have been replaced and have been running the Company's day-to-day computing environment since 1995. The vendor of the software systems notified the Company that the new CIS, installed in August 1997, is Year 2000 ready. The balance of the systems have been upgraded to Year 2000 ready versions and a full integration test was successfully completed with the applications running on a system with the date set to the Year 2000. 34 New Jersey Resources Corporation - 1999 Annual Report 7 In 1997, a Year 2000 Project was established to provide leadership and direction to the Year 2000 efforts throughout the Company and its subsidiaries. The project scope was also expanded to include "embedded" systems (e.g., chart recorders, data loggers and calibration equipment), end-user computing hardware and software, plant and corporate facilities, gas control hardware and software, meter reading equipment, remittance processing equipment, and business relationships with key suppliers and customers. The Company used a multi-step approach in conducting its Year 2000 Project. These steps included inventory, assessment, remediation, testing and contingency planning. The first step, an inventory of all systems and devices with potential Year 2000 issues, was completed in May 1998. The next step, also completed in May 1998, was to conduct an initial assessment of the inventory to determine the state of its Year 2000 readiness. As part of the assessment phase, remediation strategies were identified and remediation cost estimates developed. The Company utilized both internal and external resources to remediate and test for Year 2000 readiness. The testing and contingency phases were completed in September 1999. In 1998, the Company initiated formal communications with the suppliers with which it has active contracts to determine the extent to which the Company is vulnerable to suppliers who may fail to remediate their own Year 2000 issues. Key vendors have been mailed surveys regarding their Year 2000 compliance and all responses have been received. As an additional contingency, the Company has identified substitute vendors for critical functions. COSTS The capitalized costs through September 30, 1999 of updating the Company's enterprise computer systems, including the CIS described above, were $21.4 million. The Company incurred $3.6 million in 1999 for projects that have addressed Year 2000 readiness, of which $3.4 million was for new software and hardware which the Company capitalized. RISK ASSESSMENT The Company believes the most likely worst case scenario is a temporary disruption of service to its gas customers, including disruptions caused by key vendors on which the Company relies for its gas deliveries. The Company assessed the risk of this scenario and has formulated contingency plans. The Company has been informed by its major gas suppliers that they have thorough contingency plans, which include staff standing by at the time of transition. CONTINGENCY PLANS Contingency plans have been completed for all critical business processes and readiness plans will be rehearsed in December 1999 to increase our preparedness through the transition period into January 2000. Additional staffing has been committed in all areas of the Company to be able to react to situations should they occur. These plans are intended to mitigate both internal risks as well as potential risks in the supply chain of the Company's suppliers and customers. The Company's Year 2000 project is designed to provide corrective action with respect to Year 2000 risks. In management's opinion, the ultimate resolution of Year 2000 issues will not have a material adverse effect on either the Company's financial condition or results of operation. LIQUIDITY AND CAPITAL RESOURCES CONSOLIDATED The Company obtains its common equity requirements, if any, through issuances of its common stock, including the proceeds from its Automatic Dividend Reinvestment Plan (DRP). In 1996, the DRP was amended to allow for the purchase of shares on the open market. The Company can switch funding options every 90 days. In September 1996, the Company implemented a one-million share repurchase plan and through September 30, 1999 has repurchased 842,362 shares. This plan was expanded, effective October 26, 1999, to 1.5 million shares. The Company provides the debt requirements for its unregulated companies, while NJNG satisfies its debt needs by issuing short-and long-term debt based upon its own financial profile. In order to meet the working capital and external debt financing requirements of the unregulated companies, as well as its own working capital needs, the Company maintains committed credit facilities totaling $105 million with a number of banks. NJR borrowed $58.8 million and $59.3 million at September 30, 1999 and 1998, respectively, to fund the debt requirements of its unregulated subsidiaries and its working capital and investment activity. It is the Company's objective to maintain a consolidated capital structure that reflects the different characteristics of each business segment and provides adequate financial flexibility for accessing capital markets as required. Based upon its existing mix of investments, it is the Company's goal to maintain a common equity ratio of between 50% and 55%, which is consistent with maintaining its current short- and long-term credit ratings. At September 30, the Company's consolidated capital structure was as follows:
1999 1998 ---- ---- Common stock equity 51% 46% Preferred stock -- 3 Long-term debt 49 51 --- --- Total 100% 100% === ===
NJNG The seasonal nature of NJNG's operations creates large short-term cash requirements, primarily to finance gas purchases and customer accounts receivable. NJNG obtains working capital for these requirements, as well as for the temporary financing of construction expenditures, sinking fund needs and energy tax payments through the issuance of commercial paper and short-term bank loans. To support the issuance of commercial paper, NJNG maintains committed credit facilities totaling $80 million. New Jersey Resources Corporation -- 1999 Annual Report 35 8 CAPITAL REQUIREMENTS NJNG's capital requirements for 1997 through 1999 and projected amounts through 2001 are as follows:
Maturities and Redemption Construction redemption of of preferred (Thousands) expenditures long-term debt stock Total - ----------- ------------ -------------- ----- ----- 1997 $46,193 $8,182 $120 $54,495 1998 $42,847 $38,192 $120 $81,159 1999 $48,196 $ 20,157 $20,120 $88,473 2000 $52,200 $318 $120 $52,638 2001 $52,500 $495 $120 $53,115
The level of construction expenditures results primarily from the need for services, mains and meters to support NJNG's continued customer growth and general system maintenance. Optional redemption activity included $20 million, $38 million and $7 million of First Mortgage Bonds in 1999, 1998 and 1997, respectively. In October 1998, NJNG redeemed its $20 million 7.72% Preferred Stock. In September 1998, NJNG received approval from the BPU to establish a $60 million medium-term note program. FINANCING
(Thousands) 1999 1998 1997 - ----------- ---- ---- ---- Cash flow $74,813 $75,665 $68,781 External financing Long-term debt -- $40,045 $6,500
Cash flow, defined as net income adjusted for depreciation, amortization of deferred charges and the change in deferred income taxes, represents the cash generated from operations available for capital expenditures, dividends, working capital and other requirements. Cash flow decreased in 1999 primarily due to a reduction in deferred tax benefits. Cash flow increased in 1998 primarily due to higher earnings and deferred tax benefits. NJNG currently anticipates that its financing requirements in 2000 and 2001 will be met through internal generation, issuances of short-term debt and the draw down of $5 million of its Series GG Bonds in each of the next two years. The timing and mix of any external financings will be geared toward maintaining a common equity ratio which is consistent with maintaining its current short- and long-term credit ratings. ENERGY HOLDINGS Energy Holdings' capital requirements and financing activity for 1997 through 1999 are as follows:
(Thousands) 1999 1998 1997 - ----------- ---- ---- ---- Capital expenditures and equity investments $ 308 $ 2,000 $ 1,430 Cash flow $ (526) $ 2,028 $ 2,694 Asset sales -- -- $ 9,087 Intercompany debt $(28,334) $ 19,306 $ (9,765)
The decrease in intercompany debt in 1999 reflected the impact of a renegotiated capacity contract which generated $5 million, changes in working capital associated with various storage transactions and the allocation of DRP proceeds. The decrease in cash flow in 1999 was primarily due to the taxes associated with the renegotiated capacity contract. NJR Energy invested $2 million in 1998 for an equity interest in Capstone Turbine Corporation, a developer of energy efficient, gas-fired microturbine units which produce electricity. Energy Holdings does not currently anticipate any significant capital expenditures or external financing requirements in 2000. NJR DEVELOPMENT CR&R's capital requirements and financing activity for 1997 through 1999 are as follows:
(Thousands) 1999 1998 1997 - ----------- ---- ---- ---- Capital expenditures $ 306 $ 1,609 $ 840 Cash flow $ (569) $ 1,376 $ (14) Asset sales -- $ 15,600 $ 7,031 Intercompany debt $ (1,873) $(11,580) $ (2,596)
CR&R currently has 183 acres of undeveloped land and two fully-occupied buildings totaling 25,000 square feet. Proceeds from asset sales and the DRP have been used to reduce intercompany debt, while the changes in cash flow in each year reflect the tax payments related to the asset sales. Capital expenditures each year are in connection with the fit-up of tenant space and investments made to preserve the value of its real estate holdings. CR&R does not currently anticipate any significant capital expenditures or external financing requirements in 2000. FINANCIAL RISK MANAGEMENT COMMODITY MARKET RISKS The regulated and unregulated natural gas businesses of the Company's subsidiaries are subject to market risks due to fluctuations in the price of natural gas. To hedge against such risks, the Company's subsidiaries enter into futures contracts, exchange and over-the-counter option agreements and over-the-counter swap agreements. To manage these instruments, the Company has well-defined risk management policies and procedures, which include daily monitoring of volumetric limits and monetary guidelines. Natural gas activities subject to hedging are conducted by three subsidiaries. NJNG, the regulated utility, recovers its gas costs through its LGA clause, and utilizes futures contracts and over-the-counter option and swap agreements to further hedge against price fluctuations. NJNG also utilizes option agreements through its Financial Risk Management Program (FRM). Energy Services uses financial instruments to hedge fixed-price sales and purchase contracts with wholesale counterparties, for storage 36 New Jersey Resources Corporation -- 1999 Annual Report 9 management and to hedge its commitments to purchase natural gas for the retail customers of Natural Energy. A limited portfolio of undesignated purchased options may also be entered into by Energy Services. Finally, NJR Energy has a long-term, fixed-price contract to sell approximately 28.3 Bcf of natural gas to a gas marketing company at prices ranging from $2.56 to $4.41 per Million British Thermal Units (Mmbtu), which is fully hedged as described below. Natural gas is a nationally traded commodity, and its prices are effectively determined by the New York Mercantile Exchange (NYMEX) and over-the-counter markets. The prices generally reflect the geographical balance of natural gas supply and demand, but are also influenced significantly from time to time by other events. At September 30, 1999, NJNG had futures contracts to buy and sell 10.6 Bcf of natural gas through March 2000 at prices ranging from $2.19 to $3.19 per Mmbtu and a related unrealized gain of approximately $2.1 million. At September 30, 1999, NJNG also had natural gas swap agreements on 4.4 Bcf and a related unrealized gain of $915,000. Additionally, NJNG held options in its FRM for 2.7 Bcf at strike prices ranging from $2.25 to $3.00 per Mmbtu, on which it had an unrealized gain of $728,000 at September 30, 1999. At September 30, 1999, Energy Services had futures contracts on 8.4 Bcf of natural gas through August 2001, at prices ranging from $2.09 to $3.14 per Mmbtu and had a deferred unrealized gain of $2.9 million. Energy Services also had natural gas swap agreements in order to hedge its risk on 40.2 Bcf and had a deferred unrealized gain of $4.2 million on these agreements at September 30,1999. In addition, Energy Services held options for 30,000 Mmbtu at strike prices of $2.25 to $2.75 per Mmbtu, on which it had an unrealized loss of $47,000 as of September 30, 1999. NJR Energy has hedged both its price and physical delivery risks associated with an 18-year, fixed-price sales contract with a gas marketing company (the Gas Sale Contract). To hedge its price risk, NJR Energy entered into two swap agreements effective in November 1995. Under the terms of these swap agreements, NJR Energy will pay to the counterparties the identical fixed price it receives from the gas marketing company in exchange for the payment by the counterparties of an index price plus a spread per Mmbtu for the total volumes under the Gas Sale Contract. In order to hedge its physical delivery risk, NJR Energy entered into a purchase contract with a second gas marketing company for the identical volumes it is obligated to sell under the Gas Sale Contract, under which it pays the identical floating price it receives under the swap agreements mentioned above. All of the futures contracts, options and swap agreements described are held for hedging, rather than trading, purposes except for 30,000 Mmbtu of options held by Energy Services. With respect to the futures contracts, options and swap agreements, the Company has performed a sensitivity analysis to estimate its exposure to market risk arising from natural gas price fluctuations using the net positions. Futures, options and swap agreements are substantially all settled at the NYMEX settlement date and the related natural gas quantity is purchased or sold in the physical market and, therefore, their notional values, which represent the absolute sum of all outstanding contracts and agreements, as the case may be, are not accurate measures of risk to the Company from those contracts and agreements. With respect to natural gas futures accounts as of September 30, 1999 and 1998, in the event of a hypothetical 10% change in natural gas prices, the value of the Company's contracts would change by approximately $770,000 and $1.2 million, respectively. With respect to natural gas swap agreements as of September 30, 1999 and 1998, in the event of a hypothetical 10% change in natural gas prices, the value of such agreements would change by approximately $2.8 million and $690,000, respectively. Finally, with respect to options as of September 30, 1999, in the event of a hypothetical 10% change in the option premiums related to the natural gas futures prices, the value of the options would change by approximately $120,000. There were no options outstanding as of September 30, 1998. However, any such changes in value under the futures contracts and the option and swap agreements would be substantially offset by a corresponding change in the related underlying contracts that are being hedged. INTEREST RATE RISK NJNG had total variable rate debt outstanding of $97 million, of which $56 million has been hedged by the purchase of a 6.5% interest rate cap through the year 2003. According to the Company's sensitivity analysis, NJNG's annual interest rate exposure on the $56 million, based on the difference between current average rates and the 6.5% interest rate cap, is limited to $1.2 million, net of tax and $1.1 million, net of tax, as of September 30, 1999 and 1998, respectively. If interest rates were to change by 100 basis points on the remaining $41 million of variable rate debt, NJNG's annual interest expense, net of tax, would change by $242,000 as of September 30, 1999 and 1998. As of September 30, 1999 the Company had variable rate debt of $58.8 million. If interest rates were to change by 100 basis points, annual interest expense, net of tax, would change by $347,000 in 1999. As of September 30, 1998 the Company had variable rate debt outstanding of $59.3 million, of which $15 million was hedged, through June 1999, with an interest rate swap agreement which fixed interest at 9.5%. If interest rates had changed by 100 basis points on the remaining $44.3 million, annual interest expense, net of tax, would have changed by $261,000. EFFECTS OF INFLATION Although inflation rates have been low to moderate in recent years, any change in price levels has an effect on operating results due to the capital intensive and regulated nature of the Company's principal subsidiary. The Company attempts to minimize the effects of inflation through cost control, productivity improvements and regulatory actions where appropriate. NEW ACCOUNTING STANDARDS See Note 1 to the Consolidated Financial Statements for a discussion of new accounting standards relating to accounting for derivative instruments and hedging activities. New Jersey Resources Corporation -- 1999 Annual Report 37 10 INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS Certain statements contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements as to management expectations and beliefs presented in the Chairman's Letter, NJNG's business unit profiles, statements made in Management's Discussion and Analysis under the captions "NJNG Operations - Gross Margin; - Residential and Commercial; - Firm Transportation"; "Energy Holdings Operations"; "The Year 2000 Issue"; "Liquidity and Capital Resources" and statements made in the Notes to Consolidated Financial Statements under the captions "Summary of Significant Accounting Policies - New Accounting Standards," "Financial Instruments and Risk Management"; and, "Commitments and Contingent Liabilities". Forward-looking statements can also be identified by the use of forward-looking terminology such as "may", "intend", "expect", or "continue" or comparable terminology and are made based upon management's expectations and beliefs concerning future developments and their potential effect upon the Company. There can be no assurance that future developments will be in accordance with management's expectations or that the effect of future developments on the Company will be those anticipated by management. The Company cautions readers that the assumptions which form the basis for forward-looking statements regarding financial results and capital requirements for fiscal 2000 and thereafter include many factors that are beyond the Company's ability to control or estimate precisely, such as estimates of future market conditions and the behavior of other market participants. Among the factors that could cause actual results to differ materially from estimates reflected in such forward-looking statements are weather and economic conditions, and demographic changes in NJNG's service territory, fluctuations in energy commodity prices, energy conversion activity and other marketing efforts, the conservation efforts of NJNG's customers, the ability to extend certain fuel management contracts, unexpected Year 2000 issues, the pace of deregulation of retail gas markets, competition for the acquisition of gas, the regulatory and pricing policies of federal and state regulatory agencies, changes due to legislation at the federal and state level, the availability of Canadian reserves for export to the United States and other regulatory changes. The Company does not, by including this statement, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. INDEPENDENT AUDITORS' REPORT [Deloitte & Touche LLP Logo] To the Shareowners and Board of Directors of New Jersey Resources Corporation: We have audited the accompanying consolidated balance sheets and consolidated statements of capitalization of New Jersey Resources Corporation and its subsidiaries (the Company) as of September 30, 1999 and 1998 and the related consolidated statements of income, common stock equity and cash flows for each of the three years in the period ended September 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1999 in conformity with generally accepted accounting principles. We have also previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheets and consolidated statements of capitalization as of September 30, 1997, 1996, 1995, and 1994, and the related consolidated statements of income, common stock equity and cash flows for the years ended September 30, 1996, 1995 and 1994 (none of which are presented herein) and we expressed unqualified opinions on those consolidated financial statements. In our opinion, the information set forth in the Selected Financial Data for each of the six years in the period ended September 30, 1999 for the Company, presented on page 30, is fairly stated in all material respects, in relation to the consolidated financial statements from which it has been derived. /s/ Deloitte & Touche LLP Parsippany, New Jersey October 26, 1999 38 New Jersey Resources Corporation -- 1999 Annual Report 11 CONSOLIDATED STATEMENTS OF INCOME New Jersey Resources Corporation (Thousands except per share data)
Fiscal years ended September 30, 1999 1998 1997 -------- -------- -------- Operating Revenues $904,268 $710,342 $696,544 -------- -------- -------- Operating Expenses Gas purchases 669,835 483,715 465,552 Operation and maintenance 81,390 77,990 79,408 Depreciation and amortization 29,455 27,835 25,797 Energy and other taxes 36,071 36,758 43,240 -------- -------- -------- Total operating expenses 816,751 626,298 613,997 -------- -------- -------- Operating Income 87,517 84,044 82,547 -------- -------- -------- Other Income, Net 2,407 2,353 566 -------- -------- -------- Interest Charges, Net Long-term debt 16,786 16,760 18,626 Short-term debt and other 2,771 2,873 1,887 -------- -------- -------- Total interest charges, net 19,557 19,633 20,513 -------- -------- -------- Income before income taxes 70,367 66,764 62,600 Income tax provision 25,445 23,422 21,085 -------- -------- -------- Income before Preferred Stock Dividends 44,922 43,342 41,515 Preferred stock dividends 116 1,585 1,591 -------- -------- -------- Net Income $ 44,806 $ 41,757 $ 39,924 -------- -------- -------- Earnings per share - Basic $ 2.51 $ 2.35 $ 2.22 Earnings per share - Diluted $ 2.49 $ 2.33 $ 2.21 -------- -------- -------- Dividends per Common Share $ 1.68 $ 1.64 $ 1.60 -------- -------- -------- Average Shares Outstanding - Basic 17,852 17,798 18,001 Average Shares Outstanding - Diluted 17,984 17,894 18,052
CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY New Jersey Resources Corporation (Thousands)
Number of Common Premium on Treasury Stock Retained Shares Stock Common Stock and Other Earnings ------ ----- ------------ --------- -------- Balance at September 30, 1996 18,084 $45,295 $209,516 $ (977) $ 20,087 Net income 39,924 Common stock issued under stock plans 36 90 869 Cash dividends declared (28,807) Treasury stock and other (240) (7,561) ------ ------- -------- -------- --------- Balance at September 30, 1997 17,880 45,385 210,385 (8,538) 31,204 Net income 41,757 Common stock issued under stock plans 180 449 7,645 Cash dividends declared (29,219) Treasury stock and other (249) (8,264) ------ ------- -------- -------- --------- Balance at September 30, 1998 17,811 45,834 218,030 (16,802) 43,742 Net income 44,806 Common stock issued under stock plans 250 343 3,673 4,972 Cash dividends declared (29,990) Treasury stock and other (320) (12,439) ------ ------- -------- -------- --------- Balance at September 30, 1999 17,741 $46,177 $221,703 $(24,269) $ 58,558 ------ ------- -------- -------- ---------
The accompanying notes are an integral part of these statements. New Jersey Resources Corporation - 1999 Annual Report 39 12 CONSOLIDATED STATEMENTS OF CASH FLOWS New Jersey Resources Corporation (Thousands)
Fiscal years ended September 30, 1999 1998 1997 --------- --------- --------- Cash Flows from Operating Activities Net income $ 44,806 $ 41,757 $ 39,924 Adjustments to reconcile net income to cash flows Depreciation and amortization 29,455 27,835 25,797 Amortization of deferred charges 2,692 2,716 1,118 Deferred income taxes (2,785) 6,989 4,720 Changes in working capital 49,188 (48,967) 5,485 Other, net (6,124) (9,051) (3,929) --------- --------- --------- Net cash flows from operating activities 117,232 21,279 73,115 --------- --------- --------- Cash Flows (used in) from Financing Activities Proceeds from long-term debt -- 75,345 -- Proceeds from common stock 9,059 6,579 313 Payments of long-term debt (20,657) (38,192) (13,182) Payments of preferred stock (20,120) (120) (120) Purchases of treasury stock (11,712) (9,240) (7,410) Payments of common stock dividends (29,828) (29,076) (28,711) Net change in short-term debt 1,000 12,700 13,000 --------- --------- --------- Net cash flows (used in) from financing activities (72,258) 17,996 (36,110) --------- --------- --------- Cash Flows used in Investing Activities Expenditures for Utility plant (48,196) (42,847) (46,193) Real estate properties and other (676) (1,830) (967) Equity investments -- (9,498) (7,242) Cost of removal (5,362) (3,691) (4,062) Proceeds from sale of assets 8,907 15,600 16,118 --------- --------- --------- Net cash flows used in investing activities (45,327) (42,266) (42,346) --------- --------- --------- Net change in cash and temporary investments (353) (2,991) (5,341) Cash and temporary investments at beginning of the year 2,476 5,467 10,808 --------- --------- --------- Cash and temporary investments at end of the year $ 2,123 $ 2,476 $ 5,467 --------- --------- --------- Changes in Components of Working Capital Construction fund $ 3,900 $ (16,000) $ 6,500 Receivables (31,604) (810) (14,465) Inventories 17,208 (17,046) 7,179 Deferred gas costs 32,047 (3,730) (13,938) Purchased gas 31,368 (10,418) 24,241 Accrued and prepaid taxes, net (1,977) 4,854 10,728 Customers' credit balances and deposits 1,818 126 (10,319) Other, net (3,572) (5,943) (4,441) --------- --------- --------- Total $ 49,188 $ (48,967) $ 5,485 --------- --------- --------- Supplemental Disclosures of Cash Flows Information Cash paid during the year for Interest (net of amounts capitalized) $ 18,978 $ 18,287 $ 18,297 Income taxes $ 36,875 $ 10,660 $ 5,991
The accompanying notes are an integral part of these statements. 40 New Jersey Resources Corporation - 1999 Annual Report 13
September 30, 1999 1998 --------- --------- Assets Property, Plant and Equipment Utility plant, at cost $ 941,490 $ 895,321 Real estate properties and other, at cost 26,326 25,838 --------- --------- 967,816 921,159 Accumulated depreciation and amortization (262,372) (240,685) --------- --------- Property, plant and equipment, net 705,444 680,474 --------- --------- Current Assets Cash and temporary investments 2,123 2,476 Construction fund 12,100 16,000 Customer accounts receivable 80,974 48,805 Unbilled revenues 2,950 3,795 Allowance for doubtful accounts (1,684) (1,907) Gas in storage, at average cost 35,718 52,797 Materials and supplies, at average cost 3,717 3,846 Prepaid state taxes 4,749 11,752 Deferred gas costs -- 16,589 Other 8,598 7,324 --------- --------- Total current assets 149,245 161,477 --------- --------- Deferred Charges and Other Equity investments 8,813 9,196 Regulatory assets 64,063 40,297 Long-term deferred gas costs 9,744 21,833 Other 22,703 29,741 --------- --------- Total deferred charges and other 105,323 101,067 --------- --------- Total Assets $ 960,012 $ 943,018 --------- --------- Capitalization and Liabilities Capitalization Common stock equity $ 302,169 $ 290,804 Redeemable preferred stock 520 20,640 Long-term debt 287,723 326,741 --------- --------- Total capitalization 590,412 638,185 --------- --------- Current Liabilities Current maturities of long-term debt 20,318 1,957 Short-term debt 61,700 60,700 Purchased gas 78,829 47,461 Accounts payable and other 28,499 29,706 Dividends payable 7,465 7,304 Accrued taxes 2,138 7,029 Overrecovered gas costs 3,369 -- Customers' credit balances and deposits 15,470 13,652 --------- --------- Total current liabilities 217,788 167,809 --------- --------- Deferred Credits Deferred income taxes 65,559 72,433 Deferred investment tax credits 10,293 10,628 Deferred revenue 23,020 19,375 Other 52,940 34,588 --------- --------- Total deferred credits 151,812 137,024 --------- --------- Commitments and Contingent Liabilities (Note 10) Total Capitalization and Liabilities $ 960,012 $ 943,018 --------- ---------
The accompanying notes are an integral part of these statements. New Jersey Resources Corporation - 1999 Annual Report 41 14
September 30, 1999 1998 -------- -------- Common Stock Equity Common stock, $2.50 par value, authorized 50,000,000 shares; issued shares 1999-18,470,886; 1998-18,333,655 $ 46,177 $ 45,834 Premium on common stock 221,703 218,030 Treasury stock at cost and other; shares 1999-730,027; 1998-522,670 (24,269) (16,802) Retained earnings 58,558 43,742 -------- -------- Total common stock equity 302,169 290,804 -------- -------- Redeemable Preferred Stock New Jersey Natural Gas Company $100 par value, cumulative; authorized shares 1999 - 315,200; 1998 - 516,400; outstanding shares 5.65% series - 1999 - 5,200; 1998 - 6,400 520 640 7.72% series - 1998 - 200,000 -- 20,000 -------- -------- Total redeemable preferred stock 520 20,640 -------- -------- Long-Term Debt New Jersey Natural Gas Company First mortgage bonds Maturity date -------------------- ------------- 10.10% Series S June 1, 2009 -- 18,200 7.50% Series V December 1, 2002 25,000 25,000 5.38% Series W August 1, 2023 10,300 10,300 6.27% Series X November 1, 2008 30,000 30,000 6.25% Series Y August 1, 2024 10,500 10,500 8.25% Series Z October 1, 2004 25,000 25,000 Variable Series AA August 1, 2030 25,000 25,000 Variable Series BB August 1, 2030 16,000 16,000 6.88% Series CC October 1, 2010 20,000 20,000 Variable Series DD September 1, 2027 13,500 13,500 Variable Series EE January 1, 2028 9,545 9,545 Variable Series FF January 1, 2028 15,000 15,000 Variable Series GG April 1, 2033 18,000 18,000 Capital lease obligation 31,078 31,396 -------- -------- Total 248,923 267,441 -------- -------- New Jersey Resources Corporation Revolving credit agreements, at floating rates October 1, 2000 - August 8, 2001 38,800 59,300 -------- -------- Total long-term debt 287,723 326,741 -------- -------- Total Capitalization $590,412 $638,185 -------- --------
The accompanying notes are an integral part of these statements. 42 New Jersey Resources Corporation - 1999 Annual Report 15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS New Jersey Resources Corporation 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF THE BUSINESS New Jersey Resources Corporation (the Company) is an energy services holding company providing retail and wholesale natural gas and related energy services to customers from the Gulf Coast to New England. Its principal subsidiary, New Jersey Natural Gas Company (NJNG), provides regulated natural gas and appliance services in central and northern New Jersey and participates in the off-system sales and capacity management markets. Other operating subsidiaries include: NJR Energy Services Company (Energy Services) and New Jersey Natural Energy Company (Natural Energy), the Company's unregulated fuel and capacity management and retail marketing subsidiaries; NJR Energy Corporation (NJR Energy), an investor in energy-related ventures; and, Commercial Realty and Resources Corp. (CR&R), a commercial real estate developer. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated. REGULATORY ACCOUNTING NJNG maintains its accounts in accordance with the Uniform System of Accounts as prescribed by the New Jersey Board of Public Utilities (the BPU). As a result of the ratemaking process, the accounting principles applied by NJNG differ in certain respects from those applied by unregulated businesses. UTILITY PLANT AND DEPRECIATION Depreciation is computed on a straight-line basis for financial statement purposes, using rates based on the estimated average lives of the various classes of depreciable property. The composite rate of depreciation was 3.40% of average depreciable property in 1999, 3.36% in 1998 and 3.25% in 1997. When depreciable properties are retired, the original cost thereof, plus cost of removal less salvage, is charged to accumulated depreciation. UTILITY REVENUES Customers are billed through monthly cycle billings on the basis of actual or estimated usage. Revenues are based upon service rendered. GAS PURCHASES NJNG's tariff includes a Levelized Gas Adjustment (LGA) clause, which is normally revised on an annual basis. Under this clause, NJNG projects its cost of gas, net of supplier refunds and credits from non-firm sales and transportation activities, over the subsequent 12 months and recovers the excess, if any, of such projected costs over those included in its base rates through levelized charges to customers. Any under- or over-recoveries are deferred and reflected in the LGA clause in subsequent years. STATE OF NEW JERSEY TAX REFORM In January 1998, the utility gross receipts tax formula was replaced with a state sales and income tax and a transitional energy facilities assessment (TEFA). The TEFA is being gradually phased out between 1999 and 2002. The new law requires that all energy providers in the state be subject to the state sales and income taxes. Previously, non-utility providers of energy were not subject to the gross receipts and franchise tax. INCOME TAXES Deferred income taxes are calculated in conformance with Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes" (SFAS 109) (See Note 6: Income Taxes). Investment tax credits have been deferred and are being amortized as a reduction to the tax provision over the average lives of the related property. CAPITALIZED INTEREST The Company's capitalized interest totaled $735,000 in 1999, $714,000 in 1998 and $1.3 million in 1997. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Gains and losses related to qualifying hedges of firm commitments or anticipated transactions are deferred and recognized in income or as adjustments of carrying amounts when the hedged transaction occurs (See Note 9: Financial Instruments and Risk Management). REGULATORY ASSETS Regulatory Assets at September 30, 1999 and 1998 consist of the following items:
(Thousands) 1999 1998 - ------------------------------------------------------------- Remediation costs (Note 10) $57,736 $35,243 Postretirement costs (Note 8) 4,559 4,885 Other 1,768 169 ------- ------- Total $64,063 $40,297 ======= =======
Included in Other Deferred Credits are the following items:
(Thousands) 1999 1998 - ------------------------------------------------------------- Remediation costs (Note 10) $45,219 $27,500 Postretirement costs (Note 8) 4,653 4,617 ------- ------- Total $49,872 $32,117 ======= =======
STATEMENTS OF CASH FLOWS For purposes of reporting cash flows, all temporary investments with maturities of three months or less are considered cash equivalents. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Boards (FASB) issued SFAS No. 133 "Accounting for Derivative Investments and Hedging Activities", which must be adopted by the quarter ending December 31, 2000. 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 during any given reporting period following the time of adoption. New Jersey Resources Corporation - 1999 Annual Report 43 16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS New Jersey Resources Corporation In November 1998, the Emerging Issues Task Force (EITF) of the FASB reached consensus on EITF 98-10 "Accounting for Contracts Involved in Energy Trading and Risk Management Activities", which must be adopted in the quarter ending December 31, 1999. The Company is currently evaluating the effects of EITF 98-10 on its financial condition and results of operations, which will vary based on the contracts and derivatives in effect at that time. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year reporting. USE OF ESTIMATES The consolidated financial statements of the Company include estimates and assumptions of certain assets, liabilities, revenues and expenses and the disclosure of certain contingent assets and liabilities. Actual results in the future may differ from such estimates. 2. COMMON STOCK At September 30, 1999, there were 1,117,997 shares reserved for issuance under the Company's Automatic Dividend Reinvestment, Employee Stock Ownership and Retirement Savings Plans. A total of 750,000 shares are reserved for issuance to employees under the Long-Term Incentive Compensation Plan (the Plan) at the discretion of the Board of Directors. At September 30, 1999, there were 40,019 shares remaining for issuance or grant under the Plan. The Company issued 9,600 and 22,461 shares in 1999 and 1997 under the Plan, with a related annual expense of approximately $118,000 and $224,000, respectively, which vest over a three-year period and are subject to the Company achieving certain performance targets. The Company will issue an additional 13,964 shares in 2000, related to the 1997 award, based on exceeding certain performance targets. The related expense of $559,000 was recognized in 1999. All options granted under the Plan have been non-qualified stock options. They give the holder a right to purchase the Company's common stock at prices no less than the closing price on the date of the grant. Generally, no option can be exercised before one year or more than 10 years from the date of each grant. A total of 175,000 shares are reserved for issuance to outside directors under the Restricted Stock and Stock Option Program for Outside Directors (the Program). Under the Program, each director received an award of 200 shares of restricted stock which vests over four years. Each director is also granted 5,000 options upon joining the Board. A Supplemental Stock Option Program (Supplemental Program) was approved by the Board of Directors, effective October 1, 1998. The Supplemental Program provides that each director receives an annual grant of 1,500 options. All other terms of the Program remain the same. In 1999, 200 shares were issued and none were forfeited. At September 30, 1999, there were 40,550 shares remaining for issuance or grant under the Program, including the Supplemental Program. All options granted under the Program allow for purchase of common stock at prices equal to the closing price on the date of grant, and no option can be exercised before one year or more than 10 years from the date of each grant. The Company has adopted SFAS No. 128 "Earnings Per Share" which establishes standards for computing and presenting basic and diluted earnings per share (EPS). The incremental shares that were required for inclusion in the denominator for the diluted EPS calculation relate to stock options and restricted stock and totaled 132,061, 96,205 and 50,540 for 1999, 1998 and 1997, respectively. The numerator for both the basic and diluted calculations was net income. The impact was a two-cent dilutive effect for 1999 and 1998 and a one-cent dilutive effect for 1997. As permitted by SFAS No. 123 "Accounting for Stock-Based Compensation" (SFAS 123), the Company will continue to apply Accounting Principles Board Opinion No. 25 and its related interpretations in accounting for its stock-based plans and provide the pro forma disclosures required by SFAS 123. No compensation expense has been recognized for its stock-based plans except for performance-based awards. If compensation expense had been determined based on the fair value of stock options at the date of grant consistent with the methodology of SFAS 123, the Company's net income would have been reduced by approximately $151,000 ($.01 EPS - Basic and Diluted) in 1999, $171,000 ($.01 EPS - Basic and Diluted) in 1998 and $249,000 ($.02 EPS - Basic, $.01 EPS - Diluted) in 1997. The following table summarizes the stock option activity for the past three years:
Weighted Average Exercise Shares Price Range Price - ---------------------------------------------------------------- Outstanding at September 30, 1996 270,796 $22.25 - $29.00 $25.83 Granted 119,420 29.25 - 33.75 31.60 Exercised (13,522) 22.25 - 23.13 23.06 Forfeited (9,339) 27.75 - 32.00 28.45 - ---------------------------------------------------------------- Outstanding at September 30, 1997 367,355 22.25 - 33.75 27.74 Granted 36,431 22.25 - 37.50 35.42 Exercised (12,019) 22.25 - 32.00 26.15 Forfeited (11,366) 22.88 - 34.44 28.54 - ---------------------------------------------------------------- Outstanding at September 30, 1998 380,401 22.25 - 37.50 28.51 - ---------------------------------------------------------------- GRANTED 327,537 36.94 - 39.50 37.02 EXERCISED (17,864) 22.25 - 35.44 26.26 FORFEITED (3,499) 27.75 - 38.00 29.40 - ---------------------------------------------------------------- OUTSTANDING AT SEPTEMBER 30, 1999 686,575 $22.25 - $39.50 $32.62 ================================================================ EXERCISABLE AT SEPTEMBER 30, 1999 252,912 $22.25 - $37.50 $28.47 ================================================================
The weighted average remaining option contractual life is 7.1 years. The weighted average fair value of the options granted in 1999 44 New Jersey Resources Corporation - 1999 Annual Report 17 was estimated at $2.60 per option on the date of grant using the Black-Scholes option pricing model, with the following assumptions: dividend yield of 4.2%, volatility of 19.31% and expected life of 8.5 years. In September 1996, the Board of Directors authorized the repurchase of up to one million of the Company's common shares. Effective October 26, 1999, the plan was expanded to 1.5 million shares. As of September 30, 1999, the Company has repurchased 842,362 shares of its common stock at a cost of $28.9 million. 3. REDEEMABLE PREFERRED STOCK The $20 million 7.72% series was redeemed in October 1998 at a price of $101.72 per share. In July 1996, the Board of Directors adopted a shareholder rights plan that provides for the distribution of one right for each share of common stock outstanding on or after August 15, 1996. Each right entitles its holder to purchase 1/1000 of one share of the Series A Stock, as defined below, at an exercise price of $55. The rights plan provides that after a person or group acquires 10% or more of the Company's common stock, each of the rights, except for those held by the 10% holder, which become void once the holder reaches the 10% threshold, becomes the right to acquire shares of the Company's common stock having a market value equal to twice the exercise price. If a person or group acquires at least 10%, but less than 50%, the Board of Directors may exchange each right for one share of the Company's common stock. The rights may be redeemed for $.01 per right at any time prior to the first public announcement or communication to the Company that a person or group has crossed the 10% threshold. The Company has 400,000 shares of authorized and unissued $100 par value preferred stock. The Company has created and reserved for issuance 50,000 shares of Series A Junior Participating Cumulative Preferred Stock (Series A Stock) in connection with the adoption of the shareholder rights plan. 4. LONG-TERM DEBT, DIVIDENDS AND RETAINED EARNINGS RESTRICTIONS Annual redemption requirements for the next five years are as follows: 2000, $20.3 million; 2001, $39.3 million; 2002, $529,000; 2003, $25.6 million and 2004, $604,000. NJNG's mortgage secures its First Mortgage Bonds and represents a lien on substantially all its property, including gas supply contracts. Certain indentures supplemental to the mortgage include restrictions as to cash dividends and other distributions on NJNG's common stock, which restrictions apply so long as certain series of First Mortgage Bonds are outstanding. Under the most restrictive provision, approximately $66.8 million of NJNG's retained earnings was available for such purposes at September 30, 1999. In June 1999, NJNG redeemed its $20 million 10.10% Series S First Mortgage Bonds. 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 identical to the Authority's Bonds. 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 year. 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. NJNG drew down $3.9 million and $2 million from the construction fund and issued $3.9 million and $2 million of its Series GG Bonds in 1999 and 1998, respectively. At September 30, 1999, NJNG had total variable rate debt outstanding of $97 million, of which $56 million has been hedged by the purchase of a 6.5% interest rate cap through the year 2003. In December 1995, the BPU approved NJNG's petition to enter into a master-lease agreement for its headquarters building for a 25.5 year term with two five year renewal options. The present value of the agreement's minimum lease payments is reflected as both a capital lease and a capital lease obligation, which are included in Utility Plant and Long-Term Debt, respectively, in the Consolidated Balance Sheets. In accordance with its ratemaking treatment, NJNG records rent expense as if the lease was an operating lease. Minimum annual lease payments are $2.4 million in 2000, and $2.6 million in 2001 through 2004, with $55.5 million over the remaining term of the lease. Approximately 23% of the building, representing approximately $500,000 of lease payments in 2000, is presently subleased to other tenants. The Company has five committed revolving credit agreements totaling $105 million, which provide for bank loans at negotiable rates at or below the prime rate. At September 30, 1999, a total of $58.8 million was outstanding under these agreements, of which $20 million matures in 2000, with a weighted average interest rate of 5.1%. At September 30, 1998, a total of $59.3 million was outstanding under revolving credit agreements with a weighted average interest rate of 6.9%. New Jersey Resources Corporation - 1999 Annual Report 45 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS New Jersey Resources Corporation 5. SHORT-TERM DEBT AND CREDIT FACILITIES Committed credit facilities of NJNG support the issuance of commercial paper and provide for bank loans at negotiable rates at or below the prime rate. These credit facilities total $80 million and require commitment fees on the unused amounts. A comparison of pertinent data follows:
(Thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- Bank credit facilities $ 80,000 $ 90,000 $ 75,000 Maximum amount outstanding $106,000 $ 99,000 $ 78,500 Average daily amount outstanding Notes payable to banks $ 4,200 $ 6,100 $ 5,800 Commercial paper $ 53,500 $ 50,900 $ 40,500 Weighted average interest rate Notes payable to banks 5.40% 5.81% 5.65% Commercial paper 5.15% 5.67% 5.53% Amount outstanding at year end Commercial paper $ 61,700 $ 60,700 $ 48,000 Interest rate at year end Commercial paper 5.34% 5.53% 5.59%
6. INCOME TAXES The Company's federal income tax returns have been examined by the Internal Revenue Service (the IRS) through 1993 and all significant matters have been settled. The IRS has substantially completed its examination of the 1995 and 1994 tax returns and the Company does not anticipate any significant issues. Income tax expense differs from the amount computed by applying the statutory federal income tax rate of 35% to pre-tax income for the following reasons:
(Thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- Statutory income tax expense $ 25,115 $ 23,811 $ 22,020 Change resulting from State income taxes 4,445 3,060 248 Depreciation and cost of removal (1,478) (1,201) (639) Investment tax credits (335) (335) (346) Other (912) (647) 116 -------- -------- -------- Income tax provision $ 26,835 $ 24,688 $ 21,399 ======== ======== ========
The income tax provision is composed of the following:
(Thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- Current Federal $ 28,854 $ 11,097 $ 3,314 State 9,385 4,209 381 Deferred Federal (8,522) 9,218 18,050 State (2,547) 499 -- Investment tax credits (335) (335) (346) -------- -------- -------- Income tax provision $ 26,835 $ 24,688 $ 21,399 ======== ======== ======== Charged to: Operating expenses $ 25,445 $ 23,422 $ 21,085 Other income, net 1,390 1,266 314 -------- -------- -------- Income tax provision $ 26,835 $ 24,688 $ 21,399 ======== ======== ========
The tax effects of significant temporary differences comprising the Company's net deferred income tax liability at September 30, 1999 and 1998, are as follows:
(Thousands) 1999 1998 - -------------------------------------------------------------------------------- Current Deferred gas costs $ (1,540) $ 5,560 Weather normalization clause 3,198 3,078 Other (2,606) (3,180) -------- -------- Current deferred tax liability, net $ (948) $ 5,458 ======== ======== Non-current Property-related items $ 77,209 $ 71,871 Customer contributions (4,412) (3,849) Capitalized overhead and interest (3,369) (4,465) Deferred gas costs 3,382 7,736 Unamortized investment tax credits (3,602) (4,315) Remediation costs and other (3,649) 5,455 -------- -------- Non-current deferred tax liability, net $ 65,559 $ 72,433 ======== ========
7. REGULATORY ISSUES In September 1999, NJNG filed to reduce its LGA by less than 1%, reflecting a proposal to decrease the Prior Gas Cost Adjustment (PGCA), Transportation Education and Implementation (TEI) and Demand Side Management (DSM) factors, partially offset by a minor increase to its Remediation Adjustment (RA) factor. No change was proposed for the Gas Cost Recovery (GCR) and Weather Normalization Clause (WNC) factors. In August 1999, NJNG filed a Comprehensive Resource Analysis (CRA) plan pursuant to a BPU order. The CRA, which will replace NJNG's current DSM program, includes a program cost of $2.9 million recoverable through rates. NJNG expects the BPU to rule on the filing in February 2000. 46 New Jersey Resources Corporation - 1999 Annual Report 19 In July 1999, the BPU approved a settlement agreement that provided for a decrease in NJNG's GCR level and an increase in its WNC, RA, DSM and TEI factors. As a result of this settlement, sales customers received a rate decrease of approximately 3%, and transportation customers experienced an increase of approximately 2%. The BPU also approved a Flexible Pricing Mechanism (FPM), which permits NJNG to adjust its GCR prices during the November through April period to help prevent significant under- or over- recoveries. The FPM is subject to certain monthly and annual limitations and requires a five day notice period to the BPU and the Ratepayer Advocate. In February 1999, the Electric Discount and Energy Competition Act (the Act), which provides the framework for the restructuring of New Jersey's energy markets, became law. The Act includes various provisions relating to natural gas utilities which provide all customers with the ability to choose their natural gas supplier other than their incumbent utility beginning January 1, 2000. The Act also allows continuation of each utility's role as a gas supplier at least until December 31, 2002, when the BPU must determine the ongoing role of each utility in providing gas supply services. The Act allows natural gas utilities to provide competitive services (e.g., appliance services), and customers to choose their provider of account services (i.e., meter reading, billing and collections) beginning January 1, 2000. The BPU is continuing to issue standards and rules to implement the Act. In April 1999, NJNG filed a rate unbundling petition pursuant to a BPU order which re-labels its current charges and provides new service options. The filing is not expected to result in any change in overall rates collected by NJNG, and the Company expects that the BPU will issue its order by December 31, 1999. 8. EMPLOYEE BENEFIT PLANS The Company has two trusteed, noncontributory defined benefit retirement plans covering all regular, full-time employees with more than one year of service. Plan benefits are based on years of service and average compensation during the last five years of employment. The Company makes annual contributions to the plans consistent with the funding requirements of federal law and regulations. The Company also provides postretirement medical and life insurance benefits to employees who are eligible for retirement through the Company's pension plan. The Company has adopted SFAS No. 132 "Employers' Disclosure about Pensions and Other Postretirement Benefits", which requires a reconciliation of beginning and ending balances of the benefit obligation and fair value of plan assets. Also required is the funded status of the plan, a breakout of the net pension cost recognized for the year and the weighted average rates used in plan calculations. All prior periods presented have been restated. PENSION PLANS The components of the net pension cost are as follows:
(Thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- Service cost $ 2,028 $ 1,467 $ 1,927 Interest cost 3,816 3,791 3,573 Expected return on plan assets (5,044) (4,711) (4,186) Amortization of prior service cost 87 154 154 Recognized actuarial loss 28 -- -- Recognized net initial obligation (306) (306) (306) ------- ------- ------- Net periodic pension cost $ 609 $ 395 $ 1,162 ======= ======= =======
Plan assets consist primarily of corporate equities and obligations, U.S. Government obligations and cash equivalents. A reconciliation of the funded status of the plans to the amounts recognized in the Consolidated Balance Sheets is presented below:
(Thousands) 1999 1998 - -------------------------------------------------------------------------------- Change in benefit obligation Benefit obligation at beginning of year $ 62,725 $ 50,947 Service cost 2,028 1,467 Interest cost 3,816 3,791 Plan participants' contributions 58 82 Plan amendments -- (652) Actuarial (gain) loss (8,718) 9,515 Benefits paid (2,714) (2,425) -------- -------- Benefit obligation at end of year $ 57,195 $ 62,725 ======== ======== Change in plan assets Fair value of plan assets at beginning of year $ 55,666 $ 59,172 Actual return on plan assets 11,604 (1,789) Employer contributions -- 626 Plan participants' contributions 58 82 Benefits paid (2,714) (2,425) -------- -------- Fair value of plan assets at end of year $ 64,614 $ 55,666 ======== ======== Funded status $ 7,419 $ (7,059) Unrecognized net (gain) loss (10,077) 5,229 Unrecognized prior service cost 750 836 Unrecognized net initial obligation (1,444) (1,750) -------- -------- Net amount recognized $ (3,352) $ (2,744) ======== ========
New Jersey Resources Corporation - 1999 Annual Report 47 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS New Jersey Resources Corporation The weighted average assumptions are as follows:
1999 1998 - ------------------------------------------------------------- Discount rate 7.50% 6.25% Expected asset return 9.50% 9.50% Compensation increase 3.50% 3.00%
OTHER POSTRETIREMENT BENEFITS The Company's transition obligation associated with these benefits was $8.6 million, which is being amortized over 20 years, and its annual expense has increased from approximately $400,000 in 1994 to $2.5 million, of which over 95% relates to NJNG. Effective October 1, 1998, the BPU approved the recovery of an additional $945,000 of annual Other Postretirement Benefit costs and $4.9 million of deferred costs, which is included in Regulatory Assets in the Consolidated Balance Sheets, over 15 years. The components of the net postretirement benefit cost are as follows:
(Thousands) 1999 1998 1997 - -------------------------------------------------------------------------------- Service cost $ 743 $ 607 $ 539 Interest cost 1,219 1,204 1,009 Expected return on plan assets (222) (160) (90) Amortization of Transition obligation 430 430 430 Prior service cost 124 97 97 Loss (gain) 181 63 (7) Deferred expense -- (1,374) (1,209) ------- ------- ------- Total net periodic benefit cost $ 2,475 $ 867 $ 769 ======= ======= =======
A reconciliation of the accumulated postretirement benefit obligation (APBO) to the amounts recognized in the Consolidated Balance Sheets at September 30, 1999 and 1998 is presented below:
(Thousands) 1999 1998 - -------------------------------------------------------------------------------- Change in benefit obligation Benefit obligation at beginning of year $ 19,403 $ 14,366 Service cost 743 607 Interest cost 1,219 1,204 Plan amendments 137 218 Actuarial (gain) loss (1,791) 3,670 Benefits paid (705) (662) -------- -------- Benefit obligation at end of year $ 19,006 $ 19,403 ======== ======== Change in plan assets Fair value of plan assets at beginning of year $ 1,930 $ 1,645 Actual return on plan assets 382 (72) Employer contributions 1,607 357 -------- -------- Fair value of plan assets at end of year $ 3,919 $ 1,930 ======== ======== Funded status $(15,087) $(17,473) Unrecognized transition obligation 6,020 6,450 Unrecognized prior service cost 1,485 1,472 Unrecognized net loss 2,771 4,903 -------- -------- Net amount recognized $ (4,811) $ (4,648) ======== ========
The weighted average assumptions are as follows:
1999 1998 - ------------------------------------------------------------- Discount rate 7.50% 6.25% Expected asset return 9.00% 9.00% Compensation increase 3.50% 3.00%
Effect of a one-percentage point increase in the health care cost trend rate on:
1999 1998 - -------------------------------------------------------------------------------- Year end benefit obligation $3,146 $3,091 Total of service and interest cost components $ 389 $ 369
Effect of a one-percentage point decrease in the health care cost trend rate on:
1999 1998 - -------------------------------------------------------------------------------- Year end benefit obligation $(2,512) $(2,468) Total of service and interest cost components $ (302) $ (286)
The assumed health care cost trend rate used in measuring the APBO as of September 30, 1999 was 9%, gradually declining until attaining an ultimate level of 5.3% in 2003, and then remaining constant thereafter for participants under age 65. For participants age 65 and older the trend rate was 7.5% in 1999, declining to 5.3% in 2003, and then remaining constant thereafter. DEFINED CONTRIBUTION PLAN The Company offers an Employee Retirement Savings Plan to eligible employees. The Company contributes an amount equal to 50% for non-represented participants and 25% for represented participants, on contributions up to 6% of base compensation. The amount expensed for the matching provision of the plan was $646,000, $495,000 and $363,000 in 1999, 1998 and 1997, respectively. 9. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Energy Services and Natural Energy enter into fixed-price contracts to purchase and sell natural gas. In order to hedge these contracts, at September 30, 1999, Energy Services entered into futures contracts to buy 8.4 Bcf of natural gas through August 2001 at prices ranging from $2.09 to $3.14 per Million British Thermal Units (Mmbtu) and had a related deferred unrealized gain of $2.9 million. Energy Services also entered into natural gas swap agreements in order to hedge its risk for 40.2 Bcf of natural gas and, at September 30, 1999, had a related deferred unrealized gain of approximately $4.2 million. In addition, Energy Services had options on 30,000 Mmbtu of natural gas and had a related deferred unrealized loss of $47,000 at September 30, 1999. 48 New Jersey Resources Corporation - 1999 Annual Report 21 To hedge against price fluctuations in its purchases of natural gas, NJNG has entered into futures contracts for 10.6 Bcf of natural gas through March 2000 at prices ranging from $2.19 to $3.19 per Mmbtu and had a related deferred unrealized gain of $2.1 million. NJNG also had natural gas swap agreements covering 4.4 Bcf and a related deferred unrealized gain of $915,000. Additionally, as part of its Financial Risk Management Program, NJNG held options covering 2.7 Bcf at strike prices ranging from $2.25 to $3.00 per Mmbtu and had a related deferred unrealized gain of $728,000 at September 30, 1999. In March 1992, NJR Energy entered into long-term, fixed-price contracts to sell natural gas to a gas marketing company. In October 1994, in conjunction with a shift in capital allocation policy, NJR Energy entered into a swap agreement which hedged its risk for sales volumes under the contract which were in excess of the estimated production from natural gas reserves owned at that time. NJR Energy subsequently sold its natural gas reserves pursuant to a plan to exit the oil and gas production business. In order to hedge its risk for sales volumes under such contract that would have otherwise been fulfilled by its producing reserve base, NJR Energy entered into a second swap agreement in June 1995. In connection with the second swap, NJR Energy received $3.3 million, which is included in Deferred Revenue and is being amortized to income over the 15-year life of the agreement. Under the terms of the swap agreements, NJR Energy will pay to the counterparties the identical fixed price it receives from the gas marketing company in exchange for the payment by the counterparties of an index price plus a spread per Mmbtu (i.e., the floating price) for the total volumes under the gas sales contract. The swap agreements were effective as of November 1995, and will expire on the same date as the underlying gas sales contract. As of September 30, 1999, NJR Energy would have to pay approximately $11.2 million to terminate these swap agreements. In order to secure the physical gas supply to meet the delivery requirements under its gas sales contracts, NJR Energy entered into a long-term purchase contract effective November 1995, with a second gas marketing company for the identical volumes it is obligated to sell under the above mentioned gas sales contract. NJR Energy has agreed to pay the supplier the identical floating price it is receiving under the swap agreements. In conjunction with this contract, NJR Energy received $1.9 million, which is included in Deferred Revenue and is being amortized to income over the life of the agreement. The net result of the above swap agreements and purchase contract is that NJR Energy has hedged both its price and volume risk associated with its long-term, fixed-price sales contract. The respective obligations of NJR Energy and the counterparties under the swap agreements are guaranteed, subject to a maximum amount, by the Company and the respective counterparties' parent corporations. In the event of nonperformance by the counterparties and their parent corporations, NJR Energy's financial results would be impacted by the difference, if any, between the fixed price it is receiving under the gas sales contract compared with the floating price it is paying under the purchase contract. However, the Company does not anticipate nonperformance by the counterparties. The fair value of cash and temporary investments, accounts receivable, accounts payable, commercial paper and borrowings under revolving credit facilities are estimated to equal their carrying amounts due to the short maturity of those instruments. The estimated fair value of long-term debt is based on quoted market prices for similar issues. The carrying amount of long-term debt was $256.6 million and $297.1 million, with a fair market value of $253.8 million and $311.8 million at September 30, 1999 and 1998, respectively. 10. COMMITMENTS AND CONTINGENT LIABILITIES NJNG has entered into long-term contracts for the supply, storage and delivery of natural gas with pipeline companies that expire at various dates through 2014. These contracts include fixed charges of approximately $90 million per year, which are recovered through the LGA. Capital expenditures are estimated at $52.2 million and $52.5 million in fiscal 2000 and 2001, respectively, and consist primarily of NJNG's construction program to support its customer growth and maintain its distribution system. NJNG is participating in environmental investigations and the preparation of proposals for remedial action at 11 former manufactured gas plant (MGP) sites. Through the RA approved by the BPU, NJNG is recovering expenditures incurred through June 1998 over a seven-year period. Costs incurred subsequent to June 30, 1998 will be reviewed annually and, subject to BPU approval, recovered over seven-year periods. With the assistance of an outside consulting firm, NJNG updated an environmental review of the sites, including a review of its potential liability for investigation and remedial action. On the basis of such review, NJNG estimates that, exclusive of any insurance recoveries, total future expenditures to remediate and monitor known MGP sites will range from $45.2 million to $106 million. NJNG's estimates of these liabilities are based upon currently available facts, existing technology and presently enacted laws and regulations. Where available information is sufficient to estimate the amount of the liability, it is NJNG's policy to accrue the full amount of such estimate. Where the information is sufficient only to establish a range of probable liability and no point within the range is more likely than any other, it is NJNG's policy to accrue the lower end of the range. Accordingly, NJNG has recorded an accrued liability and corresponding regulatory asset of $45.2 million. The actual costs to be incurred by NJNG are dependent upon several factors, including final determination of remedial action, changing technologies and governmental regulations, the ultimate ability of other responsible parties to pay and any insurance recoveries. NJNG will continue to seek recovery of such costs through the RA. The Company is a party to various claims, legal actions, complaints and investigations 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 either the Company's financial condition or results of operations. New Jersey Resources Corporation - 1999 Annual Report 49 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS New Jersey Resources Corporation 11. BUSINESS SEGMENT DATA Information related to the Company's various business segments, excluding capital expenditures, which are presented in the Consolidated Statements of Cash Flows, is detailed below. The Company has adopted SFAS No. 131 "Disclosures About Segments of an Enterprise and Related Information", which requires changes in how a business identifies its segments and the type of information to be disclosed for each segment. The natural gas distribution segment consists of NJNG's regulated energy and appliance services as well as participation in the off-system and capacity management markets. The energy holdings segment consists primarily of unregulated fuel and capacity management and marketing subsidiaries. The real estate segment consists of the operations of CR&R, a commercial real estate developer.
(Thousands) Fiscal years ended September 30, 1999 1998 1997 - -------------------------------------------------------------------------------- Operating Revenues Natural gas distribution $ 644,550 $ 575,971 $ 561,590 Energy holdings 268,599 151,118 144,343 Real estate 989 758 3,193 --------- --------- --------- Total before eliminations 914,138 727,847 709,126 Eliminations (9,870) (17,505) (12,582) (intersegment revenues) --------- --------- --------- Total $ 904,268 $ 710,342 $ 696,544 ========= ========= ========= Depreciation and Amortization Natural gas distribution $ 29,036 $ 27,520 $ 25,102 Energy holdings 251 177 192 Real estate 84 56 410 Other 84 82 93 --------- --------- --------- Total $ 29,455 $ 27,835 $ 25,797 ========= ========= ========= Operating income Natural gas distribution $ 82,096 $ 79,969 $ 76,431 Energy holdings 3,473 3,578 5,300 Real estate (398) (1,050) 119 Other 2,346 1,547 697 --------- --------- --------- Total $ 87,517 $ 84,044 $ 82,547 ========= ========= ========= Assets at Year End Natural gas distribution $ 883,072 $ 866,269 $ 805,440 Energy holdings 46,371 38,106 28,315 Real estate 22,396 22,039 34,205 Other 8,173 16,604 11,101 --------- --------- --------- Total $ 960,012 $ 943,018 $ 879,061 ========= ========= =========
12. SELECTED QUARTERLY DATA (UNAUDITED) A summary of financial data for each fiscal quarter of 1999 and 1998 follows. Due to the seasonal nature of the Company's natural gas business, quarterly amounts vary significantly during the year. In the opinion of management, the information furnished reflects all adjustments necessary for a fair presentation of the results of the interim periods.
(Thousands, except First Second Third Fourth per share data) Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------- 1999 OPERATING REVENUES $ 244,590 $ 327,315 $ 159,486 $ 172,877 OPERATING INCOME $ 29,237 $ 53,331 $ 7,715 $ (2,766) NET INCOME $ 15,152 $ 30,337 $ 3,060 $ (3,743) EARNINGS PER COMMON SHARE BASIC $ .85 $ 1.70 $ .17 $ (.21) DILUTED $ .84 $ 1.69 $ .17 $ (.21) - -------------------------------------------------------------------------------- 1998 Operating revenues $ 220,395 $ 266,586 $ 113,432 $ 109,929 Operating income $ 24,998 $ 50,768 $ 8,447 $ (169) Net income $ 14,216 $ 28,511 $ 2,894 $ (3,864) Earnings per common share Basic $ .80 $ 1.61 $ .16 $ (.22) Diluted $ .79 $ 1.60 $ .16 $ (.22) - --------------------------------------------------------------------------------
50 New Jersey Resources Corporation - 1999 Annual Report 23 DIRECTORS AND SENIOR OFFICERS New Jersey Resources Corporation DIRECTORS NINA AVERSANO, 54 (A,E) President Global Commercial Markets, Lucent Technologies (1998) BRUCE G. COE, 69 (B,C,E) President (retired) New Jersey Business & Industry Association (1984) LEONARD S. COLEMAN, 50 (B,D) Senior Advisor The National League of Professional Baseball Players (1995) LAURENCE M. DOWNES, 42 (C) Chairman of the Board, President & Chief Executive Officer New Jersey Resources Corporation (1985) JOE B. FOSTER, 65 (B,E) Chairman & Chief Executive Officer Newfield Exploration Company (1994) HAZEL S. GLUCK, 65 (B,D) President The GluckShaw Group (1995) JAMES T. HACKETT, 45 (A, D) Chairman, President & Chief Executive Officer Ocean Energy, Inc. (1999) LESTER D. JOHNSON, 67 (A,C,D,E) Vice Chairman & Chief Financial Officer (retired) Consolidated Natural Gas Company (1996) DOROTHY K. LIGHT, 62 (A,B,C,E) Chairman & Chief Executive Officer Alden Enterprises, LLC (1990) JOHN J. UNKLES JR., 69 (A,D) Managing Director (retired) Tucker Anthony, Inc. (1979) GARY W. WOLF, 61 (A,B,C) Senior Partner Cahill, Gordon & Reindel (1996) GEORGE R. ZOFFINGER, 51 (C,D,E) President & Chief Executive Officer Constellation Capital Corporation (1996) DUNCAN THECKER, 84 President Duncan Thecker Associates Director Emeritus (1982) SENIOR OFFICERS LAURENCE M. DOWNES, 42 (C) Chairman of the Board, President & Chief Executive Officer (1985) OLETA J. HARDEN, 50 Senior Vice President, General Counsel & Corporate Secretary (1984) GLENN C. LOCKWOOD, 38 Senior Vice President & Chief Financial Officer (1988) BARRY M. PELLETTERI, 44 Senior Vice President & Chief Information Officer (1999) (A) Member of Audit Committee (B) Member of Corporate Governance Committee (C) Member of Executive Committee (D) Member of Financial Policy Committee (E) Member of Management Development & Compensation Committee Date represents year of affiliation with an NJR Company. New Jersey Resources Corporation - 1999 Annual Report 51 24 DIRECTORS AND SENIOR OFFICERS New Jersey Resources Corporation Subsidiaries NEW JERSEY NATURAL GAS COMPANY DIRECTORS BRUCE G. COE LAURENCE M. DOWNES LESTER D. JOHNSON DOROTHY K. LIGHT GARY W. WOLF SENIOR OFFICERS LAURENCE M. DOWNES, 42 Chairman of the Board, President & Chief Executive Officer (1985) GARY A. EDINGER, 49 Senior Vice President, Energy Delivery (1972) OLETA J. HARDEN, 50 Senior Vice President & Corporate Secretary (1984) TIMOTHY C. HEARNE JR., 43 Senior Vice President, Financial & Administrative Services (1985) THOMAS J. KONONOWITZ, 57 Senior Vice President, Marketing Services (1963) JOSEPH P. SHIELDS, 42 Senior Vice President, Energy Services (1983) WAYNE K. TARNEY, 58 Senior Vice President, Customer Services (1996) HUGO C. BOTTINO, 48 Vice President, Human Resources (1981) FRANCIS X. COLFORD, 47 Vice President & Controller (1978) MARY ANN MARTIN, 64 Vice President, Consumer & Community Relations (1959) KEVIN A. MOSS, 49 Vice President, Regulatory Affairs (1990) EVA I. SZAKAL, 51 Vice President, Market Development (1997) DEBORAH G. ZILAI, 46 Vice President, Integrated Business Solutions (1996) NEW JERSEY NATURAL ENERGY COMPANY LAURENCE M. DOWNES, 42 President & Chief Executive Officer (1985) GLENN C. LOCKWOOD, 38 Vice President & Chief Financial Officer (1988) OLETA J. HARDEN, 50 Secretary (1984) NJR ENERGY CORPORATION LAURENCE M. DOWNES, 42 President & Chief Executive Officer (1985) GLENN C. LOCKWOOD, 38 Vice President & Chief Financial Officer (1988) OLETA J. HARDEN, 50 Secretary (1984) JAY B. CORN, 40 Vice President (1990) NJR ENERGY SERVICES COMPANY LAURENCE M. DOWNES, 42 President & Chief Executive Officer (1985) GLENN C. LOCKWOOD, 38 Vice President & Chief Financial Officer (1988) OLETA J. HARDEN, 50 Secretary (1984) JOSEPH P. SHIELDS, 42 Vice President (1983) COMMERCIAL REALTY & RESOURCES CORP. JOHN LISHAK JR., 59 President (1981) GLENN C. LOCKWOOD, 38 Vice President & Chief Financial Officer (1988) OLETA J. HARDEN, 50 Secretary (1984) 52 New Jersey Resources Corporation - 1999 Annual Report EX-21 6 LIST OF SUBSIDIARIES 1 EXHIBIT 21-1 SUBSIDIARIES OF THE REGISTRANT SUBSIDIARY STATE OF INCORPORATION New Jersey Natural Gas Company New Jersey NJR Energy Holdings Corporation (formerly known as NJR Energy Services Corp.) New Jersey Subsidiaries: New Jersey Natural Energy Company New Jersey NJR Energy Services Company (formerly known as NJR Power Services Corporation) New Jersey NJR Energy Corp. New Jersey Subsidiaries: New Jersey Natural Resources Company New Jersey NJNR Pipeline Company New Jersey Natural Resources Compressor Company New Jersey NJR Development Corp. New Jersey Subsidiaries: Commercial Realty & Resources Corp. New Jersey Paradigm Power, Inc. New Jersey Subsidiaries: Lighthouse One, Inc. New York EX-27 7 FINANCIAL DATA SCHEDULE
UT This schedule contains summary financial information extracted from New Jersey Resources Corporation's September 30, 1999 Form 10-K, 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. 12-MOS SEP-30-1999 SEP-30-1999 PER-BOOK 682,824 22,620 149,245 105,323 0 960,012 46,177 197,434 58,558 302,169 0 520 256,645 0 0 61,700 20,318 0 31,078 0 287,264 960,012 904,268 25,445 816,751 842,196 62,072 2,407 64,679 19,557 44,922 116 44,806 29,828 12,220 117,232 2.51 2.49
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