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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003 Commission file number 1-8359
NEW JERSEY RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2376465
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1415 WYCKOFF ROAD, WALL, NEW JERSEY - 07719 732-938-1480
(Address of principal executive offices) (Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES: [X] NO: [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES: [X] NO: [ ]
The number of shares outstanding of $2.50 par value Common Stock as of May 2,
2003 was 27,126,769.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this report including, without
limitation, those with respect to expected disposition of legal and regulatory
proceedings, exposure under the Stagecoach agreement, expected capital
expenditures, external financing requirements, the impact of changes in market
rates of interest, matters relating to the remediation of manufactured gas plant
(MGP) sites and the recovery of related costs, and the impact of changes in
market prices of commodities are forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements can also be identified by the use of forward-looking terminology such
as "may," "intend," "expect," "continue," or comparable terminology and are made
based upon the Company'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 Company 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 that form the
basis for forward-looking statements with respect to, or that may impact
earnings for, fiscal 2003 and thereafter include many factors that are beyond
the Company's ability to control or estimate precisely, such as estimates of
future market conditions, the behavior of other market participants and changes
in interest rates. Among the factors that could cause actual results to differ
materially from estimates reflected in such forward-looking statements are
weather conditions and economic conditions, 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 pace of deregulation of retail gas markets, access to adequate
supplies of natural gas, the regulatory and pricing policies of federal and
state regulatory agencies, changes due to legislation at the federal and state
level, the continued recoverability of environmental remediation expenditures,
and other regulatory and economic policy 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.
1
PART I-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
- --------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2003 2002 2003 2002
- --------------------------------------------------------------------------------------------------------
(Thousands, except per share data)
OPERATING REVENUES ............................ $ 1,152,101 $ 525,780 $ 1,820,880 $ 921,611
----------- ----------- ----------- -----------
OPERATING EXPENSES
Gas purchases ................................ 1,024,255 419,883 1,604,400 738,363
Operation and maintenance .................... 27,347 23,406 52,980 46,401
Depreciation and amortization ................ 8,002 7,538 16,083 15,969
Energy and other taxes ....................... 20,839 15,528 33,863 26,606
----------- ----------- ----------- -----------
Total operating expenses ..................... 1,080,443 466,355 1,707,326 827,339
----------- ----------- ----------- -----------
OPERATING INCOME .............................. 71,658 59,425 113,554 94,272
Other income .................................. (321) 873 377 2,048
Interest charges, net ......................... 3,456 4,070 7,785 8,455
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES .................... 67,881 56,228 106,146 87,865
Income tax provision .......................... 26,637 21,298 41,579 33,254
----------- ----------- ----------- -----------
NET INCOME .................................... $ 41,244 $ 34,930 $ 64,567 $ 54,611
=========== =========== =========== ===========
EARNINGS PER COMMON SHARE
BASIC ....................................... $ 1.52 $ 1.30 $ 2.39 $ 2.04
=========== =========== =========== ===========
DILUTED ..................................... $ 1.50 $ 1.29 $ 2.35 $ 2.01
=========== =========== =========== ===========
DIVIDENDS PER COMMON SHARE .................... $ .31 $ .30 $ .62 $ .60
=========== =========== =========== ===========
AVERAGE SHARES OUTSTANDING
BASIC ...................................... 27,048 26,863 27,016 26,800
=========== =========== =========== ===========
DILUTED .................................... 27,467 27,163 27,428 27,108
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements
2
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
- ----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
MARCH 31,
(Thousands) 2003 2002
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income .......................................................... $ 64,567 $ 54,611
Adjustments to reconcile net income to cash flows
Depreciation and amortization....................................... 16,083 15,969
Amortization of deferred charges.................................... 3,398 2,816
Deferred income taxes............................................... 12,217 2,315
Manufactured gas plant remediation costs ........................... (9,240) (6,197)
Change in working capital........................................... 77,526 (42,366)
Other, net.......................................................... (482) (383)
--------- ---------
Net cash flows from operating activities.............................. 164,069 26,765
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock........................................... 5,470 6,639
Proceeds from long-term debt......................................... - 68,600
Proceeds from sale-leaseback transaction ............................ 5,294 20,631
Payments of long-term debt .......................................... (131,353) (815)
Purchases of treasury stock.......................................... (912) (1,676)
Payments of common stock dividends................................... (16,441) (15,867)
Redemption of preferred stock........................................ (295) -
Net change in short-term debt........................................ 8,400 (80,600)
--------- ---------
Net cash flows from financing activities.............................. (129,837) (3,088)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for
Utility plant....................................................... (18,573) (20,368)
Real estate properties and other.................................... (993) (318)
Cost of removal .................................................... (1,318) (1,854)
Proceeds from asset sales............................................ 1,046 1,014
--------- ---------
Net cash flows from investing activities.............................. (19,838) (21,526)
--------- ---------
Net change in cash and temporary investments.......................... 14,394 2,151
Cash and temporary investments at September 30........................ 1,282 4,044
--------- ---------
Cash and temporary investments at March 31............................ $ 15,676 $ 6,195
========= =========
CHANGES IN COMPONENTS OF WORKING CAPITAL
Receivables.......................................................... $(312,514) $(128,669)
Inventories.......................................................... 23,446 27,752
Deferred gas costs................................................... (1,703) 12,672
Purchased gas........................................................ 297,224 48,814
Prepaid and accrued taxes, net....................................... 44,732 34,751
Customers' credit balances and deposits.............................. (15,251) (3,791)
Accounts payable & other............................................. 15,191 (6,638)
Broker margin accounts............................................... 33,818 (15,571)
Other, net........................................................... (7,417) (11,686)
--------- ---------
Total................................................................. $ 77,526 $ (42,366)
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for
Interest (net of amounts capitalized)................................ $ 7,826 $ 7,288
Income taxes......................................................... $ 7,402 $ 27,428
See Notes to Consolidated Financial Statements
3
CONSOLIDATED BALANCE SHEETS
ASSETS
- --------------------------------------------------------------------------------------
MARCH 31, MARCH 31,
2003 SEPTEMBER 30, 2002
(unaudited) 2002 (unaudited)
- --------------------------------------------------------------------------------------
(Thousands)
PROPERTY, PLANT AND EQUIPMENT
Utility plant, at cost .................. $ 1,070,692 $ 1,053,086 $ 1,034,225
Real estate properties and other, at cost 26,137 25,144 27,075
----------- ----------- -----------
1,096,829 1,078,230 1,061,300
Accumulated depreciation and amortization (335,121) (321,833) (312,262)
----------- ----------- -----------
Property, plant and equipment, net ..... 761,708 756,397 749,038
----------- ----------- -----------
CURRENT ASSETS
Cash and temporary investments .......... 15,676 1,282 6,195
Construction fund ....................... - - 3,600
Customer accounts receivable ............ 462,517 158,591 171,502
Unbilled revenues ....................... 25,723 4,679 33,139
Allowance for doubtful accounts ......... (5,837) (4,395) (3,775)
Regulatory assets ....................... 43,975 43,973 29,946
Gas in storage, at average cost ......... 62,630 86,340 93,158
Materials and supplies, at average cost.. 3,046 2,782 2,726
Prepaid state taxes ..................... 450 10,973 -
Derivatives ............................. 18,925 8,136 10,645
Broker margin accounts .................. 2,104 38,943 44,469
Other ................................... 29,950 14,654 15,490
----------- ----------- -----------
Total current assets ................... 659,159 365,958 407,095
----------- ----------- -----------
DEFERRED CHARGES AND OTHER
Equity investments ...................... 13,387 14,302 14,316
Regulatory assets ....................... 136,085 134,537 102,280
Derivatives ............................. 12,881 10,952 9,222
Other ................................... 29,414 37,158 37,907
----------- ----------- -----------
Total deferred charges and other ....... 191,767 196,949 163,725
----------- ----------- -----------
Total assets ........................ $ 1,612,634 $ 1,319,304 $ 1,319,858
=========== =========== ===========
See Notes to Consolidated Financial Statements
4
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
- ----------------------------------------------------------------------------------
MARCH 31, MARCH 31,
2003 SEPTEMBER 30, 2002
(unaudited) 2002 (unaudited)
- ----------------------------------------------------------------------------------
(Thousands)
CAPITALIZATION
Common stock equity ..................... $ 424,972 $ 361,453 $ 372,839
Redeemable preferred stock .............. - 295 298
Long-term debt .......................... 269,118 370,628 415,822
---------- ---------- ----------
Total capitalization ................... 694,090 732,376 788,959
---------- ---------- ----------
CURRENT LIABILITIES
Current maturities of long-term debt .... 2,393 26,942 26,922
Short-term debt ......................... 68,300 59,900 5,200
Purchased gas ........................... 466,006 168,782 184,754
Accounts payable and other .............. 33,437 34,688 28,906
Postretirement employee benefit liability 17,438 4,996 2,622
Dividends payable ....................... 8,389 8,072 8,069
Accrued taxes ........................... 54,577 15,025 45,717
Derivatives ............................. 19,192 25,397 35,337
Customers' credit balances and deposits . 12,391 23,642 10,632
---------- ---------- ----------
Total current liabilities .............. 682,123 367,444 348,159
---------- ---------- ----------
DEFERRED CREDITS
Deferred income taxes ................... 108,090 92,435 77,067
Deferred investment tax credits ......... 8,975 9,148 9,323
Deferred revenue ........................ 14,219 15,019 15,820
Derivatives ............................. 13,694 6,612 5,307
Manufactured gas plant remediation ...... 65,830 65,830 53,840
Postretirement employee benefit liability 9,038 19,950 7,273
Other ................................... 16,575 10,490 14,110
---------- ---------- ----------
Total deferred credits ................. 236,421 219,484 182,740
---------- ---------- ----------
Total capitalization and liabilities. $1,612,634 $1,319,304 $1,319,858
========== ========== ==========
See Notes to Consolidated Financial Statements
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The financial statements have been prepared without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (SEC). The
September 30, 2002 balance sheet data is derived from the audited financial
statements of New Jersey Resources Corporation (NJR or the Company). Although
the Company believes that the disclosures are adequate to make the information
presented not misleading, it is recommended that these financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Company's 2002 Annual Report on Form 10-K.
In the opinion of management, the information furnished reflects all
adjustments necessary for a fair statement of the results of the interim
periods. Because of the seasonal nature of the Company's utility operations and
NJR Energy Services Company (Energy Services) operations, and other factors, the
results of operations for the interim periods presented are not indicative of
the results to be expected for the entire year.
Certain reclassifications have been made of previously reported amounts to
conform to current year classifications.
2. New Accounting Standards
In December 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure," (SFAS 148), an amendment of
FASB Statement No 123. SFAS 148 provides implementation guidance for the
adoption of SFAS No. 123, "Accounting for Stock-Based Compensation," (SFAS 123),
which the Company adopted as of October 1, 2002. The Company has complied with
the guidelines of SFAS 148 with respect to the adoption and disclosure of SFAS
123 (See Note 6.-Earnings Per Share (EPS)).
The Company completed its assessment of SFAS No. 143, "Accounting for Asset
Retirement Obligations" (SFAS 143), which became effective October 1, 2002, and
based on its analysis, the Company does not expect this statement to have a
material effect on its financial position, results of operations, or cash flows.
SFAS 143 requires the Company to disclose certain asset retirement information.
As of March 31, 2003, September 30, 2002, and March 31, 2002, the Company had
asset retirement costs recovered through rates in excess of actual costs
incurred totaling $70.5 million, $67.8 million, and $66.2 million, respectively,
which are included in Accumulated depreciation on the Consolidated Balance
Sheets.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others," (FIN 45). FIN 45 clarifies the
requirements of SFAS No. 5, "Accounting for Contingencies" (SFAS 5), related to
a guarantors accounting for, and disclosures of, the issuance of certain types
of guarantees (see Note 11. - Commitments and Contingent Liabilities). The
Company has completed an analysis of FIN 45 and has determined that there were
no guarantees for unrelated third parties. NJR has issued parental guarantees
for certain supply transactions entered into by Energy Services. As of March 31,
2003, approximately $32 million of parental guarantees related to firm
commitments.
6
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46), which clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements." This
Interpretation provides guidance on the identification and consolidation of
variable interest entities (VIEs), whereby control is achieved through means
other than through voting rights. The Company has completed an analysis of FIN
46 and has determined that it does not have any VIEs.
3. Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, New Jersey Natural Gas Company (NJNG), Energy Services,
NJR Retail Holdings Corporation (Retail Holdings), NJR Capital Services
Corporation (Capital) and NJR Service Corporation. Significant intercompany
transactions and accounts have been eliminated.
The Retail and Other segment include Retail Holdings and its wholly owned
subsidiary, NJR Home Services Company (Home Services). Home Services has a
wholly owned subsidiary, NJR Plumbing Services Company. Retail and Other also
includes Capital and its wholly owned subsidiaries, Commercial Realty &
Resources Corp. (CR&R), NJR Investment Company and NJR Energy Corporation (NJR
Energy).
4. Capitalized and Deferred Interest
The Company's capitalized interest totaled $65,000 and $106,000 for the
three months ended March 31, 2003 and 2002, respectively, and $146,000 and
$228,000 for the six months ended March 31, 2003 and 2002, respectively.
Pursuant to a New Jersey Board of Public Utilities (BPU) order, NJNG's
carrying costs are recoverable on uncollected balances related to underrecovered
gas costs through October 31, 2001 and its MGP remediation expenditures (see
Note 5c.-Manufactured Gas Plant Remediation). Accordingly, Other income included
deferred interest of $547,000 and $658,000 for the three months ended March 31,
2003 and 2002, respectively, and $1.1 million and $1.5 million for the six
months ended March 31, 2003 and 2002, respectively, related to remediation and
underrecovered gas costs.
5. Legal and Regulatory Proceedings
a. Energy Deregulation Legislation
In February 1999, the Electric Discount and Energy Competition Act (EDECA),
which provides the framework for the restructuring of New Jersey's energy
market, became law. In March 2001, the BPU issued a written order that approved
a stipulation agreement among various parties to fully open NJNG's residential
markets to competition, restructure its rates to segregate its Basic Gas Supply
Service (BGSS), the component of rates whereby NJNG provides the commodity to
the customer, and delivery (i.e., transportation) prices as required by EDECA
and expand an incentive for residential and small commercial customers to switch
to transportation service.
In June 2001, the BPU initiated a proceeding regarding the provision of
BGSS. In July 2001, NJNG submitted a BGSS proposal that provides additional
customer choices, including various pricing options. In January 2002, the BPU
issued an order, which stated that BGSS could be provided by suppliers other
7
than the state's natural gas utilities, but at this time it should be provided
by the state's natural gas utilities. The parties are currently discussing
NJNG's July 2001 proposal.
In March 2003, the BPU approved a permanent statewide Universal Service
Fund (USF) program effective July 1, 2003. The USF program was established for
all gas and electric utilities in New Jersey for the benefit of low-income
customers. Eligible customers will receive a credit toward their utility bill,
the cost of which will be recovered through a USF rider.
The BPU is required to audit the state's energy utilities every two years.
The primary purpose of the audit is to ensure that NJNG and its affiliates
offering competitive retail services do not have any unfair competitive
advantage over non-affiliated providers of competitive retail services. In June
2002, the BPU initiated a compliance audit. In March 2003, an independent
consulting firm, engaged by the BPU, completed its audit of NJNG. The audit
report found that NJNG and its affiliates do not have an unfair competitive
advantage over other competitive service providers. It also confirmed that NJNG
has established and maintained effective accounting, functional and management
separation between itself and its affiliates. The audit has been submitted to
the BPU for approval.
b. BGSS and Other Adjustment Clauses
On October 17, 2002, NJNG filed a BGSS request with the BPU for a 3 percent
price increase reflecting higher projected gas costs, to be effective December
1, 2002 and the opportunity for an additional adjustment in February 2003 to
address potential changes in market conditions. The filing also requested an
extension of the BGSS margin-sharing incentives. In lieu of the December price
change, NJNG updated the BGSS request in January 2003 to seek a 6 percent price
increase effective February 1, 2003. On February 5, 2003, NJNG received a
provisional 6 percent price increase, subject to refund with interest,
reflecting higher projected gas costs. The parties to the BGSS proceeding
continue to review the filing to extend the BGSS incentives beyond October 31,
2003.
NJNG is eligible to receive incentives for reducing BGSS costs through a
series of margin-sharing programs that include off-system sales, capacity
release, and portfolio-enhancing programs. On October 30, 2002, the BPU approved
an agreement whereby the existing 85/15 margin sharing between customers and
shareowners for off-system sales, capacity release and financial risk management
transactions was extended through October 31, 2003. As part of this agreement,
the portfolio-enhancing programs, which include an incentive for the permanent
reduction of the cost of capacity, continued to receive 60/40 sharing treatment
between customers and shareowners for transactions completed on or before
December 31, 2002. Any new transactions that became effective after January 1,
2003, are not eligible under the portfolio-enhancing programs. NJNG believes
that the elimination of the portfolio-enhancing program will not have a material
effect on its financial position, results of operations or cash flows. NJNG also
believes as part of the BGSS proceedings that it can replace these programs with
new incentive-based programs that will not have a material effect on its
financial position, results of operations or cash flows, however, no assurance
can be given as to the ultimate resolution of these matters.
On January 6, 2003, the BPU approved a generic BGSS agreement which
requires that all New Jersey natural gas utilities make an annual filing by June
1 for a potential price change to be effective October 1 and, after proper
notice and BPU action on the June filing, will allow gas utilities to increase
residential and small commercial customer prices up to 5 percent on a
self-implementing basis on December 1 and February 1. On May 1, 2003, NJNG
submitted its annual BGSS filing, seeking an 8.8 percent increase to be
effective July 1, 2003 reflecting higher wholesale gas costs.
8
NJNG is also involved in various proceedings associated with several other
adjustment clauses (e.g., Transportation Initiation Clause (TIC) and New Jersey
Clean Energy Program, formerly known as Comprehensive Resource Analysis), which
in NJNG's opinion will not have a material adverse effect on its financial
condition or results of operations.
NJNG has proposed a Smart Growth pilot program for Asbury Park and Long
Branch that would invest new capital in the infrastructure of these cities.
NJNG's proposal features a recovery mechanism referred to as the Targeted
Revitalization Infrastructure Program (TRIP), which would provide a current
return on and return of the newly invested capital. NJNG estimates that it will
invest approximately $7 million in Asbury Park under this program. The BPU is
currently reviewing this proposal.
NJNG has also filed for approval of a special transportation price and
agreement for service to the Ocean Peaking Power Plant, a new gas-fired electric
generation facility located in Lakewood, New Jersey, which is expected to
commence commercial operation by June 2003. The BPU is currently reviewing the
proposal and is expected to issue an order by June 2003.
c. Manufactured Gas Plant (MGP) Remediation
NJNG has identified 11 former MGP sites, dating back to the late 1800s and
early 1900s, which contain contaminated residues from the former gas
manufacturing operations. Ten of the 11 sites in question were acquired by NJNG
in 1952. All of the gas manufacturing operations ceased at these sites at least
by the mid-1950s and in some cases had been discontinued many years earlier, and
all of the former gas manufacturing facilities were subsequently dismantled by
NJNG or the previous owners. Since October 1989, NJNG has entered into
Administrative Consent Orders or Memoranda of Agreement with the New Jersey
Department of Environmental Protection (NJDEP) covering all 11 sites. These
orders and agreements establish the procedures to be followed by NJNG in
developing a final remedial clean-up plan for each site. NJNG is currently
involved in administrative proceedings with the NJDEP 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.
Until September 2000, most of the cost of such studies and investigations
had been shared under an agreement with the former owner and operator of 10 of
the MGP sites. In September 2000, a revised agreement was executed pursuant to
which NJNG is responsible for two of the sites, while the former owner is
responsible for the remaining eight sites. Also in September 2000, NJNG
purchased a 20-year cost-containment insurance policy for its two remaining
sites. NJNG continues to participate in the investigation and remedial action
for one MGP site that was not subject to the original cost-sharing agreement.
The BPU approved a Remediation Rider in which NJNG recovers its remediation
expenses over a 7-year period. NJNG is currently recovering its remediation
expenditures incurred through June 30, 1998. In September 1999, NJNG filed for
recovery of remediation expenditures incurred through June 30, 1999. In January
2001, NJNG filed for recovery of remediation expenditures incurred through June
30, 2000. In March 2003, NJNG filed testimony for recovery of remediation
expenditures for the 2-year period ending June 30, 2002. The BPU is currently
reviewing these three filings and while NJNG believes that all costs are
probable of recovery, no assurance can be given as to the ultimate resolution of
this matter. As of March 31, 2003, $116.1 million of previously incurred and
accrued remediation costs, net of insurance recoveries, is included in
Regulatory assets on the Consolidated Balance Sheet.
In March 1995, NJNG instituted an action for declaratory relief against 24
separate insurance companies in the Superior Court of New Jersey, Docket number
OCM-L-859-95. These insurance
9
carriers provided comprehensive general liability coverage to NJNG from 1951
through 1985. The complaint was amended in July 1996 to name Kaiser-Nelson Steel
and Salvage Company (Kaiser-Nelson) and its successors as additional defendants.
In September 2001, NJNG reached a favorable settlement with the insurance
carrier that provided the majority of NJNG's coverage. This settlement involves
a significant cash payment to NJNG that will be paid in four installments. NJNG
has now dismissed or reached a settlement with all of its insurance carriers.
NJNG continues to pursue its claim against Kaiser-Nelson for environmental
damages caused by Kaiser-Nelson's decommissioning of structures at several MGP
sites. The trial has been postponed pending resolution of various pre-trial
motions. No assurance can be given as to the ultimate resolution of this matter.
d. Various
The Company is party to various other claims, legal actions and complaints
arising in the ordinary course of business. In the Company's opinion, the
ultimate disposition of these matters will not have a material adverse effect on
its financial condition or results of operations.
6. Earnings Per Share (EPS)
In accordance with SFAS No. 128 "Earnings Per Share," which established
standards for computing and presenting basic and diluted EPS, the incremental
shares required for inclusion in the denominator for the diluted EPS calculation
were 419,349 and 300,635 for the three months ended March 31, 2003 and 2002,
respectively and 412,523 and 308,252 for the six months ended March 31, 2003 and
2002, respectively. These shares relate to stock options and restricted stock
and were calculated using the treasury stock method. The numerator for each
applicable basic and diluted EPS calculation was net income.
Effective October 1, 2002, the Company has adopted the fair value method of
recording stock-based compensation under SFAS 123, which is considered the
preferred method of accounting. The Company adopted the prospective application
of SFAS 123 for options granted after October 1, 2002, the cost of which will be
expensed through the income statement based on the fair value of the award at
the grant date. The Company recognized $53,000 of expense for the six months
ended March 31, 2003, related to stock options granted after October 1, 2002.
The following is a comparison of the as reported and pro forma net income for
options granted prior to October 1, 2002, which are accounted for under
Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees."
10
Three Months Ended Six Months Ended
March 31, March 31,
2003 2002 2003 2002
---------------------------------------------
(Thousands)
As Reported:
Net income $ 41,244 $ 34,930 $ 64,567 $ 54,611
========= ========= ========= =========
Earnings Per Share-Basic $ 1.52 $ 1.30 $ 2.39 $ 2.04
========= ========= ========= =========
Earnings Per Share-Diluted $ 1.50 $ 1.29 $ 2.35 $ 2.01
========= ========= ========= =========
Pro Forma for options issued
prior to October 1, 2002:
Net income $ 40,778 $ 34,418 $ 64,101 $ 54,099
========= ========= ========= =========
Earnings Per Share-Basic $ 1.51 $ 1.28 $ 2.37 $ 2.01
========= ========= ========= =========
Earnings per Share-Diluted $ 1.48 $ 1.27 $ 2.34 $ 1.99
========= ========= ========= =========
7. Construction Fund and Long-Term Debt
On December 23, 2002, the Company entered into $380 million of committed
credit facilities with several banks, which replaced $335 million of credit
agreements. The NJR portion of the facility consists of $100 million with a
364-day term and an $80 million revolving credit facility with a 3-year term,
expiring January 2006, and the NJNG portion of the facility consists of $150
million with a 364-day term and a $50 million revolving credit facility with a
3-year term expiring January 2006. The NJR facilities are used to finance
unregulated operations. NJNG's facilities are used to support its commercial
paper borrowings. Consistent with NJNG's intent to maintain a portion of its
commercial paper borrowings on a long-term basis, and as supported by its
long-term revolving credit facility, $25 million, $25 million and $50 million of
commercial paper borrowings are included in Long-term debt on the Consolidated
Balance Sheets at March 31, 2003, September 30, 2002 and March 31, 2002,
respectively.
In July 2002, the New Jersey Economic Development Authority (EDA) approved
$12 million of new funds to finance NJNG's northern division construction over
the next three years. On March 25, 2003, NJNG filed a petition with the BPU to
issue and deliver over the next three years First Mortgage Bonds, Private
Placement Bonds or Medium Term Notes in the principal amount up to $100 million.
NJNG expects the BPU to approve the filing by September 30, 2003. Upon approval
NJNG will enter into a loan agreement with the EDA and expects to immediately
draw down $4 million. As of March 31, 2003, NJNG has not issued any debt under
this facility.
In July 2002, NJNG entered into $97.1 million of interest-rate caps with
several banks at a rate of 3.25 percent, expiring in July 2004. These caps are
designed to limit NJNG's variable rate debt exposure for all of its outstanding
tax exempt EDA Bonds.
In fiscal 2002, NJNG entered into an agreement with a financing company
whereby NJNG received $20.6 million related to the sale and leaseback of a
portion of its meters. In December 2002, NJNG
11
received $5.3 million under this agreement in connection with the sale-leaseback
of its vintage 2001 meters. NJNG has the ability to continue the sale-leaseback
meter program on an annual basis.
In December 2002, NJNG's $25 million, 7.5 percent Series V First Mortgage
Bonds matured.
8. Segment Reporting
The Natural Gas Distribution segment consists of regulated energy and
off-system and capacity management operations. The Energy Services segment
consists of unregulated fuel and capacity management and wholesale marketing
operations. The Retail and Other segment consist of service, sales and
installation of appliances, commercial real estate development, investment and
other corporate activities.
Three Months Ended Six Months Ended
March 31, March 31,
--------------------------------------------------------
2003 2002 2003 2002
--------------------------------------------------------
(Thousands)
Operating Revenues
Natural Gas Distribution $ 334,795 $ 289,609 $ 560,879 $ 509,557
Energy Services 814,654 231,581 1,253,466 402,469
Retail and Other 5,182 4,612 10,181 9,705
----------- ----------- ----------- -----------
Subtotal 1,154,631 525,802 1,824,526 921,731
Intersegment revenues * (2,530) (22) (3,646) (120)
----------- ----------- ----------- -----------
Total $ 1,152,101 $ 525,780 $ 1,820,880 $ 921,611
=========== =========== =========== ===========
Operating Income
Natural Gas Distribution $ 58,434 $ 53,002 $ 93,232 $ 83,000
Energy Services 12,461 5,222 19,381 8,747
Retail and Other 763 1,201 941 2,525
--------------------------------------------------------
Total $ 71,658 $ 59,425 $ 113,554 $ 94,272
=========== =========== =========== ===========
* Consists of transactions between subsidiaries that are eliminated in
consolidation.
The Company's assets of each of the various business segments are detailed
below:
As of As of As of
March 31, 2003 September 30, 2002 March 31, 2002
----------------------------------------------------
(Thousands)
Assets
Natural Gas Distribution $1,134,926 $1,059,417 $1,054,556
Energy Services 398,724 207,964 213,586
Retail and Other 78,984 51,923 51,716
------------ ---------- ----------
Total $1,612,634 $1,319,304 $1,319,858
============ ========== ==========
9. Investments
Included in Equity investments on the Consolidated Balance Sheet is the
Company's less-than-1-percent ownership interest in the Capstone Turbine
Corporation (Capstone), a developer of microturbines. In July 2001, the Company
entered into a 5-year zero-premium collar to hedge changes in the value of
12
100,000 shares of its investment in Capstone. The collar consists of a purchased
put option with a strike price of $9.97 per share and a sold call option with a
strike price of $24.16 per share for 100,000 shares. The Company entered into
this transaction to hedge its anticipated sale of 100,000 shares of Capstone at
the settlement date in 2006 and, accordingly, accounts for the transaction as a
cash flow hedge with changes in fair value accounted for in Other comprehensive
income. The change in Other comprehensive income for the six months ended March
31, 2003, was a $5,000 unrealized gain related to this collar. Through March 31,
2003, Accumulated other comprehensive income includes an $846,000 unrealized
gain related to this collar. In July 2002, the Company sold all of its unhedged
Capstone shares and realized an after-tax loss of $449,000. In March 2003, the
Company had an after-tax loss of approximately $341,000 related to the sale of
equity investments.
10. Comprehensive Income
The components of Comprehensive income are as follows:
Three Months Ended Six Months Ended
March 31, March 31,
2003 2002 2003 2002
--------------------------------------------
(Thousands)
Comprehensive Income:
Net income $ 41,244 $ 34,930 $ 64,567 $ 54,611
-------- -------- -------- --------
Other comprehensive income:
Change in fair value of equity investments, net $ 78 $ (821) $ (446) $ (201)
Change in fair value of derivatives, net 3,700 (18,233) 10,443 (25,127)
-------- -------- -------- --------
Total Other comprehensive income $ 3,778 $(19,054) $ 9,997 $(25,328)
-------- -------- -------- --------
Comprehensive income $ 45,022 $ 15,876 $ 74,564 $ 29,283
======== ======== ======== ========
Accumulated Other Comprehensive Income:
Beginning balance $ (6,155) $ 4,786 $(12,374) $ 11,060
Other comprehensive income 3,778 (19,054) 9,997 (25,328)
-------- -------- -------- --------
Ending balance $ (2,377) $(14,268) $ (2,377) $(14,268)
======== ======== ======== ========
The amounts included in Other comprehensive income, related to natural gas
instruments, will reduce or be charged to gas costs as the underlying physical
transaction settles. Based on the amount recorded in Accumulated other
comprehensive income at March 31, 2003, $3.2 million is expected to be recorded
as a decrease to gas costs for the remainder of fiscal 2003. For the three
months ended March 31, 2003 and 2002, $33.8 million was charged and $16 million
was credited to gas costs, respectively, and for the six months ended March 31,
2003 and 2002, $54.3 million was charged and $31.3 million was credited to gas
costs, respectively.
13
The cash flow hedges described above cover various periods of time ranging
from May 2003 to October 2010.
11. Commitments and Contingent Liabilities
NJNG is involved with the environmental investigations and remedial actions
at certain MGP sites (see Note 5c. - Manufactured Gas Plant (MGP) Remediation).
In July 2002, 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 $65.8 million to $83.3
million. NJNG's estimate of these liabilities is based upon currently available
facts, existing technology and presently enacted laws and regulations; however,
actual costs may differ materially from these estimates. 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 MGP remediation liability of
$65.8 million and a corresponding Regulatory asset of $50.3 million, net of
insurance recoveries, on the Consolidated Balance Sheet. The actual costs to be
incurred by NJNG are dependent upon several factors, including final
determination of remedial action, changing technologies and governmental
regulations, and the ultimate ability of other responsible parties to pay. NJNG
believes all such costs are recoverable through a Remediation Rider, however, no
assurance can be given as to the ultimate resolution of this matter.
Energy Services has entered into a marketing and management agreement for
the Stagecoach storage project. Stagecoach is a high-injection/high-withdrawal
facility in New York State with 12 billion cubic feet (Bcf) of working gas
capacity and interstate pipeline connections to the Northeast markets.
Stagecoach received Federal Energy Regulatory Commission (FERC) certification
for full operations in June 2002.
Energy Services is the exclusive agent for marketing Stagecoach services
for a 10-year period, subject to termination rights, ending March 31, 2012.
During this period, Energy Services has agreed to arrange contracts for, or
purchase at fixed prices, sufficient services to provide Stagecoach with
revenues of approximately $22 million annually from April 1, 2003, to March 31,
2012. Stagecoach can require Energy Services to make the foregoing purchases
only if Stagecoach is capable of providing the underlying services and must
notify Energy Services of its intent to sell services under the aforementioned
contract by November 30 of the prior annual period. In addition, Energy Services
believes that the price at which it would be required to purchase these services
is currently below market. Stagecoach did not notify Energy Services of its
intent to sell services for the annual period ended March 31, 2004 and therefore
Energy Services has no purchase obligation related to this period. Energy
Services has reached 1- to 3-year agreements with Stagecoach customers with
varying expiration dates, the last of which is October 31, 2005. The value of
these services total 68 percent and 14 percent of the Company's potential
purchase obligation for the annual periods ended March 31, 2005 and March 31,
2006, respectively.
In August 2002, NJNG, in connection with its system requirements, was
awarded 2-year agreements for Stagecoach storage and transportation services.
These agreements were awarded pursuant to an open bid process. The NJNG
agreements represent an additional 35 percent of the required level of services
for the 2-year period ending July 31, 2004.
14
Due to the price levels of the potential purchase obligations to Energy
Services, as compared with current market prices, and the current and expected
level of contracts, the Company does not currently believe that the potential
purchase obligation in the Stagecoach agreement will result in any material
future losses.
Additionally, under the Stagecoach agreement, Energy Services is required
to provide to, and maintain at, the Stagecoach facility 2 Bcf of firm base gas,
and to manage up to 3 Bcf of interruptible base gas for the term of the
agreement.
12. Regulatory Assets
At each of March 31, 2003, September 30, 2002, and March 31, 2002,
respectively, the Company had the following regulatory assets on the
Consolidated Balance Sheets:
As of As of As of
March 31, September 30, March 31,
2003 2002 2002
-----------------------------------
(Thousands)
Regulatory assets-current
Underrecovered gas costs $ 44,910 $ 33,912 $ 18,888
Weather-normalization clause (935) 10,061 11,058
--------- --------- ---------
$ 43,975 $ 43,973 $ 29,946
========= ========= =========
Regulatory assets - non-current
Remediation costs
Expended, net $ 50,316 $ 42,187 $ 24,445
Liability for future expenditures 65,830 65,830 53,840
Underrecovered gas costs 5,823 15,118 16,781
Postretirement benefit costs 3,172 3,322 3,473
Weather-normalization clause - 4,858 4,101
Derivatives 10,551 2,562 -
Other 393 660 (360)
--------- --------- ---------
$ 136,085 $ 134,537 $ 102,280
========= ========= =========
13. Other
At March 31, 2003, there were 27,072,731 shares of common stock outstanding
and the book value per share was $15.70.
15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED MARCH 31, 2003
RESULTS OF OPERATIONS
Consolidated net income for the quarter ended March 31, 2003, increased 18
percent to $41.2 million, compared with $34.9 million for the same period last
year. Basic EPS increased 17 percent to $1.52, compared with $1.30 last year.
Diluted EPS increased 16 percent to $1.50, compared with $1.29 last year.
Consolidated net income for the six months ended March 31, 2003, increased
18 percent to $64.6 million, compared with $54.6 million for the same period
last year. Basic EPS increased 17 percent to $2.39, compared with $2.04 last
year. Diluted EPS increased 17 percent to $2.35, compared with $2.01 last year.
The increase in consolidated net income in both the three and six months
ended March 31, 2003, was attributable primarily to colder weather and continued
profitable customer growth at New Jersey Resources Corporation's (NJR or the
Company) principal subsidiary, New Jersey Natural Gas Company (NJNG), and higher
margins from increased transportation and storage assets at NJR Energy Services
Company (Energy Services).
NATURAL GAS DISTRIBUTION OPERATIONS
The Natural Gas Distribution segment consists solely of the Company's
principal subsidiary, NJNG, which provides regulated energy services to
customers in central and northern New Jersey and participates in the off-system
sales and capacity release markets.
NJNG's financial results are summarized as follows:
Three Months Ended Six Months Ended
March 31, March 31,
2003 2002 2003 2002
-----------------------------------------
(Thousands)
Revenue $334,795 $289,609 $560,879 $509,557
======== ======== ======== ========
Gross margin
Residential and commercial $ 75,514 $ 71,528 $129,480 $121,480
Transportation 11,617 7,643 19,614 13,726
-------- -------- -------- --------
Total firm margin 87,131 79,171 149,094 135,206
Off-system and capacity management 1,706 1,241 2,924 2,876
Interruptible 79 210 298 422
-------- -------- -------- --------
Total gross margin 88,916 80,622 152,316 138,504
Operation and maintenance expense 22,033 19,594 42,083 38,736
Depreciation and amortization 7,799 7,337 15,681 15,573
Other taxes not reflected in gross margin 650 689 1,320 1,195
-------- -------- -------- --------
Operating income $ 58,434 $ 53,002 $ 93,232 $ 83,000
======== ======== ======== ========
Other income $ 299 $ 463 $ 702 $ 1,564
======== ======== ======== ========
Net income $ 34,161 $ 31,219 $ 53,684 $ 48,353
======== ======== ======== ========
16
Gross Margin
Gross margin is defined as gas revenues less gas purchases, sales tax and a
Transitional Energy Facilities Assessment (TEFA), which is included in Energy
and other taxes on the Consolidated Statements of Income. NJNG believes that
gross margin provides a more meaningful basis for evaluating utility operations
than does revenues since gas costs, sales tax and TEFA are passed through to
customers and, therefore, have no effect on gross margin. Gas costs are charged
to operating expenses on the basis of therm sales at the rates included in
NJNG's tariff. The Basic Gas Supply Service (BGSS) allows NJNG to recover gas
costs that exceed the level reflected in its base rates. Sales tax is calculated
at 6 percent of revenue and excludes sales to cogeneration facilities, other
utilities, off-system sales and federal accounts. TEFA is calculated on a
per-therm basis and excludes sales to cogeneration facilities, other utilities
and off-system sales. Sales tax and TEFA totaled $19.9 million and $31.9 million
for the three and six months ended March 31, 2003, respectively, compared with
$14.4 million and $24.5 million for the same periods last year.
Firm Margin
Residential and commercial, which NJNG considers to be 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 percent 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 through 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 affected by
customers switching between sales service and transportation service.
NJNG's total gross margin is not affected negatively by customers who
utilize its transportation service and purchase their gas from another supplier
because its tariff is designed such that no profit is earned on the commodity
portion of sales to firm customers. All customers who purchase gas from another
supplier continue to utilize NJNG for transportation service.
Total firm margin increased $8 million, or 10 percent, and $13.9 million,
or 10 percent, for the three and six months ended March 31, 2003, respectively,
compared with the same periods last year, due primarily to 33 percent and 35
percent colder weather than the three and six months from last year,
respectively, and continued customer growth.
The weather for the six months ended March 31, 2003 was 12 percent colder
than normal, which, in accordance with the WNC, resulted in the deferral of $7.4
million of gross margin to be refunded to NJNG's customers in the future. For
the six months ended March 31, 2002, the 18 percent warmer-than-normal weather
resulted in $14.8 million of additional margin being accrued for future recovery
under the WNC. At March 31, 2003, NJNG had a net $935,000 in accrued WNC margin
to be refunded to its customers through fiscal 2004, which takes into account
previous year activity. NJNG estimates that for the six months ended March 31,
2003, the colder weather resulted in approximately $2.2 million of additional
margin beyond the amount captured in the WNC. For the same period last year,
NJNG estimates that approximately $3.6 million of margin was lost due to the
warmer-than-normal weather.
Gross margin from sales to residential and commercial customers increased
$4 million, or 5.6 percent, and $8 million, or 6.6 percent, for the three and
six months ended March 31, 2003, respectively, compared
17
with the same periods last year. The increase was due primarily to the colder
weather and the impact of 10,536 customer additions during the 12 months ended
March 31, 2003. Sales to residential and commercial customers were 27.4 Bcf and
44.5 Bcf for the three and six months ended March 31, 2003, compared with 20.6
Bcf and 33.7 Bcf for the same periods last year.
Gross margin from transportation service increased $4 million, or 52
percent, and $5.9 million, or 43 percent, for the three and six months ended
March 31, 2003, compared with the same periods last year. The increase was due
primarily to an increase in customers utilizing the transportation service
combined with the colder weather. NJNG transported 4.8 Bcf and 7.8 Bcf for the
three and six months ended March 31, 2003, respectively, compared with 3 Bcf and
5.1 Bcf, in the same periods last year.
NJNG had 21,521 and 10,035 residential customers and 4,977 and 3,476
commercial customers using transportation service at March 31, 2003 and 2002,
respectively. The increase in the number of transportation customers was due
primarily to increased activity by third-party suppliers.
Off-System and Capacity Management
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 firm system requirements. Effective
October 1, 1998, through December 31, 2002, NJNG retained 15 percent of the
gross margin from these sales, with 85 percent credited to firm customers
through the BGSS. On October 30, 2002, the BPU approved an agreement whereby
this program was extended through October 31, 2003.
An incentive mechanism designed to reduce the fixed cost of NJNG's gas
supply portfolio also became effective October 1, 1998. Any savings achieved
through the permanent reduction or replacement of capacity or other services is
shared between customers and shareowners. Under this program, NJNG retained 40
percent of the savings for the first 12 months following any transaction and 15
percent for the remaining period through December 31, 2002, with 60 percent and
85 percent, respectively, credited to firm sales customers through the BGSS. On
October 30, 2002, the BPU approved an agreement whereby any transactions under
this program entered into before December 31, 2002, continue to receive 60/40
sharing treatment between customers and shareowners. Any new transactions that
become effective after January 1, 2003, would not be eligible under this
program. NJNG believes that the elimination of this program will not have a
material effect on its financial position, results of operations or cash flows.
The Financial Risk Management (FRM) program is designed to provide price
stability to NJNG's system supply portfolio. The FRM program includes an
incentive mechanism designed to encourage the use of financial instruments to
hedge NJNG's gas costs, with an 80/20 percent sharing of the costs and results
between customers and shareowners, respectively, through December 31, 2002. On
October 30, 2002, the BPU approved an agreement whereby this program was
extended through October 31, 2003.
NJNG believes as part of the BGSS proceedings that it can replace these
programs with new incentive-based programs that will not have a material effect
on its financial position, results of operations or cash flows, however, no
assurance can be given as to the ultimate resolution of this matter.
NJNG's off-system sales, capacity management and FRM programs totaled 12.4
Bcf and generated $1.7 million of gross margin, and 26.4 Bcf and $2.9 million of
gross margin, for the three and six months
18
ended March 31, 2003, compared with 30.2 Bcf and $1.2 million of gross margin,
and 56.4 Bcf and $2.9 million of gross margin for the respective periods last
year. The increase in margin was due primarily to the permanent reduction in
fixed demand costs, which is part of the portfolio-enhancing program discussed
above.
Interruptible
NJNG serves 49 customers through interruptible sales and/or transportation
tariffs. Sales made under the interruptible sales tariff are priced on
market-sensitive energy parity rates. Although therms sold and transported
to interruptible customers represented 3.7 percent and 4.7 percent of total
throughput for the six months ended March 31, 2003 and 2002, respectively, they
accounted for less than 1 percent of the total gross margin in each period due
to the margin-sharing formulas that govern these sales. Under these formulas,
NJNG retains 10 percent of the gross margin from interruptible sales and 5
percent of the gross margin from transportation sales, with 90 percent and 95
percent, respectively, credited to firm sales customers through the BGSS.
Interruptible sales were .2 Bcf and .1 Bcf for the six months ended March 31,
2003 and 2002, respectively. In addition, NJNG transported 2.8 Bcf and 4.6 Bcf
for the six months ended March 31, 2003 and 2002, respectively, for its
interruptible customers.
Operation & Maintenance (O&M) Expense
O&M increased $2.4 million, or 12.4 percent, and $3.3 million, or 8.6
percent, for the three and six months ended March 31, 2003, compared with the
same periods last year. The increases in O&M were due primarily to higher labor,
pension, and insurance costs.
Operating Income
Operating income increased $5.4 million, or 10.2 percent, and $10.2
million, or 12.3 percent, for the three and six months ended March 31, 2003,
compared with the same periods last year. The increase was due primarily to the
increase in total gross margin discussed above, which more than offset increased
O&M.
Net Income
Net income increased $2.9 million, or 9 percent, and $5.3 million, or 11
percent for the three and six months ended March 31, 2003, compared with the
same periods last year. The increases were due primarily to higher operating
income discussed above. The increase was partially offset by an increase in
income taxes caused by the increase in pre-tax income and a decrease in carrying
costs on deferred regulatory assets caused by lower interest rates, which is
included in Other income.
ENERGY SERVICES OPERATIONS
Energy Services provides unregulated wholesale energy services, including
natural gas supply, pipeline capacity and storage management to customers in New
Jersey and in states from the Gulf Coast to New England and Canada.
Energy Services' natural gas marketing activities include contracting to
buy natural gas from suppliers at various points of receipt, aggregating natural
gas supplies and arranging for their transportation, negotiating the sale of
natural gas and matching natural gas receipts and deliveries based on volumes
required by clients. Energy Services' customers include energy marketers,
utilities, natural gas producers and pipeline and storage operators, among
others.
19
Three Months Ended Six Months Ended
March 31, March 31,
2003 2002 2003 2002
-------------------------------------------------
(Thousands)
Revenues $ 814,654 $ 231,581 $1,253,466 $ 402,469
Gas purchases 800,713 225,256 1,231,316 391,724
---------- ---------- ---------- ----------
Gross margin 13,941 6,325 22,150 10,745
Operation and maintenance expense 1,401 1,035 2,619 1,860
Depreciation and amortization 49 51 99 103
Other taxes 30 17 51 35
---------- ---------- ---------- ----------
Operating income $ 12,461 $ 5,222 $ 19,381 $ 8,747
========== ========== ========== ==========
Net income $ 7,283 $ 3,035 $ 11,154 $ 5,171
========== ========== ========== ==========
Energy Services' revenues increased for the three and six months ended
March 31, 2003, compared to the same periods last year due primarily to an
increase in the wholesale price of natural gas and higher gas volumes sold and
managed. This increase in revenue created a corresponding increase in accounts
receivable and gas purchases. Energy Services' gross margin, operating income
and net income increased for the three and six months ended March 31, 2003,
compared with the same periods last year, as a result of increased capacity
management, storage assets, and volatility in the natural gas commodity markets.
Energy deliveries totaled 114.2 Bcf and 216 Bcf for the three and six
months ended March 31, 2003, respectively, compared with 86.9 Bcf and 147.8 Bcf
for the same periods last year. The increases were due primarily to additional
volumes from pipeline and storage capacity transactions, and additional sales to
wholesale customers.
RETAIL AND OTHER OPERATIONS
Retail and other consists primarily of NJR Home Services Company (Home
Services), which provides service, sales and installation of appliances to
approximately 130,000 customers, Commercial Realty & Resources Corp. (CR&R),
which develops commercial real estate, and NJR Energy, which consists primarily
of equity investments in Capstone Turbine Corporation (Capstone), and the
Iroquois Gas Transmission System, L.P. (Iroquois). The consolidated financial
results of Retail and other are summarized as follows:
Three Months Ended Six Months Ended
March 31, March 31,
2003 2002 2003 2002
-------------------------------------------
(Thousands)
Revenues $ 5,182 $ 4,612 $ 10,181 $ 9,705
======== ======== ======== ========
Other (loss) income $ (443) $ 485 $ (173) $ 581
======== ======== ======== ========
Net (loss) income $ (200) $ 676 $ (271) $ 1,087
======== ======== ======== ========
Retail and other operations revenues for the three and six months ended
March 31, 2003 increased compared with the same periods last year due primarily
to increased installation business at Home Services.
20
Net income for the three and six months ended March 31, 2003 decreased
compared with the same periods last year due primarily to $341,000 after-tax
loss on the sale of equity investments incurred during the second fiscal quarter
of 2003 and higher pension and insurance costs. The March 2002 results included
an after-tax gain of $302,000 associated with the sale of real estate.
In 1996, CR&R entered into a sale-leaseback transaction that generated a
pre-tax gain of $17.8 million, which is included in Deferred revenue and is
being amortized to Other income over the 25-year term of the lease. The primary
tenant of the facility, NJNG, is leasing the building under a long-term master
lease agreement and continues to occupy a majority of the space in the building.
In April 2003, Home Services reached an agreement with the union on a
4-year collective bargaining agreement, which provides, among other things, for
an annual increase in base wages of 2.5 percent. Effective April 3, 2004, the
annual increase in wages will be 3 percent with an additional 0.5 percent in
incentive compensation, if certain performance measures are met. Effective April
3, 2005 and 2006, the annual increase in wages will be 3 percent.
LIQUIDITY AND CAPITAL RESOURCES
The Company meets its common equity requirements, if any, through new
issuances of its common stock, including the proceeds from its Automatic
Dividend Reinvestment Plan (DRP). The DRP allows the Company to use newly issued
shares to satisfy its funding requirements. The Company also has the option of
using shares purchased on the open market.
In order to meet the working capital and external debt financing
requirements of its unregulated subsidiaries, as well as its own working capital
needs, the Company maintains committed credit facilities with several banks. On
December 23, 2002, the Company entered into committed credit facilities totaling
$380 million. The NJR portion of the facility consists of $100 million with a
364-day term and a $80 million revolving credit facility with a 3-year term
expiring in January 2006. At March 31, 2003, there was $45 million outstanding
under these agreements. NJNG satisfies its debt needs by issuing short- and
long-term debt based upon its own financial profile.
Due primarily to declining market values, the Company's pension plan assets
have decreased. Further, the discount rate utilized to compute the estimated
pension liability also declined, resulting in increased pension liabilities.
Consequently, the Company recorded a minimum pension liability at September 30,
2002. In order to mitigate this situation, the Company anticipates making
tax-deductible contributions to its pension plans of $7 million and $6 million
in June 2003 and September 2003, respectively. If market performance is less
than anticipated, additional funding levels may be required.
21
The following table is a summary of contractual cash obligations and their
applicable payment due dates.
Payments Due by Period
Less
than 1 1-3 4-5
Contractual Obligations Total Year Years Years After 5 Years
- -------------------------------------------------------------------------------------------------------------------------
(Thousands)
Long-term debt $ 217,845 - $ 50,000 - $ 167,845
Capital lease obligations 53,666 $ 2,393 7,813 $ 2,880 40,580
Operating leases 8,283 2,642 4,185 644 812
Short-term debt 68,300 68,300 - - -
Potential storage obligations 159,676 1,672 46,191 43,992 67,821
Gas supply purchase obligations 923,674 178,535 432,237 142,801 170,101
---------- ---------- ---------- ---------- ----------
Total contractual cash obligations $1,431,444 $ 253,542 $ 540,426 $ 190,317 $ 447,159
========== ========== ========== ========== ==========
NATURAL GAS DISTRIBUTION
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 and gas remediation expenditures and
energy tax payments, through operations, the issuance of commercial paper, and
short-term bank loans. The NJNG portion of the committed credit facility,
totaling $200 million, consists of $150 million with a 364-day term and a $50
million revolving credit facility with a 3-year term expiring in January 2006.
This facility is used to support the issuance of commercial paper. In December
2002, NJNG received $5.3 million in connection with the sale-leaseback of its
vintage 2001 meters under a financing agreement.
Remaining fiscal 2003 construction expenditures are estimated at $31
million. These expenditures will be incurred for services, mains and meters to
support NJNG's continued customer growth, and general system renewals and
improvements. In addition, NJNG estimates additional Manufactured Gas Plant
(MGP) remediation expenditures of approximately $16.5 million (see Note 5c -
Manufactured Gas Plant Remediation).
NJNG expects to finance these expenditures through internal generation and
the issuance of short- and long-term debt. The timing and mix of any external
financings will be geared toward achieving a common equity ratio that is
consistent with maintaining its current short- and long-term credit ratings.
22
Credit Ratings
The table below summarizes NJNG's credit ratings issued by two rating
entities, Standard and Poor's Rating Information Service, a division of
McGraw-Hill (Standard & Poor's), and Moody's Investor Service, Inc. (Moody's).
- ------------------------------------------------------------
Standard &
Poor's Moody's
- ------------------------------------------------------------
Corporate Rating A N/A
- ------------------------------------------------------------
Commercial Paper A-1 P-1
- ------------------------------------------------------------
Senior Secured A+ A2
- ------------------------------------------------------------
Ratings Outlook Positive Stable
- ------------------------------------------------------------
NJNG is not party to any agreements that would accelerate the maturity date
of any obligation due to a failure to maintain any specific credit rating.
ENERGY SERVICES
Energy Services does not currently anticipate any significant capital
expenditures in 2003, however, the use of high-injection/high-withdrawal storage
facilities and pipeline park and loan arrangements combined with the related
hedging activities in the volatile natural gas market may create significant
short-term cash requirements, which are funded by the Company.
RETAIL AND OTHER
CR&R has signed a 15-year lease to construct a 200,000-square-foot
build-to-suit building in the Monmouth Shores Corporate Office Park II. Total
construction expenditures are estimated at $22.5 million with an expected
completion date in the third fiscal quarter of 2004. These expenditures will be
financed through the NJR portion of the committed credit facilities.
Expenditures for the project through March 31, 2003, totaled $946,000, excluding
the cost of the land.
CRITICAL ACCOUNTING POLICIES
The following is a description of the most important generally accepted
accounting principles in the United States of America that are used by the
Company. Management believes that it exercises good judgment in selecting and
applying accounting principles. The consolidated financial statements of the
Company include estimates. Actual results in the future may differ from such
estimates. The Company's Critical Accounting Policies are described below.
Regulatory Assets & Liabilities
The Company's largest subsidiary, NJNG, maintains its accounts in
accordance with the Uniform System of Accounts as prescribed by the New Jersey
Board of Public Utilities (BPU). As a result of the ratemaking process, NJNG is
required to follow SFAS No. 71, "Accounting for the Effects of Certain Types of
Regulation" (SFAS 71) and, as a result, the accounting principles applied by
NJNG differ in
23
certain respects from those applied by unregulated businesses. NJNG is required
under SFAS 71 to record the impact of regulatory decisions on its financial
statements. NJNG's BGSS, formerly known as the Levelized Gas Adjustment clause,
requires it to project its gas costs over the subsequent 12 months and recover
the difference, if any, of such projected costs compared with those included in
rates through a BGSS charge to customers. Any under- or over-recoveries are
treated as a Regulatory asset or liability and reflected in the BGSS in
subsequent years. NJNG also enters into derivatives that are used to hedge gas
purchases, and the offset to the resulting derivative assets or liabilities are
recorded as a Regulatory asset or liability.
In addition to the BGSS, other regulatory assets include the remediation
costs associated with MGP sites, which are discussed below under Environmental
Items, and the WNC, which is discussed in Natural Gas Distribution Operations
segment of the MD&A. If there are changes in future regulatory positions that
indicate the recovery of such regulatory assets is not probable, the related
cost would be charged to income.
Derivatives
Derivative activities are recorded in accordance with SFAS No. 133,
"Accounting For Derivative Instruments and Hedging Activities," as amended (SFAS
133) under which the Company records the fair value of derivatives held as
assets and liabilities. The changes in the fair value of the effective portion
of derivatives qualifying as cash flow hedges are recorded, net of tax, in Other
comprehensive income, a component of Common stock equity. Under SFAS 133, the
Company also has certain derivative instruments that do not qualify as cash flow
hedges. The change in fair value of these derivatives is recorded in earnings.
In addition, the changes in the fair value of the ineffective portion of
derivatives qualifying for hedge accounting are recorded as an increase or
decrease in gas costs or interest expense, as applicable, based on the nature of
the derivatives. The derivatives that NJNG utilizes to hedge its gas purchasing
activities are recoverable through its BGSS. Accordingly, the offset to the
change in fair value of these derivatives is recorded as a Regulatory asset or
liability. The Company has not designated any derivatives as fair value hedges
as of March 31, 2003.
The fair value of derivative investments is determined by reference to
quoted market prices of listed contracts, published quotations or quotations
from independent parties. In the absence thereof, the Company utilizes
mathematical models based on current and historical data. The effect on annual
earnings of valuations from our mathematical models is expected to be
immaterial.
In providing its unregulated fuel and capacity management and wholesale
marketing services, Energy Services enters into physical contracts to buy and
sell natural gas. These contracts qualify as normal purchases and sales under
SFAS 133 in that they provide for the purchase or sale of natural gas that will
be delivered in quantities expected to be used or sold by Energy Services over a
reasonable period in the normal course of business. Accordingly, Energy Services
accounts for these contracts under settlement accounting.
Environmental Items
NJNG periodically updates the environmental review of its MGP sites,
including a review of its potential liability for investigation and remedial
action, based on assistance from an outside consulting firm. On the basis of
such review, NJNG estimates expenditures to remediate and monitor these MGP
sites, exclusive of any insurance recoveries. NJNG's estimate of these
liabilities is based upon currently
24
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. Since NJNG believes that
recovery of these expenditures, as well as related litigation costs, are
probable through the regulatory process, in accordance with SFAS 71, it has
recorded a Regulatory asset corresponding to the accrued liability. 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. If there are changes in future regulatory positions that
indicate the recovery of such regulatory asset is not probable, the related cost
would be charged to income. As of March 31, 2003, $116.1 million of previously
incurred and accrued remediation costs, net of insurance recoveries, is included
in Regulatory assets on the Consolidated Balance Sheet.
Unbilled Revenue
Revenues related to the sale of natural gas are generally recorded when
natural gas is delivered to customers. However, the determination of natural gas
sales to individual customers is based on the reading of their meters, which
occurs on a systematic basis throughout the month. At the end of each month,
amounts of natural gas delivered to customers since the date of the last meter
read are estimated, and the corresponding unbilled revenue is recorded. This
unbilled revenue is estimated each month based on monthly natural gas delivered
into the system, unaccounted for gas based on historical results, and applicable
customer rates.
Postretirement Employee Benefits
The Company's costs of providing postretirement employee benefits (see Note
9.-Employee Benefit Plans in the Company's 2002 Annual Report on Form 10-K) are
dependent upon numerous factors resulting from actual plan experience and
assumptions of future experience.
Postretirement employee benefit costs, for example, are impacted by actual
employee demographics (including age, compensation levels, and employment
periods), the level of contributions made to the plans, and the return on plan
assets. Changes made to the provisions of the plans may also impact current and
future postretirement employee benefit costs. Postretirement employee benefit
costs may also be significantly affected by changes in key actuarial
assumptions, including anticipated rates of return on plan assets, health care
cost trends, and discount rates used in determining the projected benefit
obligations. In determining postretirement employee benefit obligations and cost
amounts, assumptions can change from period to period, which could result in
material changes to net postretirement employee benefit periodic cost and
related liability recognized by the Company.
The Company's postretirement employee benefit plan assets consist primarily
of corporate equities and obligations, U.S. Government obligations and cash
equivalents. Fluctuations in actual equity market returns as well as changes in
interest rates may result in increased or decreased postretirement employee
benefit costs in future periods.
New Accounting Policies
25
The Company has discussed its new accounting standards and their potential
impact in Note 2 - New Accounting Standards, to the Consolidated Financial
Statements.
26
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
FINANCIAL RISK MANAGEMENT
Commodity Market Risks
Natural gas is a nationally traded commodity, and its prices are determined
effectively by the New York Mercantile Exchange (NYMEX) and over-the-counter
markets. The prices on the NYMEX and over-the-counter markets generally reflect
the notional balance of natural gas supply and demand, but are also influenced
significantly from time to time by other events.
The regulated and unregulated natural gas businesses of the Company and its
subsidiaries are subject to market risk due to fluctuations in the price of
natural gas. To hedge against such fluctuations, the Company and its
subsidiaries have entered into futures contracts, options agreements and
over-the-counter swap agreements. To manage these instruments, the Company has
well-defined risk management policies and procedures, which include daily
monitoring of volumetric limits and monetary guidelines. The Company's natural
gas businesses are conducted through three of its operating subsidiaries. First,
NJNG is a regulated utility whose recovery of gas costs is protected by the
BGSS, which utilizes futures, options and swaps to hedge against price
fluctuations. Second, using futures and swaps, Energy Services hedges purchases
and sales of storage gas and transactions with wholesale customers. Finally, NJR
Energy has entered into several swap transactions to hedge the 10 remaining
years of 18-year fixed-price contract to sell approximately 20.9 Bcf of natural
gas (Gas Sale Contract) to a gas marketing company.
NJR Energy has hedged both its price and physical delivery risks associated
with the Gas Sale Contract. To hedge its price risk, NJR Energy entered into two
swap agreements effective November 1995. Under the terms of these swap
agreements, NJR Energy will pay to its swap counterparties the identical fixed
price it receives from the gas marketing company in exchange for the payment by
such swap counterparties of a floating price based on 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 that 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.
The following table reflects the changes in the fair market value of
commodity derivatives from September 30, 2002 to March 31, 2003.
Balance Increase Less Balance
September 30, (Decrease) in Fair Amounts March 31,
2002 Market Value Settled 2003
-----------------------------------------------------------
(Thousands)
NJNG $ (2,564) $ 2,800 $ 10,787 $(10,551)
Energy Services (14,689) (31,967) (43,880) (2,776)
NJR Energy 3,362 10,920 2,897 11,385
-------- -------- -------- --------
Total $(13,891) $(18,247) $(30,196) $ (1,942)
======== ======== ======== ========
27
There were no contracts originated and valued at fair market value and no
changes in methods of valuations during the six months ended March 31, 2003.
The following is a summary of fair market value of commodity derivatives at
March 31, 2003, by method of valuation and by maturity.
After
Remaining Fiscal Fiscal Fiscal Total
Fiscal 2003 2004 2005-2007 2007 Fair Value
----------------------------------------------------------
(Thousands)
Price based
on NYMEX $ (2,983) $(10,696) $ (5,948) $ (398) $(20,025)
Price based on
over-the-counter
published quotations 6,202 5,046 6,155 1,154 18,557
Price based upon models - - 562 (1,036) (474)
-------- -------- -------- -------- --------
$ 3,219 $ (5,650) $ 769 $ (280) $ (1,942)
======== ======== ======== ======== ========
The following is a summary of commodity derivatives by type as of March 31,
2003:
Amounts included in
Volume Price per Derivatives
(Bcf) Mmbtu (Thousands)
---------------------------------------------------
NJNG
Futures 3.7 $ 3.95 - 5.72 $ 4,967
Options 1.5 $ 3.00 - 10.00 1,220
Swaps 34.6 - (16,738)
Energy Services
Futures 1.9 $ 2.85 - 4.43 (4,034)
Swaps 46.7 - 1,258
NJR Energy
Swaps 22.1 - 11,385
----------
$ (1,942)
==========
The Company uses a value-at-risk (VAR) model to assess the market risk of
its net futures, swaps and options positions. The VAR at March 31, 2003, using
the variance-covariance method with a 95 percent
28
confidence level and a one-day holding period, was $870,000. The VAR with a 99
percent confidence level and a 10-day holding period was $3.9 million. The
calculated VAR represents an estimate of the potential change in the value of
the net positions. These estimates may not be indicative of actual results since
actual market fluctuations may differ from forecasted fluctuations.
Interest Rate Risk - Long-Term Debt
At March 31, 2003, the Company (excluding NJNG) had no variable rate
long-term debt.
At March 31, 2003, NJNG had total variable-rate, long-term debt outstanding
of $122.1 million, of which $97.1 million has been hedged by the purchase of a
3.25-percent interest-rate cap through July 2004. According to the Company's
sensitivity analysis, at March 31, 2003, NJNG's annual interest rate exposure on
the $97.1 million, based on the difference between current average rates and the
3.25 percent interest-rate cap, is limited to $215,000, net of tax. If interest
rates were to change by 1 percent on the remaining $25 million of variable rate
debt at March 31, 2003, NJNG's annual interest expense, net of tax, would change
by $148,000.
29
ITEM 4. CONTROLS AND PROCEDURES
Within the 90-day period prior to the date of this report, an evaluation
was carried out, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective, in all
material respects, with respect to the recording, processing, summarizing and
reporting, within the time periods specified in the SEC's rules and forms, of
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of the evaluation described above.
30
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Information required by this Item is incorporated herein by reference
to Part I, Item 1, Note 4- Legal and Regulatory Proceedings.
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) An annual meeting of shareholders was held on February 26, 2003.
(c) The shareholders voted upon the following matters at the February
26, 2003 annual shareholders meeting:
(i) The election of five (5) directors, four for terms expiring in
2006, and one for a term expiring in 2004. The results of the voting were as
follows:
Director For Withheld
- -------- --- --------
Hazel S. Gluck 21,103,116 323,528
James T. Hackett 21,122,992 303,652
J. Terry Strange 21,180,958 245,686
Gary W. Wolf 21,017,102 409,542
George R. Zoffinger 21,149,221 277,423
(ii) The approval of the action to retain Deloitte & Touche LLP as
auditors for the fiscal year ending September 30, 2003. The results of the
voting were as follows:
For Against Abstain
--- ------- -------
20,796,477 463,522 166,645
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
99-1 Certification of the Chief Executive Officer pursuant to section 906 of
the Sarbanes-Oxley Act*
99-2 Certification of the Chief Financial Officer pursuant to section 906 of
the Sarbanes-Oxley Act*
* This certificate accompanies this Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company
for purposes of Section 18 or any other provision of the Securities
Exchange Act of 1934, as amended.
(b) Reports on Form 8-K
On February 7, 2003, a report on Form 8-K was filed by the Company
furnishing under Item 9 information disclosed pursuant to Regulation FD.
31
On April 24, 2003, a report on Form 8-K was filed by the Company
furnishing under Item 9 information disclosed pursuant to Regulation FD (Item
12, Results of Operations and Financial Condition).
On May 5, 2003, a report on Form 8-K was filed by the Company
furnishing under Item 9 information disclosed pursuant to Regulation FD.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW JERSEY RESOURCES CORPORATION
Date: May 12, 2003 /s/Glenn C. Lockwood
--------------------
Glenn C. Lockwood
Senior Vice President
and Chief Financial Officer
33
CERTIFICATIONS
I, Laurence M. Downes, certify that:
1) I have reviewed this Quarterly Report on Form 10-Q of New Jersey Resources
Corporation;
2) Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this Quarterly Report;
3) Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
Quarterly Report;
4) The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
a.) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Quarterly Report is being prepared;
b.) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the "Evaluation Date"); and
c.) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5) The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent functions):
a.) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and
b.) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6) The Registrant's other certifying officers and I have indicated in this
Quarterly Report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 12, 2003 By: /s/Laurence M. Downes
---------------------
Laurence M. Downes
Chairman & Chief Executive Officer
34
CERTIFICATIONS
I, Glenn C. Lockwood, certify that:
1) I have reviewed this Quarterly Report on Form 10-Q of New Jersey Resources
Corporation;
2) Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this Quarterly Report;
3) Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the Registrant as of, and for, the periods presented in this
Quarterly Report;
4) The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:
a.) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Quarterly Report is being prepared;
b.) evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the "Evaluation Date"); and
c.) presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5) The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of Registrant's board of directors (or persons performing the
equivalent functions):
a.) all significant deficiencies in the design or operation of
internal controls which could adversely affect the Registrant's
ability to record, process, summarize and report financial data
and have identified for the Registrant's auditors any material
weaknesses in internal controls; and
b.) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's
internal controls; and
6) The Registrant's other certifying officers and I have indicated in this
Quarterly Report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12, 2003 By: /s/Glenn C. Lockwood
--------------------
Glenn C. Lockwood
Senior Vice President,
Chief Financial Officer
35