New Jersey Resources Corporation — Form 10-Q
Reporting period: Fiscal third quarter and nine months ended June 30, 2012. The filing is unaudited. NJR operates regulated natural-gas distribution, wholesale energy services, solar and other businesses; results are seasonal and interim results are not necessarily indicative of the full year.
Financial performance
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Operating revenue | $425.1 million, down 34.4% from $648.2 million | $1,680.5 million, down 28.1% from $2,338.3 million |
| Net income (loss) | $(10.3) million vs. $20.4 million | $101.6 million, down 6.7% from $108.8 million |
| EPS, diluted | $(0.25) vs. $0.49 | $2.44 vs. $2.62 |
| Dividends per share | $0.38 vs. $0.36 | $1.14 vs. $1.08 |
- The third-quarter GAAP loss primarily reflected greater unrealized derivative losses at NJRES. NJR reported quarterly net financial earnings, a non-GAAP measure that removes specified hedge-timing effects, of $4.1 million versus $9.7 million a year earlier.
- Nine-month revenue and gas purchases fell largely with lower natural-gas prices and, for NJNG, customer bill credits and lower usage. NJNG net income increased to $78.5 million from $74.4 million, supported by customer growth and higher utility gross margin. NJRES reported a nine-month GAAP loss of $3.8 million versus income of $22.4 million; its non-GAAP net financial earnings were $18.1 million versus $19.4 million.
- Solar investment tax credits helped results: the nine-month effective tax rate was 13.5%, versus 30.9%, with $27.2 million of solar ITCs generated in the period.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $59.9 million, down from $227.2 million. Management attributed much of the decline to working-capital movements, $90.7 million of NJNG customer credits and a $20 million discretionary pension contribution.
- Investing cash outflow was $158.2 million, including $75.2 million for solar equipment; financing cash inflow was $97.9 million, primarily reflecting increased short-term borrowing. Cash ended at $7.1 million.
- At June 30, short-term debt was $300.0 million and long-term debt was $428.1 million, plus $8.0 million of current maturities. Available capacity was $98.5 million under NJR’s facility and $118.0 million under NJNG’s facility. NJR expected to refinance its $325 million credit facility, due December 2012, in August 2012. It also planned $100 million of private-placement notes for September, subject to facility terms.
- Common equity was $836.1 million. Management stated that NJR and NJNG were in compliance with debt covenants and expected borrowing availability and operating cash flow to meet foreseeable requirements.
Outlook, material developments and risks
- NJR expected to add approximately 12,000–14,000 NJNG customers over fiscal 2012 and 2013. Solar capital expenditure estimates were $92.4 million for fiscal 2012 and $90 million for fiscal 2013; NJNG estimated fiscal 2012 capital expenditures of $128.4 million. These are estimates, not earnings guidance.
- NJNG filed for a five-year SAFE infrastructure program of up to $204 million; approval and recovery of costs remained subject to the BPU. The BPU approved a pilot for up to $10 million of compressed-natural-gas refueling stations. A proposed change to NJNG rates, if approved, would increase an average residential heating customer’s bill by 2.4% from October 2012.
- NJRES’s market opportunities faced pressure from lower natural-gas price volatility and reduced value of Northeast storage and transportation capacity associated with shale-gas supply. Derivative accounting can produce substantial swings between GAAP results and management’s non-GAAP measures.
- NJRES had $20.2 million remaining exposed in the MF Global liquidation at June 30. It received an additional $848,000 on July 13, but could not estimate the ultimate recovery or timing.
- NJNG recorded a $182.9 million MGP remediation liability and matching regulatory asset. Estimated total future remediation costs ranged from $161.5 million to $278.5 million; recovery depends on BPU approval and could be materially affected if recovery is not considered probable.
- Solar projects face construction, permitting, grid-interconnection, incentive and SREC-market risks. Other cited risks include weather, commodity prices, counterparties, access to credit, regulatory cost recovery and benefit-plan assumptions. The filing reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Progress and final terms of the planned refinancing of NJR’s December 2012 credit facility and the proposed private-placement notes.
- Subsequent MF Global distributions and NJR’s ultimate recovery of the remaining claim.
- Whether solar projects meet completion and in-service timelines needed for expected tax credits and SREC revenue.
- BPU decisions on SAFE, rate and energy-efficiency filings, and continued recovery of MGP remediation costs.
- How NJRES’s derivative timing effects reconcile with its non-GAAP financial margin and net financial earnings, and whether underlying market conditions improve.