Business Context and Reporting Period
Company: New Jersey Resources Corporation (NJR)
Filing Type: Form 10-K (Annual Report)
Period Ended: September 30, 2003
Business Overview: NJR is an energy services holding company operating primarily in New Jersey and the Northeast. Its core subsidiary, New Jersey Natural Gas (NJNG), is a regulated utility serving nearly 450,000 customers. Other segments include unregulated energy services (NJRES), retail operations (appliance repair, plumbing), and real estate investments.
Key Financial Metrics
Revenue and Throughput (Natural Gas Distribution):
- Total Operating Revenues: $759.9 million (Fiscal 2003)
- Residential Revenues: $433.6 million (57% of total)
- Total Throughput: 110.7 Billion cubic feet (Bcf)
- Residential Throughput: 46.9 Bcf (42% of total)
- Off-System Sales: $183.6 million (24% of total revenue)
Debt and Liquidity:
- Bonded Debt (NJNG): Approximately $193 million as of September 30, 2003.
- Debt Capacity: NJNG could issue approximately $264 million in additional first mortgage bonds.
- Recent Financing: In December 2003, NJNG entered a loan agreement for $12 million in Natural Gas Facilities Revenue Bonds; $4.2 million was immediately drawn.
- Market Value: Aggregate market value of non-affiliate common stock was $1.03 billion (as of Dec 11, 2003).
Profit and Margins:
- Customer Growth Margin: Projected annual increase of approximately $6.5 million in new margin from customer additions.
- Real Estate Gain: In June 2002, a building sale generated a pre-tax gain of approximately $885,000.
Note: The provided text does not contain consolidated net income, total cash flow statements, or specific profit margin percentages for the full holding company.
Material Changes and Operational Highlights
- Customer Growth: NJNG added 11,044 new customers and converted 1,266 existing customers in 2003, representing a 2.5% annual growth rate.
- Regulatory Adjustments: The New Jersey Board of Public Utilities (BPU) approved updates to the Weather Normalization Clause (WNC) factors in October 2003 to better reflect actual weather impacts. A permanent Universal Service Fund (USF) program was approved in March 2003.
- Rate Changes: Various rate adjustments occurred in 2003, including a $54.5 million annualized increase in Basic Gas Supply Service (BGSS) effective April 2003 and a $10 million credit from the WNC effective October 2002.
- Union Agreements: NJRHS reached a 4-year agreement with Local Union 1820 (2.5% annual wage increase). NJNG reached a tentative 5-year agreement (wage increases ranging from 3.25% to 4%).
Outlook, Risks, and Contingencies
Guidance and Outlook:
- Customer Projections: NJNG projects the addition of approximately 22,800 new customers over the next two years (2004-2005).
- Capital Expenditures: A 200,000-square-foot build-to-suit building is under construction with an estimated cost of $22.5 million, expected to complete in Q4 2004.
Risks and Contingencies:
- Legal Proceedings (MGP Sites): NJNG is involved in remediation of 11 former Manufactured Gas Plant (MGP) sites. As of Sept 30, 2003, $44.1 million of net remediation costs are recorded as regulatory assets. Recovery of future costs is subject to BPU approval.
- Long Branch Litigation: 303 complaints filed alleging personal injury and property damage related to the Long Branch MGP site. The Company believes it is not liable for most claims and expects insurance coverage, though no assurance is given.
- Weather Sensitivity: Revenues are significantly affected by weather conditions due to the heat-sensitive nature of the residential customer base.
- Commodity Prices: Wholesale natural gas prices remain volatile; the company uses hedging instruments and BGSS to mitigate impact.
Credit Ratings (NJNG):
- Standard & Poor's: Corporate Rating A+ (Upgraded from A); Senior Secured AA- (Upgraded from A+).
- Moody's: Senior Secured Aa3 (Upgraded from A2).
- Outlook: Stable for both agencies.
Investor Verification Checklist
- Regulatory Asset Recovery: Verify the BPU's final approval status on the $44.1 million in deferred MGP remediation costs and future recovery mechanisms.
- Long Branch Litigation Status: Monitor the outcome of the mediation scheduled for January 2004 and the potential for punitive damages not covered by insurance.
- Weather Normalization: Review the impact of the updated WNC factors on future revenue stability and cash flow timing.
- Debt Covenants: Confirm that NJNG's credit rating upgrades do not trigger any covenant issues, though the filing states no agreements accelerate maturity based on rating failures.
- Real Estate Development: Track the completion and leasing of the $22.5 million build-to-suit building to ensure projected cash flows are realized.