Business Context and Reporting Period
Company: New Jersey Resources Corporation (NJR)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended March 31, 2000
Business Overview: NJR operates primarily through its regulated natural gas distribution subsidiary, New Jersey Natural Gas (NJNG), and unregulated subsidiaries including Energy Holdings (fuel/capacity management and retail marketing) and NJR Development (real estate). The company is navigating energy deregulation in New Jersey, which has opened residential markets to competition while allowing the utility to retain transportation and delivery roles.
Key Financial Metrics
| Metric (in thousands, except per share) | 3 Months Ended Mar 31, 2000 | 3 Months Ended Mar 31, 1999 | 6 Months Ended Mar 31, 2000 | 6 Months Ended Mar 31, 1999 |
|---|---|---|---|---|
| Operating Revenues | $368,988 | $327,315 | $632,426 | $571,905 |
| Operating Income | $55,485 | $53,693 | $86,310 | $82,988 |
| Net Income | $32,669 | $30,337 | $48,840 | $45,489 |
| EPS - Basic (Continuing Ops) | $1.80 | $1.70 | $2.71 | $2.55 |
| EPS - Diluted (Continuing Ops) | $1.79 | $1.69 | $2.69 | $2.53 |
| Net Cash from Operating Activities | N/A | N/A | $90,008 | $70,718 |
| Long-Term Debt | $284,980 | $319,364 | $284,980 | $319,364 |
| Short-Term Debt | $25,300 | $54,100 | $25,300 | $54,100 |
| Cash and Temporary Investments | $4,965 | $1,945 | $4,965 | $1,945 |
Note: Operating margins (Operating Income / Revenues) were approximately 15.0% for the quarter ended March 31, 2000, compared to 16.4% in the prior year quarter.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 12.7% for the quarter and 10.6% for the six-month period compared to the prior year, driven by customer growth and higher average usage at NJNG.
- Earnings Increase: Net income rose 7.7% for the quarter and 7.4% for the six-month period. Income from continuing operations increased 5% for the quarter and 5.5% for the six months.
- Discontinued Operations: The company reported $828,000 in income from discontinued operations for the quarter and six months ended March 31, 2000. This represents the final true-up of the reserve established in 1995 for exiting the oil and gas production business, reflecting excess proceeds from asset sales over estimated costs.
- Debt Reduction: Total debt levels decreased significantly. Long-term debt dropped from $319.4 million to $285.0 million, and short-term debt fell from $54.1 million to $25.3 million year-over-year, contributing to lower interest charges.
- Weather Impact: The six-month period was 8% warmer than normal. Under the Weather Normalization Clause (WNC), $7.5 million of gross margin was accrued for future recovery from customers.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Capital Expenditures: Remaining fiscal 2000 construction expenditures for NJNG are estimated at $27.5 million for system growth and renewals. Additional remediation expenditures for former manufactured gas plants are estimated at $14 million for the remainder of the fiscal year.
- Financing Strategy: The company aims to maintain a common equity ratio of approximately 50% to support credit ratings. It utilizes committed credit facilities totaling $90 million for unregulated subsidiaries and $100 million for NJNG.
- Year 2000: The company reported no material incidents during the Year 2000 transition and does not anticipate future incidents.
Risks and Contingencies
- Regulatory Environment: The Electric Discount and Energy Competition Act is restructuring New Jersey's energy markets. While NJNG retains transportation roles, the BPU must determine the ongoing role of utilities in gas supply services by January 1, 2002.
- Environmental Liability: NJNG is involved in proceedings regarding eleven former manufactured gas plant (MGP) sites. Costs are being recovered through a Remediation Rider, but the company is also litigating with insurance carriers and former owners (Kaiser-Nelson) for indemnification. Additionally, NJNG is a defendant in actions regarding the Combe Fill South Landfill (Superfund site) and South Brunswick Asphalt, L.P. contamination claims.
- Market Risk: The company faces commodity price risk in its unregulated businesses. It utilizes futures, swaps, and options to hedge exposure. A theoretical 10% change in market value would impact futures, swaps, and options by $2.6 million, $2.3 million, and $0.4 million, respectively, though these are largely offset by underlying contracts.
- Accounting Standards: The company is evaluating the impact of SFAS No. 133 (Accounting for Derivative Investments and Hedging Activities), required by December 31, 2000.
Investor Verification Checklist
- Discontinued Operations: Verify the finality of the $828,000 gain from the exit of the oil and gas production business to ensure no future adjustments are expected.
- Environmental Remediation Costs: Monitor the status of the $14 million estimated remaining remediation costs for MGP sites and the outcome of litigation with insurance carriers and Kaiser-Nelson.
- Regulatory Decisions: Track the New Jersey Board of Public Utilities' (BPU) decisions regarding the utility's role in gas supply services post-2002 and the approval of the Comprehensive Resource Analysis (CRA) plan.
- Weather Normalization: Confirm the collection of the $18.9 million in accrued Weather Normalization Clause (WNC) margins scheduled for recovery in fiscal 2001 and 2002.
- Debt Maturities: Review the schedule for the $20.5 million in current maturities of long-term debt and the $25.3 million in short-term debt to assess refinancing needs.