Business Context and Reporting Period
Company: New Jersey Resources Corporation (NJR)
Filing Type: Form 10-K (Annual Report)
Period Ended: September 30, 1994
Business Overview: NJR is an energy holding company operating through four primary segments: New Jersey Natural Gas Company (NJNG), a regulated utility serving over 340,000 customers; Paradigm Power, Inc. (PPI), focused on cogeneration; NJR Energy Corporation, involved in oil and gas development and transportation; and Commercial Realty & Resources Corp. (CR&R), a commercial real estate developer.
Key Financial Metrics
Revenue and Throughput (NJNG Segment):
- Total Operating Revenues: $480,321,000
- Total Throughput: 1,054,313,000 therms
- Residential Segment: $308,196,000 (64% of revenue); 64% of throughput
- Commercial/Industrial Segment: $87,958,000 (18% of revenue); 11% of throughput
- Off-System Sales: $68,267,000 (14% of revenue); 44% of throughput
Cost of Gas (NJNG):
- Average Cost per Therm (1994): $0.33 (down from $0.36 in 1993)
- Total Gas Purchased: 846,404,000 therms
Capital and Assets:
- Total Property, Plant, and Equipment (End of Year): $859,290,000
- Utility Plant Additions (1994): $68,689,000
- Real Estate Properties (CR&R): 17 buildings, 914,200 sq. ft., 97% occupied
- Oil and Gas Proved Reserves: 21.6 Bcf natural gas; 1,767 Mbbls oil
Debt and Liquidity:
- NJNG Bonded Debt: Approximately $184 million (secured by mortgage indenture)
- Available Bonding Capacity: Approximately $154 million
- Recent Issuance: $25 million in Medium-Term Notes (8.25% Series Z) issued in October 1994
Note: Consolidated net income, total cash flow, and specific margin percentages are not explicitly stated in the provided text, as the detailed financial statements are incorporated by reference from the Annual Report.
Material Changes vs. Prior Period
- Customer Growth: NJNG added 11,222 new customers in 1994, compared to 9,306 in 1993 and 7,907 in 1992.
- Gas Supply Strategy: Significant shift due to FERC Order 636 "unbundling." NJNG reduced reliance on federally regulated "bundled" supplies (193,609,000 therms in 1994 vs. 309,316,000 in 1993) and increased "unbundled" market-based purchases (652,795,000 therms in 1994 vs. 456,142,000 in 1993), lowering the average cost per therm.
- Accounting Change: NJR Energy changed its accounting method for oil and gas operations from the "full cost" method to the "successful efforts" method in April 1994.
- Asset Disposition: NJR Energy's subsidiary, Compressor, sold its fleet of 41 compressors for $2 million to pay down bank loans.
- Impairment Charge: A pre-tax charge of $1 million ($0.04 per share) was recorded regarding the Bessie-8 pipeline investment due to doubtful recovery of net investment.
Guidance, Outlook, and Risks
Outlook and Strategy:
- Customer Additions: NJNG projects adding 60,700 new customers over the next five years, with 40% expected to be fuel conversions.
- Capital Allocation: NJR Energy plans to reallocate capital from exploration to gas gathering, storage, and marketing to align with the post-Order 636 environment.
- Real Estate: CR&R will limit capital spending to tenant fit-ups and development of existing acreage, leveraging a 97% occupancy rate.
Regulatory and Legal Risks:
- FERC Order 636: While expected to offer long-term benefits, the transition involves potential increases in interstate pipeline demand charges and flow-through of transition costs.
- Environmental Remediation: NJNG is managing remediation at 11 former manufactured gas plant (MGP) sites. Costs are expected to be recoverable through rates, but litigation regarding contamination at third-party sites (South Brunswick Asphalt) remains pending.
- Legal Proceedings:
- Aberdeen Explosion: Six lawsuits filed regarding a 1993 gas explosion; management does not expect a material adverse effect.
- Carnegie Natural Gas: Litigation regarding contract termination; summary judgment granted to NJNG on tortious interference, but contract termination claim remains pending.
- Iroquois Pipeline: Subject to civil and criminal investigations regarding Clean Water Act violations; NJR holds a 2.8% equity interest ($5.6 million).
Investor Verification Checklist
- Consolidated Financial Statements: Verify total revenue, net income, and cash flow figures in the 1994 Annual Report (Exhibit 13-1), as they are not detailed in this 10-K text.
- Rate Case Outcomes: Confirm the final impact of the 1994 Remediation Rider and Levelized Gas Adjustment (LGA) stipulations on future rate structures.
- Environmental Liabilities: Monitor the status of the South Brunswick Asphalt litigation and the NJDEPE directive regarding the $20 million cleanup estimate.
- Iroquois Pipeline Investigation: Track the outcome of the federal civil and criminal investigations into the Iroquois pipeline, which could impact the $5.6 million investment.
- Real Estate Leases: Review the renewal status of the 10% of CR&R leases expiring in fiscal 1995 to ensure occupancy stability.