Business Context and Reporting Period
Company: New Jersey Resources Corporation (NJR)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2005
Business Overview: NJR is an energy services holding company. Its primary subsidiary, New Jersey Natural Gas (NJNG), is a regulated utility providing retail natural gas service in central and northern New Jersey. Unregulated subsidiaries include NJR Energy Services (NJRES), which provides wholesale energy services, and the Retail and Other segment, which includes appliance services, commercial real estate, and energy investments.
Key Financial Metrics (Nine Months Ended June 30, 2005)
| Metric | 2005 (Thousands) | 2004 (Thousands) |
|---|---|---|
| Operating Revenues | $2,463,325 | $2,119,210 |
| Net Income | $83,702 | $76,959 |
| Earnings Per Share (Diluted) | $2.97 | $2.74 |
| Cash Flow from Operating Activities | $143,164 | $89,359 |
| Short-Term Debt | $193,650 | $92,400 |
| Long-Term Debt | $318,093 | $316,807 |
| Total Assets | $1,859,023 | $1,726,419 |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 16.2% year-over-year, driven primarily by higher wholesale natural gas commodity costs passed through to customers.
- Profitability: Net income increased 8.8% to $83.7 million. Adjusted net income (excluding a $6.0 million gain on the sale of a commercial office building and a $1.5 million charge for an early retirement program) was $79.2 million.
- Segment Performance:
- Natural Gas Distribution: Net income decreased slightly ($56.9M vs $58.2M) due to lower customer usage per degree day and higher interest expense.
- Energy Services: Net income increased to $18.7M due to favorable time spreads on storage assets and locational spreads on transportation capacity.
- Retail and Other: Net income surged to $8.1M (from $0.96M) primarily due to a $10.1 million pre-tax gain on the sale of a commercial office building.
- Working Capital: Operating cash flow improved significantly ($143.2M vs $89.4M) due to higher net income and improved working capital management, specifically reduced broker margin requirements.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Guidance
- Customer Growth: NJNG expects to add approximately 10,500 new customers and convert 950 existing customers in fiscal 2005, representing a 2.4% annual growth rate.
- Capital Expenditures: Remaining fiscal 2005 capital expenditures for NJNG are estimated at $20 million. Retail and Other expects $0.9 million in remaining 2005 expenditures.
- Rate Filings: NJNG filed for a 4.2% price increase effective September 1, 2005, to offset higher wholesale commodity costs.
Unusual Items
- Asset Sale: A $10.1 million pre-tax gain on the sale of a commercial office building significantly boosted Retail and Other segment results.
- Early Retirement Charge: A $1.5 million after-tax charge was recorded for an early retirement program for officers.
Risks and Contingencies
- Manufactured Gas Plant (MGP) Remediation: NJNG has identified 11 former MGP sites. A liability of $92.9 million is accrued for future remediation costs. Recovery is expected through a regulatory rider, but regulatory disallowance remains a risk.
- Long Branch Litigation: 298 active mass tort cases allege personal injury and property damage related to the Long Branch MGP site. Management believes most liabilities are recoverable via insurance or the remediation rider, except for punitive and personal injury damages.
- Stagecoach Marketing Agreement: A dispute with eCORP Marketing regarding the Stagecoach storage project was settled in March 2005, contingent on the sale of the project to Inergy, L.P. (expected August 2005).
- Commodity Price Volatility: The Energy Services segment is exposed to volatile wholesale natural gas prices, though hedging programs are in place.
Investor Verification Checklist
- Regulatory Recovery: Verify the New Jersey Board of Public Utilities' (BPU) approval status for the recovery of MGP remediation costs and the proposed 4.2% rate increase.
- Asset Sale Proceeds: Confirm the final closing and tax implications of the commercial office building sale included in the Retail segment.
- Stagecoach Transaction: Monitor the closing of the Stagecoach project sale to Inergy, L.P., which is a condition precedent for the final settlement of the marketing agreement dispute.
- Insurance Coverage: Review the status of the litigation against Kemper Insurance Company regarding coverage for Long Branch MGP site liabilities.
- Debt Maturities: Assess the impact of the $193.7 million short-term debt balance and the company's ability to refinance or repay these obligations given seasonal cash flow requirements.