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, 1996
Business Overview: NJR operates through three primary segments: New Jersey Natural Gas Company (NJNG), a regulated utility; NJR Energy Services Corporation (Energy Services), engaged in unregulated gas marketing; and NJR Development Company (NJR Development), focused on real estate. The Company exited its oil and gas production business in fiscal 1995, accounting for it as a discontinued operation.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Mar 31, 1996 | 3 Months Ended Mar 31, 1995 | 6 Months Ended Mar 31, 1996 | 6 Months Ended Mar 31, 1995 |
|---|---|---|---|---|
| Operating Revenues | $233,917 | $197,329 | $393,656 | $326,294 |
| Operating Income | $32,225 | $32,204 | $50,513 | $50,655 |
| Net Income | $26,941 | $25,494 | $39,363 | $36,734 |
| Earnings Per Share (Diluted) | $1.50 | $1.45 | $2.19 | $2.10 |
| Net Cash from Operating Activities | N/A | N/A | $68,571 | $92,398 |
| Long-Term Debt | $309,013 | $323,877 | $309,013 | $323,877 |
| Cash and Temporary Investments | $41,374 | $8,737 | $41,374 | $8,737 |
Note: Operating margins (Operating Income / Revenues) were approximately 13.8% for the quarter and 12.8% for the six-month period in 1996.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 18.5% for the quarter and 20.6% for the six months compared to the prior year, driven primarily by colder weather increasing gas sales volumes.
- Profitability: Net income from continuing operations rose 5% for the quarter and 6% for the six months. Earnings per share increased from $1.45 to $1.50 (quarter) and $2.10 to $2.19 (six months).
- Debt Reduction: Long-term debt decreased by approximately $14.9 million compared to March 31, 1995, and $43.2 million compared to September 30, 1995. This reduction was funded by proceeds from the sale of discontinued oil and gas assets and real estate transactions.
- Asset Sales: Significant cash inflows from investing activities ($70.9 million net for six months) were generated by the sale of real estate assets ($52.65 million and $31.85 million transactions) and the final sale of oil and gas properties ($6.5 million).
- Utility Operations: Gross margin for residential and commercial customers increased due to a 20% colder winter compared to the prior year, though a weather-normalization clause deferred $10.3 million of gross margin for future refund.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Construction: Remaining fiscal 1996 construction expenditures for NJNG are estimated at $27 million, focused on customer growth and system renewals.
- Real Estate: CR&R expects to complete a 98,000 square foot building addition in January 1997, pre-leased to an existing occupant.
- Debt Strategy: The Company plans to further reduce debt using cash flows from equity investments and proceeds from its Automatic Dividend Reinvestment Plan (DRP).
Risks and Contingencies
- Environmental Liabilities (MGP Sites): NJNG has accrued $27.5 million for remediation of former Manufactured Gas Plant sites. Total future expenditures are estimated between $27.5 million and $60 million. The Company is litigating with insurance carriers to recover costs.
- Legal Proceedings:
- Aberdeen Explosion: Six complaints filed alleging negligence regarding a 1993 gas explosion; plaintiffs seek $25.2 million in damages.
- Long Branch Pier Fire: A mistrial was declared in January 1996 regarding a 1988 fire; a new trial is scheduled for September 1996. Plaintiffs seek approximately $35 million.
- SEC Investigation: The SEC is conducting a fact-finding inquiry into transactions by subsidiaries in early 1992. No adversarial proceedings have commenced.
- Iroquois Pipeline: A subsidiary holds a 2.8% interest in Iroquois Gas Transmission, which is negotiating a settlement regarding environmental and safety allegations. A $560,000 provision was recorded in 1995.
- Regulatory: The Bessie-8 joint venture faces a Pennsylvania Public Utility Commission order requiring a certificate of public convenience or cessation of service; the matter is currently under judicial review.
Investor Verification Checklist
- Weather Normalization Impact: Verify the timing and amount of the $10.3 million gross margin deferral for refund to customers in fiscal 1997.
- Environmental Accrual Adequacy: Assess the range of potential costs ($27.5M - $60M) for MGP site remediation and the likelihood of insurance recoveries.
- Legal Exposure: Monitor the outcomes of the Long Branch Pier trial (Sept 1996) and the Aberdeen Township litigation, as these involve significant potential damages.
- Debt Refinancing: Review the Company's ability to refinance existing long-term debt as market conditions dictate, given the seasonal cash flow requirements.
- Real Estate Valuation: Confirm the amortization schedule and cash flow impact of the $17.7 million gain from the sale-leaseback transaction.