New Jersey Resources Corporation — FY2014 Form 10-K
Business context and reporting period
Fiscal year ended September 30, 2014; this is an annual report, not a standalone calendar-quarter filing. NJR operates regulated New Jersey gas distribution and unregulated energy services, clean-energy and midstream businesses. Its utility, NJNG, served approximately 504,300 customers.
Financial results and liquidity
| Metric | FY2014 | FY2013 |
|---|---|---|
| Operating revenue | $3,738.1 million | $3,198.1 million |
| Operating income | $201.2 million | $159.2 million |
| Net income | $142.0 million | $114.8 million |
| Diluted EPS | $3.34 | $2.75 |
| Net financial earnings (non-GAAP) | $176.9 million; $4.17 diluted per share | $113.7 million; $2.72 diluted per share |
| Cash from operations | $356.8 million | $114.0 million |
| Cash used in investing | $282.6 million | $193.6 million |
| Cash used in financing | $75.0 million | Cash provided: $78.1 million |
| Year-end total assets | $3,158.8 million | $3,004.8 million |
FY2014 revenue rose 16.9%, net income 23.6%, and diluted EPS 21.5%. The non-GAAP NFE measure excludes specified derivative and inventory-hedging timing effects; it increased about 55.7%. Revenue growth largely reflects higher natural-gas prices, volumes and trading activity, and should not be read as equivalent to margin growth.
Year-end cash was $2.2 million. Short-term debt was $301.0 million and long-term debt $598.2 million; capitalization included 51% common equity, 31% long-term debt and 18% short-term debt. NJR and NJNG had $256.5 million and $96.3 million, respectively, available under revolving facilities. The company reported compliance with debt covenants. Dividends declared were $1.71 per share, up from $1.62.
FY2014 net income by segment: Natural Gas Distribution $74.2 million; Energy Services $44.4 million; Clean Energy Ventures $12.7 million; Midstream $7.5 million; Home Services and Other $2.8 million.
Material changes and unusual items
- Energy Services improved sharply: net income was $44.4 million versus $20.7 million; NFE was $79.7 million versus $19.3 million. Management attributed the improvement mainly to extreme cold, increased demand and market volatility that supported asset optimization.
- NJNG net income was nearly flat at $74.2 million versus $73.8 million. Utility gross margin increased to $297.3 million from $276.9 million, supported by infrastructure investment, customer growth and higher incentive-program margin; higher operating costs and interest partly offset this.
- Clean Energy Ventures net income rose to $12.7 million from $10.1 million, including higher investment tax credits and a project-related credit-support payment. A $6.4 million impairment of the OwnEnergy investment was recorded in the fourth quarter.
- Fourth-quarter FY2014 net loss was $24.4 million, or $0.58 per diluted share, compared with net income of $20.0 million in fourth-quarter FY2013. The filing notes significant seasonal variation in quarterly results but does not provide a clear quarter-specific explanation for the loss.
- Cash from operations increased substantially, with management citing cold-weather-driven NJRES storage sales, improved working capital and lower benefit-plan contributions. Investing outflows rose with solar, wind and utility investment.
Outlook, risks and contingencies
- NJNG projected 15,000–17,000 new customers over FY2015–FY2016 and approximately 1.5% annual customer growth. Forecast FY2015 and FY2016 NJNG capital expenditures were $182.3 million and $233.7 million.
- Clean-energy plans included FY2015 solar capital expenditures of $100–$110 million and wind expenditures of $90–$110 million. The Carroll, Iowa wind project was expected to enter service in FY2015; the 48-MW Kansas project was expected in the first quarter of FY2016. Project timing, permits, interconnection and tax-credit eligibility are material uncertainties.
- NJNG’s five former manufactured-gas-plant sites had estimated future remediation costs of $151.3–$249.8 million; $177 million was accrued with a corresponding regulatory asset. Recovery depends on BPU approval, and actual costs may differ.
- The BPU approved recovery of $15.2 million in deferred Superstorm Sandy operating costs in the next base-rate case. NJNG’s next base-rate filing was due no later than November 15, 2015.
- Key risks include weather and commodity-price volatility, NJRES trading and counterparty exposure, access to capital, regulatory recovery and approvals, environmental obligations, renewable incentives and SREC values, pension/OPEB assumptions, and operational, cyber and severe-weather disruptions. NJNG’s $97 million EDA debt carries a variable rate; its year-end rate was 0.66%.
- Management expected available borrowing capacity and operating cash flow to meet requirements for the next 12 months. Deloitte issued unqualified opinions on the financial statements and internal controls; management also concluded controls were effective.
Important facts for investors to verify
- Reconcile GAAP net income with NFE and assess how much FY2014 Energy Services performance depended on unusual cold-weather volatility and derivative timing.
- Review fourth-quarter losses and the related quarterly disclosures for seasonality and commodity-hedge effects.
- Track MGP remediation estimates, regulatory-asset recoverability and the timing of customer reimbursements.
- Monitor projected capital spending, project completion and the availability of ITCs, PTCs and SREC revenue.
- Assess short-term borrowing needs, seasonal working-capital swings and exposure to variable interest rates and collateral calls.