New Jersey Resources Corporation — Form 10-Q
Reporting period: Three months ended December 31, 2011 (fiscal 2012 first quarter); comparison is with the three months ended December 31, 2010. The filing cautions that seasonal interim results are not indicative of full-year results. Financial amounts below are in millions unless noted.
Business context and results
NJR operates regulated natural gas distribution through NJNG, wholesale energy services through NJRES, solar investments through Clean Energy Ventures, and natural gas pipeline and storage investments. NJNG served approximately 497,800 customers.
- Revenue: $642.4, down 9.9% from $713.2. Utility revenue declined largely because of customer bill credits and lower gas usage; nonutility revenue increased.
- Profit: Operating income was $75.2, versus $40.3; net income was $57.4, versus $24.5. Basic and diluted EPS were $1.38, versus $0.59. Dividends per share were $0.38, versus $0.36.
- Margins: NJNG utility gross margin, a company-defined non-GAAP measure, rose to $80.5 from $77.8. NJRES financial margin, also non-GAAP, was $16.0 versus $8.8; its GAAP operating income was $31.5 versus an operating loss of $2.0.
- Cash flow and investment: Operating cash use was $77.5, compared with $131.9 used. Investing cash use was $69.4, compared with $29.3 used, primarily reflecting solar spending. Financing provided $147.2, and period-end cash was $7.8.
- Debt and liquidity: At December 31, short-term debt was $316.6, long-term debt was $431.6, and current maturities were $8.2. Cash was $7.8. NJR and NJNG had $68.8 and $125.3, respectively, available under their credit facilities. Management said existing borrowing availability and operating cash flow should meet foreseeable needs and reported compliance with debt covenants.
- Balance sheet: Total assets were $2,852.6, versus $2,649.4 at September 30, 2011; common equity was $820.5, versus $776.3.
Material changes and drivers
- Net income growth reflected a reversal in NJRES derivative-related earnings effects: the company reported after-tax unrealized gains of $17.4 in 2011 versus losses of $34.4 in 2010, alongside differing realized effects on gas inventory hedges. Management’s consolidated non-GAAP net financial earnings were $45.3 versus $29.1.
- NJNG net income increased to $26.0 from $24.4, supported by customer growth and recovery of accelerated infrastructure investment. Usage was affected by warmer weather: NJNG reported weather 24.8% warmer than the prior year.
- Clean Energy Ventures net income was $10.1 versus $0.1, primarily reflecting federal investment tax credits associated with solar projects placed in service. The quarter included approximately 20.2 MW of commercial solar capacity placed in service.
- Solar capital expenditures were $47.6 in the quarter, compared with $0.9 in the prior-year quarter. Total capital expenditures were $69.4 versus $29.3.
Outlook, risks and contingencies
- No consolidated full-year earnings guidance is stated in the provided filing text. Management expects NJNG customer growth of approximately 1.3% annually over the next two years and 12,000–14,000 new customers in fiscal 2012 and 2013 combined.
- Estimated capital expenditures: NJNG, $121.2 in fiscal 2012 and $70 in fiscal 2013; solar, approximately $75 in fiscal 2012 and $90 in fiscal 2013. Solar projects face construction, permitting, interconnection, incentive and SREC-market risks; delays could affect tax credits, earnings and cash flow.
- NJNG expected to provide approximately $91 in customer bill credits over December 2011–February 2012. The BPU approved an extension of NJNG’s energy-efficiency program, including $18.4 of additional investment, and approved recovery of MGP remediation expenditures through September 2009.
- NJNG’s estimated future MGP remediation and monitoring expenditures range from $161.5 to $278.5; the recorded liability and corresponding regulatory asset were $182.9. Recovery depends on BPU approval, and any determination that recovery is not probable could materially affect results, financial position or cash flows.
- NJRES had $20.2 of funds remaining exposed in the MF Global liquidation at December 31. NJR said it could not estimate the amount or timing of recovery.
- Other key exposures include commodity-price and derivative volatility, wholesale counterparty credit risk, seasonal working-capital needs, interest rates, regulatory cost recovery and lower natural-gas-market volatility that may constrain NJRES opportunities. Management said the principal risk factors were not materially changed from the 2011 Form 10-K.
Important facts for investors to verify
- Separate GAAP earnings from the company’s non-GAAP net financial earnings and margin measures; assess how derivative and inventory timing effects may reverse in later periods.
- Track recovery and delivery of the approximately $91 of NJNG bill credits, and confirm the related regulatory treatment.
- Monitor solar project completion, tax-credit eligibility, SREC economics and capital spending against the fiscal 2012–2013 estimates.
- Follow MF Global proceedings and recovery of NJRES’s $20.2 exposure.
- Review MGP remediation estimates and BPU cost-recovery approvals, as well as short-term borrowing, facility availability and seasonal cash requirements.