Business Context and Reporting Period
Company: New Jersey Resources Corporation (NJR)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2003
Business Overview: NJR operates primarily through its regulated subsidiary, New Jersey Natural Gas Company (NJNG), which provides natural gas distribution services in central and northern New Jersey. The company also operates unregulated segments including Energy Services (wholesale marketing and storage) and Retail and Other (home services, real estate, and investments).
Key Financial Metrics
All figures in thousands, except per share data.
| Metric | Three Months Ended June 30, 2003 |
Nine Months Ended June 30, 2003 |
|---|---|---|
| Operating Revenues | $369,660 | $2,191,290 |
| Operating Income | $9,665 | $123,219 |
| Net Income | $4,473 | $69,040 |
| Earnings Per Share (Diluted) | $0.16 | $2.51 |
| Operating Cash Flow | N/A | $131,830 |
| Long-Term Debt | $273,675 | $273,675 |
| Short-Term Debt | $104,600 | $104,600 |
| Cash and Temporary Investments | $2,931 | $2,931 |
Material Changes vs. Prior Period
- Quarterly Results (3 Months): Net income decreased 6% to $4.5 million compared to $4.8 million in the prior year quarter. This decline was driven by lower results from Energy Services and the absence of a $0.02 per share gain from a real estate sale recorded in the prior year, partially offset by improved performance at NJNG.
- Year-to-Date Results (9 Months): Net income increased 16% to $69.0 million compared to $59.4 million in the prior year. The increase was primarily due to colder weather driving higher demand at NJNG and increased storage/capacity utilization at Energy Services.
- Revenue Trends: Consolidated operating revenues for the quarter decreased 16% to $369.7 million, while year-to-date revenues increased 61% to $2.19 billion. The YTD revenue surge is largely attributable to higher wholesale gas volumes and prices in the Energy Services segment.
- Debt Reduction: Long-term debt decreased significantly from $370.6 million at September 30, 2002, to $273.7 million at June 30, 2003, due to debt payments of $131.8 million during the period.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Weather Impact: NJNG's results are heavily influenced by weather. The nine-month period was 14% colder than normal, resulting in a deferral of $8.9 million in gross margin to be credited to customers in the future under the Weather Normalization Clause (WNC).
- Regulatory Proceedings: NJNG filed for an 8.8% increase in Basic Gas Supply Service (BGSS) prices in May 2003, effective September 1, 2003, pending Board of Public Utilities (BPU) approval. The BPU is also reviewing filings for the recovery of Manufactured Gas Plant (MGP) remediation costs.
- Capital Expenditures: Remaining fiscal 2003 construction expenditures for NJNG are estimated at $19.3 million. The Retail and Other segment expects to incur an additional $2.7 million for a commercial real estate project.
Risks and Contingencies
- MGP Remediation: NJNG faces ongoing environmental remediation obligations at 11 former MGP sites. As of June 30, 2003, $123.4 million of accrued remediation costs is recorded as a regulatory asset, with recovery dependent on BPU approval. Future expenditures are estimated between $65.8 million and $83.3 million.
- Legal Proceedings: In July 2003, 124 complaints were filed alleging personal injuries related to the Long Branch MGP site. The company believes liabilities are recoverable through insurance or the Remediation Rider but notes no assurance of ultimate resolution.
- Market Risk: The company is exposed to fluctuations in natural gas prices. It utilizes futures, options, and swaps to hedge these risks. The Value-at-Risk (VAR) for commodity derivatives was $793,000 (95% confidence, 1-day) as of June 30, 2003.
- Stagecoach Agreement: Energy Services has a potential purchase obligation for storage services at the Stagecoach facility. Management does not currently believe this will result in material future losses given current market prices and contract levels.
Key Facts for Investor Verification
- Regulatory Asset Recovery: Verify the BPU's approval status for the recovery of $123.4 million in MGP remediation costs and the proposed 8.8% BGSS rate increase.
- Weather Normalization: Monitor the impact of the $8.9 million deferred margin credit to customers in future periods due to the cold winter of 2003.
- Long Branch Litigation: Track the progress of the 124 personal injury lawsuits filed in July 2003 regarding the Long Branch MGP site and the company's insurance coverage status.
- Debt Structure: Note the significant reduction in long-term debt and the reliance on short-term debt ($104.6 million) and credit facilities ($380 million total committed) to fund operations and capital projects.
- Energy Services Volatility: Assess the sustainability of Energy Services' profitability, which is highly sensitive to wholesale gas price volatility and storage utilization rates.