Business Context and Reporting Period
Company: New Jersey Resources Corporation (NJR)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended June 30, 1997
Business Overview: NJR operates primarily through its principal subsidiary, New Jersey Natural Gas Company (NJNG), a regulated utility. Other segments include NJR Energy Services (unregulated marketing and fuel management) and NJR Development (real estate operations via CR&R). The company is in the process of exiting its oil and gas production business, which was classified as a discontinued operation.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended June 30, 1997 |
3 Months Ended June 30, 1996 |
9 Months Ended June 30, 1997 |
9 Months Ended June 30, 1996 |
|---|---|---|---|---|
| Operating Revenues | $121,150 | $95,708 | $595,118 | $492,989 |
| Operating Income | $7,572 | $7,767 | $60,077 | $58,280 |
| Net Income | $2,526 | $2,229 | $43,971 | $41,592 |
| Earnings Per Share | $0.14 | $0.12 | $2.44 | $2.31 |
| Cash Flow from Operations | N/A | N/A | $58,309 | $55,993 |
| Long-Term Debt | $291,977 | N/A | $291,977 | $303,513 |
| Short-Term Debt | $33,400 | N/A | $33,400 | $13,200 |
| Cash & Temp Investments | $5,943 | N/A | $5,943 | $13,976 |
Note: Operating margins are not explicitly stated as a percentage in the text; however, operating income for the nine months ended June 30, 1997, represented approximately 10.1% of operating revenues.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 26.5% for the quarter and 20.7% for the nine-month period compared to the prior year. This was driven by higher gas purchase costs passed through to customers and increased appliance service revenues.
- Profitability: Net income rose 13.3% for the quarter and 5.7% for the nine-month period. The nine-month increase was attributed to customer growth at NJNG, higher margins from off-system sales, and increased appliance service revenue.
- Weather Impact: Warmer weather in the quarter reduced firm gross margin by $1.5 million compared to the prior year. However, for the nine-month period, customer additions and weather normalization clauses offset an 8% decrease in firm therm sales due to warmer weather.
- Debt Reduction: Long-term debt decreased by approximately $11.5 million over the nine-month period, primarily due to asset sales and cash flow utilization. Short-term debt increased significantly to $33.4 million to manage seasonal working capital needs.
- Segment Performance:
- NJNG: Net income increased 5.8% for the nine months.
- Energy Services: Revenues surged 64% due to growth in fuel management, but net income declined 23% due to warmer weather and higher gas costs impacting retail marketing.
- NJR Development: Net loss improved significantly to $0.2 million from $1.1 million in the prior year, aided by the absence of a $1.8 million one-time write-off recorded in the prior period.
Guidance, Outlook, Risks, and Contingencies
Management Commentary and Outlook
- Construction: Remaining fiscal 1997 construction expenditures for NJNG are estimated at $15 million, funded by short-term debt and bond drawdowns.
- Refinancing: NJNG plans to refinance $13.5 million in Series Q Bonds in September 1997 and intends to pursue refinancing of other long-term debt based on market conditions.
- Real Estate: CR&R expects to close the sale of a 280,000-square-foot building in the fourth fiscal quarter.
Risks and Contingencies
- Legal Proceedings:
- Aberdeen Explosion: Six complaints filed regarding a 1993 gas explosion; damages demanded total $25.2 million. Management does not expect a material adverse effect.
- Environmental Remediation (MGP Sites): NJNG estimates future expenditures for 11 former manufactured gas plant sites range from $27.5 million to $60 million. A liability of $27.5 million has been accrued.
- Bessie-8 Pipeline: Pending litigation in Pennsylvania regarding public utility status and unauthorized service. The matter is before the Pennsylvania Supreme Court.
- SEC Investigation: An ongoing fact-finding inquiry regarding transactions in early 1992; no adversarial proceedings have commenced.
- Regulatory Changes: New Jersey tax reform legislation signed in July 1997 will replace the utility tax formula with a sales tax and corporate business tax effective January 1998. Management expects no impact on earnings.
- Market Risks: Results are sensitive to weather conditions, energy commodity price fluctuations, and the pace of retail gas market deregulation.
Investor Verification Checklist
- Weather Normalization: Verify the impact of the Weather Normalization Clause (WNC) on future revenue collections, specifically the $1.4 million accrued for the nine-month period.
- Environmental Liabilities: Monitor the range of estimated remediation costs ($27.5M - $60M) for former MGP sites and the status of insurance recovery litigation.
- Debt Maturity and Refinancing: Track the successful refinancing of the $13.5 million Series Q Bonds and the company's ability to manage short-term debt levels during peak seasons.
- Legal Outcomes: Review updates on the Aberdeen Township explosion litigation and the Bessie-8 pipeline regulatory status, as these represent significant contingent liabilities.
- Asset Sales: Confirm the closing and proceeds of the CR&R real estate sale expected in the fourth quarter.