New Jersey Resources Corporation — FY2013 Form 10-K
Reporting period: Fiscal year ended September 30, 2013 (not a calendar-year fourth-quarter filing). Amounts are in U.S. dollars; financial statement figures are generally in millions unless noted.
Business context
NJR is an energy-services holding company with four reportable segments: regulated natural gas distribution (NJNG), clean energy ventures, wholesale energy services (NJRES), and midstream investments. NJNG served approximately 497,400 customers in central and northern New Jersey. Revenue includes substantial pass-through natural gas commodity costs, so consolidated revenue growth is not equivalent to growth in underlying margins.
Financial performance and liquidity
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Operating revenue | $3,198.1 million | $2,248.9 million | +42.2% |
| Operating income | $159.2 million | $108.7 million | +46.5% |
| Net income | $114.8 million | $92.9 million | +23.6% |
| Diluted EPS | $2.75 | $2.23 | +$0.52 |
| Net financial earnings (non-GAAP) | $113.7 million | $112.4 million | +1.1% |
| Cash from operating activities | $114.0 million | $51.1 million | +$62.9 million |
Operating margin was approximately 5.0% and net margin approximately 3.6%; both are affected by the large commodity-cost pass-through in reported revenue. NJNG utility gross margin, a company-defined non-GAAP measure, increased to $276.9 million from $275.8 million. NJRES financial margin, also non-GAAP, rose to $47.3 million from $37.0 million, while its GAAP results were substantially affected by derivative timing.
Cash used in investing was $193.6 million, mainly for utility plant and solar projects; financing provided $78.1 million. Cash and equivalents ended at $3.0 million. At September 30, total assets were $3,004.8 million, common equity $887.4 million, long-term debt $512.9 million, and short-term debt $365.6 million. Current maturities of long-term debt were a further $68.6 million. Current assets of $745.9 million were below current liabilities of $851.8 million. NJR reported compliance with debt covenants and $210.1 million of availability under its $325 million revolver; NJNG had $81.4 million available under its $250 million facility.
Dividends declared were $1.62 per share, up from $1.54. NJNG’s investment-grade ratings were A/A-1 from S&P and Aa3/P-1 from Moody’s, with stable outlooks.
Material changes and segment results
- Consolidated revenue and gas purchases rose largely with higher natural gas prices and volumes at NJRES, colder weather and increased off-system sales at NJNG, and the absence of $85.9 million in NJNG customer bill credits issued in FY2012.
- NJRES net income improved to $20.7 million from an $8.6 million loss. Its financial margin increased, but management noted that shale-gas supply and narrower regional and seasonal price spreads continue to challenge storage and transportation optimization.
- Clean Energy Ventures net income fell to $10.1 million from $19.5 million, chiefly because solar investment tax credits declined; two grid-connected projects were delayed into FY2014.
- NJNG net income was $73.8 million, up modestly from $73.2 million. Its utility gross margin rose slightly, while operating income declined 2.6% to $121.4 million, principally because of higher depreciation.
- FY2013 fourth-quarter net loss was $20.0 million, versus an $8.7 million loss in FY2012’s fourth quarter. Quarterly results vary materially with seasonality and derivative-accounting timing.
Outlook, risks and unusual items
- Investment plans: NJNG projected capital expenditures of $154.3 million in FY2014 and $162.0 million in FY2015. Solar capital expenditures were estimated at $60–$95 million for FY2014. NJRCEV also expected to invest about $22 million in the 9.7 MW Two Dot wind project, acquired after year-end. No consolidated earnings guidance is stated in the provided filing text.
- Utility growth and regulation: NJNG expected 14,000–16,000 customer additions over FY2014–FY2015, representing about $3.9 million in annual utility gross margin under its CIP tariff. Continuation of the Conservation Incentive Program (CIP) was pending BPU action; its existing continuation was temporary. NJNG’s next base-rate case was due no later than November 15, 2015.
- Superstorm Sandy: Restoration affected about 30,100 customers; approximately 8,500 remained without service at year-end. NJNG recorded $14.8 million of deferred uninsured incremental operating costs, spent $26.1 million on restoration capital work in FY2013, and projected additional storm-related capital spending of $5.3 million and $5.2 million in FY2014 and FY2015. Service disruption reduced FY2013 revenue by about $9 million and utility gross margin by $3.4 million.
- Environmental contingency: NJNG’s estimated future remediation and monitoring costs for five former manufactured-gas-plant sites ranged from $159.8 million to $261 million; it recorded a $183.6 million liability and corresponding regulatory asset. Recovery depends on BPU approval, and actual costs may differ materially. The company was seeking recovery of approximately $20 million annually; a later BPU provisional action reduced the requested annual factor to $18.7 million.
- Other exposures: Earnings and liquidity remain sensitive to weather, natural-gas prices and derivative valuation, counterparty performance, credit-market access, interest rates, pension/OPEB assumptions, regulatory recovery, and renewable-energy tax credits and SREC prices. A 10% increase in NYMEX gas futures prices was estimated to reduce the fair value of open futures and fixed-swap positions by about $24.3 million, before potential credit-adjustment changes.
- One-time and timing items: NJR’s effective tax rate rose to 23.6% from 7.7%, primarily because of lower solar-related investment tax credits. NJRES received $17.9 million from sale of its MF Global bankruptcy claim during FY2013 cash-flow reporting (the claim sale occurred in FY2012). CR&R sold land after year-end for $6.0 million, with a reported pre-tax gain of $313,000.
Key investor verification points
- Reconcile GAAP net income growth with nearly flat non-GAAP net financial earnings and assess NJRES derivative timing effects.
- Check BPU decisions on CIP continuation, Sandy-cost recovery, MGP remediation recovery, and NJNG’s storm-hardening proposals.
- Track NJRES storage and transportation margins as shale-gas supply and market spreads evolve.
- Verify timing, completion, financing, and tax-credit eligibility of planned solar and wind projects, including the delayed grid-connected solar projects and Two Dot.
- Assess seasonal borrowing needs, the current-liability deficit, debt maturities, variable-rate exposure, and availability of committed credit.
- Monitor the MGP remediation cost range and whether the regulatory asset remains recoverable as estimates and approvals change.