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, 1999
Business Overview: NJR operates primarily through its regulated natural gas utility subsidiary, New Jersey Natural Gas (NJNG), and unregulated subsidiaries including NJR Energy Holdings (fuel marketing and capacity management) and NJR Development (real estate). The company is navigating energy deregulation legislation in New Jersey and managing Year 2000 compliance initiatives.
Key Financial Metrics
| Metric (in thousands, except per share) | 3 Months Ended June 30, 1999 |
3 Months Ended June 30, 1998 |
9 Months Ended June 30, 1999 |
9 Months Ended June 30, 1998 |
|---|---|---|---|---|
| Operating Revenues | $159,486 | $113,432 | $731,391 | $600,413 |
| Operating Income | $6,820 | $7,755 | $61,833 | $59,602 |
| Net Income | $3,060 | $2,894 | $48,549 | $45,621 |
| Earnings Per Share (Basic) | $0.17 | $0.16 | $2.72 | $2.56 |
| Dividends Per Share | $0.42 | $0.41 | $1.26 | $1.23 |
| Net Cash from Operating Activities | N/A | N/A | $122,069 | $17,267 |
| Long-Term Debt | $286,264 | $331,735 | $286,264 | $331,735 |
| Short-Term Debt | $33,400 | $42,800 | $33,400 | $42,800 |
| Cash and Temporary Investments | $6,222 | $4,670 | $6,222 | $4,670 |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 40.6% for the quarter and 21.8% for the nine-month period compared to the prior year, driven by higher gas purchase costs passed through to customers and increased wholesale activity.
- Profitability: Net income rose 5.7% for the quarter and 6.4% for the nine-month period. Basic EPS increased 6.25% for both periods.
- Operating Income: Operating income decreased 12% for the quarter due to higher operation and maintenance and depreciation expenses, but increased 3.7% for the nine-month period.
- Cash Flow: Net cash provided by operating activities surged to $122.1 million for the nine months ended June 30, 1999, compared to $17.3 million in the prior year, largely due to a $52.1 million favorable change in working capital (primarily deferred gas costs and inventories).
- Debt Reduction: Long-term debt decreased by approximately $45.5 million year-over-year due to the redemption of $20 million in Series S First Mortgage Bonds and other refinancing activities.
Guidance, Outlook, and Risks
Management Commentary and Outlook
- Customer Growth: NJNG continues to see profitable customer growth, though some sales customers are switching to firm transportation services under deregulation pilot programs.
- Weather Impact: The nine-month period was 8% warmer than normal, resulting in an $8.9 million accrual for future recovery from customers under the Weather Normalization Clause (WNC).
- Capital Expenditures: Remaining fiscal 1999 construction expenditures for NJNG are estimated at $15.5 million, to be financed via short-term and long-term debt to maintain a 50-55% common equity ratio.
- Year 2000 Compliance: The company is on track to be Year 2000 ready. Capitalized costs to date are $19.5 million, with an additional $6.2 million expected in 1999. Management does not expect material adverse impacts from Y2K issues.
Risks and Contingencies
- Legal Proceedings: NJNG is involved in litigation regarding environmental remediation at former manufactured gas plant (MGP) sites and a Superfund site (Combe Fill South Landfill). The company seeks cost recovery through ratemaking but notes no assurance of timing or extent.
- Deregulation: The "Electric Discount and Energy Restructuring Act" allows customers to choose gas suppliers, potentially impacting sales volumes. NJNG expects to retain transportation and appliance service roles.
- Market Risk: The company uses futures, options, and swaps to hedge natural gas price fluctuations. A hypothetical 10% price change could impact contract values by approximately $4.6 million (futures) and $698,000 (swaps), though these are largely offset by underlying physical contracts.
Investor Verification Checklist
- Deferred Gas Costs: Verify the treatment of the $44.7 million increase in deferred gas costs within working capital and its impact on future rate adjustments.
- Debt Maturities: Review the schedule of current maturities of long-term debt ($30.2 million) and short-term debt ($33.4 million) to assess near-term liquidity requirements.
- Environmental Liabilities: Monitor the status of the MGP remediation litigation and the Combe Fill South Landfill Superfund actions for potential unrecorded liabilities.
- Year 2000 Costs: Confirm that the projected $6.2 million in remaining Y2000 costs for 1999 are accurate and that contingency plans are fully implemented.
- Customer Migration: Track the rate of customer migration from sales service to firm transportation service to evaluate long-term revenue stability.