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, 1996
Business Overview: NJR operates primarily through its regulated utility subsidiary, New Jersey Natural Gas (NJNG), and unregulated subsidiaries including NJR Energy Services (Natural Energy) and Commercial Realty & Resources (CR&R). The Company exited its oil and gas production business in fiscal 1995, accounting for it as a discontinued operation.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended June 30, 1996 |
9 Months Ended June 30, 1996 |
9 Months Ended June 30, 1995 |
|---|---|---|---|
| Operating Revenues | $94,456 | $488,112 | $400,738 |
| Operating Income | $7,767 | $58,280 | $57,343 |
| Net Income (Continuing Ops) | $2,229 | $41,592 | $38,297 |
| Earnings Per Share (Continuing Ops) | $0.12 | $2.31 | $2.18 |
| Cash Flow from Operations | N/A | $55,993 | $93,719 |
| Long-Term Debt | $303,513 | $303,513 | $322,327 |
| Cash and Temporary Investments | $13,976 | $13,976 | $1,613 |
Note: Operating margins are not explicitly stated as a percentage in the filing; however, operating income for the nine months ended June 30, 1996, represented approximately 11.9% of operating revenues.
Material Changes vs. Prior Period
- Revenue Growth: Operating revenues increased 27% for the quarter and 22% for the nine-month period compared to the prior year, driven by higher gas costs passed through to customers and increased therm sales.
- Profitability: Net income from continuing operations rose 85% for the quarter and 9% for the nine-month period. This was primarily due to improved results at NJNG and NJR Energy Services.
- Discontinued Operations: The prior year (1995) included a significant loss of $8.7 million related to the exit from the oil and gas production business. No such losses were recorded in the current period as assets were sold in late 1995/early 1996.
- Debt Reduction: Long-term debt decreased by approximately $18.8 million year-over-year (nine-month comparison), utilizing proceeds from asset sales to pay down obligations.
- Cash Position: Cash and temporary investments increased significantly from $1.6 million to $14.0 million, aided by $98.6 million in proceeds from asset sales (primarily real estate) during the nine-month period.
Outlook, Risks, and Management Commentary
Management Commentary
- Utility Operations: NJNG gross margin increased due to a 17% colder winter compared to the prior year and customer additions. However, a Weather Normalization Clause (WNC) deferred $12 million of gross margin for refund to customers in fiscal 1997.
- Real Estate: CR&R sold significant assets in late 1995, including a sale-leaseback transaction generating a $17.7 million pre-tax gain (amortized over 25 years) and a cash sale generating a $160,000 gain. Proceeds were used to reduce debt.
- Capital Needs: Remaining fiscal 1996 construction expenditures for NJNG are estimated at $15 million, to be funded by internal generation, short-term debt, and variable rate bonds.
Risks and Contingencies
- Environmental Liabilities (MGP Sites): NJNG is remediating 11 former Manufactured Gas Plant sites. Estimated future expenditures range from $27.5 million to $60 million. The Company has accrued $27.5 million and seeks recovery through a regulatory rider.
- Legal Proceedings:
- Aberdeen Explosion: Six complaints filed alleging negligence regarding a 1993 gas explosion; plaintiffs seek $25.2 million in damages.
- Long Branch Pier Fire: Plaintiffs seek approximately $35 million in damages; a mistrial was declared in January 1996, with a new trial scheduled for September 1996.
- Iroquois Pipeline: NJR Energy's subsidiary settled federal and state investigations regarding pipeline construction violations, resulting in a $22 million total penalty (Company's share was provisioned in 1995).
- Bessie-8 Pipeline: Ongoing litigation regarding public utility status in Pennsylvania; the Company wrote off its $1 million investment in 1994.
- Regulatory: NJNG filed for an 8 million ($2%) increase in its Levelized Gas Adjustment clause in July 1996 to recover higher gas costs; a decision is expected in Q1 fiscal 1997.
Investor Verification Checklist
- Weather Normalization Impact: Verify the timing and amount of the $12 million gross margin deferral refund to customers in fiscal 1997.
- Environmental Accruals: Monitor the $27.5 million accrued liability for MGP site remediation against actual costs and regulatory approval for cost recovery.
- Legal Settlements: Track the outcome of the Long Branch Pier fire trial (scheduled September 1996) and the Aberdeen explosion litigation.
- Debt Refinancing: Assess the Company's ability to refinance existing long-term debt as market conditions dictate.
- Real Estate Amortization: Confirm the amortization schedule of the $17.7 million gain from the sale-leaseback transaction over the 25-year period.