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, 1995
Business Overview: NJR operates primarily through its regulated utility subsidiary, New Jersey Natural Gas Company (NJNG), and non-utility subsidiaries including Commercial Realty & Resources Corp. (CR&R) and NJR Energy. In June 1995, the Company formed NJR Energy Services Corporation to segregate non-utility energy operations. A significant strategic shift occurred in May 1995 with the decision to exit the oil and natural gas production business, classifying this segment as a discontinued operation.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended June 30, 1995 |
3 Months Ended June 30, 1994 |
9 Months Ended June 30, 1995 |
9 Months Ended June 30, 1994 |
|---|---|---|---|---|
| Operating Revenues | $76,262 | $75,137 | $404,618 | $433,410 |
| Operating Income | $6,642 | $7,150 | $57,151 | $52,270 |
| Net Income (Loss) | $(7,480) | $3,302 | $29,254 | $37,818 |
| Income from Continuing Ops | $1,185 | $3,376 | $38,314 | $37,461 |
| EPS (Continuing Ops) | $0.07 | $0.20 | $2.18 | $2.20 |
| EPS (Diluted/Basic) | $(0.42) | $0.19 | $1.67 | $2.22 |
| Cash Flow from Operations | N/A | N/A | $93,719 | $42,930 |
| Long-Term Debt | $322,327 | N/A | $322,327 | $301,690 |
| Short-Term Debt | $12,900 | N/A | $12,900 | $36,800 |
| Cash & Temp Investments | $1,613 | N/A | $1,613 | $2,657 |
Note: Balance sheet data for June 30, 1994 is not provided in the text; comparisons are made to September 30, 1994 where applicable or noted as unavailable.
Material Changes vs. Prior Period
- Discontinued Operations Charge: The Company recorded an after-tax charge of $8.7 million ($0.49 per share) in the third quarter related to the exit from the oil and gas production business. This resulted in a net loss for the quarter despite positive earnings from continuing operations.
- Utility Gross Margin: Gross margin from residential and commercial sales decreased by $2.3 million (8%) for the quarter due to warmer weather (4% warmer than the prior year) and lower average customer usage, which offset customer growth. For the nine-month period, gross margin increased slightly due to customer growth and higher base rates.
- Interest Expense: Net interest expense increased for the nine months ended June 30, 1995, driven by higher short-term interest rates and lower capitalized interest.
- Cash Flow: Net cash flows from operating activities increased significantly to $93.7 million for the nine months ended June 30, 1995, compared to $42.9 million in the prior year, largely due to a $30.2 million positive change in working capital.
- Real Estate Operations: CR&R reported a net loss for the quarter and nine months due to pre-tax allowances for carrying costs on undeveloped land inventory, offsetting higher operating income from lower maintenance expenses.
Guidance, Outlook, Risks, and Contingencies
- Exit Strategy: The Company expects to complete the sale of its oil and gas reserves within one year and intends to use proceeds to reduce outstanding debt.
- Capital Expenditures: Remaining fiscal 1995 construction expenditures for the utility are estimated at $7 million. CR&R has approved a $5.5 million construction project for a flex building.
- Regulatory Proceedings:
- Levelized Gas Adjustment (LGA): NJNG filed for a $4.8 million annual decrease in gas costs effective October 1, 1995.
- Manufactured Gas Plant (MGP) Sites: NJNG estimates additional expenditures of approximately $14 million over the next five years for remediation at eleven former MGP sites. Costs are expected to be recovered through a remediation rider subject to BPU approval.
- Legal Contingencies:
- Iroquois Pipeline: The Company's subsidiary holds a 2.8% equity interest in Iroquois Gas Transmission System, which is under federal civil and criminal investigation regarding Clean Water Act violations. While no charges have been filed, potential fines could be material to Iroquois, though the Company does not expect a material adverse effect on consolidated results.
- Insurance Litigation: NJNG is suing insurance carriers for coverage related to MGP site contamination. The outcome is uncertain.
- Bessie-8: A Pennsylvania Supreme Court ruling reversed a lower court decision regarding the regulatory status of a joint venture, requiring the Company to examine its options. The Company does not believe this will have a material adverse effect.
- Liquidity: The Company maintains $145 million in committed bank credit facilities, with $115.8 million outstanding as of June 30, 1995. NJNG maintains $60 million in committed credit facilities for working capital.
Investor Verification Checklist
- Discontinued Operations: Verify the timeline and valuation of the oil and gas asset sale to confirm the $8.7 million charge is accurate and that proceeds will be used for debt reduction as stated.
- Weather Normalization: Confirm the impact of the Weather-Normalization Clause (WNC) on future revenue recovery, specifically the $1.9 million accrued for future recovery in fiscal 1995.
- Environmental Liabilities: Assess the $14 million estimated remediation cost for MGP sites and the likelihood of full recovery through the BPU-approved remediation rider.
- Debt Structure: Review the recent $41 million in bond issuances (EDA Bonds) and the associated variable interest rates to understand future interest expense volatility.
- Real Estate Inventory: Evaluate the carrying costs and net realizable value of CR&R's undeveloped land inventory, which is currently generating pre-tax allowances.