Business Context and Reporting Period
Company: New Jersey Resources Corporation (NJR)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended March 31, 1998
Business Overview: NJR operates primarily through its regulated utility subsidiary, New Jersey Natural Gas Company (NJNG), and unregulated subsidiaries including NJR Energy Holdings (marketing and fuel management) and NJR Development (real estate). The company is subject to New Jersey Board of Public Utilities (BPU) regulation.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Mar 31, 1998 | 3 Months Ended Mar 31, 1997 | 6 Months Ended Mar 31, 1998 | 6 Months Ended Mar 31, 1997 |
|---|---|---|---|---|
| Operating Revenues | $266,586 | $285,366 | $486,981 | $473,968 |
| Operating Income | $33,085 | $33,957 | $51,847 | $52,505 |
| Net Income | $28,511 | $28,503 | $42,727 | $41,445 |
| Earnings Per Share (Basic) | $1.61 | $1.58 | $2.40 | $2.29 |
| Dividends Per Share | $0.41 | $0.40 | $0.82 | $0.80 |
| Net Cash from Operating Activities | N/A | N/A | $23,651 | $31,000 |
| Long-Term Debt | $299,635 | N/A | N/A | N/A |
| Short-Term Debt | $47,420 | N/A | N/A | N/A |
| Cash and Temporary Investments | $6,790 | N/A | N/A | N/A |
Note: Balance sheet data is as of March 31, 1998. Cash flow data is for the six-month period.
Material Changes vs. Prior Period
- Revenue Decline: Operating revenues decreased 6.6% for the quarter and increased 2.7% for the six months compared to the prior year. The quarterly decline was driven by warmer weather reducing gas sales volumes.
- Earnings Growth: Despite lower revenues in the quarter, Net Income remained flat ($28.5M vs $28.5M). For the six months, Net Income increased 3.1% to $42.7M. Basic EPS increased 2% for the quarter and 5% for the six months, primarily due to share repurchases reducing the share count.
- Operating Expenses: Total operating expenses decreased 7.1% for the quarter and increased 3.3% for the six months. Gas purchase costs decreased significantly in the quarter due to lower volumes, while depreciation increased due to a new customer information system.
- Working Capital: Net cash provided by operating activities decreased 23.7% for the six months ($23.7M vs $31.0M), largely due to a $30.5M use of cash for changes in working capital (primarily receivables and deferred gas costs).
- Debt Structure: The company actively managed its debt portfolio, redeeming fixed-rate bonds and issuing variable-rate bonds to optimize interest costs. Short-term debt increased to $47.4M to meet seasonal working capital needs.
Guidance, Outlook, and Risks
- Regulatory Changes: New Jersey tax reform effective January 1998 replaced gross receipts/franchise taxes with a sales tax and corporate business tax. The BPU approved interim rates in December 1997, with a final order expected in July 1998.
- Weather Normalization: NJNG utilizes a Weather Normalization Clause (WNC). Due to weather 21% warmer than normal for the six months ended March 31, 1998, the company accrued $9.8 million in gross margin for future collection.
- Legal and Environmental:
- Gas Remediation: NJNG is involved in proceedings regarding 11 former manufactured gas plant (MGP) sites. Costs are being recovered via a BPU-approved rider. Litigation against insurance carriers and former owners is ongoing.
- South Brunswick Asphalt: NJNG is a defendant in a suit regarding alleged environmental contamination; the company does not expect a material adverse effect.
- Settlement: A dispute with People's Natural Gas Company regarding the "Bessie-8" joint venture was settled in February 1998; costs were previously reserved.
- Year 2000 Issue: Management does not currently believe the cost to achieve Year 2000 compliance will have a material adverse effect on financial condition, though unforeseen disruptions remain a risk.
- Capital Expenditures: Remaining fiscal 1998 construction expenditures for NJNG are estimated at $31.1M, to be funded by internal generation and short-term debt.
Investor Verification Checklist
- Weather Impact: Verify the final calculation of the Weather Normalization Clause (WNC) accruals and the timing of collections in subsequent quarters.
- Tax Reform Implementation: Monitor the BPU's final order on the new tax structure expected in July 1998 and its impact on future rate filings.
- Debt Refinancing: Track the company's ability to refinance short-term seasonal debt into long-term instruments as market conditions allow.
- Environmental Liabilities: Review updates on the MGP remediation costs and the outcome of insurance litigation to ensure reserves remain adequate.
- Customer Growth: Confirm the sustainability of the 12,388 customer additions reported, which offset the volume decline from warm weather.