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, 1995
Business Overview: NJR operates primarily through its regulated utility subsidiary, New Jersey Natural Gas Company (NJNG), and non-utility subsidiaries including Paradigm Resources Corporation (PRC), which encompasses real estate (Commercial Realty & Resources Corp.) and oil and gas operations (NJR Energy).
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Mar 31, 1995 |
3 Months Ended Mar 31, 1994 |
6 Months Ended Mar 31, 1995 |
6 Months Ended Mar 31, 1994 |
|---|---|---|---|---|
| Operating Revenues | $194,331 | $223,342 | $324,276 | $359,870 |
| Operating Income | $32,157 | $29,136 | $50,398 | $45,053 |
| Net Income | $25,494 | $23,274 | $36,734 | $34,516 |
| Earnings Per Share (Diluted) | $1.45 | $1.37 | $2.10 | $2.03 |
| Net Cash from Operating Activities | N/A | N/A | $92,398 | $68,819 |
| Long-Term Debt | $323,877 | $306,964 | $323,877 | $306,964 |
| Cash and Temporary Investments | $8,737 | $14,011 | $8,737 | $14,011 |
Note: 1994 six-month net income included a non-cash credit of $721,000 ($0.04/share) due to the adoption of SFAS 109 (Accounting for Income Taxes).
Material Changes vs. Prior Period
- Revenue Decline: Operating revenues decreased 13% for the quarter and 10% for the six-month period compared to the prior year, primarily driven by a 15% and 11% decrease in firm therm sales for the respective periods due to warmer-than-normal weather.
- Profit Growth: Despite lower revenues, Net Income increased 10% for the quarter and 6% for the six-month period. Excluding the one-time SFAS 109 credit in 1994, earnings growth for the six months was 9%.
- Utility Performance: NJNG gross margin increased for the six-month period due to higher base rates (effective Jan 1994) which offset the volume decline from warm weather. A weather-normalization clause accrued $2.7 million for future recovery.
- Non-Utility Performance:
- Real Estate: Operating income increased due to lower maintenance expenses from the mild winter, though net income decreased due to allowances for carrying costs on undeveloped land.
- Oil & Gas: Operating losses narrowed compared to 1994 (which included a $1 million write-down), but results were still negatively impacted by declining production and lower average gas prices.
- Liquidity: Net cash provided by operating activities increased significantly to $92.4 million for the six months ended March 31, 1995, compared to $68.8 million in the prior year.
Guidance, Outlook, Risks, and Contingencies
- Capital Expenditures: Remaining fiscal 1995 construction expenditures for NJNG are estimated at $16 million. NJR Energy expects up to $2.9 million for oil and gas development. Real estate subsidiary plans a $5.5 million flex building construction.
- Strategic Shift: The Company plans to reallocate capital from oil and gas exploration to investments with closer strategic ties to its energy businesses, including a partnership in natural gas storage facilities (Market Hub Partners, L.P.).
- Legal and Regulatory Risks:
- Environmental Remediation: NJNG is involved in proceedings regarding 11 former Manufactured Gas Plant (MGP) sites. Estimated additional expenditures are $14 million over five years. Costs are expected to be recovered through a remediation rider, though recovery is not assured.
- Insurance Litigation: NJNG has filed suit against insurance carriers for coverage of MGP site liabilities.
- Iroquois Pipeline Investigation: NJR Energy'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 the Company does not expect a material adverse effect on consolidated results, fines could be material to Iroquois.
- Other Litigation: Pending lawsuits include the Aberdeen Township gas explosion (six complaints) and a contract dispute with Carnegie Natural Gas Company.
- Management Commentary: Management notes that interim results are not indicative of full-year results due to the seasonal nature of utility operations. The warmer weather was the third warmest winter in NJNG's history.
Investor Verification Checklist
- Weather Sensitivity: Verify the impact of the weather-normalization clause on future revenue recovery and the extent to which warm weather trends persist.
- Environmental Liabilities: Confirm the status of the $14 million estimated remediation costs for MGP sites and the certainty of rate recovery via the BPU-approved rider.
- Oil & Gas Strategy: Assess the progress of the strategic reallocation of capital away from exploration and into storage/marketing ventures (e.g., Market Hub Partners).
- Legal Exposure: Monitor the outcome of the Iroquois pipeline investigations and the insurance coverage litigation regarding MGP sites.
- Debt Structure: Review the $120.5 million outstanding under committed bank credit facilities and the plan to refinance existing long-term debt.