Business Context and Reporting Period
Company: New Jersey Resources Corporation (NJR)
Filing Type: Form 10-Q (Unaudited Quarterly Report)
Reporting Period: Three and nine months ended June 30, 1998
Business Overview: NJR operates primarily through its principal subsidiary, New Jersey Natural Gas Company (NJNG), a regulated natural gas utility. Other segments include Energy Holdings (unregulated marketing and fuel management) and NJR Development (real estate). The company serves residential, commercial, and industrial customers in New Jersey.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Jun 30, 1998 |
3 Months Ended Jun 30, 1997 |
9 Months Ended Jun 30, 1998 |
9 Months Ended Jun 30, 1997 |
|---|---|---|---|---|
| Operating Revenues | $113,432 | $121,150 | $600,413 | $595,118 |
| Operating Income | $7,755 | $7,572 | $59,602 | $60,077 |
| Net Income | $2,894 | $2,526 | $45,621 | $43,971 |
| Earnings Per Share (Basic) | $0.16 | $0.14 | $2.56 | $2.44 |
| Dividends Per Share | $0.41 | $0.40 | $1.23 | $1.20 |
| Net Cash from Operating Activities | N/A | N/A | $17,267 | $58,309 |
| Long-Term Debt | $331,735 | N/A | $331,735 | $291,977 |
| Short-Term Debt | $42,800 | N/A | $42,800 | $33,400 |
| Cash and Temporary Investments | $4,670 | N/A | $4,670 | $5,943 |
Note: Operating cash flow is presented for the nine-month period only as per the source text.
Material Changes vs. Prior Period
- Revenue: Consolidated operating revenues decreased 6% for the quarter ($113.4M vs. $121.2M) but increased 1% for the nine months ($600.4M vs. $595.1M). The quarterly decline was driven by warmer weather reducing therm sales.
- Profitability: Net income increased 15% for the quarter and 4% for the nine months. This growth was driven by customer additions at NJNG, cost controls, and a gain on the sale of a real estate property, offsetting lower operating income due to weather and higher depreciation.
- Operating Expenses: Gas purchases decreased significantly in the quarter ($74.1M vs. $80.5M) due to lower volume. Depreciation and amortization increased to $7.1M for the quarter (from $6.2M) due to the new customer information and billing system.
- Debt Structure: Long-term debt increased to $331.7M from $292.0M (year-ago balance) following the issuance of variable rate bonds to redeem fixed-rate bonds and fund construction projects.
- Cash Flow: Net cash from operating activities dropped significantly to $17.3M for the nine months ended June 30, 1998, compared to $58.3M in the prior year, primarily due to a $58.6M use of cash for changes in working capital (including a $16M increase in the construction fund and higher receivables).
Guidance, Outlook, and Risks
- Management Commentary: Management attributes earnings growth to profitable customer growth (12,652 additions in the last 12 months) and a $900,000 after-tax gain from the sale of an office building. Warmer weather (11% above normal for the nine months) reduced therm sales but was partially mitigated by the Weather Normalization Clause (WNC), which accrued $11.6M for future collection.
- Regulatory Environment: New Jersey tax reform effective January 1998 replaced gross receipts/franchise taxes with a sales tax and transitional energy facilities assessment. The Board of Public Utilities (BPU) approved interim rates in December 1997 and issued a final order in July 1998.
- Legal and Environmental: NJNG is involved in proceedings regarding the remediation of 11 former manufactured gas plant (MGP) sites. Costs are being recovered via a BPU-approved rider. The company is also pursuing insurance claims for these liabilities. Management does not expect a material adverse effect from these proceedings.
- Year 2000 Issue: The company is evaluating computer system compliance. Management believes the additional investment required will not have a material adverse effect on financial condition.
- Liquidity: The company maintains $135M in committed credit facilities for unregulated subsidiaries and $90M for NJNG. Remaining fiscal 1998 construction expenditures are estimated at $16M, to be financed by internal generation and short-term debt.
Investor Verification Checklist
- Weather Normalization Clause (WNC): Verify the collectability of the $11.6M accrued margin due to warmer-than-normal weather.
- Working Capital Fluctuations: Investigate the $58.6M negative change in working capital, specifically the $16M increase in the construction fund and the $8M increase in receivables.
- Debt Refinancing: Review the terms of the new variable rate bonds (Series EE, FF, and EDA) issued to replace fixed-rate debt and assess interest rate exposure.
- Real Estate Gain: Confirm the one-time nature of the $900,000 gain from the office building sale included in the nine-month results.
- Environmental Liabilities: Monitor the status of the MGP site remediation costs and the outcome of the insurance litigation against carriers and Kaiser-Nelson.