UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q/A
Amendment
No. 1
T
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
FOR
THE QUARTERLY PERIOD ENDED DECEMBER 31, 2008
OR
£
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
FOR THE
TRANSITION PERIOD FROM
TO
Commission
file number 001-8359
NEW
JERSEY RESOURCES CORPORATION
(Exact
name of registrant as specified in its charter)
New
Jersey
|
|
22-2376465
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification Number)
|
|
|
|
1415
Wyckoff Road, Wall, New Jersey 07719
|
|
732-938-1480
|
(Address
of principal executive offices)
|
|
(Registrant’s
telephone number, including area code)
|
|
Securities
registered pursuant to Section 12 (b) of the
Act:
|
Common
Stock - $2.50 Par Value
|
|
New
York Stock Exchange
|
(Title
of each class)
|
|
(Name
of each exchange on which
registered)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes:
T
No:
£
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated, or a smaller reporting company. See
definition of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer:
T
|
Accelerated filer:
£
|
Non-accelerated filer:
£
|
Smaller reporting company:
£
|
|
|
(Do
not check if a smaller reporting company)
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act)
Yes:
£
No:
T
The
number of shares outstanding of $2.50 par value Common Stock as of February 4,
2009, was 42,318,558.
New
Jersey Resources Corporation
EXPLANATORY
NOTE
Overview
New
Jersey Resources Corporation (the “Company”) is filing this Amendment
No. 1 on Form 10-Q/A to our quarterly report on Form 10-Q for the quarter ended
December 31, 2008, originally filed on February 5, 2009, to amend and restate
our unaudited condensed consolidated financial statements for the three month
periods ended December 31, 2008 and 2007 for the condensed consolidated balance
sheets as of December 31, 2008 and September 30, 2008 to correct an error
related to the accounting for park and loan transactions executed through the
Company’s unregulated subsidiary, NJR Energy Services
(NJRES).
Restatement
NJRES
enters into park and loan transactions whereby it borrows natural gas from a
counterparty with an obligation to return the gas at a future date. In the
fourth quarter of fiscal 2009, management discovered an error in the accounting
for gas in storage, purchase obligations, embedded derivatives and gas demand
fees associated with these transactions. Specifically, NJR had been using a
forward price to value the inventory and gas purchases liability. Both the
natural gas that was received and the “park and loan” liability should have been
initially valued at the spot price on the date NJRES received the gas. In
addition, NJRES should have been accounting for the obligation to return the gas
as an embedded derivative, which should have been fair valued (“marked to
market”) at each subsequent balance sheet reporting date until the gas was
returned to the counterparty. As well, the initial spread between the spot price
of the borrowed gas liability on the date of the transaction and the forward
price, based on the date NJRES would return the natural gas, should have been
recognized into income on a ratable basis over the term of the park and loan
agreement. In addition, demand fees related to these transactions
were not but should have been recognized ratably over the term of the
contract.
These
errors, while impacting our reported results in accordance with generally
accepted accounting principles (
“
GAAP
”
), have no impact
on our Non-GAAP measure of Net Financial Earnings (“NFE”), which excludes the
impact of unrealized derivative gains and losses, effects of economic hedging
related to inventory and demand fees related to park and loan transactions. As
discussed in the MD&A, NFE is the key financial metric by which we measure
the profitability of the Company.
The
Company is also filing amended Quarterly Reports on Form 10-Q/A for the quarters
ended, March 31, 2009 and June 30, 2009 to correct the errors described
above.
All of
the information in this Form 10-Q/A is as of February 5, 2009, the date the
Company originally filed its Form 10-Q with the Securities and Exchange
Commission, and does not reflect any subsequent information or events other than
the restatement discussed in Note 2 to the Consolidated Financial Statements
appearing in this Form 10-Q/A. For the convenience of the reader, this Form
10-Q/A sets forth the originally filed Form 10-Q in its entirety. However, the
following items have been amended solely as a result of, and to reflect, the
restatement, and no other information in the Form 10-Q/A is amended hereby as a
result of the restatement:
|
·
|
Part I, Item 1 - Financial
Statements
|
|
·
|
Part I, Item 2 - Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
·
|
Part
I, Item 4 - Controls and Procedures
|
|
·
|
Part
II — Item 6. Exhibits.
|
In the
Quarterly Reports on Form 10-Q as previously filed, the Company reported under
Item 4 “Controls and Procedures,” that its disclosure controls and procedures
were not effective due to a material weakness in internal control over financial
reporting. Management, in consultation with the Audit Committee, has
concluded that the errors set forth herein constituted a material weakness
in the Company’s internal controls over financial reporting as of the date of
the original filing which has since been remediated. The revised
assessment is included under Part II, Item 4 in this
document.
The
Company is including currently dated Sarbanes-Oxley Act Section 302 and Section
906 certifications of the Chief Executive Officer and Chief Financial Officer
that are attached to this Form 10-Q/A as Exhibits 31.1, 31.2, 32.1 and
32.2.
Except as
described above, no other changes have been made to the Form 10-Q. This Form
10-Q/A does not amend or update any other information set forth in the Form 10-Q
and we have not updated disclosures contained therein to reflect any events that
occurred at a date subsequent to the filing of the Form 10-Q. Accordingly, this
Form 10-Q/A should be read in conjunction with our filings made with the
Securities and Exchange Commission subsequent to the filing of the original Form
10-Q, including any amendments to those filings.
New
Jersey Resources Corporation
TA
BL
E OF CONTENTS
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Page
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1
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PART
I – FINANCIAL INFORMATION
|
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ITEM
1.
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2
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7
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7
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8
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10
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14
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14
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16
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17
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17
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18
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19
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19
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20
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20
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20
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23
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24
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ITEM
2.
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25
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ITEM
3.
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44
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ITEM
4.
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46
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PART
II – OTHER INFORMATION
|
|
ITEM
1.
|
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48
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ITEM
1A.
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48
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ITEM
2.
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48
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ITEM
4.
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49
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ITEM
6.
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50
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51
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New
J
ers
ey Resources Corporation
Part
I
INFORMATION
CONCERNING FORWARD-LOOKING STATEMENTS
|
Certain
statements contained in this report, including, without limitation, statements
as to management expectations and beliefs presented in Part I, Item 2.
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” Part I, Item 3. “Quantitative and Qualitative Disclosures about
Market Risk,” Part II, Item I. “Legal Proceedings” and in the notes to the
financial statements are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements can
also be identified by the use of forward-looking terminology such as “may,”
“intend,” “expect,” “believe” or “continue” or comparable terminology and are
made based upon management’s expectations and beliefs concerning future
developments and their potential effect upon New Jersey Resources Corporation
(NJR or the Company). There can be no assurance that future developments will be
in accordance with management’s expectations or that the effect of future
developments on the Company will be those anticipated by
management.
The
Company cautions readers that the assumptions that form the basis for
forward-looking statements regarding customer growth, customer usage, financial
condition, results of operations, cash flows, capital requirements, market risk
and other matters for fiscal 2009 and thereafter include many factors that are
beyond the Company’s ability to control or estimate precisely, such as estimates
of future market conditions, the behavior of other market participants and
changes in the debt and equity capital markets. The factors that could cause
actual results to differ materially from NJR’s expectations include, but are not
limited to, those discussed in Risk Factors in Part II Item 1A, as well as
the following:
Ÿ
|
weather
and economic conditions;
|
Ÿ
|
demographic
changes in the New Jersey Natural Gas (NJNG) service
territory;
|
Ÿ
|
the
rate of NJNG customer growth;
|
Ÿ
|
volatility
of natural gas commodity prices and its impact on customer usage, cash
flow, NJR Energy Services’ (NJRES) operations and on the Company’s risk
management efforts;
|
Ÿ
|
changes
in rating agency requirements and/or credit ratings and their effect on
availability and cost of capital to the Company;
|
Ÿ
|
continued
volatility or seizure of the credit markets that would result in the
decreased availability and access to credit at NJR to fund and support
physical gas inventory purchases and other working capital needs at NJRES,
and all other non-regulated subsidiaries, as well as negatively affect
access to the commercial paper market and other short-term financing
markets at NJNG to allow it to fund its commodity purchases and meet its
short-term obligations as they come due;
|
Ÿ
|
the
impact to the asset values and funding obligations of NJR’s pension and
postemployment benefit plans as a result of a continuing downturn in the
financial markets;
|
Ÿ
|
increases
in borrowing costs associated with variable-rate debt;
|
Ÿ
|
commercial
and wholesale credit risks, including creditworthiness of customers and
counterparties;
|
Ÿ
|
the
ability to obtain governmental approvals and/or financing for the
construction, development and operation of certain non-regulated energy
investments;
|
Ÿ
|
risks
associated with the management of the Company’s joint ventures and
partnerships;
|
Ÿ
|
the
impact of governmental regulation (including the regulation of
rates);
|
Ÿ
|
conversion
activity and other marketing efforts;
|
Ÿ
|
actual
energy usage of NJNG’s customers;
|
Ÿ
|
the
pace of deregulation of retail gas markets;
|
Ÿ
|
access
to adequate supplies of natural gas;
|
Ÿ
|
the
regulatory and pricing policies of federal and state regulatory
agencies;
|
Ÿ
|
the
ultimate outcome of pending regulatory proceedings, including the possible
expiration of the Conservation Incentive Program (CIP);
|
Ÿ
|
changes
due to legislation at the federal and state level;
|
Ÿ
|
the
availability of an adequate number of appropriate counterparties in the
wholesale energy trading market;
|
Ÿ
|
sufficient
liquidity in the wholesale energy trading market and continued access to
the capital markets;
|
Ÿ
|
the
disallowance of recovery of environmental-related expenditures and other
regulatory changes;
|
Ÿ
|
environmental-related
and other litigation and other uncertainties;
|
Ÿ
|
the
effects and impacts of inflation on NJR and its subsidiaries
operations;
|
Ÿ
|
change
in accounting pronouncements issued by the appropriate standard setting
bodies; and
|
Ÿ
|
terrorist
attacks or threatened attacks on energy facilities or unrelated energy
companies.
|
While the
Company periodically reassesses material trends and uncertainties affecting the
Company’s results of operations and financial condition in connection with its
preparation of management’s discussion and analysis of results of operations and
financial condition contained in its Quarterly and Annual Reports, the Company
does not, by including this statement, assume any obligation to review or revise
any particular forward-looking statement referenced herein in light of future
events.
New
Jersey Resources Corporation
Part
I
IT
EM
1. FINANCIAL
STATEMENTS
|
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
|
|
Three
Months Ended
December
31,
|
|
(Thousands,
except per share data)
|
|
2008
|
|
|
2007
|
|
|
|
As
Restated
(See
Note 2)
|
|
|
As
Restated
(See
Note 2)
|
|
OPERATING
REVENUES
|
|
$
|
801,304
|
|
|
$
|
811,138
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
|
|
|
Gas
purchases
|
|
|
671,090
|
|
|
|
691,332
|
|
Operation
and maintenance
|
|
|
36,408
|
|
|
|
32,179
|
|
Regulatory
rider expenses
|
|
|
13,561
|
|
|
|
12,165
|
|
Depreciation
and amortization
|
|
|
7,361
|
|
|
|
9,403
|
|
Energy
and other taxes
|
|
|
23,633
|
|
|
|
18,160
|
|
Total
operating expenses
|
|
|
752,053
|
|
|
|
763,239
|
|
OPERATING
INCOME
|
|
|
49,251
|
|
|
|
47,899
|
|
Other
income
|
|
|
858
|
|
|
|
1,528
|
|
Interest
expense, net of capitalized interest
|
|
|
6,547
|
|
|
|
7,810
|
|
INCOME
BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF AFFILIATES
|
|
|
43,562
|
|
|
|
41,617
|
|
Income
tax provision
|
|
|
15,804
|
|
|
|
15,767
|
|
Equity
in earnings of affiliates, net of tax
|
|
|
514
|
|
|
|
424
|
|
NET
INCOME
|
|
$
|
28,272
|
|
|
$
|
26,274
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
PER COMMON SHARE
|
|
|
|
|
|
|
|
|
BASIC
|
|
$
|
0.67
|
|
|
$
|
0.63
|
|
DILUTED
|
|
$
|
0.67
|
|
|
$
|
0.63
|
|
DIVIDENDS
PER COMMON SHARE
|
|
$
|
0.31
|
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING
|
|
|
|
|
|
|
|
|
BASIC
|
|
|
42,170
|
|
|
|
41,678
|
|
DILUTED
|
|
|
42,495
|
|
|
|
41,928
|
|
See Notes
to Unaudited Condensed Consolidated Financial Statements
New
Jersey Resources Corporation
Part
I
ITEM
1. FINANCIAL STATEMENTS
(Continued)
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
|
Three
Months Ended
|
|
|
|
December
31,
|
|
(Thousands)
|
|
2008
|
|
|
2007
|
|
|
|
As
Restated
(See
Note 2)
|
|
|
As
Restated
(See
Note 2)
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net
income
|
|
$
|
28,272
|
|
|
$
|
26,274
|
|
Adjustments
to reconcile net income to cash flows from operating
activities:
|
|
|
|
|
|
|
|
|
Unrealized
loss on derivative instruments
|
|
|
11,499
|
|
|
|
1,312
|
|
Depreciation
and amortization
|
|
|
7,581
|
|
|
|
9,478
|
|
Allowance
for funds (equity) used during construction
|
|
|
—
|
|
|
|
(373
|
)
|
Deferred
income taxes
|
|
|
5,765
|
|
|
|
5,822
|
|
Manufactured
gas plant remediation costs
|
|
|
(5,875
|
)
|
|
|
(4,041
|
)
|
Equity
in earnings from investments, net of distributions
|
|
|
(514
|
)
|
|
|
1,512
|
|
Cost
of removal – asset retirement obligations
|
|
|
(19
|
)
|
|
|
(177
|
)
|
Contributions
to employee benefit plans
|
|
|
(182
|
)
|
|
|
(150
|
)
|
Changes
in:
|
|
|
|
|
|
|
|
|
Components
of working capital
|
|
|
(72,621
|
)
|
|
|
(52,974
|
)
|
Other
noncurrent assets
|
|
|
(38,448
|
)
|
|
|
2,423
|
|
Other
noncurrent liabilities
|
|
|
27,582
|
|
|
|
4,369
|
|
Cash
flows used in operating activities
|
|
|
(36,960
|
)
|
|
|
(6,525
|
)
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Expenditures
for
|
|
|
|
|
|
|
|
|
Utility
plant
|
|
|
(18,207
|
)
|
|
|
(13,526
|
)
|
Real
estate properties and other
|
|
|
(145
|
)
|
|
|
(168
|
)
|
Cost
of removal
|
|
|
(1,462
|
)
|
|
|
(1,208
|
)
|
Investments
in equity investees and other
|
|
|
(21,000
|
)
|
|
|
(2,998
|
)
|
Release
from restricted cash construction fund
|
|
|
4,200
|
|
|
|
—
|
|
Cash
flows used in investing activities
|
|
|
(36,614
|
)
|
|
|
(17,900
|
)
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock
|
|
|
6,196
|
|
|
|
4,192
|
|
Tax
benefit from stock options exercised
|
|
|
972
|
|
|
|
547
|
|
Proceeds
from sale-leaseback transaction
|
|
|
6,268
|
|
|
|
7,485
|
|
Payments
of long-term debt
|
|
|
(30,973
|
)
|
|
|
(937
|
)
|
Purchases
of treasury stock
|
|
|
(1,126
|
)
|
|
|
(10,071
|
)
|
Payments
of common stock dividends
|
|
|
(11,776
|
)
|
|
|
(10,633
|
)
|
Net
proceeds from short-term debt
|
|
|
87,350
|
|
|
|
32,547
|
|
Cash
flows from financing activities
|
|
|
56,911
|
|
|
|
23,130
|
|
Change
in cash and temporary investments
|
|
|
(16,663
|
)
|
|
|
(1,295
|
)
|
Cash
and temporary investments at beginning of period
|
|
|
42,626
|
|
|
|
5,140
|
|
Cash
and temporary investments at end of period
|
|
$
|
25,963
|
|
|
$
|
3,845
|
|
CHANGES
IN COMPONENTS OF WORKING CAPITAL
|
|
|
|
|
|
|
|
|
Receivables,
net
|
|
$
|
(96,726
|
)
|
|
$
|
(194,958
|
)
|
Inventories
|
|
|
73,156
|
|
|
|
2,999
|
|
Underrecovered
gas costs
|
|
|
25,017
|
|
|
|
(18,883
|
)
|
Gas
purchases payable
|
|
|
(41,081
|
)
|
|
|
132,028
|
|
Prepaid
and accrued taxes
|
|
|
43,830
|
|
|
|
31,043
|
|
Accounts
payable and other
|
|
|
(6,541
|
)
|
|
|
(1,017
|
)
|
Restricted
broker margin accounts
|
|
|
(51,882
|
)
|
|
|
(881
|
)
|
Customers’
credit balances and deposits
|
|
|
(24,957
|
)
|
|
|
7,299
|
|
Other
current assets
|
|
|
6,563
|
|
|
|
(10,604
|
)
|
Total
|
|
$
|
(72,621
|
)
|
|
$
|
(52,974
|
)
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOWS INFORMATION
|
|
|
|
|
|
|
|
|
Cash
paid for
|
|
|
|
|
|
|
|
|
Interest
(net of amounts capitalized)
|
|
$
|
4,185
|
|
|
$
|
6,434
|
|
Income
taxes
|
|
$
|
1,427
|
|
|
$
|
2,661
|
|
See Notes
to Unaudited Condensed Consolidated Financial Statements
New
Jersey Resources Corporation
Part
I
ITEM
1. FINANCIAL STATEMENTS
(Continued)
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
|
|
December 31,
|
|
|
September
30,
|
|
(Thousands)
|
|
2008
|
|
|
2008
|
|
|
|
As
Restated
(See
Note 2)
|
|
|
As
Restated
(See
Note 2)
|
|
PROPERTY,
PLANT AND EQUIPMENT
|
|
|
|
|
|
|
Utility
plant, at cost
|
|
$
|
1,384,312
|
|
|
$
|
1,366,237
|
|
Real
estate properties and other, at cost
|
|
|
29,953
|
|
|
|
29,808
|
|
|
|
|
1,414,265
|
|
|
|
1,396,045
|
|
Accumulated
depreciation and amortization
|
|
|
(385,879
|
)
|
|
|
(378,759
|
)
|
Property,
plant and equipment, net
|
|
|
1,028,386
|
|
|
|
1,017,286
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
Cash
and temporary investments
|
|
|
25,963
|
|
|
|
42,626
|
|
Customer
accounts receivable
|
|
|
|
|
|
|
|
|
Billed
|
|
|
258,827
|
|
|
|
227,132
|
|
Unbilled
revenues
|
|
|
75,008
|
|
|
|
9,417
|
|
Allowance
for doubtful accounts
|
|
|
(5,140
|
)
|
|
|
(4,580
|
)
|
Regulatory
assets
|
|
|
21,080
|
|
|
|
51,376
|
|
Gas
in storage, at average cost
|
|
|
394,375
|
|
|
|
467,537
|
|
Materials
and supplies, at average cost
|
|
|
5,116
|
|
|
|
5,110
|
|
Prepaid
state taxes
|
|
|
9,641
|
|
|
|
37,271
|
|
Derivatives,
at fair value
|
|
|
238,230
|
|
|
|
227,224
|
|
Broker
margin account
|
|
|
74,884
|
|
|
|
41,277
|
|
Other
|
|
|
13,771
|
|
|
|
15,181
|
|
Total
current assets
|
|
|
1,111,755
|
|
|
|
1,119,571
|
|
|
|
|
|
|
|
|
|
|
NONCURRENT
ASSETS
|
|
|
|
|
|
|
|
|
Investments
in equity investees and other
|
|
|
139,970
|
|
|
|
115,981
|
|
Regulatory
assets
|
|
|
407,014
|
|
|
|
340,670
|
|
Derivatives,
at fair value
|
|
|
27,226
|
|
|
|
24,497
|
|
Restricted
cash construction fund
|
|
|
—
|
|
|
|
4,200
|
|
Other
|
|
|
12,284
|
|
|
|
13,092
|
|
Total
noncurrent assets
|
|
|
586,494
|
|
|
|
498,440
|
|
Total
assets
|
|
$
|
2,726,635
|
|
|
$
|
2,635,297
|
|
See Notes
to Unaudited Condensed Consolidated Financial Statements
New
Jersey Resources Corporation
Part
I
ITEM
1. FINANCIAL STATEMENTS
(Continued)
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
CAPITALIZATION
AND LIABILITIES
|
|
December
31,
|
|
|
September
30,
|
|
(Thousands)
|
|
2008
|
|
|
2008
|
|
|
|
As
Restated
(See
Note 2)
|
|
|
As
Restated
(See
Note 2)
|
|
CAPITALIZATION
|
|
|
|
|
|
|
Common
stock equity
|
|
$
|
754,102
|
|
|
$
|
728,068
|
|
Long-term
debt
|
|
|
460,708
|
|
|
|
455,117
|
|
Total
capitalization
|
|
|
1,214,810
|
|
|
|
1,183,185
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Current
maturities of long-term debt
|
|
|
30,844
|
|
|
|
60,119
|
|
Short-term
debt
|
|
|
265,550
|
|
|
|
178,200
|
|
Gas
purchases payable
|
|
|
282,519
|
|
|
|
323,600
|
|
Accounts
payable and other
|
|
|
43,375
|
|
|
|
61,735
|
|
Dividends
payable
|
|
|
13,099
|
|
|
|
11,776
|
|
Deferred
and accrued taxes
|
|
|
27,491
|
|
|
|
24,720
|
|
New
Jersey clean energy program
|
|
|
12,513
|
|
|
|
3,056
|
|
Derivatives,
at fair value
|
|
|
204,174
|
|
|
|
146,320
|
|
Broker
margin account
|
|
|
10,797
|
|
|
|
29,072
|
|
Customers’
credit balances and deposits
|
|
|
38,500
|
|
|
|
63,455
|
|
Total
current liabilities
|
|
|
928,862
|
|
|
|
902,053
|
|
|
|
|
|
|
|
|
|
|
NONCURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
243,308
|
|
|
|
240,414
|
|
Deferred
investment tax credits
|
|
|
7,112
|
|
|
|
7,192
|
|
Deferred
revenue
|
|
|
8,910
|
|
|
|
9,090
|
|
Derivatives,
at fair value
|
|
|
20,315
|
|
|
|
25,016
|
|
Manufactured
gas plant remediation
|
|
|
120,230
|
|
|
|
120,730
|
|
Postemployment
employee benefit liability
|
|
|
53,846
|
|
|
|
52,272
|
|
Regulatory
liabilities
|
|
|
61,820
|
|
|
|
63,419
|
|
New
Jersey clean energy program
|
|
|
34,030
|
|
|
|
—
|
|
Asset
retirement obligation
|
|
|
24,768
|
|
|
|
24,416
|
|
Other
|
|
|
8,624
|
|
|
|
7,510
|
|
Total
noncurrent liabilities
|
|
|
582,963
|
|
|
|
550,059
|
|
Commitments
and contingent liabilities (Note 14)
|
|
|
|
|
|
|
|
|
Total
capitalization and liabilities
|
|
$
|
2,726,635
|
|
|
$
|
2,635,297
|
|
See Notes
to Unaudited Condensed Consolidated Financial Statements
New
Jersey Resources Corporation
Part
I
ITEM
1. FINANCIAL STATEMENTS
(Continued)
|
CONDENSED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
|
|
|
|
Three
Months Ended
|
|
|
December
31,
|
(Thousands)
|
|
2008
|
|
2007
|
|
|
As
Restated
(See
Note 2)
|
|
As
Restated
(See
Note 2)
|
|
|
$
|
28,272
|
|
|
$
|
26,274
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
Unrealized
(loss) gain on available for sale securities, net of tax of $(380) and
$(118), respectively
(1)
|
|
|
545
|
|
|
|
170
|
|
Net
unrealized (loss) on derivatives, net of tax of $18 and $25,
respectively
|
|
|
(26
|
)
|
|
|
(42
|
)
|
Other
comprehensive income
|
|
|
519
|
|
|
|
128
|
|
|
|
$
|
28,791
|
|
|
$
|
26,402
|
|
(1)
|
Available
for sale securities are included in Investments in Equity Investees in the
Unaudited Condensed Consolidated Balance
Sheets
|
See Notes
to Unaudited Condensed Consolidated Financial Statements
New
Jersey Resources Corporation
Part
I
NO
TE
S TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
|
The
accompanying unaudited condensed consolidated financial statements have been
prepared by New Jersey Resources Corporation (NJR or the Company) in accordance
with the rules and regulations of the Securities and Exchange Commission (SEC).
The September 30, 2008 balance sheet data is derived from the audited financial
statements of the Company. These unaudited condensed consolidated financial
statements should be read in conjunction with the financial statements and the
notes thereto included in NJR’s 2008 Annual Report on Form 10-K.
The
unaudited condensed consolidated financial statements include the accounts of
NJR and its subsidiaries, New Jersey Natural Gas Company (NJNG), NJR Energy
Services Company (NJRES), NJR Retail Holdings Corporation (Retail Holdings), NJR
Energy Investment Corporation (NJREI) and NJR Service Company (NJR Service).
Intercompany transactions and accounts have been eliminated. NJREI’s primary
subsidiaries are NJR Energy Corporation (NJR Energy) and NJR Steckman Ridge
Storage Company. NJR Energy invests primarily in energy-related ventures through
its subsidiary, NJNR Pipeline Company (Pipeline), which holds the Company’s 5.53
percent ownership interest in Iroquois Gas and Transmission System, L.P.
(Iroquois). NJR Steckman Ridge Storage Company holds the Company’s 50 percent
combined interest in Steckman Ridge GP, LLC and Steckman Ridge, LP
(collectively, Steckman Ridge), a natural gas storage facility that was acquired
and is being developed with a partner in western Pennsylvania. Retail Holdings’
two principal subsidiaries are NJR Home Services Company (NJRHS) and Commercial
Realty & Resources Corporation (CR&R).
In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments necessary for a fair presentation
of the results of the interim periods presented. These adjustments are of a
normal and recurring nature. Because of the seasonal nature of NJR’s utility and
wholesale energy services operations, in addition to other factors, the
financial results for the interim periods presented are not indicative of the
results that are to be expected for the fiscal year ended September 30,
2009.
Customer
Accounts Receivable
Customer
accounts receivable include outstanding billings from the following subsidiaries
as of:
|
|
December
31,
|
|
|
September
30,
|
|
(Thousands)
|
|
2008
|
|
|
2008
|
|
NJNG
|
|
$
|
62,824
|
|
|
|
24
|
%
|
|
$
|
21,398
|
|
|
|
9
|
%
|
NJRES
|
|
|
188,135
|
|
|
|
73
|
|
|
|
198,902
|
|
|
|
88
|
|
NJRHS
and other
|
|
|
7,868
|
|
|
|
3
|
|
|
|
6,832
|
|
|
|
3
|
|
Total
|
|
$
|
258,827
|
|
|
|
100
|
%
|
|
$
|
227,132
|
|
|
|
100
|
%
|
Accounts
receivable related to estimated unbilled revenues and allowance for doubtful
accounts are associated with NJNG only.
Gas
in Storage
The
following table summarizes Gas in storage by company as of:
|
|
December
31,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2008
|
|
($
in thousands)
|
|
Assets
|
|
|
Bcf
|
|
|
Assets
|
|
|
Bcf
|
|
NJNG
|
|
$
|
163,808
|
|
|
|
19.4
|
|
|
$
|
189,828
|
|
|
|
22.1
|
|
NJRES
|
|
|
230,567
|
|
|
|
30.6
|
|
|
|
277,709
|
|
|
|
27.6
|
|
Total
|
|
$
|
394,375
|
|
|
|
50.0
|
|
|
$
|
467,537
|
|
|
|
49.7
|
|
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
New
Accounting Standards
Recently
Adopted
Effective
October 1, 2008 NJR adopted Statement of Financial Accounting Standards (SFAS)
No. 157,
Fair Value
Measurements
(SFAS 157) for its financial assets and liabilities, with
the exception of its pension assets. NJR will apply the provisions of SFAS 157
to its pension assets and non-financial assets and liabilities that are not
measured at least annually prospectively on October 1, 2009. SFAS 157 defines
fair value as the amount that would be exchanged to sell an asset or transfer a
liability in an orderly transaction between market participants, and establishes
a fair value hierarchy of market and unobservable data that is used to develop
pricing assumptions. The adoption of SFAS 157 did not have a material impact on
NJR’s financial position or results of operations. See
Note 5. Fair Value
Measurements
, for more information on the adoption of SFAS 157, as well
as the required disclosures.
On April
10, 2007, the FASB issued FASB Staff Position No. FIN 39-1 (FSP FIN 39-1),
Amendment of FASB Interpretation No. 39. FSP FIN 39-1 provides additional
guidance for parties that are subject to master netting arrangements.
Specifically, for transactions that are executed with the same counterparty, it
permits companies to offset the fair values of amounts recognized for
derivatives as well as the related fair value amounts of cash collateral
receivables or payables, when certain conditions apply. FSP FIN 39-1 became
effective for fiscal years beginning after November 15, 2007. As NJR’s policy
has been to present its derivative positions and any receivables or payables
with the same counterparty on a gross basis, FSP FIN 39-1 had no impact on its
statement of financial position and results of operations.
Other
Recently Issued Standards
In
February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities
(SFAS 159). SFAS 159 permits entities to
elect to measure eligible items at fair value as an alternative to hedge
accounting and to mitigate volatility in earnings. A company can elect either
the fair value option according to a pre-existing policy, when the asset or
liability is first recognized, or when it enters into an eligible firm
commitment. Changes in the fair value of assets and liabilities, for which the
Company chooses to apply the fair value option, are reported in earnings at each
reporting date. SFAS 159 also provides guidance on disclosures that are intended
to provide comparability to other companies’ assets and liabilities that have
different measurement attributes and to other companies with similar financial
assets and liabilities. SFAS 159 became effective for NJR as of October 1, 2008;
however, since the Company did not elect the fair value option for any items,
the provisions of SFAS 159 do not impact our results of operations or financial
condition.
On
December 4, 2007, the FASB issued SFAS No. 160,
Non-controlling Interests in
Consolidated Financial Statements
(SFAS 160). SFAS 160 is an amendment of
Accounting Research Bulletin (ARB) No. 51 and was issued to improve the
relevance, comparability and transparency of the financial information that a
reporting entity provides in its consolidated financial statements. This
Statement applies to all entities that prepare consolidated financial
statements, except not-for-profit organizations, but will affect only those
entities that have an outstanding non-controlling interest in one or more
subsidiaries. SFAS 160 clarifies that a non-controlling interest in a subsidiary
is an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements and that a parent company must
recognize a gain or loss in net income when a subsidiary is deconsolidated. SFAS
160 is effective for fiscal years beginning after December 15, 2008, and early
adoption is prohibited. The Company has concluded that this statement will have
no impact on its statement of financial position and results of
operations.
In March
2008, the FASB issued SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities
, (SFAS 161). SFAS 161 requires
enhanced qualitative and quantitative disclosures on the objectives and
accounting for derivatives and related hedging activities, as well as their
impacts on the financial statements. SFAS 161 is effective for fiscal years
and interim periods beginning after November 15, 2008. NJR will adopt SFAS 161
during the second quarter of fiscal year 2009 and is evaluating the effect of
adoption on its footnote disclosures.
2.
|
R
E
STATEMENT OF UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
|
NJRES
enters into park and loan transactions whereby it borrows natural gas from a
counterparty with an obligation to return the gas at a future date. In the
fourth quarter of fiscal 2009, management discovered an error in the accounting
for gas in storage, purchase obligations, embedded derivatives and gas demand
fees associated with these transactions. The impact of the errors was limited to
NJRES. Specifically, NJR had been using a forward price to value the inventory
and gas purchases liability. Both the natural gas that was received and the
“park and loan” liability should have been initially valued at the spot price on
the date NJRES received the gas. In addition, NJRES should have been accounting
for the obligation to return the gas as an embedded
derivative,
which should have been fair valued (“marked to market”) at each subsequent
balance sheet reporting date until the gas was returned to the counterparty. As
well, the initial spread between the spot price of the borrowed gas liability on
the date of the transaction and the forward price, based on the date NJRES would
return the natural gas, should have been recognized into income on a ratable
basis over the term of the park and loan agreement. In addition,
demand fees related to these transactions were not but should have been
recognized ratably over the term of the contract.
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
These
errors, while impacting our reported GAAP results, have no impact on our
Non-GAAP measure of Net Financial Earnings (“NFE”), which excludes the impact of
unrealized derivative gains and losses, effects of
economic
hedging related to inventory and demand
fees related to park and loan transactions. As discussed in the MD&A, NFE is
the key financial metric by which we measure the profitability of the
Company.
To
correct this accounting error, the Company is restating, herein, the unaudited
condensed consolidated financial statements for the three months ended December
31, 2008 and 2007 and for the condensed consolidated balance sheets
as of December 31, 2008 and September 30, 2008.
EFFECTS
OF RESTATEMENT
The
following table sets forth the effects of the restatement on affected line items
within the Company’s previously reported financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
|
|
Three
Months Ended
December
31,
|
|
|
Three
Months Ended
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
(Thousands)
|
|
As
Previously
Reported
|
|
|
Adjustment
|
|
|
As
Restated
|
|
|
As
Previously
Reported
|
|
|
Adjustment
|
|
|
As
Restated
|
|
Gas
purchases
|
|
$
|
698,145
|
|
|
$
|
(27,055
|
)
|
|
$
|
671,090
|
|
|
$
|
684,694
|
|
|
$
|
6,638
|
|
|
$
|
691,332
|
|
Total
operating expenses
|
|
$
|
779,108
|
|
|
$
|
(27,055
|
)
|
|
$
|
752,053
|
|
|
$
|
756,601
|
|
|
$
|
6,638
|
|
|
$
|
763,239
|
|
Operating
Income
|
|
$
|
22,196
|
|
|
$
|
27,055
|
|
|
$
|
49,251
|
|
|
$
|
54,537
|
|
|
$
|
(6,638
|
)
|
|
$
|
47,899
|
|
Income
before income taxes and equity in earnings of affiliates
|
|
$
|
16,507
|
|
|
$
|
27,055
|
|
|
$
|
43,562
|
|
|
$
|
48,255
|
|
|
$
|
(6,638
|
)
|
|
$
|
41,617
|
|
Income
tax provision
|
|
$
|
5,245
|
|
|
$
|
10,559
|
|
|
$
|
15,804
|
|
|
$
|
18,494
|
|
|
$
|
(2,727
|
)
|
|
$
|
15,767
|
|
Net
Income
|
|
$
|
11,776
|
|
|
$
|
16,496
|
|
|
$
|
28,272
|
|
|
$
|
30,185
|
|
|
$
|
(3,911
|
)
|
|
$
|
26,274
|
|
Basic
earnings per share
|
|
$
|
0.28
|
|
|
$
|
0.39
|
|
|
$
|
0.67
|
|
|
$
|
0.72
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.63
|
|
Diluted
earnings per share
|
|
$
|
0.28
|
|
|
$
|
0.39
|
|
|
$
|
0.67
|
|
|
$
|
0.72
|
|
|
$
|
(0.09
|
)
|
|
$
|
0.63
|
|
Note: Amounts
may not cross foot due to rounding
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
|
|
Three
Months Ended
December
31,
|
|
|
Three
Months Ended
December
31,
|
|
|
|
2008
|
|
|
2007
|
|
(Thousands)
|
|
As
Previously
Reported
|
|
|
Adjustment
|
|
|
Restated
|
|
|
As
Previously
Reported
|
|
|
Adjustment
|
|
|
As
Restated
|
|
Net
Income
|
|
$
|
11,776
|
|
|
$
|
16,496
|
|
|
$
|
28,272
|
|
|
$
|
30,185
|
|
|
$
|
(3,911
|
)
|
|
$
|
26,274
|
|
Unrealized
loss on derivatives
|
|
$
|
7,086
|
|
|
$
|
4,413
|
|
|
$
|
11,499
|
|
|
$
|
3,080
|
|
|
$
|
(1,768
|
)
|
|
$
|
1,312
|
|
Deferred
income taxes
|
|
$
|
(4,794
|
)
|
|
$
|
10,559
|
|
|
$
|
5,765
|
|
|
$
|
8,549
|
|
|
$
|
(2,727
|
)
|
|
$
|
5,822
|
|
Components
of working capital
|
|
$
|
(41,153
|
)
|
|
$
|
(31,468
|
)
|
|
$
|
(72,621
|
)
|
|
$
|
(57,844
|
)
|
|
$
|
4,870
|
|
|
$
|
(52,974
|
)
|
Other
noncurrent liabilities
|
|
$
|
27,582
|
|
|
|
—
|
|
|
$
|
27,582
|
|
|
$
|
833
|
|
|
$
|
3,536
|
|
|
$
|
4,369
|
|
Inventories
|
|
$
|
108,055
|
|
|
$
|
(34,899
|
)
|
|
$
|
73,156
|
|
|
$
|
33,940
|
|
|
$
|
(30,941
|
)
|
|
$
|
2,999
|
|
Gas
purchases payable
|
|
$
|
(43,369
|
)
|
|
$
|
2,288
|
|
|
$
|
(41,081
|
)
|
|
$
|
96,217
|
|
|
$
|
35,811
|
|
|
$
|
132,028
|
|
Other
current assets
|
|
$
|
5,420
|
|
|
$
|
1,143
|
|
|
$
|
6,563
|
|
|
$
|
(10,604
|
)
|
|
|
—
|
|
|
$
|
(10,604
|
)
|
Total
|
|
$
|
(41,153
|
)
|
|
$
|
(31,468
|
)
|
|
$
|
(72,621
|
)
|
|
$
|
(57,844
|
)
|
|
$
|
4,870
|
|
|
$
|
(52,974
|
)
|
Note: Amounts
may not cross foot due to rounding
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
ASSETS
|
|
(Unaudited)
|
|
(Audited)
|
|
|
|
December
31,
|
|
September
30,
|
|
|
|
2008
|
|
2008
|
|
(Thousands)
|
|
As
Previously
Reported
|
|
Adjustment
|
|
Restated
|
|
As
Previously
Reported
|
|
Adjustment
|
|
As
Restated
|
|
Gas
in storage, at average cost
|
|
$
|
370,488
|
|
|
$
|
23,887
|
|
|
$
|
394,375
|
|
|
$
|
478,549
|
|
|
$
|
(11,012
|
)
|
|
$
|
467,537
|
|
Derivatives
(current), at fair value
|
|
$
|
224,123
|
|
|
$
|
14,107
|
|
|
$
|
238,230
|
|
|
$
|
208,703
|
|
|
$
|
18,521
|
|
|
$
|
227,224
|
|
Other
(current)
|
|
$
|
12,517
|
|
|
$
|
1,254
|
|
|
$
|
13,771
|
|
|
$
|
12,785
|
|
|
$
|
2,396
|
|
|
$
|
15,181
|
|
Total
current assets
|
|
$
|
1,072,507
|
|
|
$
|
39,248
|
|
|
$
|
1,111,755
|
|
|
$
|
1,109,666
|
|
|
$
|
9,905
|
|
|
$
|
1,119,571
|
|
Total
assets
|
|
$
|
2,687,387
|
|
|
$
|
39,248
|
|
|
$
|
2,726,635
|
|
|
$
|
2,625,392
|
|
|
$
|
9,905
|
|
|
$
|
2,635,297
|
|
Note: Amounts
may not cross foot due to rounding
CAPITALIZATION
AND LIABILITIES
|
|
(Unaudited)
|
|
(Audited)
|
|
|
|
December
31,
|
|
September
30,
|
|
|
|
2008
|
|
2008
|
|
(Thousands)
|
|
As
Previously
Reported
|
|
Adjustment
|
|
Restated
|
|
As
Previously
Reported
|
|
Adjustment
|
|
As
Restated
|
|
Common
stock equity
|
|
$
|
736,496
|
|
|
$
|
17,606
|
|
|
$
|
754,102
|
|
|
$
|
726,958
|
|
|
$
|
1,110
|
|
|
$
|
728,068
|
|
Total
capitalization
|
|
$
|
1,197,204
|
|
|
$
|
17,606
|
|
|
$
|
1,214,810
|
|
|
$
|
1,182,075
|
|
|
$
|
1,110
|
|
|
$
|
1,183,185
|
|
Gas
purchases payable
|
|
$
|
272,147
|
|
|
$
|
10,372
|
|
|
$
|
282,519
|
|
|
$
|
315,516
|
|
|
$
|
8,084
|
|
|
$
|
323,600
|
|
Total
current liabilities
|
|
$
|
918,490
|
|
|
$
|
10,372
|
|
|
$
|
928,862
|
|
|
$
|
893,969
|
|
|
$
|
8,084
|
|
|
$
|
902,053
|
|
Deferred
income taxes
|
|
$
|
232,038
|
|
|
$
|
11,270
|
|
|
$
|
243,308
|
|
|
$
|
239,703
|
|
|
$
|
711
|
|
|
$
|
240,414
|
|
Total
noncurrent liabilities
|
|
$
|
571,693
|
|
|
$
|
11,270
|
|
|
$
|
582,963
|
|
|
$
|
549,348
|
|
|
$
|
711
|
|
|
$
|
550,059
|
|
Total
capitalization and liabilities
|
|
$
|
2,687,387
|
|
|
$
|
39,248
|
|
|
$
|
2,726,635
|
|
|
$
|
2,625,392
|
|
|
$
|
9,905
|
|
|
$
|
2,635,297
|
|
Note: Amounts
may not cross foot due to rounding
October
Base Rate Order
As a
result of increases in NJNG’s operation, maintenance and capital costs, on
November 20, 2007, NJNG petitioned the New Jersey Board of Public Utilities
(BPU) to increase base rates for delivery service by approximately $58.4
million, which included a return on NJNG’s equity component of 11.5 percent.
This request was consistent with NJNG’s objectives of providing safe and
reliable service to its customers and earning a market-based return on its
regulated investments.
On
October 3, 2008, the BPU unanimously approved and made effective the settlement
of NJNG’s base rate case. As a result, NJNG received a revenue increase in its
base rates of $32.5 million, which is inclusive of an approximate $13 million
impact of a change to the Conservation Incentive Program (CIP) baseline usage
rate, received an allowed return on equity component of 10.3 percent, reduced
its depreciation expense component from 3.0 percent to 2.34 percent and reduced
its annual depreciation expense by $1.6 million as a result of the amortization
of previously recovered asset retirement obligations.
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
Conservation
Incentive Program (CIP)
The CIP
allows NJNG to recover utility gross margin variations related to both weather
and customer usage. Recovery of such utility gross margin variations (filed for
annually and recovered one year following the end of the CIP usage year) is
subject to additional conditions, including an earnings test and an evaluation
of Basic Gas Supply Service (BGSS) related savings.
In May
2008, NJNG filed its Petition for the Annual Review of its CIP Program for
recoverable CIP amounts for fiscal 2008, requesting an additional $6.8 million
and approval to modify its CIP recovery rates effective October 1, 2008. The
additional amount brought the total recovery requested to $22.4 million. On
October 3, 2008, the BPU approved the CIP petition on a provisional basis,
effective the date of the Board Order. It is anticipated that NJNG will file a
petition in the spring of 2009 to extend its CIP or implement a similar
mechanism on a permanent basis, to be effective October 1, 2009.
In
conjunction with the CIP, NJNG incurs costs related to its obligation to fund
programs that promote customer conservation efforts during the three-year term
of the CIP pilot program. As of December 31, 2008, NJNG had a remaining
liability of $662,000 related to these programs.
Basic
Gas Supply Service (BGSS)
BGSS is a
BPU approved rate mechanism designed to allow for the recovery of natural gas
commodity costs. NJNG periodically adjusts its periodic BGSS rates for its
residential and small commercial customers to reflect increases or decreases in
the cost of natural gas sold to customers.
In May
2008, NJNG filed for an increase to the periodic BGSS factor to be effective
October 1, 2008, that would increase an average residential heating customer’s
bill by approximately 18 percent due to an increase in the price of wholesale
natural gas. Subsequent to the time of the filing, wholesale natural gas prices
moderated, and on September 22, 2008, NJNG, the Staff of the BPU and the
Department of the Public Advocate, Division of Rate Counsel (Rate Counsel)
signed an agreement for an increase to the periodic BGSS factor that would
increase an average residential heating customer’s bill by approximately 8.9
percent. On October 3, 2008, the BPU approved the BGSS increase on a provisional
basis, effective the date of the Board Order.
On
December 17, 2008, NJNG provided notice that it would implement a $30 million
BGSS-related rate credit that will lower sales customers’ bills in January and
February 2009. This rate credit was due primarily to a decline in wholesale
commodity costs subsequent to the October 2008 BGSS price change.
Other
Incentive Programs
NJNG is
eligible to receive financial incentives for reducing BGSS costs through a
series of utility gross margin-sharing programs that include off-system sales,
capacity release, storage incentive and financial risk management (FRM)
programs. In October 2007, the BPU reduced the sharing percentage of the margin
generated by the FRM program retained by NJNG from 20 percent to 15 percent
effective November 1, 2007. In October 2008, the Board’s base rate order
provided for the extension of the incentive programs through October 31, 2011,
along with a moderate expansion of the storage incentive and FRM
programs.
Societal
Benefits Charge (SBC) and Weather Normalization Clause (WNC)
The SBC
is comprised of three primary components: a Universal Service Fund rider (USF),
a Manufactured Gas Plant (MGP) Remediation Adjustment (RA), and the New Jersey
Clean Energy Program (NJCEP). In February 2008, NJNG filed an application
regarding its SBC proposing no change to the rates previously approved in
October 2007 (February 2008 SBC filing). On January 27, 2009, NJNG filed an
application regarding its SBC to increase its RA factor and its NJCEP factor
while maintaining its effective rate on USF (January 2009 SBC filing). The
January 2009 SBC filing is subject to BPU staff and Rate Counsel review and must
be approved by the BPU prior to implementing the new SBC rates.
USF
Through
the USF, eligible customers receive a credit toward their utility bill. The
credits applied to eligible customers are recovered through the USF rider in the
SBC. NJNG recovers carrying costs on deferred USF balances.
In June
2008, the natural gas utilities in the State of New Jersey collectively filed
with the BPU to increase the statewide USF recovery rate effective October 1,
2008. In the BPU’s October 21, 2008 Order, the USF increase was approved on a
provisional basis, effective October 24, 2008 and it also approved interest on
USF deferred balances at the Treasury Constant Maturity 2-year rate, plus 60
basis points, net of tax, with the rate changing on a monthly basis. NJNG
believes the increase has a negligible impact on customers.
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
MGP
In
October 2007, the BPU approved $14.7 million in eligible costs to be recovered
annually for MGP remediation expenditures incurred through June 30, 2006. The
February 2008 SBC filing included MGP remediation expenditures incurred through
June 30, 2007, resulting in an expected annual recovery of $17.7 million. The
January 2009 SBC filing included MGP remediation expenditures incurred through
June 30, 2008 resulting in an expected annual recovery of $20.7
million.
New
Jersey Clean Energy Program (NJCEP)
In
October 2008, the BPU released a final Order, updating state utilities’ funding
obligations for NJCEP for the period from January 1, 2009 to December 31, 2012.
NJNG’s share of the total funding requirement of $1.2 billion is $50.8 million.
Accordingly, as of December 31, 2008, NJNG recorded the obligation and a
corresponding regulatory asset at a present value of $44.3 in the Unaudited
Condensed Consolidated Balance Sheets. NJNG’s annual obligation gradually
increases from $10.3 million in fiscal 2009 to $15.9 million in fiscal 2012. As
of December 31, 2008, NJNG also has a $2.2 million obligation remaining from the
January 1, 2005 to December 31, 2008 period. The January 2009 SBC filing
included an increase to the NJCEP factor. The proposed factor is expected to
recover $12.9 million annually.
WNC
As of
December 31, 2008, NJNG has a $629,000 unrecovered balance related to gross
margin variations incurred during the fiscal 2006 winter period. On October 3,
2008, the BPU provisionally approved a decrease to NJNG’s WNC rate, effective
the date of the Board Order, to fully recover its remaining WNC
balance.
Economic
Stimulus
On
January 20, 2009, NJNG filed two petitions with the BPU seeking approval to
implement programs designed to both stimulate the state and local economy
through infrastructure investments and encourage energy efficiency. If approved,
the Accelerated Infrastructure Investment Program (AIP) will allow NJNG to
accelerate $70.8 million of previously planned infrastructure projects,
maintaining safe and reliable service to NJNG’s customers while increasing
workforce development. Proposed as a 2-year program, the AIP will be funded
through an annual adjustment to customers’ base rates. The second filing, for an
Energy Efficiency (EE) Program and associated cost recovery mechanism, requests
BPU approval to implement various programs to encourage energy efficiency for
residential and commercial customers. NJNG proposed to recover the EE costs of
approximately $22.9 million over a 4-year period through a clause mechanism
similar to the SBC. Both programs include the recovery of NJNG’s overall cost of
capital.
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
Regulatory
Assets & Liabilities
The
Company had the following regulatory assets, all related to NJNG, on the
Unaudited Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
(Thousands)
|
|
December
31,
2008
|
|
|
September
30,
2008
|
|
|
Recovery
Period
|
|
Regulatory
assets–current
|
|
|
|
|
|
|
|
|
|
Underrecovered
gas costs
|
|
$
|
2,977
|
|
|
$
|
27,994
|
|
|
Less
than one year
(1)
|
|
WNC
|
|
|
629
|
|
|
|
919
|
|
|
Less
than one year
(2)
|
|
CIP
|
|
|
17,474
|
|
|
|
22,463
|
|
|
Less
than one year
(3)
|
|
Total
current
|
|
$
|
21,080
|
|
|
$
|
51,376
|
|
|
|
|
Regulatory
assets–noncurrent
|
|
|
|
|
|
|
|
|
|
|
|
Remediation
costs (Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
Expended,
net of recoveries
|
|
$
|
91,346
|
|
|
$
|
92,164
|
|
|
(4)
|
|
Liability
for future expenditures
|
|
|
120,230
|
|
|
|
120,730
|
|
|
(5)
|
|
CIP
|
|
|
1,275
|
|
|
|
2,397
|
|
|
(6)
|
|
Deferred
income and other taxes
|
|
|
12,624
|
|
|
|
12,726
|
|
|
Various
(7)
|
|
Derivatives
(Note 4)
|
|
|
77,528
|
|
|
|
49,610
|
|
|
(8)
|
|
Postemployment
benefit costs (Note 11)
|
|
|
52,472
|
|
|
|
52,519
|
|
|
(9)
|
|
SBC/Clean
Energy
|
|
|
51,539
|
|
|
|
10,524
|
|
|
Various
(10)
|
|
Total
noncurrent
|
|
$
|
407,014
|
|
|
$
|
340,670
|
|
|
|
|
|
(1)
|
Recoverable,
subject to BPU approval, through BGSS, without
interest.
|
(2)
|
Recoverable
as a result of BPU approval in October 2008, without interest. This
balance reflects the net results from winter period of fiscal 2006. No new
WNC activity has been recorded since October 1, 2006 due to the existence
of the CIP.
|
(3)
|
Recoverable
or refundable, subject to BPU annual approval, without interest. Balance
includes approximately $6.6 million relating to the weather component of
the calculation and approximately $10.9 million relating to the customer
usage component of the calculation. Recovery from customers is designed to
be one year from date of rate approval by the
BPU.
|
(4)
|
Recoverable,
subject to BPU approval, with interest over rolling 7-year
periods.
|
(5)
|
Estimated
future expenditures. Recovery will be requested when actual expenditures
are incurred (see
Note
14. Commitments and Contingent Liabilities – Legal
Proceedings).
|
(6)
|
Recoverable
or refundable, subject to BPU annual approval, without interest. Balance
includes approximately $523,000 relating to the weather component of the
calculation and approximately $752,000 relating to the customer usage
component of the
calculation.
|
(7)
|
Recoverable
without interest, subject to BPU
approval.
|
(8)
|
Recoverable,
subject to BPU approval, through BGSS, without
interest.
|
(9)
|
Recoverable
or refundable, subject to BPU approval, without interest. Includes
unrecognized service costs recorded in accordance with SFAS No. 158,
Employers’
Accounting for Defined Benefit Pension and Other Postemployment
Plans
that
NJNG has determined are recoverable in rates charged to customers (see
Note
11. Employee Benefit Plans).
|
(10)
|
Recoverable
with interest, subject to BPU
approval.
|
If there
are any changes in regulatory positions that indicate the recovery of regulatory
assets is not probable, the related cost would be charged to income in the
period of such determination.
The
Company had the following regulatory liabilities, all related to NJNG, on the
Unaudited Condensed Consolidated Balance Sheets:
(Thousands)
|
|
December
31,
2008
|
|
|
September
30,
2008
|
|
Regulatory
liabilities–noncurrent
|
|
|
|
|
|
|
Cost
of removal obligation
(2)
|
|
$
|
61,820
|
|
|
$
|
63,419
|
|
Total
noncurrent
|
|
$
|
61,820
|
|
|
$
|
63,419
|
|
(1)
|
NJNG
accrues and collects for cost of removal in rates. This liability
represents collections in excess of actual expenditures. Approximately
$21.3 million, including accretion of $370,000 for the three months ended
December 31, 2008, of regulatory assets relating to asset retirement
obligations have been netted against the cost of removal obligation as of
December 31, 2008 (see
Note
12. Asset Retirement
Obligations).
|
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
4.
|
DER
IV
ATIVE INSTRUMENTS
|
The
Company and its subsidiaries are subject to market risk due to fluctuations in
the price of natural gas. To manage the risk of such fluctuations, the Company
and its subsidiaries enter into financial futures and forward contracts, option
agreements and swap agreements to economically hedge future purchases and sales
of natural gas. Due to the nature of these arrangements, they qualify as
derivatives in accordance with SFAS 133.
Effective
October 1, 2007, the Company changed the treatment of its physical commodity
contracts at NJRES, such that the changes in fair value of new contracts are
included in earnings, and are not accounted for using the “normal purchase
normal sales” (normal) scope exception of SFAS 133. As well, effective October
1, 2008, due to changes in the Company’s ability to assert physical delivery,
the Company is no longer treating physical commodity contracts executed prior to
October 1, 2007 as normal. Therefore, all NJRES physical commodity contracts are
accounted for at fair value in the Unaudited Condensed Consolidated Balance
Sheets, with changes in fair value included as a component of gas purchases in
the Unaudited Condensed Consolidated Statements of Income. All physical
commodity contracts at NJNG and NJR Energy continue to be designated as normal
and accounted for under accrual accounting.
As a
result of entering into transactions to borrow gas, commonly referred to as
“park and loans,” an embedded derivative is created related to potential
differences between the fair value of the amount borrowed and the fair value of
the amount that may ultimately be repaid, based on changes in value in forward
natural gas prices during the contract term. This embedded derivative is
accounted for as a forward sale in the month in which the repayment of the
borrowed gas is expected to occur, and is considered a physical derivative
transaction which is recorded at fair value on the balance sheet, with changes
in value recognized in current period earnings.
All of
the Company’s financial derivative instruments (financial futures, options or
swaps), are accounted for in accordance with SFAS 133 and recorded at fair value
in the Unaudited Condensed Consolidated Balance Sheets. Changes in fair value
are recorded as a component of Gas purchases or Operating revenues, for NJRES
and NJR Energy, respectively, in the Unaudited Condensed Consolidated Statements
of Income as unrealized gains or losses. Changes in fair value of NJNG’s
financial derivative instruments are recorded as a component of Regulatory
assets or liabilities in the Unaudited Condensed Consolidated Balance Sheets, as
these amounts will be recovered through future BGSS amounts as an increase or
reduction to the cost of natural gas in NJNG’s tariff.
The
Company enters into financial derivative instruments as an economic hedge of the
purchase and sale of natural gas. These derivatives are marked at fair value and
recognized in the Unaudited Condensed Consolidated Statements of Income as a
component of Gas purchases, or Operating revenues, as appropriate, in the
current period. However, the change in value of the actual physical natural gas
purchase is recognized in income only when that natural gas has been sold, which
is normally in a future period. Therefore, mismatches between the timing of
recognizing gains or losses on the derivative instruments and the timing of the
actual sale of the natural gas that is being economically hedged creates
volatility in the results of NJR, although the Company’s true economic results
are unaffected.
Generally,
exchange-traded futures contracts require a deposit of margin cash, the amount
of which is subject to change based on market price movements and in accordance
with exchange rules. The Company maintains broker margin accounts for NJNG and
NJRES. The balances are as follows:
(Thousands)
|
|
December
31,
2008
|
|
|
September
30,
2008
|
|
NJNG
broker margin deposit
|
|
$
|
74,884
|
|
|
$
|
41,277
|
|
NJRES
broker margin (liability)
|
|
$
|
(10,797
|
)
|
|
$
|
(29,072
|
)
|
5.
|
FAIR
V
AL
UE MEASUREMENTS
|
As noted
in
Note 1. General,
NJR
adopted SFAS 157 and has applied the provisions to its financial assets and
liabilities, which include financial derivatives, physical commodity contracts
qualifying as derivatives, available for sale securities and other financial
assets and liabilities. SFAS 157 defines and establishes a framework for
measuring fair value. SFAS 157 requires that companies consider assumptions
market participants would make when pricing assets and liabilities that are
required to be recognized at fair value in accordance with previously issued
accounting pronouncements.
SFAS 157
also requires additional disclosures that are intended to convey the reliability
of price inputs used to determine fair value. To facilitate this, SFAS 157
established a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value based on the source of the data used to
develop the price inputs. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities and the
lowest priority to inputs that are based on unobservable market data and include
the following:
Level
1
|
Unadjusted
quoted prices for identical assets or liabilities in active markets; NJR’s
Level 1 assets and liabilities include primarily exchange traded financial
derivative contracts and listed
equities;
|
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
Level 2
|
Significant
price data, other than Level 1 quotes, that is observed either directly or
indirectly; NJR’s level 2 assets and liabilities include over-the-counter
physical forward commodity contracts and swap contracts
or derivatives that are initially valued using observable quotes and
are subsequently adjusted to include time value, credit risk or estimated
transport pricing components. These additional adjustments are not
considered to be significant to the ultimate recognized
values.
|
Level 3
|
Inputs
derived from a significant amount of unobservable market data; these
include NJR’s best estimate of fair value and are derived primarily
through the use of internal valuation methodologies. Certain of NJR’s
physical commodity contracts that are to be delivered to inactively traded
points on a pipeline are included in this
category.
|
NJNG’s,
NJRES’ and NJR Energy’s financial derivatives portfolios can consist of futures,
options and swaps. NJR primarily uses the market approach and its policy is to
use actively quoted market prices when available. The principal market for its
derivative transactions is the natural gas wholesale market, therefore, the
primary source for its price inputs is the New York Mercantile (NYMEX) exchange.
NJRES also uses Natural Gas Exchange (NGX) for Canadian delivery points and
Platts and NYMEX ClearPort for certain over the counter physical forward
commodity contracts. However, NJRES also engages in transactions which result in
transporting natural gas to delivery points for which there is no actively
quoted market price. In these cases, NJRES’ policy is to use the best
information available to determine fair value based on internal pricing models,
which include estimates extrapolated from broker quotes or pricing services. As
of December 31, 2008, less than 1 percent of total fair value of NJRES’
derivative assets and liabilities was derived using such inputs.
NJR
Energy uses NYMEX settlement prices to value its long-dated swap contracts. NJR
also has available for sale securities and other financial assets that include
listed equities, mutual funds and money market funds for which there are active
exchange quotes available.
When NJR
determines fair values, we adjust measurements, as needed, for credit risk
associated with counterparties, as well as our own credit risk. NJR determines
these adjustments by using historical default probabilities that correspond to
the applicable Standard and Poor’s issuer ratings, while also taking into
consideration collateral and netting arrangements that serve to mitigate risk.
As of December 31, 2008, NJR further adjusted certain fair values, based on the
change in a market index that tracks the credit default swaps of investment
grade companies, to factor in the current instability in the credit
markets.
The
adoption of SFAS 157 did not have a material impact to NJR’s financial condition
or results of operations. Assets and liabilities measured at fair value on a
recurring basis as of December 31, 2008 are summarized as follows:
|
|
Quoted
Prices in Active
Markets
for Identical
Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
|
|
(Thousands)
|
|
(Level
1)
|
|
(Level
2)
|
|
(Level
3)
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Physical
forward commodity contracts
|
|
$
|
—
|
|
|
$
|
34,785
|
|
|
$
|
123
|
|
|
$
|
34,908
|
|
Financial
derivative contracts
|
|
|
148,973
|
|
|
|
81,575
|
|
|
|
—
|
|
|
|
230,548
|
|
Available
for sale securities
(1)
|
|
|
8,887
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,887
|
|
Other
assets
|
|
|
1,690
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,690
|
|
Total
assets at fair value
|
|
$
|
159,550
|
|
|
$
|
116,360
|
|
|
$
|
123
|
|
|
$
|
276,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Physical
forward commodity contracts
|
|
$
|
—
|
|
|
$
|
19,946
|
|
|
$
|
—
|
|
|
$
|
19,946
|
|
Financial
derivative contracts
|
|
|
166,068
|
|
|
|
38,475
|
|
|
|
—
|
|
|
|
204,543
|
|
Other
liabilities
|
|
|
1,690
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,690
|
|
Total
liabilities at fair value
|
|
$
|
167,758
|
|
|
$
|
58,421
|
|
|
$
|
—
|
|
|
$
|
226,179
|
|
(1)
|
Included
in Investments in equity investees in the Unaudited Condensed Consolidated
Balance Sheets.
|
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
A
reconciliation of the beginning and ending balances of NJRES’ derivatives
measured at fair value based on significant unobservable inputs is as
follows:
|
|
Fair
Value Measurements Using
|
|
|
Significant
Unobservable Inputs
|
|
|
(Level
3)
(1)
|
(Thousands)
|
|
Derivatives
|
|
Other
|
|
|
Total
|
Beginning balance
– October 1,
2008
|
|
$
|
937
|
|
|
$
|
—
|
|
|
$
|
937
|
|
Total
gains realized and unrealized
(1)
|
|
|
241
|
|
|
|
—
|
|
|
|
241
|
|
Purchases,
sales, other settlements, net
|
|
|
(572
|
)
|
|
|
—
|
|
|
|
(572
|
)
|
Net
transfers in and/or out of level 3
|
|
|
(483
|
)
|
|
|
—
|
|
|
|
(483
|
)
|
Ending balance
- December 31,
2008
|
|
$
|
123
|
|
|
$
|
—
|
|
|
$
|
123
|
|
(1)
|
Table
has been restated from original filing to include corrections to amounts
previously disclosed for the three month period ended December 31, 2008.
The net impact of these corrections (in 000’s) on the ending balance of
the Level 3 roll forward table as of December 31, 2008 was a decrease of
$8. The net impact included the following corrections: a decrease in the
beginning balance as of October 1, 2008 of $4,405, a net increase in
unrealized gains (losses) of $105, a decrease in purchases, sales,
issuances, settlements, net of $327, and a decrease in the net transfers
out of level 3 of
$3,965.
|
(2
)
|
Gains recognized in Gas purchases
are $241,000
.
|
NJR will
prospectively apply the provisions of SFAS 157 to its pension assets and
non-financial assets and liabilities beginning on October 1, 2009.
6.
|
IN
VE
STMENTS IN EQUITY
INVESTEES
|
NJR’s
Investments in equity investees include the following investments:
(Thousands)
|
|
December
31,
2008
|
|
|
September
30,
2008
|
|
Steckman
Ridge
|
|
$
|
106,457
|
|
|
$
|
84,285
|
|
Iroquois
|
|
|
24,497
|
|
|
|
23,604
|
|
Other
|
|
|
9,016
|
|
|
|
8,092
|
|
Total
|
|
$
|
139,970
|
|
|
$
|
115,981
|
|
NJR’s
investment in Steckman Ridge increased $22.2 million during the three months
ended December 31, 2008, including cash investments of $21 million and
capitalized costs of $1.2 million.
NJR uses
the equity method of accounting for its investments in Steckman Ridge and
Iroquois.
Other
investments represent investments in equity securities of publicly traded energy
companies, all of which are immaterial on an individual basis, and are accounted
for as available for sale securities, with any change in the value of such
investments recorded as Accumulated other comprehensive income, a component of
Common stock equity.
The
following is summarized financial information for Iroquois:
|
|
Three Months Ended
December 31,
|
(Millions)
|
|
2008
|
|
2008
|
Operating
revenues
|
|
$
|
41.8
|
|
|
$
|
38.8
|
|
Operating
income
|
|
$
|
21.7
|
|
|
$
|
19.3
|
|
Net
income
|
|
$
|
9.5
|
|
|
$
|
7.6
|
|
(Millions)
|
|
December 31,
2008
|
|
|
September 30,
2008
|
|
Current
assets
|
|
$
|
52.6
|
|
|
$
|
64.2
|
|
Noncurrent
assets
|
|
$
|
753.4
|
|
|
$
|
729.2
|
|
Current
liabilities
|
|
$
|
49.8
|
|
|
$
|
39.3
|
|
Noncurrent
liabilities
|
|
$
|
334.9
|
|
|
$
|
348.9
|
|
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
The
following table presents the calculation of the Company’s basic and diluted
earnings per share:
|
|
Three
Months Ended
December
31,
|
|
(Thousands,
except per share amounts)
|
|
2008
|
|
|
2007
|
|
Net
income, as reported
|
|
$
|
28,272
|
|
|
$
|
26,274
|
|
Basic
earnings per share
|
|
|
|
|
|
|
|
|
Weighted
average shares of common stock outstanding–basic
|
|
|
42,170
|
|
|
|
41,678
|
|
Basic
earnings per common share
|
|
$
|
0.67
|
|
|
$
|
0.63
|
|
Diluted
earnings per share
|
|
|
|
|
|
|
|
|
Weighted
average shares of common stock outstanding–basic
|
|
|
42,170
|
|
|
|
41,678
|
|
Incremental
shares
(1)
|
|
|
325
|
|
|
|
250
|
|
Weighted
average shares of common stock outstanding–diluted
|
|
|
42,495
|
|
|
|
41,928
|
|
Diluted
earnings per common share
(2)
|
|
$
|
0.67
|
|
|
$
|
0.63
|
|
(1)
|
Incremental
shares consist of stock options, stock awards and performance
units.
|
(2)
|
There
were no anti-dilutive shares excluded from the calculation of diluted
earnings per share for the three months ended December 2008 and December
2007.
|
NJR
On
December 13, 2007, NJR entered into a $325 million, five-year, revolving,
unsecured credit facility. As of December 31, 2008, NJR had $62 million in
borrowings outstanding under the facility.
As of
December 31, 2008, NJR had one letter of credit outstanding for $675,000 on
behalf of CR&R, which will expire on December 3, 2009. The letter of credit
is in place to support development activities.
On
February 15, 2008, NJR entered into an agreement for a stand-alone letter of
credit that may be drawn upon through February 15, 2009 for up to $15 million.
No amounts have been drawn under this letter of credit as of December 31,
2008.
NJNG
On
November 1, 2008, upon maturity, NJNG redeemed its $30 million, 6.27 percent,
Series X First Mortgage bonds.
In
October 2007, NJNG entered into an agreement for standby letters of credit that
may be drawn upon through December 15, 2009 for up to $50 million. As of
December 31, 2008, no letters of credit have been issued under this agreement.
These letters of credit would not reduce the amount available to be borrowed
under NJNG’s credit facility.
As of
December 31, 2008, NJNG has a $250 million committed facility with several
banks, with a 5-year term expiring in December 2009. This facility is used to
support NJNG’s commercial paper program.
NJNG
received $6.3 million and $7.5 million in December 2008 and 2007, respectively,
in connection with the sale-leaseback of its natural gas meters. This
sale-leaseback program is expected to be continued on an annual
basis.
NJNG is
obligated with respect to loan agreements securing six series of variable rate
bonds totaling approximately $97.0 million of variable-rate debt backed by
securities issued by the New Jersey Economic Development Authority (EDA). The
EDA bonds are commonly referred to as auction rate securities (ARS) and have an
interest rate reset every 7 or 35 days, depending upon the applicable series. On
those dates, an auction is held for the purposes of determining the interest
rate of the securities. The interest rate associated with the NJNG variable-rate
debt is based on the rates on the EDA ARS. For the three months ended December
31, 2008, all of the auctions surrounding the EDA ARS have failed, resulting in
those bonds bearing interest at their maximum rates, defined in the EDA ARS as
the lesser of (i) 175 percent of 30-day LIBOR or (ii) 10 to 12 percent per
annum, as applicable to such series of ARS. As of December 31, 2008, the
30-day LIBOR rate was 0.44 percent. While the failure of the ARS auctions does
not signify or constitute a default on NJNG, the EDA ARS does impact NJNG’s
borrowing costs of the variable-rate debt. As such, NJNG currently has a
weighted average interest rate of 0.8 percent as of December 31, 2008, compared
with a weighted average interest rate of 4.6 percent as of September 30, 2008.
There can be no assurance that the EDA ARS will have enough market liquidity to
avoid failed auctions in the future.
In
October 2005, NJNG entered into a loan agreement under which the EDA loaned NJNG
the proceeds from $35.8 million of tax-exempt EDA Bonds. NJNG deposited $15.0
million of the proceeds into a construction fund to finance subsequent
construction in the northern division of NJNG’s territory. NJNG drew down $10.8
million from the construction fund prior to fiscal year 2008 and drew down the
remaining $4.2 million during the first quarter of fiscal
2009.
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
Neither
NJNG nor the results of its operations are obligated or pledged to support the
NJR or NJRES credit facilities.
NJRES
As of
December 31, 2008, NJRES had a 3-year, $30 million committed credit facility
that expires in October 2009 with a multinational financial institution. There
were no borrowings under this facility as of December 31, 2008.
Consolidated
There
were no issuances or redemptions of long-term debt securities for NJR or NJRES
during the three months ended December 31, 2008.
A summary
of NJR’s and NJNG’s long-term debt, committed credit facilities which require
commitment fees on the unused amounts, and NJRES’ committed facility that does
not require a fee, are as follows:
|
|
December
31
|
|
|
September
30,
|
|
(Thousands)
|
|
2008
|
|
|
2008
|
|
NJR
|
|
|
|
|
|
|
Long
- term debt
(1)
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
Bank
credit facilities
|
|
$
|
325,000
|
|
|
$
|
325,000
|
|
Amount
outstanding under bank credit facilities at end of
period
|
|
$
|
62,000
|
|
|
$
|
32,700
|
|
Weighted
average interest rate at end of period
|
|
|
0.78
|
%
|
|
|
2.46
|
%
|
NJNG
|
|
|
|
|
|
|
|
|
Long
- term debt
(2)
|
|
$
|
349,800
|
|
|
$
|
379,800
|
|
Bank
credit facilities
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
Amount
outstanding under bank credit facilities at end of
period
|
|
$
|
203,550
|
|
|
$
|
145,500
|
|
Weighted
average interest rate at end of period
|
|
|
1.19
|
%
|
|
|
2.31
|
%
|
NJRES
|
|
|
|
|
|
|
|
|
Bank
credit facilities
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
Amount
outstanding under bank credit facilities at end of
period
|
|
|
—
|
|
|
|
—
|
|
Weighted
average interest rate at end of periods
|
|
|
—
|
|
|
|
—
|
|
(1)
|
Amounts
are comprised of $25.0 million issued in March 2004, maturing in
March 2009, and $50.0 million issued in September 2007, maturing in
September 2017.
|
(2)
|
Long-term
debt excludes lease obligations of $66.7 million and $60.4 million at
December 31, 2008 and September 30, 2008,
respectively.
|
9.
|
CA
PI
TALIZED FINANCING COSTS AND DEFERRED
INTEREST
|
Included
in the Unaudited Condensed Consolidated Balance Sheets are capitalized amounts
associated with NJR’s Allowance for funds used during construction, (AFUDC),
which are recorded in Utility plant, as well as capitalized interest recorded in
Real estate properties and other and Investments in equity investees.
Corresponding amounts recognized in Interest expense and Other income, as
appropriate, in the Unaudited Consolidated Statements of Income are as
follows:
|
|
Three
Months Ended
December
31,
|
|
(Thousands)
|
|
2008
|
|
|
2007
|
|
AFUDC
– Utility plant
|
|
$
|
258
|
|
|
$
|
535
|
|
Weighted
average rate
|
|
|
4.00
|
%
|
|
|
8.31
|
%
|
|
|
|
|
|
|
|
|
|
Capitalized
interest – Real estate properties and other
|
|
$
|
—
|
|
|
$
|
36
|
|
Weighted
average interest rates
|
|
|
—
|
%
|
|
|
5.08
|
%
|
|
|
|
|
|
|
|
|
|
Capitalized
interest – Investments in equity investees
|
|
$
|
843
|
|
|
$
|
855
|
|
Weighted
average interest rates
|
|
|
5.50
|
%
|
|
|
5.98
|
%
|
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
The AFUDC
amounts shown in the table above for the three months ended December 31, 2007
include an equity component based on NJNG’s prior return on equity rate of 11.5
percent. As a result of the BPU’s Base Rate Order issued in October 2008, NJNG
implemented certain rate design changes, including a change to its AFUDC
calculation and a return on equity rate of 10.3 percent (see Note 3.
Regulation). Effective October 3, 2008, NJNG is allowed to recover an
incremental cost of equity component during periods when its short-term debt
balances are lower than its construction work in progress. For the three months
ended December 31, 2008, AFUDC only includes a debt component.
NJR,
through its CR&R subsidiary, capitalizes interest associated with the
development and construction of its commercial buildings. Interest is also
capitalized associated with the acquisition, development and construction of a
natural gas storage facility through NJR’s equity investment in Steckman Ridge
(see
Note 6. Investments in
Equity Investees and other
).
Pursuant
to a BPU order, NJNG is permitted to recover carrying costs on uncollected
balances related to SBC program costs, which include NJCEP, RAC and USF
expenditures. Accordingly, Other income included $563,000 and $738,000 of
deferred interest income related to these SBC program costs for period ended
December 31, 2008 and 2007, respectively.
10.
|
STOCK-
BASED
COMPENSATION
|
On
November 11, 2008, the Company granted 106,730 restricted shares that vested
immediately. On the same date the Company also granted 8,481 shares that vested
immediately and were issued on November 17, 2008. As of December 31, 2008,
2,448,586 and 107,203 shares, respectively, remain available for future awards
to employees and directors.
During
the first three months of fiscal 2009, included in operation and maintenance
expense is $483,000 related to stock-based compensation. As of December 31, 2008
there remains $1.9 million of deferred compensation related to unvested shares
and options, which is expected to be recognized over the next 3
years.
11.
|
EM
PLO
YEE BENEFIT PLANS
|
Pension
and Other Postemployment Benefit Plans (OPEB)
The
components of the net periodic cost for pension benefits, including NJR’s
Pension Equalization Plan, and OPEB costs (principally health care and life
insurance) for employees and covered dependents were as follows:
|
|
Pension
|
|
|
OPEB
|
|
|
|
Three
Months
Ended
December
31,
|
|
|
Three
Months
Ended
December
31,
|
|
(Thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Service
cost
|
|
$
|
678
|
|
|
$
|
728
|
|
|
$
|
584
|
|
|
$
|
488
|
|
Interest
cost
|
|
|
1,937
|
|
|
|
1,648
|
|
|
|
1,006
|
|
|
|
821
|
|
Expected
return on plan assets
|
|
|
(2,188
|
)
|
|
|
(2,183
|
)
|
|
|
(647
|
)
|
|
|
(583
|
)
|
Recognized
actuarial loss
|
|
|
139
|
|
|
|
275
|
|
|
|
319
|
|
|
|
262
|
|
Prior
service cost amortization
|
|
|
14
|
|
|
|
14
|
|
|
|
20
|
|
|
|
20
|
|
Special
termination benefit
|
|
|
—
|
|
|
|
—
|
|
|
|
89
|
|
|
|
89
|
|
Net
periodic cost
|
|
$
|
580
|
|
|
$
|
482
|
|
|
$
|
1,371
|
|
|
$
|
1,097
|
|
For
fiscal 2009, the Company has no minimum pension funding requirements, however,
funding requirements are uncertain and can depend significantly on changes in
actuarial assumptions, returns on plan assets and changes in demographic
factors. It is anticipated that the annual funding level to the OPEB plans will
range from $1.2 million to $1.4 million over the next five years. Additional
contributions may be made based on market conditions and various
assumptions.
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
12.
|
A
SS
ET RETIREMENT OBLIGATIONS
(ARO)
|
NJR
recognizes AROs related to the costs associated with cutting and capping its
main and service gas distribution pipelines of NJNG, which is required by New
Jersey law when taking such gas distribution pipelines out of
service.
The
following is an analysis of the change in the ARO liability for the period ended
December 31, 2008:
(Thousands)
Balance
at October 1, 2008
|
|
$
|
24,416
|
|
Accretion
|
|
|
371
|
|
Additions
|
|
|
—
|
|
Retirements
|
|
|
(19
|
)
|
Balance at
December 31,
2008
|
|
$
|
24,768
|
|
Accretion
amounts are not reflected as an expense on NJR’s Unaudited Condensed
Consolidated Statements of Income, but rather are deferred as a regulatory asset
and netted against NJNG’s regulatory liabilities, for presentation purposes, on
the Unaudited Condensed Consolidated Balance Sheet.
As of
September 30, 2008 the Company had a FIN 48 (Reserve for Uncertain Tax
Positions) balance of $6.5 million. During the first quarter of fiscal year
2009, the company settled a tax court case with the State of New Jersey, which
resulted in a decrease to the reserve balance of $2.7 million.
Over the
next twelve months the company expects to finalize the September 30, 2005
Internal Revenue Service (IRS) tax audit, which is expected to result in an
additional reduction to the remaining FIN 48 balance of $3.8 million. The $3.8
million relates to one issue which has been settled favorably and will result in
no changes to the company’s tax liability related to the issue. As such the FIN
48 reserve is expected to be released during fiscal 2009.
NJR
accrues penalties and interest related to its FIN 48 and other tax issues as a
component of the income tax provision, therefore, the ultimate settlement of the
various tax issues will impact the effective tax rate to the extent that the
amount of penalties and interest assessed is different than the amounts
originally accrued. The tax effect of the currently accrued and
settled issues will have no impact on the effective tax rate.
Currently
the company has no reason to believe that there will be any new additions to the
FIN 48 reserve.
14.
|
CO
MMI
TMENTS AND CONTINGENT
LIABILITIES
|
Cash
Commitments
NJNG has
entered into long-term contracts, expiring at various dates through 2023, for
the supply, storage and delivery of natural gas. These contracts include current
annual fixed charges of approximately $87.6 million at current contract rates
and volumes, which are recoverable through the BGSS.
For the
purpose of securing adequate storage and pipeline capacity, NJRES enters into
storage and pipeline capacity contracts, which require the payment of certain
demand charges by NJRES, in order to maintain the ability to access such natural
gas storage or pipeline capacity, during a fixed time period, which generally
range from one to five years. Demand charges are based on established rates as
regulated by the Federal Energy Regulatory Commission (FERC). These demand
charges represent commitments to pay storage providers or pipeline companies for
the right to store and transport natural gas utilizing their respective assets.
As of December 31, 2008, NJRES had contractual obligations for current annual
demand charges related to storage contracts and pipeline capacity contracts of
$27.3 million and $52.2 million, respectively.
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
As of
December 31, 2008, there were NJR guarantees covering approximately $421 million
of natural gas purchases and demand fee commitments of NJRES and NJNG not yet
reflected in accounts payable on the Unaudited Condensed Consolidated Balance
Sheet. Commitments as of December 31, 2008 for natural gas purchases and future
demand fees, for the next five fiscal year periods, are as follows:
(Thousands)
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
Thereafter
|
|
NJRES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas purchases
|
|
$
|
600,177
|
|
|
$
|
109,213
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Pipeline
demand fees
|
|
|
27,266
|
|
|
|
18,136
|
|
|
|
12,735
|
|
|
|
9,791
|
|
|
|
2,235
|
|
|
|
1,913
|
|
Storage
demand fees
|
|
|
52,242
|
|
|
|
31,792
|
|
|
|
15,743
|
|
|
|
6,265
|
|
|
|
5,298
|
|
|
|
4,940
|
|
Sub-total
NJRES
|
|
$
|
679,685
|
|
|
$
|
159,141
|
|
|
$
|
28,478
|
|
|
$
|
16,056
|
|
|
$
|
7,533
|
|
|
$
|
6,853
|
|
NJNG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
gas purchases
|
|
$
|
76,054
|
|
|
$
|
16,123
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Pipeline
demand fees
|
|
|
21,873
|
|
|
|
18,996
|
|
|
|
10,842
|
|
|
|
7,392
|
|
|
|
7,042
|
|
|
|
2,347
|
|
Storage
demand fees
|
|
|
65,725
|
|
|
|
78,253
|
|
|
|
76,948
|
|
|
|
71,597
|
|
|
|
71,483
|
|
|
|
297,474
|
|
Sub-total
NJNG
|
|
$
|
163,652
|
|
|
$
|
113,372
|
|
|
$
|
87,790
|
|
|
$
|
78,989
|
|
|
$
|
78,525
|
|
|
$
|
299,821
|
|
Total
|
|
$
|
843,337
|
|
|
$
|
272,513
|
|
|
$
|
116,268
|
|
|
$
|
95,045
|
|
|
$
|
86,058
|
|
|
$
|
306,674
|
|
Costs for
storage and pipeline demand fees, included as a component of Gas purchases on
the Unaudited Condensed Consolidated Statements of Income, are as
follows:
|
|
Three
Months Ended
December
31
,
|
|
(Millions)
|
|
2008
|
|
|
2007
|
|
NJRES
|
|
$
|
28.9
|
|
|
$
|
27.7
|
|
NJNG
|
|
|
20.5
|
|
|
|
18.7
|
|
Total
|
|
$
|
49.4
|
|
|
$
|
46.4
|
|
NJNG’s
capital expenditures are estimated at $77.3 million for fiscal 2009, of which
approximately $18.4 million has been committed, and consists primarily of its
construction program to support customer growth, maintenance of its distribution
system, replacement needed under pipeline safety regulations and an automated
meter reading installation project.
The
Company’s future minimum lease payments under various operating leases are less
than $3.2 million annually for the next five years and $1.6 million in the
aggregate for all years thereafter.
Legal
Proceedings
Manufactured
Gas Plant Remediation
NJNG is
responsible for the remedial cleanup of three Manufactured Gas Plant (MGP)
sites, dating back to gas operations in the late 1800s and early 1900s, which
contain contaminated residues from former gas manufacturing operations. NJNG is
currently involved in administrative proceedings with the New Jersey Department
of Environmental Protection (NJDEP), as well as participating in various studies
and investigations by outside consultants to determine the nature and extent of
any such contaminated residues and to develop appropriate programs of remedial
action, where warranted, under Administrative Consent Orders or Memoranda of
Agreement with the NJDEP.
NJNG may,
subject to BPU approval, recover its remediation expenditures, including
carrying costs, over rolling 7-year periods pursuant to a Remediation Adjustment
(RA) approved by the BPU. In October 2007, the BPU approved $14.7 million in
eligible costs to be recovered annually for MGP remediation expenditures
incurred through June 30, 2006. In February 2008, NJNG filed an application
regarding its SBC which included MGP remediation expenditures incurred through
June 30, 2007, resulting in an expected annual recovery of $17.7 million. On
January 27, 2009, NJNG filed an application regarding its SBC including MGP
remediation expenditures incurred through June 30, 2008 resulting in an expected
annual recovery of $20.7 million. As of December 31, 2008, $91.3 million of
previously incurred remediation costs, net of recoveries from customers and
insurance proceeds, are included in Regulatory assets on the Unaudited Condensed
Consolidated Balance Sheet.
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
In
September 2008, NJNG updated an environmental review of the MGP sites, including
a review of potential liability for investigation and remedial action. NJNG
estimated at the time of the review that total future expenditures to remediate
and monitor the three MGP sites for which it is responsible will range from
approximately $120.2 million to $177.2 million. NJNG’s estimate of these
liabilities is based upon known facts, existing technology and enacted laws and
regulations in place when the review was completed. However, NJNG expects actual
costs to differ from these estimates. Where it is probable that costs will be
incurred, but the information is sufficient only to establish a range of
possible liability, and no point within the range is more likely than any other,
it is NJNG’s policy to accrue the lower end of the range. Accordingly, NJNG has
recorded an MGP remediation liability and a corresponding Regulatory asset of
$120.2 million on the Unaudited Condensed Consolidated Balance Sheet. The actual
costs to be incurred by NJNG are dependent upon several factors, including final
determination of remedial action, changing technologies and governmental
regulations, the ultimate ability of other responsible parties to pay and any
insurance recoveries.
NJNG will
continue to seek recovery of MGP-related costs through the RAC. If any future
regulatory position indicates that the recovery of such costs is not probable,
the related cost would be charged to income in the period of such determination.
However, because recovery of such costs is subject to BPU approval, there can be
no assurance as to the ultimate recovery through the RAC or the impact on the
Company’s results of operations, financial position or cash flows, which could
be material.
General
The
Company is party to various other claims, legal actions and complaints arising
in the ordinary course of business. In the Company’s opinion, other than as
disclosed in Part II Item 1 of this Form 10-Q/A, the ultimate disposition of
these matters will not have a material adverse effect on its financial
condition, results of operations or cash flows.
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
15.
|
BUSIN
ES
S SEGMENT AND OTHER OPERATIONS
DATA
|
NJR
organizes its business based on its products and services as well as regulatory
environment. As a result, the Company chooses to manage the
businesses through the following reportable segments and other
operations: the Natural Gas Distribution segment consists of
regulated energy and off-system, capacity and storage management operations. The
Energy Services segment consists of unregulated wholesale energy operations. The
Retail and Other operations consist of appliance and installation services,
commercial real estate development, investments and other corporate
activities.
Information
related to the Company’s various business segments and other operations,
excluding capital expenditures at NJNG of $19.7 million and at Retail and Other
of $145,000, is detailed below.
|
|
(Unaudited)
|
|
|
|
Three
Months Ended
December
31,
|
|
(Thousands)
|
|
2008
|
|
|
2007
|
|
Operating
Revenues
|
|
|
|
|
|
|
Natural
Gas Distribution
|
|
$
|
340,908
|
|
|
$
|
284,360
|
|
Energy
Services
|
|
|
463,094
|
|
|
|
520,211
|
|
Segment
subtotal
|
|
|
804,002
|
|
|
|
804,571
|
|
Retail
and Other
|
|
|
(2,654
|
)
|
|
|
6,631
|
|
Intersegment
revenues
(1)
|
|
|
(44
|
)
|
|
|
(64
|
)
|
Total
|
|
$
|
801,304
|
|
|
$
|
811,138
|
|
Depreciation
and Amortization
|
|
|
|
|
|
|
|
|
Natural
Gas Distribution
|
|
$
|
7,161
|
|
|
$
|
9,233
|
|
Energy
Services
|
|
|
51
|
|
|
|
53
|
|
Segment
subtotal
|
|
|
7,212
|
|
|
|
9,286
|
|
Retail
and Other
|
|
|
149
|
|
|
|
117
|
|
Total
|
|
$
|
7,361
|
|
|
$
|
9,403
|
|
Interest
Income
(2)
|
|
|
|
|
|
|
|
|
Natural
Gas Distribution
|
|
$
|
658
|
|
|
$
|
1,202
|
|
Energy
Services
|
|
|
127
|
|
|
|
107
|
|
Segment
subtotal
|
|
|
785
|
|
|
|
1,309
|
|
Retail
and Other
|
|
|
6
|
|
|
|
55
|
|
Intersegment
interest income
(1)
|
|
|
(110
|
)
|
|
|
—
|
|
Total
|
|
$
|
681
|
|
|
$
|
1,364
|
|
Interest
Expense, net of capitalized interest
|
|
|
|
|
|
|
|
|
Natural
Gas Distribution
|
|
$
|
6,460
|
|
|
$
|
6,119
|
|
Energy
Services
(3)
|
|
|
86
|
|
|
|
877
|
|
Segment
subtotal
|
|
|
6,546
|
|
|
|
6,996
|
|
Retail
and Other
|
|
|
111
|
|
|
|
814
|
|
Intersegment
interest expense
(1)
|
|
|
(110
|
)
|
|
|
—
|
|
Total
|
|
$
|
6,547
|
|
|
$
|
7,810
|
|
Income
Tax Provision (Benefit)
|
|
|
|
|
|
|
|
|
Natural
Gas Distribution
|
|
$
|
13,336
|
|
|
$
|
10,045
|
|
Energy
Services
(3)
|
|
|
6,832
|
|
|
|
5,939
|
|
Segment
subtotal
|
|
|
20,168
|
|
|
|
15,984
|
|
Retail
and Other
|
|
|
(4,364
|
)
|
|
|
(217
|
)
|
Total
|
|
$
|
15,804
|
|
|
$
|
15,767
|
|
Net
Financial Earnings
|
|
|
|
|
|
|
|
|
Natural
Gas Distribution
|
|
$
|
23,074
|
|
|
$
|
16,670
|
|
Energy
Services
|
|
|
9,383
|
|
|
|
19,092
|
|
Segment
subtotal
|
|
|
32,457
|
|
|
|
35,762
|
|
Retail
and Other
|
|
|
21
|
|
|
|
545
|
|
Total
|
|
$
|
32,478
|
|
|
$
|
36,307
|
|
(1)
|
Consists
of transactions between subsidiaries that are eliminated and reclassified
in consolidation
|
(2)
|
Included
in Other income in the Unaudited Condensed Consolidated Statement of
Income
|
(3)
|
Amounts
have been restated to reflect gross interest income and interest
expense, which were previously
netted.
|
New
Jersey Resources Corporation
Part
I
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
The chief
operating decision maker of the Company is the Chief Executive Officer (CEO).
The CEO uses net financial earnings as a measure of profit or loss in measuring
the results of the Company’s segments and operations. A reconciliation of Net
financial earnings to consolidated Net Income, for the three months ended
December 31, 2008 and 2007, respectively, is as follows:
|
|
Three
Months Ended
|
|
|
|
December
31,
|
|
(Thousands)
|
|
2008
|
|
|
2007
|
|
Reconciliation
of net financial earnings to consolidated net income:
|
|
|
|
|
|
|
Natural
Gas Distribution
|
|
$
|
23,074
|
|
|
$
|
16,670
|
|
Energy
Services
|
|
|
9,383
|
|
|
|
19,092
|
|
Retail
and Other
|
|
|
21
|
|
|
|
545
|
|
Consolidated
Net Financial Earnings
|
|
|
32,478
|
|
|
|
36,307
|
|
Less:
|
|
|
|
|
|
|
|
|
Unrealized
loss from derivative instruments, net of taxes
|
|
|
6,812
|
|
|
|
4,121
|
|
Effects
of economic hedging related to natural gas inventory and certain demand
fees, net of taxes
|
|
|
(2,606
|
)
|
|
|
5,912
|
|
Consolidated
Net Income
|
|
$
|
28,272
|
|
|
$
|
26,274
|
|
The
company uses derivative instruments as economic hedges of purchases and sales of
physical gas inventory. For GAAP purposes, these derivatives are recorded at
fair value and related changes in fair value are included in reported earnings.
Revenues and cost of gas related to physical gas flow is recognized as the gas
is delivered to customers. Consequently, there is a mismatch in the timing of
earnings recognition between the economic hedges and physical gas flows. Timing
differences occur in two ways:
|
Ÿ
|
Unrealized
gains and losses on derivatives are recognized in reported earnings in
periods prior to physical gas inventory flows;
and
|
|
Ÿ
|
Unrealized
gains and losses of prior periods are reclassified as realized gains and
losses when derivatives are settled in the same period as physical gas
inventory movements occur.
|
Net
financial earnings is a measure of the earnings based on eliminating these
timing differences, to effectively match the earnings effects of the economic
hedges with the physical sale of gas. Consequently, to reconcile between GAAP
and net financial earnings, current period unrealized gains and losses on the
derivatives are excluded from net financial earnings as a reconciling item.
Additionally, realized derivative gains and losses are also included in current
period net income, however net financial earnings include only realized gains
and losses related to natural gas sold out of inventory, effectively matching
the full earnings effects of the derivatives with realized margins on physical
gas flows.
The
Company’s assets for the various business segments and business operations are
detailed below:
|
|
December
31,
|
|
|
September
30,
|
|
(Thousands)
|
|
2008
|
|
|
2008
|
|
Assets
at end of period:
|
|
|
|
|
|
|
Natural
Gas Distribution
|
|
$
|
1,868,319
|
|
|
$
|
1,761,964
|
|
Energy
Services
|
|
|
668.558
|
|
|
|
699,897
|
|
Segment
Subtotal
|
|
|
2,536.877
|
|
|
|
2,461.861
|
|
Retail
and Other
|
|
|
232,246
|
|
|
|
231,551
|
|
Intercompany
Assets
(1)
|
|
|
(42,488
|
)
|
|
|
(58,115
|
)
|
Total
|
|
$
|
2,726,635
|
|
|
$
|
2,635.297
|
|
(1)
|
Consists
of transactions between subsidiaries that are eliminated and reclassified
in consolidation
|
For the
three months ended December 31, 2008, NJRES had one customer who represented
more than 10 percent of its total revenue. Management believes that the loss of
this customer would not have a material effect on its financial position,
results of operations or cash flows as an adequate number of alternative
counterparties exist.
At
December 31, 2008, there were 42,256,517 shares of common stock outstanding and
the book value per share was $17.85
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|
The accompanying Management's
Discussion and Analysis of Financial Condition and Results of Operations gives
effect to the restatement of the Company's unaudited condensed consolidated
statements for the three months ended December 31, 2008 and 2007 and
for the condensed consolidated balance sheets
as of December 31, 2008 and September
30, 2008, as discussed in Note 2 to the Company's condensed consolidated
financial statements in Part I, Item 1.
Management’s
Overview
New
Jersey Resources Corporation (NJR or the Company) is an energy services holding
company providing retail natural gas service in New Jersey and wholesale natural
gas and related energy services to customers in states from the Gulf Coast and
Mid-Continent regions to the New England region and Canada through its two
principal subsidiaries, New Jersey Natural Gas Company (NJNG) and NJR Energy
Services Company (NJRES).
Comprising
the Natural Gas Distribution segment, NJNG is a natural gas utility that
provides regulated retail natural gas service in central and northern New Jersey
and also participates in the off-system sales and capacity release markets. NJNG
is regulated by the New Jersey Board of Public Utilities (BPU).
NJRES
comprises the Energy Services segment. NJRES maintains and transacts around a
portfolio of physical assets consisting of natural gas storage and
transportation contracts. In addition, NJRES provides wholesale energy services
to non-affiliated utility and energy companies.
The
retail and other business operations (Retail and Other) includes NJR Energy
(NJRE), an investor in energy-related ventures, most significantly through NJNR
Pipeline Company, which holds the Company’s 5.53 percent interest in Iroquois
Gas and Transmission System, LP (Iroquois), a 412-mile natural gas pipeline from
the New York-Canadian border to Long Island, New York, and NJR Steckman Ridge
Storage Company, which has a 50 percent equity ownership interest in Steckman
Ridge GP, LLC and Steckman Ridge, LP (collectively, Steckman Ridge), a planned
17.7 billion cubic foot (Bcf) natural gas storage facility, with up to 12 Bcf
working capacity, which is being jointly developed and constructed with a
partner in western Pennsylvania; NJR Investment Company, which makes
energy-related equity investments; NJR Home Services Company (NJRHS), which
provides service, sales and installation of appliances; Commercial Realty and
Resources Corporation (CR&R), which holds and develops commercial real
estate; and NJR Service Corporation (NJR Service), which provides support
services to the various NJR businesses.
Net
income and assets by business segment and business operations for the three
months ended December 31, 2008 and 2007, respectively, are as
follows:
|
|
Three
Months Ended
|
|
|
December
31,
|
(Thousands)
|
|
2008
|
|
2007
|
Net
income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
Gas Distribution
|
|
$
|
23,074
|
|
|
|
82
|
%
|
|
$
|
16,670
|
|
|
|
64
|
%
|
Energy
Services
|
|
|
10,882
|
|
|
|
38
|
|
|
|
9,239
|
|
|
|
35
|
|
Retail
and Other
|
|
|
(5,684
|
)
|
|
|
(20
|
)
|
|
|
365
|
|
|
|
1
|
|
Total
|
|
$
|
28,272
|
|
|
|
100
|
%
|
|
$
|
26,274
|
|
|
|
100
|
%
|
(Thousands)
|
|
December
31
,
2008
|
|
|
September
30,
2008
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
Gas Distribution
|
|
$
|
1,868,319
|
|
|
|
69
|
%
|
|
$
|
1,761,964
|
|
|
|
67
|
%
|
Energy
Services
|
|
|
668,558
|
|
|
|
24
|
|
|
|
699,897
|
|
|
|
26
|
|
Retail
and Other
|
|
|
232,246
|
|
|
|
9
|
|
|
|
231,551
|
|
|
|
9
|
|
Intercompany
Assets
(1)
|
|
|
(42,488
|
)
|
|
|
(2
|
)
|
|
|
(58,115
|
)
|
|
|
(2
|
)
|
Total
|
|
$
|
2,726,635
|
|
|
|
100
|
%
|
|
$
|
2,635,297
|
|
|
|
100
|
%
|
(1)
|
Consists
of transactions between subsidiaries that are eliminated and reclassified
in consolidation
|
NJRES and
NJR Energy account for certain of their derivative instruments (financial
futures, swaps and options) used to economically hedge the forecasted purchase,
sale and transportation of natural gas at fair value, as required under
Statement of Financial Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (as amended and interpreted, SFAS 133).
Effective October 1, 2007, the Company changed the treatment of its physical
commodity contracts at NJRES, such that the changes in fair value of new
contracts are included in earnings, and are not accounted for using the “normal
purchase normal sales” (normal) scope exception of SFAS 133. In addition,
effective October 1, 2008, due to changes in the Company’s ability to assert
physical delivery, the Company is no longer treating physical commodity
contracts executed prior to October 1, 2007 as normal. Therefore, all NJRES
physical commodity contracts are accounted for at fair value on the Unaudited
Condensed Consolidated Balance Sheets, with changes in fair value included as a
component of gas purchases on the Unaudited Condensed Consolidated Statements of
Income. All physical commodity contracts at NJNG and NJR Energy continue to be
designated as normal and accounted for under accrual
accounting.
New
Jersey Resources Corporation
Part
I
ITE
M
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
|
The
change in fair value of these derivative instruments at NJRES and NJR Energy
over periods of time, referred to as unrealized gains or losses, can result in
substantial volatility in reported net income under generally accepted
accounting principles of the United States of America (GAAP). When a financial
instrument settles the result is the realization of these gains or losses. NJRES
utilizes certain financial instruments to economically hedge natural gas
inventory placed into storage that will be sold at a later date, all of which
were contemplated as part of an entire forecasted transaction. GAAP requires
that when a financial instrument that is economically hedging natural gas that
has been placed into inventory, but not yet sold, has been settled, the realized
gain or loss associated with that settlement must be reflected currently in the
income statement. While NJRES will recognize the same economic impact from the
entire planned transaction, this also leads to additional volatility in NJRES’
reported earnings.
Unrealized
losses and gains at NJRES and NJR Energy are the result of changes in the fair
value of natural gas futures and fixed and basis swaps, as applicable, used to
economically hedge future natural gas purchases, sales and transportation.
Realized gains and losses at NJRES include the settlement of natural gas futures
instruments used to economically hedge natural gas purchases in inventory that
have not been sold.
Included
in Net income are unrealized (losses) in the Energy Services segment of $(1.1)
million and $(3.9) million, after taxes, for the three-month period ended
December 31, 2008 and 2007, respectively. Also included in Net income are
realized gains (losses) of $2.6 million and $(5.9), after taxes, for the
three-month period ended December 31, 2008 and 2007, respectively, which are
related to derivative instruments that have settled and are designed to
economically hedge natural gas that is in storage inventory at December 31, 2008
and 2007, respectively.
Included
in Net income are unrealized (losses) in the Retail and Other business
operations of $(5.7) million and $(180,000), after taxes, for the three-month
period ended December 31, 2008 and 2007, respectively.
Natural
Gas Distribution Segment
Natural
Gas Distribution operations have been managed with the goal of growing
profitably through several key initiatives including:
Ÿ
|
Earning
a reasonable rate of return on the investments in its natural gas
distribution system, as well as recovery of all prudently incurred costs
in order to provide safe and reliable service throughout NJNG’s service
territory;
|
Ÿ
|
Working
with the BPU and the Department of the Public Advocate, Division of Rate
Counsel (Rate Counsel), on the implementation and continuing review of the
Conservation Incentive Program (CIP). The CIP allows NJNG to promote
conservation programs to its customers while maintaining protection of its
utility gross margin against potential losses associated with reduced
customer usage. CIP usage differences are calculated annually and are
recovered one year following the end of the CIP usage
year;
|
Ÿ
|
Managing
the new customer growth rate which is expected to be approximately 1.3
percent over the next two years. In fiscal 2009 and 2010, NJNG currently
expects to add, in total, approximately 12,000 to 14,000 new customers.
The Company believes that this stable growth would increase utility gross
margin under its base rates as provided by approximately $3.6 million
annually, as calculated under NJNG’s CIP
tariff;
|
Ÿ
|
Generating
earnings from various BPU-authorized gross margin-sharing incentive
programs; and
|
Ÿ
|
Managing
the volatility of wholesale natural gas prices through a hedging program
designed to keep customers’ Basic Gas Supply Service (BGSS) rates as
stable as possible.
|
Based
upon increases in NJNG’s operation, maintenance and capital costs, NJNG
petitioned the BPU, on November 20, 2007, to increase base rates for its natural
gas delivery service. This base rate filing was consistent with NJNG’s
objectives of providing safe and reliable service to its customers and earning a
market-based return.
On
October 3, 2008, the BPU unanimously approved and made effective the settlement
of NJNG’s base rate case. As a result, NJNG received a revenue increase in its
base rates of $32.5 million, which is inclusive of an approximate $13 million
impact of a change to the CIP baseline usage rate, received an allowed return on
equity component of 10.3 percent, reduced its depreciation expense component
from 3.0 percent to 2.34 percent and reduced its annual depreciation expense of
$1.6 million as a result of the amortization of previously recovered asset
retirement obligations.
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
The CIP
allows NJNG to recover utility gross margin variations related to both weather
and customer usage. Recovery of such margin variations is subject to additional
conditions including an earnings test, which includes a return on equity
component of 10.3 percent, and an evaluation of Basic Gas Supply Service
(BGSS)-related savings achieved. An annual review of the CIP must be filed in
June of each year, coincident with NJNG’s annual BGSS filing. In October
2007, the BPU provisionally approved NJNG’s initial CIP recovery rates, which
are designed to recover approximately $15.6 million of accrued margin amounts.
In October 2008, the BPU provisionally approved recovery of an additional $6.8
million of accrued margin for the CIP. It is anticipated that NJNG will file a
petition in the spring of 2009 to extend its CIP or implement a similar
mechanism on a permanent basis, to be effective October 1, 2009
In
conjunction with the CIP, NJNG is required to administer programs that promote
customer conservation efforts. As of December 31, 2008 and September 30,
2008, the obligation to fund these conservation programs was recorded at its
present value of $662,000 and $864,000, respectively on the Unaudited Condensed
Consolidated Balance Sheets.
In
conducting NJNG’s business, management focuses on factors it believes may have
significant influence on its future financial results. NJNG’s policy is to work
with all stakeholders, including customers, regulators and policymakers, to
achieve favorable results. These factors include the rate of NJNG’s customer
growth in its service territory, which can be influenced by general economic
conditions as well as political and regulatory policies that may impact the new
housing market. A portion of NJNG’s customer growth comes from the conversion
market, which is influenced by the delivered cost of natural gas compared with
competing fuels, interest rates and other economic conditions.
As a
regulated company, NJNG is required to recognize the impact of regulatory
decisions on its financial statements. As a result, significant costs are
deferred and treated as regulatory assets, pending BPU decisions regarding their
ultimate recovery from customers. The most significant costs incurred that are
subject to this accounting treatment include manufactured gas plant (MGP)
remediation costs and wholesale natural gas costs. Actual remediation costs may
vary from management’s estimates due to the developing nature of remediation
requirements, regulatory decisions by the New Jersey Department of Environmental
Protection (NJDEP) and related litigation. If there are changes in the
regulatory position on the recovery of these costs, such costs would be charged
to income in the period of such determination.
Due to
the capital-intensive nature of NJNG’s operations and the seasonal nature of its
working capital requirements, significant changes in interest rates can also
impact NJNG’s results.
Energy
Services Segment
NJRES
provides unregulated wholesale energy services, including base load natural gas,
peaking and balancing services, utilizing physical assets it controls through
natural gas pipeline transportation and storage contracts, as well as providing
asset management services to customers in states from the Gulf Coast and
Mid-continent regions to the Appalachian and Northeast regions and
Canada.
NJRES
incorporates the following elements to provide for growth, while focusing on
maintaining a low-risk operating and counterparty credit profile:
Ÿ
|
Providing
natural gas portfolio management services to nonaffiliated utilities and
electric generation facilities;
|
Ÿ
|
Leveraging
transactions for the delivery of natural gas to customers by aggregating
the natural gas commodity costs and transportation costs in order to
minimize the total cost required to provide and deliver natural gas to
NJRES’ customers by identifying the lowest cost alternative with the
natural gas supply, transportation availability and markets to which NJRES
is able to access through its business footprint and contractual asset
portfolio;
|
Ÿ
|
Identifying
and benefiting from variations in pricing of natural gas transportation
and storage assets due to location or timing differences of natural gas
prices to generate gross margin;
and
|
Ÿ
|
Managing
economic hedging programs that are designed to mitigate adverse market
price fluctuations in natural gas transportation and storage
commitments.
|
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
NJRES
views “financial margin” as a financial measurement metric. NJRES’ financial
margin, which is a non-GAAP financial measure, represents revenues earned from
the sale of natural gas less costs of natural gas sold, transportation and
storage, and excludes any accounting impact from the change in fair value of
derivative instruments designed to hedge the economic impact of its transactions
that have not been settled, which represent unrealized gains and losses, and
realized gains and losses associated with financial instruments economically
hedging natural gas in storage and not yet sold as part of a planned
transaction. NJRES uses financial margin to gauge operating results against
established benchmarks and earnings targets as it eliminates the impact of
volatility in GAAP earnings that can occur prior to settlement of the physical
commodity portion of the transactions and therefore is more representative of
the overall expected economic result.
NJRES has
built a portfolio of customers including local distribution companies,
industrial companies, electric generators and retail aggregators. Sales to these
customers have allowed NJRES to leverage its transportation and storage capacity
and manage sales to these customers in an aggregate fashion. This strategy
allows NJRES to extract more value from its portfolio of natural gas storage and
pipeline transportation capacity through the arbitrage of pricing differences as
a result of locational differences or over different periods of
time.
NJRES
also focuses on creating value from underutilized natural gas assets, which are
typically amassed through contractual rights to natural gas transportation and
storage capacity. NJRES has developed a portfolio of natural gas storage and
transportation capacity in states in the Northeast, Gulf Coast, Mid-continent
and Appalachian regions of the United States and eastern Canada. These assets
become more valuable when prices change between these areas and across time
periods. NJRES seeks to optimize this process on a daily basis as market
conditions change by evaluating all the natural gas supplies, transportation and
opportunities to which it has access, to find the most profitable alternative to
serve its various commitments. This enables NJRES to capture geographic pricing
differences across these various regions as delivered natural gas prices change
as a result of market conditions. NJRES focuses on earning a financial margin on
a single original transaction and then utilizing that transaction, and the
changes in prices across the regions or across time periods, as the basis to
further improve the initial result.
In a
similar manner, NJRES participates in natural gas storage transactions where it
seeks to identify pricing differences that occur over time, as prices for future
delivery periods at many different delivery points, are readily available. For
example, NJRES generates financial margin by locking in the differential between
purchasing natural gas at a low current or future price and, in a related
transaction, selling that natural gas at a higher current or future price, all
within the constraints of its credit and contracts policies. Through the use of
transportation and storage services, NJRES is able to generate financial margin
through pricing differences that occur over the duration of time the assets are
held.
NJRES’
portfolio management customers include nonaffiliated utilities and electric
generation plants. Services provided by NJRES include optimization of
underutilized natural gas assets and basic gas supply functions.
NJRES
also participates in park-and-loan transactions with pipeline counterparties,
where NJRES will borrow natural gas when there is an opportunity to capture
arbitrage value. In these cases, NJRES evaluates the economics of the
transaction to determine if it can capture pricing differentials in the
marketplace in order to be able to generate financial margin. In evaluating
these transactions NJRES will compare the fixed fee it will pay and the
resulting spread it can generate when considering the amount it will receive to
sell the borrowed gas to another counterparty in relation to the cost it will
incur to purchase the gas at a later date for return back to the pipeline. When
the transaction allows NJRES to generate a financial margin, NJRES will fix the
financial margin by economically hedging the transaction with natural gas
futures.
In
conducting its business, NJRES mitigates risk by following formal risk
management guidelines, including trading limits, approval processes, segregation
of duties, and formal contract and credit review and approval procedures. NJRES
continuously monitors and seeks to reduce the risk associated with various
counterparties credit exposure. The Risk Management Committee (RMC) of NJR,
oversees compliance with these established guidelines.
Retail
and Other Business Operations
As part
of the Retail and Other business operations NJR utilizes a subsidiary, NJR
Energy Holdings, to develop its investments in natural gas “mid-stream” assets.
Mid-stream assets are natural gas transportation and storage facilities. NJR
believes that acquiring, owning and developing these mid-stream assets, which
operate under a tariff structure that has either a regulated or market-based
rate, can provide a significant growth opportunity for the Company. To that end,
NJR has ownership interests in Iroquois (regulated rate) and Steckman Ridge
(anticipated market-based rate), which is currently under development, and is
actively pursuing other potential opportunities that meet its investment and
development criteria. Other businesses included as part of Retail and Other
include NJRHS, which provides service, sales and installation of appliances to
over 144,000 customers and is focused on growing its installation business and
expanding its service contract customer base, and CR&R, which seeks
additional opportunities to enhance the value of its undeveloped
land.
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
The
financial results of Retail and Other consist primarily of the operating results
of NJRHS and equity in earnings attributable to the Company’s equity investment
in Iroquois, as well as to investments made by NJR Energy, an investor in other
energy-related ventures through its operating subsidiaries.
On June
5, 2008, the Federal Energy Regulatory Commission (FERC) issued Steckman Ridge a
certificate of public convenience and necessity authorizing the ownership,
construction and operation of its natural gas storage facility and associated
facilities. NJR anticipates that Steckman Ridge will be placed in service during
the summer of 2009. As of December 31, 2008, NJR has invested $99.7 million in
Steckman Ridge. This amount excludes capitalized interest and other direct
costs. Total project costs related to the development of the storage facility
are currently estimated at approximately $265 million, of which NJR is obligated
to fund 50 percent or approximately $132.5 million. NJR anticipates that
Steckman Ridge will seek non-recourse financing upon completion of the
construction and development of its facilities, thereby potentially reducing the
final expected recourse obligation of NJR. There can be no assurances that such
non-recourse project financing will be secured or available for Steckman
Ridge.
Critical
Accounting Policies
A summary
of NJR’s critical accounting policies is included in
Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations
of its Annual
Report on Form 10-K for the period ended September 30, 2008. NJR’s critical
accounting policies have not changed materially from those reported in the 2008
Annual Report on Form 10-K with the exception of the following:
Derivative
Instrument
s
Derivative
activities are recorded in accordance with SFAS No. 133,
Accounting for Derivative
Instruments and Hedging Activities
, as amended and interpreted, (SFAS
133) under which NJR records the fair value of derivatives held as assets and
liabilities. In addition, NJRES also treats contracts for the purchase or sale
of natural gas as derivatives and, therefore, records them at fair value in the
Unaudited Condensed Consolidated Balance Sheet, with changes in fair value being
recorded as a component of Gas purchases in the Unaudited Condensed Consolidated
Statements of Income.
NJRES
previously applied the “normal purchase normal sale” (normal) scope exception
for certain physical commodity contracts that were executed prior to October 1,
2007 which otherwise qualified as derivatives. Based on current conditions in
the credit markets and developments within the natural gas industry, NJRES has
determined that the probability of physical delivery with these counterparties
could potentially diminish and, therefore, these contracts do not meet the
requirements, outlined in SFAS 133, to continue applying the normal scope
exception. As a result, NJRES will no longer recognize these contracts at cost.
Effective October 1, 2008, NJRES will treat these contracts as derivatives and
record them at fair value in the Unaudited Condensed Consolidated Balance Sheet,
with changes in fair value being recorded as a component of Gas purchases in the
Unaudited Condensed Consolidated Statements of Income.
Effective
October 1, 2008, NJR began applying the provisions of SFAS 157
Fair Value Measurement
(see
Note 5. Fair Value
Measurements
). As a result of the adoption of SFAS 157, NJR implemented
procedures to evaluate its own credit profile to determine an appropriate
valuation adjustment to the recorded amount of its derivative liabilities. NJR
uses historical default probabilities corresponding to Standard and Poor’s
issuer ratings and considers conditions in the credit markets to further adjust
the valuation, when deemed appropriate, based on the change in a market index
that tracks the credit default swaps of investment grade companies.
Capitalized
Financing Costs
NJNG
capitalizes an allowance for funds used during construction (AFUDC) as a
component of Utility plant in the Unaudited Condensed Consolidated Balance
Sheets. Under regulatory rate practices and in accordance with SFAS No. 71,
Accounting for the Effects of Certain Types of Regulation, NJNG fully recovers
AFUDC through base rates. As a result of the BPU’s Base Rate Order issued in
October 2008, NJNG implemented certain rate design changes, including a change
to its AFUDC calculation. Effective October 3, 2008, NJNG is allowed to recover
an incremental cost of equity component during periods when its short-term debt
balances are lower than its construction work in progress balance. This results
in a non-cash income statement recognition that will also be capitalized as a
component of Utility plant.
Recently
Issued Accounting Standards
Refer to
Note 1. General
, for
discussion of recently issued accounting standards.
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
Results
of Operations
Consolidated
Net
income for the three-month period ended December 31, 2008 increased by 7.6
percent to approximately $28.3 million, compared with net income of
approximately $26.3 million for the same period in fiscal 2007. Basic and
diluted earnings per share increased by 6.3 percent to $0.67 and $0.67, compared
with $0.63 and $0.63, respectively.
The
increase in net income was due primarily to increased operating income at NJNG
driven by higher utility gross margin as a result of changes to its base rates
approved by the BPU that became effective October 3, 2008 and higher margins
related to its storage incentive program.
The
Company’s Operating revenues and Gas purchases are as follows:
|
|
Three
Months Ended
December
31,
|
(Thousands)
|
|
2008
|
|
2007
|
|
%
Change
|
Operating
revenues
|
|
$
|
801,304
|
|
|
$
|
811,138
|
|
|
|
(1.2
|
)%
|
Gas
purchases
|
|
$
|
671,090
|
|
|
$
|
691,332
|
|
|
|
(2.9
|
)%
|
Operating
revenues and Gas purchases decreased $(9.8) million and $20.2 million,
respectively, for the three months ended December 31, 2008, compared with the
same period of the prior fiscal year due primarily to:
Ÿ
|
a
decrease in Operating revenues of $(57.1) million and Gas purchases of
$(60.5) million at NJRES due primarily to lower average prices partially
offset by slightly higher transaction
volumes;
|
Ÿ
|
a
decrease in Operating revenues of $(9.3) million at NJR Energy due to
greater unrealized losses, which were the result of declining market
prices within a portfolio of net long financial derivative positions;
partially offset by
|
Ÿ
|
an
increase in Operating revenues of $56.5 million and Gas purchases of $40.3
million at NJNG due primarily to BGSS customer refunds issued in fiscal
2008 that did not recur in fiscal 2009 and weather being 10 percent colder
than the first quarter of the same period of the prior fiscal year. In
addition, the first quarter operating revenues were favorably impacted by
the base rate increase.
|
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
Natural
Gas Distribution Segment
NJNG is a
local natural gas distribution company that provides regulated retail energy
services to approximately 486,000 residential and commercial customers in
central and northern New Jersey and participates in the off-system sales and
capacity release markets.
NJNG’s
business is seasonal by nature, as weather conditions directly influence the
volume of natural gas delivered. Specifically, customer demand substantially
increases during the winter months when natural gas is used for heating
purposes. As a result, NJNG receives most of its gas distribution revenues
during the first and second fiscal quarters and is subject to variations in
earnings and working capital during the year.
The
Electric Discount and Energy Competition Act (EDECA) provides the framework for
New Jersey’s energy markets, which are open to competition from other energy
suppliers. Currently, NJNG’s residential markets are open to competition, and
its rates are segregated between BGSS (natural gas commodity) and delivery
(i.e., transportation) components. NJNG earns no utility gross margin on the
commodity portion of its natural gas sales. NJNG earns utility gross margin
through the delivery of natural gas to its customers. Under an existing order
from the BPU, BGSS can be provided by suppliers other than the state’s natural
gas utilities.
NJNG’s
u
naudited
financial results are summarized
as follows:
|
|
Three
Months Ended
December
31,
|
|
(Thousands)
|
|
2008
|
|
|
2007
|
|
Utility
Gross Margin
|
|
|
|
|
|
|
Operating
revenues
|
|
$
|
340,908
|
|
|
$
|
284,360
|
|
Less:
|
|
|
|
|
|
|
|
|
Gas
purchases
|
|
|
230,452
|
|
|
|
190,148
|
|
Energy
and other taxes
|
|
|
21,587
|
|
|
|
16,363
|
|
Regulatory
rider expense
|
|
|
13,561
|
|
|
|
12,165
|
|
Total
Utility Gross Margin
|
|
|
75,308
|
|
|
|
65,684
|
|
Operation
and maintenance expense
|
|
|
24,950
|
|
|
|
23,879
|
|
Depreciation
and amortization
|
|
|
7,161
|
|
|
|
9,233
|
|
Other
taxes not reflected in utility gross margin
|
|
|
1,011
|
|
|
|
970
|
|
Operating
Income
|
|
|
42,186
|
|
|
|
31,602
|
|
Other
income
|
|
|
684
|
|
|
|
1,232
|
|
Interest
charges, net of capitalized interest
|
|
|
6,460
|
|
|
|
6,119
|
|
Income
tax provision
|
|
|
13,336
|
|
|
|
10,045
|
|
Net
Income
|
|
$
|
23,074
|
|
|
$
|
16,670
|
|
The
following table summarizes Utility Gross Margin and throughput in billion cubic
feet (Bcf) of natural gas by type:
|
|
Three
Months Ended
|
|
|
|
December
31
,
|
|
|
|
2008
|
|
|
2007
|
|
($
in thousands)
|
|
Margin
|
|
|
Bcf
|
|
|
Margin
|
|
|
Bcf
|
|
Residential
|
|
$
|
49,687
|
|
|
|
13.3
|
|
|
$
|
45,400
|
|
|
|
12.7
|
|
Commercial,
Industrial & Other
|
|
|
13,381
|
|
|
|
3.2
|
|
|
|
13,796
|
|
|
|
2.8
|
|
Transportation
|
|
|
8,432
|
|
|
|
3.0
|
|
|
|
4,934
|
|
|
|
2.8
|
|
Total
Utility Firm Gross Margin
|
|
|
71,500
|
|
|
|
19.5
|
|
|
|
64,130
|
|
|
|
18.3
|
|
Incentive
programs
|
|
|
3,724
|
|
|
|
12.2
|
|
|
|
1,420
|
|
|
|
9.7
|
|
Interruptible
|
|
|
84
|
|
|
|
0.9
|
|
|
|
134
|
|
|
|
1.6
|
|
Total
Utility Gross Margin/throughput
|
|
$
|
75,308
|
|
|
|
32.6
|
|
|
$
|
65,684
|
|
|
|
29.6
|
|
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
Utility
Gross Margin
NJNG’s
utility gross margin is defined as natural gas revenues less natural gas
purchases, sales tax, a Transitional Energy Facilities Assessment (TEFA) and
regulatory rider expenses, and may not be comparable to the definition of gross
margin used by others in the natural gas distribution business and other
industries. Utility gross margin is comprised of three major categories which
include utility firm gross margin, incentive programs and utility gross margin
from interruptible customers. Management believes that utility gross margin
provides a more meaningful basis than revenue for evaluating utility operations
since natural gas costs, sales tax, TEFA and regulatory rider expenses are
included in operating revenue and passed through to customers and, therefore,
have no effect on utility gross margin.
Natural
gas costs are charged to operating expenses on the basis of therm sales at the
prices in NJNG’s BGSS tariff approved by the BPU. The BGSS tariff rate includes
projected natural gas costs, net of supplier refunds, the impact of hedging
activities and credits from non-firm sales and transportation activities. Any
underrecoveries or overrecoveries from the projected amounts are deferred and
reflected in the BGSS tariff rate in subsequent years.
TEFA,
which is included in Energy and other taxes on the Unaudited Condensed
Consolidated Statements of Income, is calculated on a per-therm basis and
excludes sales to cogeneration facilities, other utilities and off-system sales.
TEFA represents a regulatory allowed assessment imposed on all energy providers
in the state of New Jersey, as TEFA has replaced the previously used utility
gross receipts tax formula.
Regulatory
rider expenses consist of recovery of state-mandated programs and the
remediation adjustment clause costs. These expenses are offset by corresponding
revenues and are calculated on a per-therm basis.
NJNG’s
Operating revenues increased by $56.5 million, or 20 percent, and Gas purchases
increased by $40.3 million, or 21 percent, for the three months ended December
31, 2008, respectively, compared with same period in the prior fiscal year as a
result of:
Ÿ
|
an
increase in Operating revenue and Gas purchases related to a BGSS customer
refund in December 2007 that did not recur in the first quarter of fiscal
2009 in the amount of $32.1 million and $30.0 million, respectively. The
prior year customer refund was inclusive of sales tax refund of $2.1
million and was the result of anticipated reductions in cost to acquire
wholesale natural gas, as compared to the established rate included in
NJNG’s BGSS tariff;
|
Ÿ
|
an
increase in Operating revenue and Gas purchases related to firm sales in
the amount of $25.6 million and $18.1 million, respectively, as a result
an increase in BGSS rates approved by the
BPU;
|
Ÿ
|
an
increase in Operating revenue and Gas purchases related to firm sales in
the amount of $14.5 million and $9.5 million, respectively, due primarily
to weather being 10 percent colder than the same period of the prior
fiscal year;
|
Ÿ
|
an
increase in Operating revenue in the amount of $4.8 million related to
fixed revenue as a result of changes approved by the BPU for restructured
tariffs; partially offset by
|
Ÿ
|
a
decrease in Operating revenue and Gas purchases related to off-system
sales in the amount of $12.8 million and $12.6 million, respectively, as a
result of lower average sale prices due to the change in the wholesale
price of natural gas;
|
Ÿ
|
a
decrease in Operating revenue related to the CIP program in the amount of
$5.3 million due primarily to a change in the CIP baseline use per
customer benchmark resulting from the October 3, 2008 base rate
case;
|
Ÿ
|
a
decrease in Operating revenue and Gas purchases related to interruptible
sales in the amount of $2.1 million and $1.8 million, respectively, due to
a decrease in sales to electric co-generation
customers;
|
Ÿ
|
a
decrease in Gas purchases related to increased amounts earned through the
financial risk management (FRM) and capacity release incentive programs of
$1.8 million in fiscal 2009 as compared to $345,000 in fiscal 2008 due
primarily to the FRM program’s increased annual cost and volume
limitations, which allowed NJNG the ability to capitalize on more hedging
opportunities; and
|
Ÿ
|
a
decrease of $1.1 million in Gas purchases related to increased amounts
received through the storage incentive program due primarily to the timing
of the incentive margins during the program's April 2008 through October
2008 injection period as compared to the same period in the prior fiscal
year.
|
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
Sales tax
and TEFA, which are presented as both components of Revenues and Operating
Expenses in the Unaudited Condensed Consolidated Statements of Income, totaled
$21.6 million and $16.4 million for the three months ended December 31, 2008 and
2007, respectively. The increase is due primarily to an increase of $68.8
million in operating revenue from firm sales for the three months ended December
31, 2008.
Regulatory
rider expenses are calculated on a per-therm basis and totaled $13.6 million and
$12.2 million for the three months ended December 31, 2008 and 2007,
respectively. The increase is due primarily to an increase in firm throughput of
1.2 Bcf for the three months ended December 31, 2008 as compared with the three
months ended December 31, 2007, as a result of the previously mentioned colder
weather and an increase in the SBC rate.
Utility
gross margin is comprised of three major categories:
Ÿ
|
Utility Firm Gross Margin, which
is derived from residential and commercial customers who receive natural
gas service from NJNG through either sales or transportation
tariffs;
|
Ÿ
|
Incentive programs, where margins
generated or savings achieved from BPU-approved off-system sales, capacity
release, Financial Risk Management (defined in Incentive Programs, below)
or storage incentive programs are shared between customers and NJNG;
and
|
Ÿ
|
Utility gross margin from
interruptible customers who have the ability to switch to alternative
fuels.
|
Utility
Firm Gross Margin
Utility
firm gross margin is earned from residential and commercial customers who
receive natural gas service from NJNG through either sales or transportation
tariffs.
As a
result of NJNG’s implementation of the CIP, utility gross margin is no longer
linked to customer usage. The CIP eliminates the disincentive to promote
conservation and energy efficiency and facilitate normalizing NJNG’s utility
gross margin recoveries for variances not only in weather but also in other
factors affecting usage, including customer conservation. Recovery of utility
gross margin for the non-weather variance through the CIP is limited to the
amount of certain gas supply cost savings achieved and is subject to an earnings
test, which contains a return on equity component of 10.3 percent.
NJNG’s
total utility gross margin is not negatively affected by customers who use its
transportation service and purchase natural gas from another supplier because
its tariff is designed so that no profit is earned on the commodity portion of
sales to firm customers. All customers who purchase natural gas from another
supplier continue to use NJNG for transportation service.
Total
utility firm gross margin increased $7.4 million, or 11.5 percent, for the three
months ended December 31, 2008, as compared to the same period in the prior
fiscal year, due primarily to an increase in residential and commercial
transport customer margin as a result of an increase in base rates effective
October 3, 2008 partially offset by a decrease in the amounts accrued through
the CIP program. The changes in customer margin were also favorably impacted by
the increase in firm and transport customers of 2,100 and 3,100, respectively,
over the same period in the prior fiscal year.
Utility
firm gross margin from residential service sales increased to $49.7 million for
the three months ended December 31, 2008, as compared with $45.4 million for the
three months ended December 31, 2007. NJNG transported 13.3 Bcf for its firm
customers in the three months ended December 31, 2008, compared with 12.7 Bcf
for the same period ended December 31, 2007.
Utility
firm gross margin from transportation service increased to $8.4 million for the
three months ended December 31, 2008, as compared to $4.9 million for the three
months ended December 31, 2007. NJNG transported 3.0 Bcf for its firm customers
in the three months ended December 31, 2008, compared with 2.8 Bcf for the same
period ended December 31, 2007.
The
weather for the three months ended December 31, 2008 was 1.8 percent colder than
normal, based on a 20-year average, which resulted in a negative adjustment of
utility gross margin under the weather component of the CIP of $(216,000),
compared with 8.2 percent warmer-than-normal weather for the same period last
fiscal year, which resulted in an accrual of utility gross margin of $2.9
million. Under the provisions of the CIP, accruals related to the weather
portion are dependent on the occurrence of degree days and the magnitude of the
variance in relation to a normal degree day. Customer usage was lower than the
established benchmark during the first quarter of fiscal 2009, which resulted in
an accrual of utility gross margin under the CIP of $1.0 million compared with
$3.2 million in the first quarter of fiscal 2008. The change in the weather and
non-weather components of the CIP include the effect of adjustments, normal
degree days, consumption factors and benchmarks related to the baseline use per
customer, which was amended with NJNG’s new base rates approved by the BPU
effective October 3, 2008.
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
NJNG had
12,053 and 9,324 residential customers and 5,214 and 4,889 commercial customers
using its transportation service at December 31, 2008 and 2007, respectively.
The increase in transportation customers for the period ended December 31, 2008
was due primarily to an increase in marketing activity by third party natural
gas service providers in NJNG’s service territory.
NJNG
added 1,763 and 1,723 new customers during the three months ended December 31,
2008 and 2007, respectively. In addition, NJNG converted 162 and 104 existing
customers to natural gas heat and other services during the same periods for
fiscal 2009 and 2008, respectively. This customer growth represents an estimated
annual increase of approximately 0.53 Bcf in sales to firm customers, assuming
normal weather and usage.
Incentive
Programs
To reduce
the overall cost of its natural gas supply commitments, NJNG has entered into
contracts to sell natural gas to wholesale customers outside its franchise
territory when the natural gas is not needed for system requirements. These
off-system sales enable NJNG to reduce its overall costs applicable to BGSS
customers. NJNG also participates in the capacity release market on the
interstate pipeline network when the capacity is not needed for its firm system
requirements. NJNG retains 15 percent of the utility gross margin from these
sales, with 85 percent credited to firm customers through the BGSS.
The
Financial Risk Management (FRM) program is designed to provide price stability
to NJNG’s natural gas supply portfolio. The FRM program includes an incentive
mechanism designed to encourage the use of financial instruments to economically
hedge NJNG’s natural gas costs. NJNG retains 15 percent of the utility gross
margin, with 85 percent credited to firm customers through the
BGSS.
The
storage incentive program shares gains and losses on an 80 percent and 20
percent basis between customers and NJNG, respectively. This program measures
the difference between the actual cost of natural gas injected into storage and
a benchmark established with the purchase of a portfolio of futures contracts
applicable to the April-through-October natural gas injection
season.
On
October 3, 2008, the BPU approved the Rate Order, which extends the incentive
programs through October 31, 2011, and provides changes to certain volume and
cost limitations surrounding these incentive programs.
NJNG’s
incentive programs totaled 12.2 Bcf and generated $3.7 million of utility gross
margin for the three months ended December 31, 2008, compared with 9.7 Bcf and
$1.4 million of utility gross margin during the same period last fiscal year.
Utility gross margin from incentive programs comprised 4.9 percent of total
utility gross margin for the three months ended December 31, 2008 and 2.2
percent of total utility gross margin for the same period in fiscal 2008,
respectively. The increase in utility gross margin was due primarily
to increased amounts received through the FRM program of $1.2 million in
the first quarter of fiscal 2009 as compared with $230,000 in the first quarter
of fiscal 2008 and $1.1 million in the first quarter of fiscal 2009 from
increased amounts received through the storage incentive program as discussed
above.
Interruptible
Revenues
As of
December 31, 2008, NJNG serves 45 customers through interruptible transportation
and sales services. Interruptible customers are those customers whose service
can be temporarily halted as they have the ability to utilize an alternate fuel
source. Although therms transported and sold to interruptible customers
represented 0.9 Bcf, or 2.8 percent, of total throughput for the three months
ended December 31, 2008, and 1.6 Bcf, or 5.4 percent, of the total throughput
during the same period in the prior fiscal year, they accounted for less than 1
percent of the total utility gross margin in each year.
Operation
and Maintenance Expense
Operation
and maintenance expense increased $1.1 million, or 4.5 percent, during the three
months ended December 31, 2008, as compared with the same period in the last
fiscal year, due primarily to:
|
Ÿ
|
an increase in the bad debt
expense of $325,000 as a result of an increase in operating
revenue;
|
|
Ÿ
|
an increase of $180,000 in
pipeline access clearing
maintenance;
|
|
Ÿ
|
higher pipeline integrity costs
of $130,000;
|
|
Ÿ
|
Increased postemployment benefit
costs in the amount of $121,000;
and
|
|
Ÿ
|
increased reserve for unused
earned vacation of
$119,000.
|
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
Operating
Income
Operating
income increased $10.6 million, or 33.5 percent, for the three months ended
December 31, 2008 as compared with the same period in the last fiscal year, due
primarily to:
|
Ÿ
|
an increase in total Utility
gross margin of $9.6 million, as discussed
above;
|
|
Ÿ
|
a decrease in depreciation
expense of $2.1 million, due to a rate reduction from 3 percent to 2.34
percent and amortization of previously recovered asset retirement
obligations, both of which were part of the settlement of the base rate
case;
|
|
Ÿ
|
a
decrease in interest income of approximately $700,000, due primarily to
amounts capitalized related to the equity component of AFUDC in fiscal
2008 that did not recur in fiscal 2009 and a decrease as a result of the
impact of lower interest rates on certain regulatory asset
balances
;
and
|
|
Ÿ
|
an increase in Operations and
maintenance expense in the amount of $1.1 million, as discussed
above.
|
Interest
Expense
Interest
expense increased $341,000 for the three months ended December 31, 2008 compared
with the same period in the last fiscal year, due primarily to:
|
Ÿ
|
an increase of $1.8 million in
long-term interest due to the new long-term fixed rate debt issuance of
$125 million in May 2008; partially offset
by
|
|
Ÿ
|
a decrease of $1.4 million in
short-term interest due to lower average interest rates and short-term
borrowings of commercial paper and other variable-rate
debt.
|
Net
Income
Net
income increased $6.4 million, or 38.4 percent, to $23.1 million from $16.7
million in the three months ended December 31, 2008 and 2007, respectively, due
primarily to an increase in Operating income of approximately $10.6 million as
discussed above, partially offset by higher income tax expense of $3.3 million
as a result of the higher Operating income.
Energy
Services Segment
NJRES is
a non-regulated natural gas marketer and provides for the physical delivery of
natural gas to its customers, while managing its exposure to the price risk
associated with its natural gas commodity supply through the use of financial
derivative contracts. In order to best serve its customers, which include other
natural gas marketers, local distribution companies, industrial companies,
electric generators and retail aggregators, and to manage the continuous changes
in supply and demand that it faces in the market areas in which it participates,
so that it can maximize its margins, NJRES has physical storage and
transportation capacity contracts with natural gas storage facilities and
pipelines. NJRES purchases natural gas predominately in the eastern United
States and Canada, and transports that natural gas, through the use of its
pipeline contracts to which it has reserved capacity through the payment of a
fixed demand charge, to either storage facilities that it has reserved,
primarily in the Appalachian, Mid-Continent and Gulf regions of the United
States and eastern Canada or directly to customers in various market areas
including the Northeastern region of the United States and eastern
Canada.
When
NJRES enters into contracts for the future delivery of physical natural gas, it
simultaneously enters into financial derivative contracts at market prices to
establish an initial financial margin for each of its forecasted physical
commodity transactions. The financial derivative contracts also serve to
protect the cash flows of the transaction from volatility in commodity prices as
NJRES locks in pricing and can include futures, options, and swap contracts,
which are all predominantly actively quoted on the NYMEX.
Through
the use of its contracts for natural gas storage and pipeline capacity, NJRES is
able to take advantage of pricing differences between geographic locations,
commonly referred to as “locational spreads,” as well as over different time
periods, for the delivery of natural gas to its customers, thereby improving the
initially established financial margin result. NJRES utilizes financial futures,
forwards and swap contracts to establish economic hedges that fix and protect
the cash flows surrounding these transactions.
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
Accordingly,
NJRES utilizes these contractual assets to optimize its opportunities to
increase its financial margin by capitalizing on changes or events in the
marketplace that impact natural gas demand levels. NJRES generates financial
margin through three primary channels:
Ÿ
|
Storage:
NJRES
attempts to take advantage of differences in market prices occurring over
different time periods (time spreads) as
follows:
|
|
*
|
NJRES
can purchase gas to inject into storage and concurrently lock in gross
margin with a contract to sell the natural gas at a higher price at a
future date; and
|
|
*
|
NJRES
can purchase a future contract with an early delivery date at a lower
price and simultaneously sell another future contract with a later
delivery date having a higher
price.
|
Ÿ
|
Transportation
(Basis):
Similarly, NJRES benefits from pricing
differences between various receipt and delivery points along a natural
gas pipeline as follows:
|
|
*
|
NJRES
can utilize its pipeline capacity by purchasing natural gas at a lower
price location and transporting to a higher value location. NJRES can
enter into a basis swap contract, a financial commodity
derivative based on the price of natural gas at two different
locations, when it will lead to positive cash flows and financial margin
for NJRES.
|
Ÿ
|
Daily Sales Optimization
(Cash):
Consists of buying and selling flowing gas on a
daily basis while optimizing existing transport positions during
short-term market price movements to benefit from locational
spreads:
|
|
*
|
Involves
increasing the financial margin on established transportation hedges by
capitalizing on price movements between specific
locations.
|
Typically,
periods of greater price volatility provide NJRES with additional opportunities
to generate financial margin by optimizing its storage and transport capacity
assets, and capturing their respective time or locational spreads. The
combination of strategically positioned natural gas storage and transportation
capacities provides NJRES with a significant amount of arbitrage opportunities
that are typically more prevalent during periods of high price
volatility.
Predominantly
all of NJRES’ purchases and sales of natural gas result in the physical delivery
of natural gas. NJRES has elected not to use the normal purchase normal sale
scope exception of SFAS 133,
Accounting for Derivative Instruments and Hedging Activities,
under which
related liabilities incurred and assets acquired under these contracts are
recorded when title to the underlying commodity passes. Therefore, all NJRES
physical commodity contracts are recorded at fair value on the Unaudited
Condensed Consolidated Balance Sheets with any changes in fair value recognized
as a component of Gas purchases in the Unaudited Condensed Consolidated
Statements of Income.
The
changes in fair value of NJRES’ financial derivative instruments, which are
financial futures, swaps and option contracts are also recognized in the
Unaudited Condensed Consolidated Statements of Income, as a component of Gas
purchases.
NJRES’
financial and physical contracts will result, over time, in earning a gross
margin on the entire transaction. For financial reporting purposes under GAAP,
the change in fair value associated with derivative instruments used to
economically hedge these transactions are recorded as a component of Gas
purchases in the Unaudited Condensed Consolidated Statements of Income during
the duration of the financial instrument or commodity contract. These changes in
fair value are referred to as unrealized gains and losses. In other instances,
certain financial contracts designed to economically fix or hedge the price of
natural gas that is purchased and placed into storage, to be sold at a later
date, settle and result in realized gains, which are also recorded as a
component of Gas purchases in the Unaudited Condensed Consolidated Statements of
Income.
These
unrealized gains or losses from the change in fair value of unsettled financial
instruments and physical commodity contracts, or realized gains or losses
related to financial instruments that economically hedge natural gas inventory
that has not been sold as part of a planned transaction, cause large variations
in the reported gross margin and earnings of NJRES. NJRES will continue to earn
the gross margin established at inception of the transaction over the duration
of the forecasted transaction and may be able to capitalize on events in the
marketplace that enable it to increase the initial margin; however, gross margin
or earnings during periods prior to the delivery of the natural gas will not
reflect the underlying economic result.
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
NJRES
expenses its demand charges, which represent the right to use natural gas
pipeline and storage capacity assets of a third-party for a fixed period of
time. These demand charges are expensed over the term of the related natural gas
pipeline or storage contract. The term of these contracts vary from less than
one year to five years.
NJRES’
u
naudited
financial results are summarized as follows:
|
|
Three
Months Ended
December
31,
|
|
(Thousands)
|
|
2008
|
|
|
2007
|
|
Operating
revenues
|
|
$
|
463,094
|
|
|
$
|
520,211
|
|
Gas
purchases
|
|
|
440,677
|
|
|
|
501,184
|
|
Gross
margin
|
|
|
22,417
|
|
|
|
19,027
|
|
Operation
and maintenance expense
|
|
|
4,360
|
|
|
|
2,840
|
|
Depreciation
and amortization
|
|
|
51
|
|
|
|
53
|
|
Other
taxes
|
|
|
329
|
|
|
|
209
|
|
Operating
income
|
|
|
17,677
|
|
|
|
15,925
|
|
Other
income
|
|
|
123
|
|
|
|
130
|
|
Interest
expense
|
|
|
86
|
|
|
|
877
|
|
Income
tax provision
|
|
|
6,832
|
|
|
|
5,939
|
|
Net
income
|
|
$
|
10,882
|
|
|
$
|
9,239
|
|
Gross
margin for the three months ended December 31, 2008 increased by $3.4 million,
as compared with the same period in the last fiscal year, due primarily to an
increase of $19.2 million in overall values on its financial and physical
commodity contracts offset by lower gross margin from transportation assets as
discussed below.
The
higher fair values on financial instruments resulted primarily from a $14.3
million increase in realized gains associated with economic hedges of natural
gas in inventory. The realized gains pertain to financial derivative instruments
that are designed to economically hedge natural gas storage injections, and as
part of a planned transaction, are awaiting subsequent sale. There were lower
unrealized losses of $4.9 million that resulted primarily from lower valuations
on financial instruments with short positions in the current fiscal
period.
The lower
gross margin from transportation assets were due primarily to the expiration of
a favorable physical transport capacity asset servicing the Northeast United
States market region that was no longer available for asset optimization in the
current fiscal period, as further discussed in the Financial Margin
section.
Additionally,
management of the Company uses non-GAAP measures when viewing the results of
NJRES to monitor the operational results without the impact of unsettled
derivatives, certain settled derivative instruments related to inventory and
certain demand fees. These non-GAAP measures are “financial margin” and “net
financial earnings.”
The
following table is a computation of Financial margin of NJRES:
|
|
Three
Months Ended
December
31,
|
|
(Thousands)
|
|
2008
|
|
|
2007
|
|
Operating
revenues
|
|
$
|
463,094
|
|
|
$
|
520,211
|
|
Less:
Gas purchases
|
|
|
440,677
|
|
|
|
501,184
|
|
Add:
|
|
|
|
|
|
|
|
|
Unrealized
loss on derivative instruments
|
|
|
1,816
|
|
|
|
6,689
|
|
Effects
of economic hedging related to natural gas inventory and certain demand
fees
|
|
|
(4,274
|
)
|
|
|
10,034
|
|
Financial
Margin
|
|
$
|
19,959
|
|
|
$
|
35,750
|
|
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
A
reconciliation of Operating income, the closest GAAP financial measurement, to
the Financial margin of NJRES is as follows:
|
|
Three
Months Ended
December
31,
|
|
(Thousands)
|
|
2008
|
|
|
2007
|
|
Operating
income
|
|
$
|
17,677
|
|
|
$
|
15,925
|
|
Add:
|
|
|
|
|
|
|
|
|
Operation
and maintenance expense
|
|
|
4,360
|
|
|
|
2,840
|
|
Depreciation
and amortization
|
|
|
51
|
|
|
|
53
|
|
Other
taxes
|
|
|
329
|
|
|
|
209
|
|
Subtotal
– Gross margin
|
|
|
22,417
|
|
|
|
19,027
|
|
Add:
|
|
|
|
|
|
|
|
|
Unrealized
loss on derivative instruments
|
|
|
1,816
|
|
|
|
6,689
|
|
Effects
of economic hedging related to natural gas inventory and certain demand
fees
|
|
|
(4,274
|
)
|
|
|
10,034
|
|
Financial
margin
|
|
$
|
19,959
|
|
|
$
|
35,750
|
|
A
reconciliation of NJRES Net income to NJRES Net financial earnings is as
follows:
|
|
Three
Months Ended
December
31
|
|
(Thousands)
|
|
2008
|
|
|
2007
|
|
Net
income
|
|
$
|
10,882
|
|
|
$
|
9,239
|
|
Add:
|
|
|
|
|
|
|
|
|
Unrealized
loss on derivative instruments, net of taxes
|
|
|
1,107
|
|
|
|
3,941
|
|
Effects
of economic hedging related to natural gas inventory and certain demand
fees, net of taxes
|
|
|
(2,606
|
)
|
|
|
5,912
|
|
Net
financial earnings
|
|
$
|
9,383
|
|
|
$
|
19,092
|
|
Financial
margin for the three months ended December 31, 2008 and 2007 was $20.0 million
and $35.8 million, respectively. The decrease of $15.8 million is due primarily
to the expiration of a highly favorable physical transport capacity contract
servicing the Northeast market region that was no longer available for asset
optimization in the current fiscal period, along with lower hedged values for
transportation and higher transportation expenses. NJRES’ total firm
transportation capacity decreased by 185,400 dth/day, to 677,000 dth/day at
December 31, 2008, from 862,400 dth/day at December 31, 2007. As a result, the
combined operating results of the basis and cash book portfolios in the current
fiscal period decreased by $11.4 million, as compared with the same period in
the last fiscal year. The storage book portfolio also decreased by $4.4 million
from the prior fiscal period, due primarily to lower average spreads on storage
positions in the current fiscal period, and less firm storage capacity, which
decreased to 25.1 Bcf in the current fiscal period from 26.9 Bcf in the prior
fiscal period.
NJRES’
operation and maintenance expense increased $1.5 million during the three months
ended December 31, 2008, compared with the same period in the last fiscal year,
due primarily to adjustments in fiscal 2008 related to fiscal 2007 performance
incentives, in addition to increased audit fees in fiscal 2009.
Future
results are subject to NJRES’ ability to maintain and expand its wholesale
marketing activities and are contingent upon many other factors, including an
adequate number of appropriate counterparties, volatility in the natural gas
market, sufficient liquidity in the energy trading market and continued access
to the capital markets.
Retail
and Other Operations
The
u
naudited
consolidated financial results of
Retail and Other are summarized as follows:
|
|
Three
Months Ended
December
31,
|
|
(Thousands)
|
|
2008
|
|
|
2007
|
|
Operating
revenues
|
|
$
|
(2,654
|
)
|
|
$
|
6,631
|
|
Operation
and maintenance expense
|
|
$
|
7,150
|
|
|
$
|
5,460
|
|
Equity
in earnings, net of tax
|
|
$
|
514
|
|
|
$
|
424
|
|
Net
(loss) income
|
|
$
|
(5,684
|
)
|
|
$
|
365
|
|
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
Operating
revenue for the three months ended December 31, 2008 decreased $9.3 million
compared to the same period in the prior fiscal year, due primarily to greater
unrealized losses at NJR Energy, which were the result of declining market
prices within a portfolio of net long financial derivative
positions.
Operation
and maintenance expense for the three months ended December 31, 2008 increased
$1.7 million compared to the same period in the prior fiscal year, due primarily
to a combination of higher labor cost, increased rent and utilities expenses and
higher health care premium costs at NJRHS during the three months ended December
31, 2008 and the fiscal 2008 true-up of fiscal 2007’s short term incentive
compensation costs at NJR in the first quarter of fiscal 2008.
Taxes
netted in Equity in earnings from Iroquois are $339,000 and $282,000 and are
included in the Unaudited Condensed Consolidated Statements of Income for the
three months ended December 31, 2008 and 2007, respectively. Equity in earnings
from Iroquois is driven by the underlying performance of natural gas
transportation through its existing pipeline, which is based on FERC regulated
tariffs.
Net
income for the three months ended December 31, 2008 decreased $6.0 million
compared to the same period in fiscal 2008 due primarily to the decreased
operating revenue at NJR Energy, partially offset by lower income tax expense as
a result of the lower Operating income.
NJR
Energy has an economic hedge associated with a long-term fixed-price contract to
sell gas to a counterparty. Unrealized losses or gains at NJR Energy are the
result of the change in value associated with financial derivative instruments
(futures contracts) designed to economically hedge the long-term fixed-price
contract.
The
Income statement impact represents unrealized losses associated with these
derivative instruments of $9.7 million and $305,000 for the three months ended
December 31, 2008 and 2007, respectively, which are recorded, pre-tax, as a
component of Operating revenues.
Additionally,
management of the Company uses the non-GAAP measure net financial earnings, when
viewing the results of NJR Energy to monitor the operational results without the
impact of unsettled derivative instruments.
A
reconciliation of Net (loss) income to Net financial earnings, a non-GAAP
measure, is as follows:
|
|
Three
Months Ended
June
30,
|
|
(Thousands)
|
|
2009
|
|
|
2008
|
|
Net
(loss) income
|
|
$
|
(5,684
|
)
|
|
$
|
365
|
|
Add:
|
|
|
|
|
|
|
|
|
Unrealized
loss on derivative instruments, net of taxes
|
|
|
5,705
|
|
|
|
180
|
|
Net
financial earnings
|
|
$
|
21
|
|
|
$
|
545
|
|
Net
financial earnings for the three months ended December 31, 2008, decreased
$500,000 compared to the same period in the prior fiscal year, due primarily to
increased Operation and maintenance expense as discussed above, partially offset
by lower Interest expense for NJR due to lower average interest rates and
short-term borrowings.
Liquidity
and Capital Resources
NJR’s
objective is to maintain a consolidated capital structure that reflects the
different characteristics of each business segment and provides adequate
financial flexibility for accessing capital markets as required.
NJR’s
consolidated capital structure was as follows:
|
|
December
31,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2008
|
|
Common
stock equity
|
|
|
50
|
%
|
|
|
51
|
%
|
Long-term
debt
|
|
|
30
|
|
|
|
32
|
|
Short-term
debt
|
|
|
20
|
|
|
|
17
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
Common
stock equity
NJR
satisfies its external common equity requirements, if any, through issuances of
its common stock, including the proceeds from under its Automatic Dividend
Reinvestment Plan (DRP) and proceeds from the exercise of options that were
granted under the Company’s long-term incentive program. The DRP allows NJR, at
its option, to use shares purchased on the open market or newly issued shares.
NJR issued approximately 221,000 shares related to the DRP and exercised options
during the three months ended December 31, 2008.
The
Company has a share repurchase program that provides for the repurchase of up to
6.8 million shares. As of December 31, 2008, the Company repurchased
approximately 5.4 million of those shares and has the ability to repurchase
approximately 1.4 million additional shares under the approved
program.
Debt
NJR and
its unregulated subsidiaries rely on cash flows generated from operating
activities and utilization of committed credit facilities to provide liquidity
to meet working capital and external debt-financing requirements.
As of
December 31, 2008, NJR, NJRES and NJNG had committed credit facilities of $605
million with approximately $339 million available under these facilities (see
Note 8.
Debt).
NJR
believes that existing borrowing availability, its current cash balances and its
cash flow from operations will be sufficient to satisfy it and its subsidiaries’
working capital, capital expenditure and dividend requirements for the
foreseeable future. NJR, NJNG and NJRES currently anticipate that its financing
requirements for the next twelve months will be met through the issuance of
short-term debt, meter sale lease-backs and proceeds from the Company’s
DRP.
NJR
On
December 13, 2007, NJR entered into a $325 million, five-year, revolving,
unsecured credit facility, which permits the borrowing of revolving loans and
swing loans, as well as the issuance of letters of credit. Swing loans are loans
made available on a same-day basis for an aggregate principal amount of up to
$50 million and repayable in full within a maximum of seven days of borrowing.
It also permits an increase to the facility, from time to time, with the
existing or new lenders, in a minimum of $5 million increments up to a maximum
$100 million at the lending banks discretion. Borrowings under the new facility
are conditional upon compliance with a maximum leverage ratio, as defined in the
new credit facility, of not more than 0.65 to 1.00 at any time. NJR used the
initial borrowings under the new credit facility to refinance its prior credit
facility. In addition, certain of NJR’s non-regulated subsidiaries have
guaranteed to the lenders all of NJR’s obligations under the new credit
facility. Depending on borrowing levels and credit ratings, NJR’s interest rate
can either be, at its discretion, the London inter-bank offered rate (“LIBOR”)
or the Federal Funds Open Rate plus an applicable spread and facility fee. As of
December 31, 2008, NJR’s effective rate was 0.8 percent on outstanding
borrowings of $62 million under this credit facility.
In
addition, borrowings under NJR’s credit facility are conditioned upon compliance
with a maximum leverage ratio, as defined in the credit facility, of not more
than 0.65 to 1.00 at any time.
NJR uses
its short term borrowings primarily to finance its share repurchases, to satisfy
NJRES’ short term liquidity needs and to finance, on an initial basis,
unregulated investments. NJRES’ use of high-injection, high-withdrawal storage
facilities and anticipated pipeline park-and-loan arrangements, combined with
related economic hedging activities in the volatile wholesale natural gas
market, create significant short-term cash requirements.
NJNG
On
November 1, 2008, upon maturity, NJNG redeemed its $30 million, 6.27 percent,
Series X First Mortgage bonds.
NJNG
satisfies its debt needs by issuing short- and long-term debt based upon its own
financial profile. The seasonal nature of NJNG’s operations creates large
short-term cash requirements, primarily to finance natural gas purchases and
customer accounts receivable. NJNG obtains working capital for these
requirements, and for the temporary financing of construction and MGP
remediation expenditures and energy tax payments, through the issuance of
commercial paper and short-term bank loans.
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
To
support the issuance of commercial paper, NJNG has a $250 million committed
credit facility with several banks, with a 5-year term, expiring in December
2009. NJNG had $203.6 million of commercial paper borrowings supported by the
credit facility as of December 31, 2008. In addition, borrowings under NJNG’s
credit facility are conditioned upon compliance with a maximum leverage ratio,
as defined in the credit facility, of not more than 0.65 to 1.00 at any time and
a minimum interest coverage ratio, as defined in the credit facility, of less
than 2.50 to 1.00.
Neither
NJNG nor its assets are obligated or pledged to support the NJR or NJRES
facilities.
NJRES
NJRES has
a 3-year $30 million committed credit facility with a multinational financial
institution. Borrowings under this facility are guaranteed by NJR. There were no
borrowings under this facility as of December 31, 2008.
Contractual
Obligations
The
following table is a summary of NJR, NJNG and NJRES contractual cash obligations
and financial commitments and their applicable payment due dates as of December
31, 2008.
(Thousands)
|
|
Total
|
|
|
Up
to
1
Year
|
|
|
2-3
Years
|
|
|
4-5
Years
|
|
|
After
5
Years
|
|
Long-term
debt
(1)
|
|
$
|
638,908
|
|
|
$
|
44,057
|
|
|
$
|
56,006
|
|
|
$
|
34,975
|
|
|
$
|
503,870
|
|
Capital
lease obligations
(1)
|
|
|
91,513
|
|
|
|
9,748
|
|
|
|
23,086
|
|
|
|
16,391
|
|
|
|
42,288
|
|
Operating
leases
(1)
|
|
|
11,735
|
|
|
|
3,251
|
|
|
|
4,301
|
|
|
|
2,570
|
|
|
|
1,613
|
|
Short-term
debt
|
|
|
265,550
|
|
|
|
265,550
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
New
Jersey Clean Energy Program
(1)
|
|
|
53,077
|
|
|
|
12,514
|
|
|
|
24,667
|
|
|
|
15,896
|
|
|
|
—
|
|
Construction
obligations
|
|
|
2,635
|
|
|
|
2,635
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Remediation
expenditures
(2)
|
|
|
120,230
|
|
|
|
18,530
|
|
|
|
35,900
|
|
|
|
22,200
|
|
|
|
43,600
|
|
Natural
gas supply purchase obligations–NJNG
|
|
|
92,177
|
|
|
|
76,054
|
|
|
|
16,123
|
|
|
|
—
|
|
|
|
—
|
|
Demand
fee commitments–NJNG
|
|
|
729,972
|
|
|
|
87,598
|
|
|
|
185,039
|
|
|
|
157,514
|
|
|
|
299,821
|
|
Natural
gas supply purchase obligations–NJRES
|
|
|
709,390
|
|
|
|
600,177
|
|
|
|
109,213
|
|
|
|
—
|
|
|
|
—
|
|
Demand
fee commitments–NJRES
|
|
|
188,356
|
|
|
|
79,508
|
|
|
|
78,406
|
|
|
|
23,589
|
|
|
|
6,853
|
|
Total
contractual cash obligations
|
|
$
|
2,903,543
|
|
|
$
|
1,199,622
|
|
|
$
|
532,741
|
|
|
$
|
273,135
|
|
|
$
|
898,045
|
|
(1)
|
These
obligations include an interest component, as defined under the related
governing agreements or in accordance with the applicable tax
statute.
|
(2)
|
Expenditures
are estimated
|
(3)
|
As
of December 31, 2008, we had a liability for unrecognized tax benefits of
$6.5 million. We cannot make a reasonable estimate of the period of cash
settlement for the liability for unrecognized tax benefits. See Note 13 to
the consolidated financial statements, Income Taxes, for a further
discussion on our income tax
positions.
|
For
fiscal 2009, the Company has no minimum pension funding requirements, however,
funding requirements are uncertain and can depend significantly on changes in
actuarial assumptions, returns on plan assets and changes in demographic
factors. It is anticipated that the annual funding level to the OPEB plans will
range from $1.2 million to $1.4 million over the next five years. Additional
contributions may be made based on market conditions and various
assumptions.
As of
December 31, 2008, there were NJR guarantees covering approximately $421 million
of natural gas purchases and demand fee commitments of NJRES and NJNG, included
in natural gas supply purchase obligations above, not yet reflected in Accounts
payable on the Unaudited Condensed Consolidated Balance Sheet.
The
Company is obligated to fund up to $132.5 million associated with the
construction and development of Steckman Ridge. Currently, NJR anticipates that
Steckman Ridge will seek non-recourse project financing for a portion of the
facility once construction activities are completed, therefore potentially
reducing the aggregate recourse amount funded by NJR. There can be no assurances
that Steckman Ridge will eventually secure such non-recourse project
financing.
Total
capital expenditures for fiscal 2009 are estimated at $77.3 million, including
expenditures of $18.4 million incurred during the three months ended December
31, 2008.
Off-Balance-Sheet
Arrangements
The
Company does not have any off-balance-sheet financing
arrangements.
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
Cash
Flow
Operating
Activities
As
presented in the Unaudited Condensed Consolidated Statements of Cash Flows, cash
flow used in operating activities totaled $37.0 million for the three months
ended December 31, 2008, compared with cash flow used in operations of $6.5
million for the same period in fiscal 2008. Cash used in operating activities
was lower for the three month period ended December 31, 2008 as compared with
the same period in fiscal 2008, largely as a result of lower net income during
the current fiscal period, which was driven by less favorable operating results
at NJRES. NJR employs the indirect method when preparing its Unaudited Condensed
Consolidated Statement of Cash Flows. Net income is adjusted for any non-cash
items, such as accruals and certain amortization amounts that impact earnings
during the period. In addition, operating cash flows are affected by variations
in working capital and the related changes in the beginning and period end
balances, which can be impacted by the following:
Ÿ
|
seasonality
of NJR’s business;
|
Ÿ
|
fluctuations
in wholesale natural gas prices;
|
Ÿ
|
timing
of storage injections and
withdrawals;
|
Ÿ
|
management
of the deferral and recovery of gas
costs;
|
Ÿ
|
changes
in contractual assets utilized to optimize margins related to natural gas
transactions; and
|
Ÿ
|
timing
of the collections of receivables and payments of current
liabilities.
|
NJR
needed less cash for its working capital requirements during the three months
ended December 31, 2008 as compared with the same period in fiscal 2008. During
the current fiscal period, NJR used $72.6 million to satisfy liquidity needs
compared with $53 million during the prior fiscal quarter. The underlying
factors that contributed to the decrease in cash used to support working capital
requirements are as follows:
Ÿ
|
a
decrease in average natural gas costs at NJRES resulting in a reduction in
the value of its gas in storage;
|
Ÿ
|
comparatively
lower sales volumes at NJRES stemming from a reduction in transportation
capacity resulting in a decrease in its receivable
balances;
|
Ÿ
|
a
reduction in NJNG’s underrecovered gas costs during the current quarter as
a result of gas costs falling below the commodity component of NJNG’s BGSS
rate billed to its customers compared with the prior year when cash flows
were primarily impacted by a credit of $32 million issued to NJNG’s
customers in anticipation of the lower commodity costs; partially offset
by
|
Ÿ
|
lower
NYMEX prices during the current fiscal quarter which resulted in increased
broker margin deposits for NJNG’s financial derivatives;
and
|
Ÿ
|
lower
payable balances at the end of the current fiscal quarter compared to
higher balances the previous year related to gas purchases at
NJRES.
|
NJNG’s
MGP expenditures are currently expected to total $17.6 million in fiscal 2009
(see
Note 14. Commitments and
Contingent Liabilities).
Investing
Activities
Cash flow
used in investing activities totaled $36.6 million for the three months ended
December 31, 2008, compared with $17.9 million in the same period in fiscal
2008. The increase in cash used was due primarily to an increase in the cash
invested in Steckman Ridge and higher NJNG utility plant expenditures offset by
the drawdown from the restricted cash construction fund.
On June
5, 2008, the Federal Energy Regulatory Commission (FERC) issued Steckman Ridge a
certificate of public convenience and necessity authorizing the ownership,
construction and operation of its natural gas storage facility and associated
facilities. NJR anticipates that Steckman Ridge will be placed in service during
the summer of 2009. As of December 31, 2008, NJR has invested $99.7 million in
Steckman Ridge. This amount excludes capitalized interest and other direct
costs. Total project costs related to the development of the storage facility
are currently estimated at approximately $265 million, of which NJR
is
New
Jersey Resources Corporation
Part
I
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
|
obligated
to fund 50 percent or approximately $132.5 million. NJR anticipates that
Steckman Ridge will seek non-recourse financing upon completion of
the construction and development of its facilities, thereby potentially
reducing the final expected recourse obligation of NJR. There can be no
assurances that such non-recourse project financing will be secured or available
for Steckman Ridge.
Retail
and Other capital expenditures each year have been made primarily in connection
with investments made to preserve the value of real estate holdings. At December
31, 2008, CR&R owned 83 acres of undeveloped land and a 56,400-square-foot
building on 5 acres of land.
NJRES
does not currently anticipate any significant capital expenditures in fiscal
2009.
Financing
Activities
Cash flow
from financing activities totaled $56.9 million for the three months ended
December 31, 2008, compared with $23.1 million for the same period in the prior
fiscal year. During the current fiscal quarter, NJNG redeemed its $30
million, 6.27 percent, Series X Mortgage bonds, which was offset by an
increase in short-term borrowings compared with the prior fiscal quarter. This
increase in short term debt was used to fund working capital requirements, as
well as utility plant and other investments
NJNG
provides funding for certain of its infrastructure projects through tax exempt,
variable-rate debt, which has been issued to back six series of auction rate
securities (ARS) through the Economic Development Authority of New Jersey (EDA),
and are based on the borrowing costs of the ARS. During periods of reduced
liquidity for ARS, NJNG’s rate on its variable rate debt could default to a
maximum rate of the lesser of (i) 175 percent of the 30-day LIBOR or (ii) 10 to
12 percent, as applicable to a particular series of ARS. NJNG is currently
reviewing alternatives that include the refinancing of these bonds to eliminate
any increase in interest rate risk.
NJNG
received $6.3 million and $7.5 million in December 2008 and 2007, respectively,
in connection with the sale-leaseback of its natural gas meters. This
sale-leaseback program is expected to be continued on an annual
basis.
Credit
Ratings
The table
below summarizes NJNG’s current credit ratings issued by two rating entities,
Standard and Poor’s (S&P) and Moody’s Investors Service, Inc.
(Moody’s):
|
Standard
and Poor’s
|
Moody’s
|
Corporate
Rating
|
A
|
N/A
|
Commercial
Paper
|
A-1
|
P-1
|
Senior
Secured
|
A+
|
Aa3
|
Ratings
Outlook
|
Stable
|
Negative
|
On
December 12, 2008, Moody’s adjusted NJNG’s credit ratings outlook from stable to
negative.
NJNG’s
S&P and Moody’s ratings are investment-grade ratings. S&P and Moody’s
give NJNG’s commercial paper the highest rating within the Commercial Paper
investment-grade category. NJR is not a rated entity.
NJNG is
not party to any lending agreements that would accelerate the maturity date of
any obligation caused by a failure to maintain any specific credit rating. If
such ratings are downgraded below investment grade, borrowing costs could
increase, as will the costs of maintaining certain contractual relationships and
for future financing. Even if ratings are downgraded without falling below
investment grade, NJR and NJNG may still face increased borrowing costs under
their respective credit facilities. A rating set forth above is not a
recommendation to buy, sell or hold the Company’s or NJNG’s securities and may
be subject to revision or withdrawal at any time. Each rating set forth above
should be evaluated independently of any other rating.
The
timing and mix of any external financings will target a common equity ratio that
is consistent with maintaining the Company’s current short- and long-term credit
ratings.
New
Jersey Resources Corporation
Part
I
I
TEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
|
Financial
Risk Management
Natural
gas is a nationally traded commodity, and its prices are determined effectively
by the New York Mercantile Exchange (NYMEX) and over-the-counter markets. The
prices on the NYMEX and over-the-counter markets generally reflect the notional
balance of natural gas supply and demand, but are also influenced significantly
from time to time by other events.
The
regulated and unregulated natural gas businesses of the Company and its
subsidiaries are subject to market risk due to fluctuations, in the price of
natural gas. To economically hedge against such fluctuations, the Company and
its subsidiaries have entered into futures contracts, options agreements and
swap agreements. To manage these derivative instruments, the Company has
well-defined risk management policies and procedures that include daily
monitoring of volumetric limits and monetary guidelines. The Company’s natural
gas businesses are conducted through three of its operating subsidiaries. First,
NJNG is a regulated utility that uses futures, options and swaps to economically
hedge against price fluctuations and its recovery of natural gas costs is
governed by the BPU. Second, NJRES uses futures, options and swaps to
economically hedge purchases and sales of natural gas. Finally, NJR Energy has
entered into two swap transactions related to an 18-year fixed-price contract,
expiring in October 2010 to sell remaining volumes of approximately 4.3 Bcf of
natural gas (Gas Sales Contract) to an energy marketing company.
The
following table reflects the changes in the fair market value of financial
derivatives related to natural gas purchases and sales from September 30, 2008
to December 31, 2008:
(Thousands)
|
|
Balance
September
30,
2008
|
|
|
Increase
(Decrease)
in
Fair
Market
Value
|
|
|
Less
Amounts
Settled
|
|
|
Balance
December
31,
2008
|
|
NJNG
|
|
$
|
(49,610
|
)
|
|
$
|
(32,499
|
)
|
|
$
|
(4,581
|
)
|
|
$
|
(77,528
|
)
|
NJRES
|
|
|
89,571
|
|
|
|
51,366
|
|
|
|
47,909
|
|
|
|
93,028
|
|
NJR
Energy
|
|
|
20,190
|
|
|
|
(8,883
|
)
|
|
|
800
|
|
|
|
10,507
|
|
Total
|
|
$
|
60,151
|
|
|
$
|
9,984
|
|
|
$
|
44,128
|
|
|
$
|
26,007
|
|
There
were no changes in methods of valuations during the period ended December 31,
2008.
The
following is a summary of fair market value of financial derivatives related to
natural gas purchases and sales at December 31, 2008, by method of valuation and
by maturity for each fiscal year period:
(Thousands)
|
|
2009
|
|
|
2010
|
|
|
|
2011-2013
|
|
|
After
2013
|
|
|
Total
Fair
Value
|
|
Price
based on NYMEX
|
|
$
|
22,474
|
|
|
$
|
29
|
|
|
$
|
(1,657
|
)
|
|
|
—
|
|
|
$
|
20,846
|
|
Price
based on other external data
|
|
|
4,442
|
|
|
|
719
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,161
|
|
Total
|
|
$
|
26,916
|
|
|
$
|
748
|
|
|
$
|
(1,657
|
)
|
|
|
—
|
|
|
$
|
26,007
|
|
The
following is a summary of financial derivatives by type as of December 31,
2008:
|
|
|
Volume
(Bcf)
|
|
|
Price
per
Mmbtu
|
|
|
Amounts
included in Derivatives
(Thousands)
|
|
NJNG
|
Futures
|
|
|
21.0
|
|
|
|
$5.64
- 9.16
|
|
|
$
|
(51,076
|
)
|
|
Swaps
|
|
|
(5.8)
|
|
|
|
$4.39
- $13.95
|
|
|
|
(28,277
|
)
|
|
Options
|
|
|
12.4
|
|
|
|
$5.98
- $9.47
|
|
|
|
1,825
|
|
NJRES
|
Futures
|
|
|
(10.7)
|
|
|
|
$5.20
- $14.36
|
|
|
|
17,648
|
|
|
Swaps
|
|
|
(64.7)
|
|
|
|
$4.71
- $14.41
|
|
|
|
72,660
|
|
|
Options
|
|
|
—
|
|
|
|
$10.22
- $13.21
|
|
|
|
2,720
|
|
NJR
Energy
|
Swaps
|
|
|
4.7
|
|
|
|
$5.64
- $9.16
|
|
|
|
10,507
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
$
|
26,007
|
|
New
Jersey Resources Corporation
Part
I
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Continued)
|
The
following table reflects the changes in the fair market value of physical
commodity contracts from September 30, 2008 to December 31, 2008:
(Thousands)
|
|
Balance
September
30,
2008
|
|
Increase
(Decrease)
in Fair
Market
Value
|
|
Less
Amounts
Settled
|
|
Balance
December
31, 2008
|
NJRES
|
|
$
|
1,714
|
|
|
$
|
27,298
|
|
|
$
|
14,052
|
|
|
$
|
14,960
|
|
The
Company uses a value-at-risk (VaR) model to assess the market risk of its net
futures, options and swap positions. VaR represents the potential loss in value
of NJRES’ trading portfolio due to adverse market movements over a defined time
horizon (NJRES utilizes holding periods of 1 day and 10 days) with a specified
confidence level (NJRES utilizes either a 95 percent or 99 percent confidence
level). As an example, utilizing a 1 day holding period with a 95 percent
confidence level would indicate that there is a 5 percent chance that the
liquidation value of the NJRES portfolio would fall below the expected trading
value by an amount at least as large as the calculated VaR.
The VaR
at December 31, 2008, using the variance-covariance method with a 95 percent
confidence level and a 1-day holding period, was $1.0 million. The VaR with a 99
percent confidence level and a 10-day holding period was $4.5 million. The
calculated VaR represents an estimate of the potential change in the value of
the net positions. These estimates may not be indicative of actual results
because actual market fluctuations may differ from forecasted
fluctuations.
Wholesale
Credit Risk
NJNG,
NJRES and NJR Energy engage in wholesale marketing activities. NJR monitors and
manages the credit risk of its wholesale marketing operations through credit
policies and procedures that management believes reduce overall credit risk.
These policies include a review and evaluation of prospective counterparties’
financial statements and/or credit ratings, daily monitoring of counterparties’
credit limits, daily communication with traders regarding credit status and the
use of credit mitigation measures, such as minimum margin requirements,
collateral requirements and netting agreements. Examples of collateral include
letters of credit and cash received for either prepayment or margin
deposit.
The
Company’s Risk Management Committee (RMC) continuously monitors NJR’s credit
risk management policies and procedures. The RMC is comprised of individuals
from NJR-affiliated companies that meet twice a month and, among other things,
evaluates the effectiveness of existing credit policies and procedures, reviews
material transactions and discusses emerging issues.
The
following is a summary of gross and net credit exposures, grouped by investment
and noninvestment grade counterparties, as of December 31, 2008. Gross credit
exposure is defined as the unrealized fair value of derivative and energy
trading contracts plus any outstanding receivable for the value of natural gas
delivered for which payment has not yet been received. Net credit exposure is
defined as gross credit exposure reduced by collateral received from
counterparties and/or payables, where netting agreements exist. The amounts
presented below exclude accounts receivable for retail natural gas sales and
services.
Unregulated
counterparty credit exposure as of December 31, 2008, is as
follows:
(Thousands)
|
Gross
Credit
Exposure
|
|
Net
Credit
Exposure
|
Investment
grade
|
$229,046
|
|
$
|
150,020
|
|
Noninvestment
grade
|
3,169
|
|
|
—
|
|
Internally
rated investment grade
|
27,639
|
|
|
16,564
|
|
Internally
rated noninvestment grade
|
1,531
|
|
|
—
|
|
Total
|
$261,385
|
|
$
|
166,584
|
|
NJNG’s
counterparty credit exposure as of December 31, 2008, is as
follows:
(Thousands)
|
Gross
Credit
Exposure
|
|
Net
Credit
Exposure
|
Investment
grade
|
$22,743
|
|
$
|
17,471
|
|
Noninvestment
grade
|
1,700
|
|
|
4
|
|
Internally
rated investment grade
|
189
|
|
|
—
|
|
Internally
rated noninvestment grade
|
—
|
|
|
—
|
|
Total
|
$24,632
|
|
$
|
17,475
|
|
New
Jersey Resources Corporation
Part
I
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(Continued)
|
Due to
the inherent volatility in the prices of natural gas commodities and
derivatives, the market value of contractual positions with individual
counterparties could exceed established credit limits or collateral provided by
those counterparties. If a counterparty failed to perform the obligations under
its contract (for example, failed to deliver or pay for natural gas), then the
Company could sustain a loss. This loss would comprise the loss on natural gas
delivered but not paid for and/or the cost of replacing natural gas not
delivered at a price higher than the price in the original contract. Any such
loss could have a material impact on the Company’s financial condition, results
of operations or cash flows.
Interest
Rate Risk–Long-Term Debt
At
December 31, 2008, the Company (excluding NJNG) had no variable-rate long-term
debt.
As of
December 31, 2008 NJNG is obligated with respect to loan agreements securing six
series of auction rate bonds totaling approximately $97.0 million of
variable-rate debt backed by securities issued by the EDA. The EDA bonds are ARS
and have an interest rate reset every 7 or 35 days, depending upon the
applicable series, when an auction is held for the purposes of determining the
interest rate pricing of the securities. The interest rate associated with the
NJNG variable-rate debt is based on the rates the EDA receives from its ARS. As
of December 31, 2008, all of the auctions surrounding the EDA ARS have failed,
resulting in the securities bearing interest at their maximum rates, as defined
in the ARS, as the lesser of (i) 175 percent of 30-day LIBOR or (ii) 10 to 12
percent per annum, as applicable to such series of ARS. While the failure of the
ARS auctions has no default impact on NJNG’s variable-rate debt, it does impact
its borrowing costs of the variable-rate debt. As such, NJNG currently has a
weighted average interest rate of 0.8 percent as of December 31, 2008. There can
be no assurance that the EDA ARS will have enough market liquidity to avoid
failed auctions in the future.
Effects
of Inflation
Although
inflation rates have been relatively low to moderate in recent years, any change
in price levels has an effect on operating results due to the capital-intensive
and regulated nature of the Company’s utility subsidiary. The Company attempts
to minimize the effects of inflation through cost control, productivity
improvements and regulatory actions where appropriate.
ITE
M
4. CONTROLS AND
PROCEDURES
|
Disclosure
Controls and Procedures
As
discussed in "Part II. Item 9A. Controls and Procedures" in our Form10-K for the
fiscal year ended September 30, 2008, in connection with the Company’s
preparation of its consolidated financial statements for the fiscal year ended
September 30, 2008, the Company identified an immaterial error in the recording
of certain physical natural gas transactions, which were not recorded at the
appropriate fair value during the interim quarters ended March 31, 2008 and June
30, 2008, as they were valued at an incorrect price. Controls were not designed
properly or operating effectively to prevent or detect these pricing errors.
Natural gas prices are volatile and it is reasonably possible that the volume of
these transactions could have been larger during any interim period or for the
fiscal year ended September 30, 2008. The Company concluded that it was
reasonably possible that this control weakness could have resulted in a material
error in its Consolidated Financial Statements had the volume of these
transactions been larger.
As of
December 31, 2008, under the supervision and with the participation of the
Company’s management, including the principal executive officer and principal
financial officer, the Company conducted an evaluation of the effectiveness of
the design and operation of its disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act, as of the end of the
period covered by this report. Based on this evaluation, since the material
weakness discussed above is not completely remediated, the Company’s principal
executive officer and principal financial officer concluded that, as of end of
the period covered by this report, the Company’s disclosure controls and
procedures were not effective to ensure that information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act, is recorded, processed, summarized and reported, within the time
periods specified in the SEC’s rules and forms, and that such information is
accumulated and communicated to the Company’s management, including its
principal executive officer and principal financial officer, as appropriate, to
allow timely decisions regarding required disclosure.
In
addition, in conjunction with the filing of this amended Form 10-Q/A, as a
result of the restatement described in Note 2 to the Unaudited Condensed
Consolidated Financial Statements, under the supervision and with the
participation of the Company’s management, including the principal executive
officer and principal financial officer, the Company conducted a re-evaluation
of the effectiveness of the design and operation of its disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act,
as of the end of the period covered by this report. Management, in consultation
with the Audit Committee, has concluded that the restatement errors set forth
herein constituted a material weakness in the Company’s internal controls over
financial reporting as of the date of the original filing which has since been
remediated.
New
Jersey Resources Corporation
Part
I
ITEM
4. CONTROLS AND PROCEDURES
(Continued)
|
The
financial statements for the period covered by this report were prepared with
particular attention to the material weakness. Accordingly, management believes
that the condensed consolidated financial statements included in this Quarterly
Report fairly present, in all material respects, our financial condition,
results of operations and cash flows as of and for the periods
presented.
The
Company continually reviews its disclosure controls and procedures and makes
changes, as necessary, to ensure the quality of its financial reporting. As
detailed below, the Company has implemented certain additional controls that it
believes will significantly reduce the potential for similar issues to arise in
the future.
Changes
in Internal Control over Financial Reporting
Management
and the Board of Directors are committed to the remediation of the material
weaknesses set forth above as well as the continued improvement of the Company’s
overall system of internal control over financial reporting. Management is in
the process of actively addressing and remediating the material weaknesses in
internal control over financial reporting described above. Subsequent to the
quarter and fiscal year ended September 30, 2008, in connection with the
material weaknesses in internal control over financial reporting detailed above,
the Company has implemented or will implement the following controls designed to
substantially reduce the risk of a similar material weaknesses occurring in the
future:
Ÿ
|
expand training, education and
accounting reviews for all relevant personnel involved in the accounting
treatment and disclosures for the Company’s commodity
transacting;
|
Ÿ
|
invest in additional resources
with appropriate accounting technical
expertise;
|
Ÿ
|
expand the review of the design
of the internal control over financial reporting related to the accounting
of commodity transacting, which will incorporate an analysis of the
current staffing levels, job assignments and the design of all internal
control processes for the accounting for commodity transacting and
implement new and improved processes and controls, if warranted;
and
|
Ÿ
|
increase the level of review and
discussion of significant accounting matters and supporting documentation
with senior finance
management.
|
As part
of the Company’s fiscal 2009 assessment of internal control over financial
reporting, management will conduct sufficient testing and evaluation of the
controls to be implemented as part of this remediation plan to ascertain that
they are designed and are operating effectively. The effectiveness of
remediation efforts will not be known until the Company can test those controls
in connection with the management tests of internal control over financial
reporting that the Company will perform during fiscal 2009. Management believes,
however, these measures will fully remediate the above identified material
weakness in internal control over financial reporting.
These
were the only changes in the Company’s internal control over financial reporting
(as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during
the quarter ended December 31, 2008, that have materially affected, or are
reasonably likely to materially affect, internal control over financial
reporting. Subsequent to the end of the first fiscal quarter, the Company’s
Corporate Controller position was vacated. The Company has temporarily delegated
the responsibilities of the function to other senior accounting managers while
it conducts an employment search for a new Controller. These employees are
qualified and capable of managing the additional responsibilities in the interim
and will be doing so under the direction of the principal financial
officer.
New
Jersey Resources Corporation
Part
II
IT
EM
1. LEGAL
PROCEEDINGS
|
Information
regarding reportable legal proceedings is contained in Part I, "Item 3. Legal
Proceedings" in NJR’s Annual Report on Form 10-K for the year ended September
30, 2008, and is set forth in
Part I, Item 1, Note 14.
Commitment and Contingent
Liabilities—Legal Proceedings
in the Unaudited Condensed Consolidated
Financial Statements. No legal proceedings became reportable during the quarter
December 31, 2008 and there have been no material developments during such
quarter regarding any previously reported legal proceedings, which have not been
previously disclosed.
While NJR
attempts to identify, manage and mitigate risks and uncertainties associated
with its business to the extent practical, under the circumstances, some level
of risk and uncertainty will always be present. Part I, Item 1A, "Risk Factors,"
of NJR’s 2008 Annual Report on Form 10-K includes a detailed discussion of NJR’s
risk factors. These risks and uncertainties have the potential to materially
affect NJR’s financial condition and results of operations. There have not been
any material changes from the risk factors as previously disclosed by NJR in the
2008 Annual Report on Form 10-K.
IT
EM
2. UNREGISTERED SALE OF EQUITY SECURITIES AND
USE OF PROCEEDS
|
In 1996,
the NJR’s Board of Directors (“Board”) authorized the Company to implement a
share repurchase program, which has been expanded several times since the
inception of the program. On November 14, 2007, the Board authorized an increase
to the plan to permit the repurchase, in the open market or in privately
negotiated transactions, of 1.5 million shares, bringing the total permitted
repurchases to 6.8 million shares as of that date. As of December 31, 2008, the
Company has 1.4 million shares of its common stock still available for
repurchase.
The
following table sets forth NJR’s repurchase activity for the quarter ended
December 31, 2008:
Period
|
|
Total
Number of
Shares
(or
Units)
Purchased
|
|
|
Average
Price
Paid
per Share
(or
Unit)
|
|
|
Total
Number of Shares
(or
Units) Purchased as
Part
of Publicly
Announced
Plans or
Programs
|
|
|
Maximum
Number
(or
Approximate
Dollar
Value)
of
Shares (or Units) That May
Yet
be Purchased Under the
Plans
or Programs
|
|
10/01/08
– 10/31/08
|
|
|
40,000
|
|
|
$
|
28.15
|
|
|
|
40,000
|
|
|
|
1,369,171
|
|
11/01/08
– 11/30/08
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,369,171
|
|
12/01/08
– 12/31/08
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,369,171
|
|
Total
|
|
|
40,000
|
|
|
$
|
28.15
|
|
|
|
40,000
|
|
|
|
1,369,171
|
|
New
Jersey Resources Corporation
Part
II
IT
E
M 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
(a)
|
An annual meeting of shareholders
was held on January 21,
2009.
|
(b)
|
The shareholders voted upon the
following matters at the January 21, 2009 annual shareholders
meeting:
|
|
(i)
|
The election of four directors to
the Board of Directors for terms expiring in 2012. The results of the
voting were as follows:
|
|
DIRECTORS UNTIL 2012
|
|
FOR
|
WITHHELD
|
|
|
|
|
|
|
|
|
Donald
L. Correll
|
|
34,374,623
|
607,318
|
|
|
M.
William Howard, Jr.
|
|
34,462,959
|
518,982
|
|
|
J.
Terry Strange
|
|
32,542,250
|
2,439,691
|
|
|
George
R. Zoffinger
|
|
34,152,002
|
829,939
|
|
In
addition to the directors elected at the annual meeting, the terms of the
following members of NJR’s Board of Directors continued after the
meeting:
|
Nina
Aversano
|
|
Lawrence
R. Codey
|
|
Laurence
M. Downes
|
|
Jane
M. Kenny
|
|
Alfred
C. Koeppe
|
|
David
A. Trice
|
|
William
H. Turner
|
|
(ii)
|
Approval
of the action of the Audit Committee in retaining Deloitte & Touche
LLP as NJR’s independent registered public accounting firm. The results of
the voting were as follows:
|
|
FOR
|
AGAINST
|
ABSTAIN
|
|
|
34,305,957
|
566,008
|
109,976
|
|
There
were no broker non-votes in either of the matters voted upon by our
shareholders.
New
Jersey Resources Corporation
Part
II
Exhibit
Number
|
|
Exhibit Name
|
|
|
|
|
|
Certification
of the Chief Executive Officer pursuant to section 302 of the
Sarbanes-Oxley Act
|
|
|
|
|
|
Certification
of the Chief Financial Officer pursuant to section 302 of the
Sarbanes-Oxley Act
|
|
|
|
|
|
Certification
of the Chief Executive Officer pursuant to section 906 of the
Sarbanes-Oxley Act*
|
|
|
|
|
|
Certification
of the Chief Financial Officer pursuant to section 906 of the
Sarbanes-Oxley Act*
|
*This
certificate accompanies this report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not be deemed filed by NJR for purposes of
Section 18 or any other provision of the Securities Exchange Act of 1934, as
amended.
New
Jersey Resources Corporation
Part
II
S
IGNA
TURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
NEW
JERSEY RESOURCES CORPORATION
|
|
(Registrant)
|
|
|
Date:
November 24, 2009
|
|
|
By:/s/
Glenn C. Lockwood
|
|
Glenn
C. Lockwood
|
|
Senior
Vice President and
|
|
Chief
Financial Officer
|
51
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