Date: August 4, 2010
WALL, NJ - New Jersey Resources (NYSE:NJR) today reported earnings for the third quarter and first nine months of fiscal 2010 and reaffirmed its net financial earnings guidance.
A reconciliation of NJR's net income to net financial earnings for the three and nine months ended June 30 in fiscal years 2010 and 2009 is provided below:
Net financial earnings is a financial measure not calculated in accordance with generally accepted accounting principles (GAAP) of the United States as it excludes all unrealized, and certain realized, gains and losses associated with derivative instruments. For further discussion of this financial measure, as well as a reconciliation to the most comparable GAAP measure, please see the explanation below under "Additional Non-GAAP Financial Information."
Third-quarter net financial earnings for fiscal 2010 were $11.6 million, or $.28 per share, an increase over quarterly net financial earnings of $1.2 million, or $.03 per share, during the same three-month period last fiscal year. Year-to-date net financial earnings at NJR were $103 million, or $2.49 per share, compared with $106 million, or $2.52 per share, during the same period last year. Improved third-quarter net financial earnings compared with the same period in the prior fiscal year were driven by higher results at New Jersey Natural Gas (NJNG), Midstream Assets and NJR Energy Services (NJRES).
"We are pleased to report that all three of our business segments generated improved results this quarter, enabling us to reaffirm our earnings guidance for fiscal 2010," said Laurence M. Downes, chairman and CEO of NJR. "Our shareowners rely on us to provide consistent results and thanks to the dedication and commitment to excellence of our employees, who are the driving force behind our performance, we remain on track for another year of increased net financial earnings."
Subject to the factors discussed at the end of this release under "Forward-Looking Statements" and due to strong third-quarter results, NJR is reaffirming its fiscal 2010 net financial earnings guidance in a range of $2.45 to $2.55 per basic share. Overall, NJR expects New Jersey Natural Gas (NJNG) to be the major contributor to fiscal 2010 net financial earnings, accounting for 60 to 70 percent of the total. In addition, NJR estimates that the contribution from NJRES will be approximately 15 to 25 percent and Midstream Assets will be approximately 5 to 10 percent of total fiscal 2010 net financial earnings.
Net income in the third quarter of fiscal 2010 at NJNG increased to $6.1 million, compared with $4.1 million in the same period last year. Fiscal 2010 year-to-date net income increased nearly 2 percent to $70.1 million, compared with $68.8 million during the same period last year.
The increase is due in part to steady customer growth. During the first nine months of fiscal 2010, NJNG has added 3,938 new customers and an additional 441 existing customers converted to natural gas heat and other services. This growth is expected to contribute approximately $2 million to annual utility gross margin.
Additionally, results at the utility have been bolstered by the impact of several regulatory initiatives. The Accelerated Infrastructure Program (AIP) enables NJNG to recognize its cost of financing 14 capital projects based on its authorized weighted average cost of capital of 7.76 percent. Through June 30, 2010, NJNG has incurred capital costs of $21.4 million through the AIP and total capital investment over the life of the program is expected to be $70.8 million.
NJNG's energy-efficiency program, known as The SAVEGREEN Project™, is also contributing towards the utility's results. Spending during fiscal 2010 has totaled $7.4 million, on which NJNG recognizes the same cost of capital referenced above through an energy-efficiency rider on customer bills. Incentives through SAVEGREEN complement those available from New Jersey's Clean Energy Program. To date, more than $3 million has been paid to customers through rebates and special financial offers. Additionally, nearly 3,000 customers have received comprehensive home energy audits to identify energy-saving opportunities in their homes in accordance with NJNG's "whole-house" approach to energy efficiency and conservation.
NJNG's positive results in the third quarter of fiscal 2010 were also due in part to lower operation and maintenance expenses due primarily to a decrease in bad debt expense and costs associated with system maintenance.
In March, NJNG submitted a filing to the New Jersey Board of Public Utilities (BPU) seeking approval to expand and enhance its energy-efficiency program as well as offer renewable energy technologies to residential and commercial customers. The filing is currently in the discovery phase and NJNG is working collaboratively with regulators to resolve the matter by October 1, 2010.
Two new initiatives have put NJR into the electricity business and are expected to contribute to growth over the coming years. NJR Clean Energy Ventures (NJRCEV), a subsidiary formed to identify opportunities in the renewable energy market and invest in commercial roof-top and ground-mounted solar systems, recently announced its first two agreements with Adler Development in central New Jersey and CertainTeed in Berlin, NJ. The cost of the projects is expected to be approximately $22 million and have been developed with the technical expertise of United Solar, a leading global manufacturer of UNI-SOLAR® brand light-weight, flexible, thin-film, low impact and low profile solar panels. The rooftop systems will be capable of generating approximately five megawatts of clean, renewable energy and offer lower costs to tenants while helping to reduce the facilities' carbon footprint. Investments made by NJRCEV will qualify for a 30 percent federal investment tax credit. In addition, the energy produced will be eligible for Solar Renewable Energy Certificates (SRECs), which can be sold to load serving entities in New Jersey to meet their renewable energy requirements. Additional return on investment will be provided by power purchase agreement payments from tenants.
Additionally, NJR Home Services (NJRHS) has over 100 leases signed for its residential solar leasing program launched earlier this year. The program is making solar energy accessible and affordable for homeowners, who are not responsible for the costs of installation or maintenance over the 20-year lease. Monthly fees are fixed over the life of the lease at approximately $52 per month. The average customer will save about $100 on monthly electricity costs. NJRHS expects to invest up to $4 million in this program in fiscal 2010. Just as in the NJRCEV agreements, NJRHS qualifies for 30 percent federal investment tax credit and will generate SRECs. NJRHS may also be eligible for any rebates available from New Jersey's Clean Energy Program.
Net income from Midstream Assets in the third-quarter of fiscal 2010 was $1.8 million compared with $940,000 over the same period last year. Year-to-date quarter earnings in fiscal 2010 were $5.2 million, compared with $2.1 million in fiscal 2009. Both increases are due to earnings from Steckman Ridge, a 12 billion cubic feet working gas storage facility located in Southwestern Pennsylvania, which began generating storage revenues when it became commercially operational during the third quarter of fiscal 2009.
NJR Energy Services (NJRES), NJR's wholesale energy subsidiary, reported net financial earnings for the third quarter of fiscal 2010 of $3.3 million compared with a loss of $4.5 million in the same period last year. For the nine-month period ending June 30, 2010, net financial earnings were $29.3 million compared with $36 million in the same period last year. The increase in third-quarter net financial earnings is due an increase in sales volume of approximately 12.4 billion cubic feet coupled with higher average price spreads for the three-month period ended June 30, 2010, compared with the same period in the prior fiscal year.
Natural gas prices have remained significantly lower than in prior years, reducing volatility in the wholesale market and causing fewer opportunities for asset optimization. As a result, NJRES is using its extensive experience managing storage and transportation assets to offer services to exploration and production (E&P) companies working in the Marcellus Shale and other regions. This allows those E&P companies to focus on their strengths, while NJRES uses its own expertise to provide comprehensive producer services once the natural gas has been extracted. NJRES currently has signed agreements to manage over 350,000 decatherms per day of natural gas production
NJR will host a live webcast to discuss its financial results today at 9 a.m. ET. A few minutes prior to the webcast, go to www.njliving.com and select "New Jersey Resources" from the top navigation bar. Choose "Investor Relations," then click just below the microphone under the heading "Latest Webcast" on the Investor Relations home page.
This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. NJR cautions readers that the assumptions forming the basis for forward-looking statements include many factors that are beyond NJR's ability to control or estimate precisely, such as estimates of future market conditions and the behavior of other market participants. Other factors that could cause actual results to differ materially from the company's expectations include, but are not limited to, weather; economic conditions; NJR dependence on operating subsidiaries; demographic changes in NJNG's service territory; rate of customer growth; volatility of natural gas commodity prices and its impact on customer usage and NJR Energy Services operations and the company's risk management efforts; changes in rating agency requirements and/or credit ratings and their effect on availability and cost of capital to the company; the impact of volatility in the credit markets that would result in the increased cost and/or limit the availability of 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 cost and access to the commercial paper market and other short-term financing markets by NJNG to allow it to fund its commodity purchases, capital expenditures and meet its short-term obligations as they come; the company's ability to comply with debt covenants; continued failures in the market for auction rate securities; the impact to the asset values and resulting higher costs and funding obligations of NJR's pension and post-employment benefit plans as a result of downturns in the financial market, and the impacts associated with the Patient Protection and Affordable Care Act; the ability to maintain effective internal controls; accounting effects and other risks associated with hedging activities and use of derivatives contracts; commercial and wholesale credit risk, including the availability of creditworthy customers and counterparties and liquidity in the wholesale energy trading market; the company's ability to obtain governmental approvals and/or financing for the construction, development and operation of its non-regulated energy investments; risks associated with our investments in solar energy projects, including the availability of regulatory and tax incentives; risks associated with the management of the company's joint ventures and partnerships; the level and rate at which costs and expenses are incurred and the extent to which they are allowed to be recovered from customers through the regulatory process in connection with constructing, operating and maintain NJNG's natural gas transmission and distribution system; dependence on third-party storage and transportation facilities for natural gas supply; operational risks incidental to handling, storing, transporting and providing customers with natural gas; access to adequate supplies of natural gas; the regulatory and pricing policies of federal and state regulatory agencies; the cost of compliance with present and future environmental law, including potential climate change-related legislation; the ultimate outcome of pending regulatory proceedings, the disallowance of recovery of environmental-related expenditures and other regulatory changes; and environmental-related and other litigation and other uncertainties. NJR does not, by including this paragraph, assume any obligation to review or revise any particular forward-looking statement referenced herein in light of future events. More detailed information about these factors is set forth under the heading "Risk Factors" in NJR's filings with the Securities and Exchange Commission (SEC) including its most recent Form 10-K.
Non-GAAP Financial Information
This press release includes the non-GAAP measures net financial earnings (losses), financial margin and utility gross margin. A reconciliation of these non-GAAP financial measures to the most directly comparable financial measures calculated and reported in accordance with GAAP, can be found below. As an indicator of the company's operating performance, these measures should not be considered an alternative to, or more meaningful than, operating income as determined in accordance with GAAP.
Net financial earnings (losses) and financial margin exclude unrealized gains or losses on derivative instruments related to the company's unregulated subsidiaries and certain realized gains and losses on derivative instruments related to natural gas that has been placed into storage at NJRES. Volatility associated with the change in value of these financial and physical commodity contracts is reported in the income statement in the current period. In order to manage its business, NJR views its results without the impacts of the unrealized gains and losses, and certain realized gains and losses, caused by changes in value of these financial instruments and physical commodity contracts prior to the completion of the planned transaction because it shows changes in value currently as opposed to when the planned transaction ultimately is settled. NJNG's utility gross margin represents the results of revenues less natural gas costs, sales and other taxes and regulatory rider expenses, which are key components of the company's operations that move in relation to each other. Management uses these non-GAAP financial measures as supplemental measures to other GAAP results to provide a more complete understanding of the company's performance. Management believes these non-GAAP measures are more reflective of the company's business model, provide transparency to investors and enable period-to-period comparability of financial performance. A reconciliation of all non-GAAP financial measures to the most directly comparable financial measures calculated and reported in accordance with GAAP, can be found below. For a full discussion of NJR's non-GAAP financial measures, please see NJR's most recent Form 10-K, Item 7.
About New Jersey Resources
New Jersey Resources, a Fortune 1000 company, provides reliable energy and natural gas services including transportation, distribution, and asset management in states from the Gulf Coast to the New England regions, including the Mid-Continent region, the West Coast and Canada, while investing in and maintaining an extensive infrastructure to support future growth. With over $2.5 billion in annual revenues, NJR safely and reliably operates and maintains 6,700 miles of natural gas transportation and distribution infrastructure to serve nearly half a million customers; develops and manages a diverse portfolio of nearly 2.3 Bcf/day of transportation capacity and more than 50 Bcf of storage capacity; and provides appliance installation, repair and contract service to approximately 148,000 homes and businesses. Additionally, NJR holds investments in midstream assets through equity partnerships including Steckman Ridge and Iroquois. Through Conserve to Preserve®, NJR is helping customers save energy and money by promoting conservation and encouraging efficiency. For more information about NJR, visit www.njliving.com.
Reconciliation of Non-GAAP Performance Measures