Attached files

file filename
EXCEL - IDEA: XBRL DOCUMENT - NEW JERSEY RESOURCES CORPFinancial_Report.xls
EX-31.1 - EXHIBIT 31.1 JUNE 2014 - NEW JERSEY RESOURCES CORPnjrex311jun2014.htm
EX-31.2 - EXHIBIT 31.2 JUNE 2014 - NEW JERSEY RESOURCES CORPnjrex312jun2014.htm
EX-4.3 - EXHIBIT 4.3 JUNE 2014 - NEW JERSEY RESOURCES CORPnjrex43.htm
EX-32.2 - EXHIBIT 32.2 JUNE 2014 - NEW JERSEY RESOURCES CORPnjrex322jun2014.htm
EX-32.1 - EXHIBIT 32.1 JUNE 2014 - NEW JERSEY RESOURCES CORPnjrex321jun2014.htm


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10‑Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014
OR
o 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 1‑8359
 
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: x            No: o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes: x            No: o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b‑2 of the Exchange Act.
Large accelerated filer: x
Accelerated filer: o
Non-accelerated filer: o
Smaller reporting company: o
 
 
(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: o            No: x

The number of shares outstanding of $2.50 par value Common Stock as of July 31, 2014 was 42,212,434.

 


New Jersey Resources Corporation

TABLE OF CONTENTS
 
 
 
Page
PART I. FINANCIAL INFORMATION
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
ITEM 3.
 
ITEM 4.
PART II. OTHER INFORMATION
 
 
ITEM 1.
 
ITEM 1A.
 
ITEM 2.
 
ITEM 6.
 
 




GLOSSARY OF KEY TERMS                                                                                                                                                        
AFUDC
Allowance for Funds Used During Construction
AIP
Accelerated Infrastructure Program
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
Bcf
Billion Cubic Feet
BGSS
Basic Gas Supply Service
BPU
New Jersey Board of Public Utilities
CIP
Conservation Incentive Program
CME
Chicago Mercantile Exchange
CR&R
Commercial Realty & Resources Corp.
Dodd-Frank Act
Dodd-Frank Wall Street Reform and Consumer Protection Act
DRP
NJR Direct Stock Purchase and Dividend Reinvestment Plan
EDA
New Jersey Economic Development Authority
EDA Bonds
Collectively, Series 2011A, Series 2011B and Series 2011C Bonds issued by the EDA
EE
Energy Efficiency
FASB
Financial Accounting Standards Board
FCM
Futures Commission Merchant
FERC
Federal Energy Regulatory Commission
FMB
First Mortgage Bonds
FRM
Financial Risk Management
GAAP
Generally Accepted Accounting Principles of the United States
ICE
Intercontinental Exchange
Iroquois
Iroquois Gas Transmission L.P.
ISDA
The International Swaps and Derivatives Association
ITC
Investment Tax Credit
JPMC Facility
NJNG's $100 million, four-year credit facility with JPMorgan Chase Bank, N.A. expiring in August 2015
JPMC Term Loan
NJR's $100 million, one-year term loan credit agreement with JPMorgan Chase Bank, N.A. expiring in September 2014
LIBOR
London Inter-Bank Offered Rate
LNG
Liquefied Natural Gas
MetLife
Metropolitan Life Insurance Company
MetLife Facility
NJR's unsecured, uncommitted $100 million private placement shelf note agreement with MetLife, Inc. expiring in September 2016
MGP
Manufactured Gas Plant
MMBtu
Million Metric British Thermal Unit
Moody's
Moody's Investors Service, Inc.
MW
Megawatts
MWh
Megawatt Hour
NAESB
The North American Energy Standards Board
NJR Credit Facility
NJR's $425 million unsecured committed credit facility expiring in August 2017
NFE
Net Financial Earnings
NGV
Natural Gas Vehicles
NJ RISE
New Jersey Reinvestment in System Enhancement
NJCEP
New Jersey's Clean Energy Program
NJDEP
New Jersey Department of Environmental Protection

1


GLOSSARY OF KEY TERMS (cont.)                                                                                                                                           
NJNG
New Jersey Natural Gas Company
NJNG Credit Facility
The $250 million unsecured committed credit facility expiring in May 2019
NPNS
Normal Purchase/Normal Sale
NJR or The Company
New Jersey Resources Corporation
NJR Energy
NJR Energy Corporation
NJR Midstream
NJR Midstream Holdings Corporation
NJR Service
NJR Service Corporation
NJRCEV
NJR Clean Energy Ventures Corporation
NJRES
NJR Energy Services Company
NJRHS
NJR Home Services Company
Non-GAAP
Not in accordance with Generally Accepted Accounting Principles of the United States
NYMEX
New York Mercantile Exchange
O&M
Operating and Maintenance
OCI
Other Comprehensive Income
OPEB
Other Postemployment Benefit Plans
PIM
Pipeline Integrity Management
Prudential
Prudential Investment Management, Inc.
Prudential Facility
NJR's unsecured, uncommitted $75 million private placement shelf note agreement with Prudential
PTC
Production Tax Credit
RA
Remediation Adjustment
Retail and Other
Retail and Other Operations
Retail Holdings
NJR Retail Holdings Corporation
S&P
Standard & Poor's Financial Services LLC
SAFE
Safety Acceleration and Facility Enhancement
Sarbanes-Oxley
Sarbanes-Oxley Act of 2002
SAVEGREEN
The SAVEGREEN Project®
SBC
Societal Benefits Clause
SEC
Securities and Exchange Commission
SREC
Solar Renewable Energy Certificate
Steckman Ridge
Collectively, Steckman Ridge GP, LLC and Steckman Ridge, LP
Superstorm Sandy
Post-Tropical Cyclone Sandy
The Exchange Act
The Securities Exchange Act of 1934, as amended
Tetco
Texas Eastern Transmission
U.S.
The United States of America
USF
Universal Service Fund
VRDN
Variable Rate Demand Notes


2

New Jersey Resources Corporation

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 “anticipate,” “estimate,” “may,” “intend,” “expect,” “believe,” “will” “plan,” “should,” or “continue” or comparable terminology and are made based upon management's current expectations and beliefs as of this date concerning future developments and their potential effect upon 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, qualifications for ITCs, PTCs and SRECs, financial condition, results of operations, cash flows, capital requirements, future capital expenditures, market risk, effective tax rate and other matters for fiscal 2014 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 Item 1A. Risk Factors of NJR's Annual Report on Form 10-K for the year ended September 30, 2013, as well as the following:

weather and economic conditions;
demographic changes in the NJNG service territory and their effect on NJNG's customer growth;
volatility of natural gas and other commodity prices and their impact on NJNG customer usage, NJNG's BGSS incentive programs, NJRES operations and on 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 on our access to capital;
the ability to comply with debt covenants;
the impact to the asset values and resulting higher costs and funding obligations of NJR's pension and postemployment benefit plans as a result of potential downturns in the financial markets, lower discount rates or impacts associated with the Patient Protection and Affordable Care Act;
accounting effects and other risks associated with hedging activities and use of derivatives contracts;
commercial and wholesale credit risks, including the availability of creditworthy customers and counterparties, and liquidity in the wholesale energy trading market;
regulatory approval of NJNG's planned infrastructure programs:
the ability to obtain governmental approvals and/or financing for the construction, development and operation of certain non-regulated energy investments;
risks associated with the management of the Company's joint ventures and partnerships;
risks associated with our investment in an onshore wind developer;
risks associated with our investments in distributed power projects, including the availability of regulatory and tax incentives, logistical risks and potential delays related to construction, permitting, regulatory approvals and electric grid interconnection, the availability of viable projects, NJR's eligibility for ITCs and PTCs, the future market for SRECs and operational risks related to projects in service;
timing of qualifying for ITCs due to delays or failures to complete planned solar energy projects and the resulting effect on our effective tax rate and earnings;
the level and rate at which NJNG's costs and expenses (including those related to restoration efforts resulting from Post Tropical Cyclone Sandy, commonly referred to as Superstorm Sandy) are incurred and the extent to which they are allowed to be recovered from customers through the regulatory process;
access to adequate supplies of natural gas and dependence on third-party storage and transportation facilities for natural gas supply;
operating risks incidental to handling, storing, transporting and providing customers with natural gas;
risks related to our employee workforce, including a work stoppage;
the regulatory and pricing policies of federal and state regulatory agencies;
the costs of compliance with the proposed regulatory framework for over-the-counter derivatives;
the costs of compliance with present and future environmental laws, including potential climate change-related legislation;
risks related to changes in accounting standards;
the impact of a disallowance of recovery of environmental-related expenditures and other regulatory changes;
environmental-related and other litigation and other uncertainties;
risks related to cyber-attack or failure of information technology systems; and
the impact of natural disasters, terrorist activities, and other extreme events could adversely affect our operations, financial conditions and results ofoperations.

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.

3

New Jersey Resources Corporation
Part I


ITEM 1. FINANCIAL STATEMENTS                                                                                                                                          

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
Three Months Ended
Nine Months Ended
 
June 30,
June 30,
(Thousands, except per share data)
2014

2013
2014

2013
OPERATING REVENUES
 
 
 
 
 
 
Utility
$
111,383

 
$
119,022

$
739,380

 
$
689,621

Nonutility
576,874

 
648,447

2,406,851

 
1,774,752

Total operating revenues
688,257

 
767,469

3,146,231

 
2,464,373

OPERATING EXPENSES
 
 
 
 
 
 
Gas purchases:
 
 
 
 
 
 
Utility
39,546

 
55,708

298,694

 
356,069

Nonutility
599,530

 
593,534

2,310,930

 
1,660,528

Operation and maintenance
45,995

 
43,630

149,291

 
126,767

Regulatory rider expenses
9,337

 
6,258

67,380

 
44,014

Depreciation and amortization
13,620

 
11,942

39,014

 
34,966

Energy and other taxes
9,437

 
9,397

50,894

 
50,869

Total operating expenses
717,465

 
720,469

2,916,203

 
2,273,213

OPERATING (LOSS) INCOME
(29,208
)
 
47,000

230,028

 
191,160

Other income
10,952

 
1,238

12,791

 
4,284

Interest expense, net of capitalized interest
6,507

 
6,008

19,108

 
17,579

(LOSS) INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF AFFILIATES
(24,763
)
 
42,230

223,711

 
177,865

Income tax (benefit) provision
(7,808
)
 
15,297

65,377

 
51,342

Equity in earnings of affiliates
2,681

 
2,222

8,056

 
8,307

NET (LOSS) INCOME
$
(14,274
)
 
$
29,155

$
166,390

 
$
134,830

 
 
 
 
 
 
 
(LOSS) EARNINGS PER COMMON SHARE
 
 
 
 
 
 
BASIC
$(0.34)
 
$0.70
$3.95
 
$3.23
DILUTED
$(0.34)
 
$0.70
$3.92
 
$3.22
DIVIDENDS DECLARED PER COMMON SHARE
$0.42
 
$0.40
$1.26
 
$1.20
WEIGHTED AVERAGE SHARES OUTSTANDING
 
 
 
 
 
 
BASIC
42,117

 
41,608

42,072

 
41,697

DILUTED
42,117

 
41,732

42,456

 
41,820


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
Three Months Ended
Nine Months Ended
 
June 30,
June 30,
(Thousands)
2014
 
2013
2014
 
2013
Net (loss) income
$
(14,274
)
 
$
29,155

$
166,390

 
$
134,830

Other comprehensive income, net of tax
 
 
 
 
 
 
Unrealized gain on available for sale securities, net of tax of $(353), $(9), $(150), and $(235), respectively
$
511

 
$
13

216

 
340

Net unrealized gain (loss) on derivatives, net of tax of $(95) $13, $14, and $23, respectively
162

 
(22
)
(24
)
 
(39
)
Adjustment to postemployment benefit obligation, net of tax of $(111), $(203), $(334) and $(608), respectively
161

 
296

483

 
1,005

Other comprehensive income
$
834

 
$
287

675

 
1,306

Comprehensive (loss) income
$
(13,440
)
 
$
29,442

$
167,065

 
$
136,136


See Notes to Unaudited Condensed Consolidated Financial Statements


4

New Jersey Resources Corporation
Part I
 
ITEM 1. FINANCIAL STATEMENTS (Continued)                                                                                                                      

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Nine Months Ended
 
June 30,
(Thousands)
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
166,390

 
$
134,830

Adjustments to reconcile net income to cash flows from operating activities:
 
 
 
Unrealized loss (gain) on derivative instruments
45,810

 
(23,683
)
Depreciation and amortization
39,014

 
34,966

Allowance for equity used during construction
(1,154
)
 
(1,926
)
Allowance for bad debt expense
1,685

 
1,829

Deferred income taxes
21,226

 
23,406

Manufactured gas plant remediation costs
(3,391
)
 
(5,326
)
Equity in earnings of equity investees, net of distributions received
1,364

 
(1,050
)
Cost of removal - asset retirement obligations
(257
)
 
(926
)
Contributions to postemployment benefit plans
(3,618
)
 
(24,538
)
Changes in:
 
 
 
Components of working capital
83,223

 
(22,092
)
Other noncurrent assets
15,735

 
(2,607
)
Other noncurrent liabilities
10,434

 
12,256

Cash flows from operating activities
376,461

 
125,139

CASH FLOWS (USED IN) INVESTING ACTIVITIES
 
 
 
Expenditures for
 
 
 
Utility plant
(90,381
)
 
(73,654
)
Solar and wind equipment
(91,569
)
 
(39,756
)
Real estate properties and other
(636
)
 
(532
)
Cost of removal
(18,690
)
 
(21,186
)
Distribution from equity investees in excess of equity in earnings
1,344

 
2,107

Proceeds from sale of asset
6,010

 

Withdrawal from restricted cash construction fund
100

 

Proceeds from sale of available-for-sale securities

 
482

Cash flows (used in) investing activities
(193,822
)
 
(132,539
)
CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES
 
 
 
Proceeds from issuance of common stock
12,161

 
10,581

Tax benefit from stock options exercised
348

 
110

Proceeds from sale-leaseback transaction
7,576

 
7,076

Proceeds from long-term debt
125,000

 
50,000

Payments of long-term debt
(78,964
)
 
(5,808
)
Purchases of treasury stock
(4,387
)
 
(23,689
)
Payments of common stock dividends
(52,922
)
 
(50,619
)
Net (payments) proceeds from short-term debt
(191,100
)
 
17,100

Cash flows (used in) from financing activities
(182,288
)
 
4,751

Change in cash and cash equivalents
351

 
(2,649
)
Cash and cash equivalents at beginning of period
2,969

 
4,509

Cash and cash equivalents at end of period
$
3,320

 
$
1,860

CHANGES IN COMPONENTS OF WORKING CAPITAL
 
 
 
Receivables
$
(37,575
)
 
$
(120,719
)
Inventories
100,021

 
(24,792
)
Recovery of gas costs
(5,725
)
 
4,994

Gas purchases payable
3,367

 
86,932

Prepaid and accrued taxes
28,404

 
20,059

Accounts payable and other
8,439

 
(6,385
)
Restricted broker margin accounts
(19,045
)
 
26,760

Customers' credit balances and deposits
(4,738
)
 
(30,899
)
Other current assets
10,075

 
21,958

Total
$
83,223

 
$
(22,092
)
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
 
 
 
Cash paid for:
 
 
 
Interest (net of amounts capitalized)
$
12,419

 
$
11,121

Income taxes
$
12,782

 
$
9,539

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
 
 
 
Accrued capital expenditures
$
14,317

 
$
(9,734
)

See Notes to Unaudited Condensed Consolidated Financial Statements

5

New Jersey Resources Corporation
Part I
 
ITEM 1. FINANCIAL STATEMENTS (Continued)                                                                                                                      

 
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

ASSETS
(Thousands)
June 30,
2014
September 30,
2013
PROPERTY, PLANT AND EQUIPMENT
 
 
Utility plant, at cost
$
1,774,424

$
1,681,585

Construction work in progress
119,012

114,961

Solar and wind equipment, real estate properties and other, at cost
321,591

249,516

Construction work in progress
41,123

9,093

Total property, plant and equipment
2,256,150

2,055,155

Accumulated depreciation and amortization, utility plant
(401,713
)
(383,895
)
Accumulated depreciation and amortization, solar and wind equipment, real estate properties and other
(36,738
)
(28,144
)
Property, plant and equipment, net
1,817,699

1,643,116

CURRENT ASSETS
 
 
Cash and cash equivalents
3,320

2,969

Customer accounts receivable
 
 
Billed
276,409

240,281

Unbilled revenues
7,464

7,429

Allowance for doubtful accounts
(5,603
)
(5,330
)
Regulatory assets
28,064

34,372

Gas in storage, at average cost
219,859

314,477

Materials and supplies, at average cost
8,931

14,334

Prepaid and accrued taxes
24,607

42,645

Derivatives, at fair value
52,619

53,327

Restricted broker margin accounts
27,904

6,581

Deferred taxes
21,983

8,432

Asset held for sale

5,428

Other
29,898

20,953

Total current assets
695,455

745,898

NONCURRENT ASSETS
 
 
Investments in equity investees
160,403

161,591

Prepaid pension asset
6,045

6,287

Regulatory assets
369,517

402,202

Derivatives, at fair value
2,830

2,761

Other
53,958

42,928

Total noncurrent assets
592,753

615,769

Total assets
$
3,105,907

$
3,004,783


See Notes to Unaudited Condensed Consolidated Financial Statements


6

New Jersey Resources Corporation
Part I
 
ITEM 1. FINANCIAL STATEMENTS (Continued)                                                                                                                      

CAPITALIZATION AND LIABILITIES
(Thousands)
June 30,
2014
September 30,
2013
CAPITALIZATION
 
 
Common stock, $2.50 par value; authorized 75,000,000 shares;
outstanding June 30, 2014-42,167,558; September 30, 2013-41,961,534
$
112,777

$
112,563

Premium on common stock
304,731

300,196

Accumulated other comprehensive (loss), net of tax
(946
)
(1,621
)
Treasury stock at cost and other;
shares June 30, 2014-2,943,373; September 30, 2013-3,060,356
(121,727
)
(128,638
)
Retained earnings
718,250

604,884

Common stock equity
1,013,085

887,384

Long-term debt
626,796

512,886

Total capitalization
1,639,881

1,400,270

CURRENT LIABILITIES
 
 
Current maturities of long-term debt
9,455

68,643

Short-term debt
174,500

365,600

Gas purchases payable
258,180

254,813

Accounts payable and other
82,329

60,342

Dividends payable
17,709

17,624

Deferred and accrued taxes
12,330

4,040

Regulatory liabilities
11,710

1,456

New Jersey clean energy program
15,429

14,532

Derivatives, at fair value
78,549

40,390

Broker margin accounts
2,278


Customers' credit balances and deposits
19,655

24,393

Total current liabilities
682,124

851,833

NONCURRENT LIABILITIES
 
 
Deferred income taxes
410,130

372,773

Deferred investment tax credits
5,342

5,584

Deferred revenue
4,222

4,763

Derivatives, at fair value
5,517

2,458

Manufactured gas plant remediation
183,600

183,600

Postemployment employee benefit liability
68,697

67,897

Regulatory liabilities
69,120

79,647

Asset retirement obligation
29,935

28,711

Other
7,339

7,247

Total noncurrent liabilities
783,902

752,680

Commitments and contingent liabilities (Note 12)



Total capitalization and liabilities
$
3,105,907

$
3,004,783


See Notes to Unaudited Condensed Consolidated Financial Statements


7

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                              

1.
NATURE OF THE BUSINESS

New Jersey Resources Corporation provides regulated gas distribution services and operates certain non-regulated businesses primarily through the following subsidiaries:

New Jersey Natural Gas Company provides natural gas utility service to approximately 503,800 retail customers in central and northern New Jersey and is subject to rate regulation by the BPU. NJNG comprises the Natural Gas Distribution segment;

NJR Energy Services Company comprises the Energy Services segment that maintains and transacts around a portfolio of natural gas storage and transportation capacity contracts and provides wholesale energy and energy management services;

NJR Clean Energy Ventures Corporation, the company’s unregulated distributed power subsidiary, comprises the Clean Energy Ventures segment and consists of the Company's capital investments in distributed power projects, including commercial and residential solar projects and onshore wind investments;

NJR Midstream Holdings Corporation invests in energy-related ventures through its subsidiaries, NJR Steckman Ridge Storage Company, which holds the Company's 50 percent combined interest in Steckman Ridge and NJNR Pipeline Company, which holds the Company's 5.53 percent ownership interest in Iroquois Gas Transmission L.P. Steckman Ridge and Iroquois comprise the Midstream segment. On November 7, 2013, NJR Energy Holdings Corporation changed its name to NJR Midstream Holdings Corporation; and

NJR Retail Holdings Corporation has two principal subsidiaries, NJR Home Services Company and Commercial Realty & Resources Corporation. Retail Holdings and NJR Energy Corporation are included in Retail and Other operations.

2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared by NJR in accordance with the rules and regulations of the Securities and Exchange Commission and ASC 270. The September 30, 2013, 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 consolidated financial statements and the notes thereto included in NJR's 2013 Annual Report on Form 10-K.

The Unaudited Condensed Consolidated Financial Statements include the accounts of NJR and its subsidiaries. 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, 2014.

Intercompany transactions and accounts have been eliminated.

Gas in Storage

The following table summarizes gas in storage, at average cost by company as of:
 
June 30,
2014
September 30,
2013
($ in thousands)
Gas in Storage
 
Bcf
Gas in Storage
 
Bcf
NJNG
 
$
48,279

12.1

 
$
104,979

20.4

NJRES
 
171,580

41.8

 
209,498

62.3

Total
 
$
219,859

53.9

 
$
314,477

82.7


Available for Sale Securities

Included in other noncurrent assets on the Unaudited Condensed Consolidated Balance Sheets are certain investments in equity securities of a publicly traded energy company that have a fair value of $12.1 million and $11.7 million as of June 30, 2014 and September 30, 2013, respectively. Total unrealized gains associated with these equity securities, which are included as a part of accumulated other comprehensive income, a component of common stock equity, were $9.5 million ($5.6 million, after tax) and $9.1 million ($5.4 million, after tax) as of June 30, 2014 and September 30, 2013, respectively. Reclassifications of realized gains out of other comprehensive income into income are determined based on average cost.

8

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Sale of Asset

On October 22, 2013, CR&R sold approximately 25.4 acres of undeveloped land located in Monmouth County with a net book value of $5.4 million for $6 million, generating a pre-tax gain after closing costs of $313,000, which was recognized in other income on the Unaudited Condensed Consolidated Statements of Operations.

Customer Accounts Receivable

Customer accounts receivable include outstanding billings from the following subsidiaries as of:
(Thousands)
June 30,
2014
 
September 30,
2013
NJRES
$
186,014

67
%
 
$
194,263

81
%
NJNG (1)
85,579

31

 
43,045

18

NJRCEV
480


 
293


NJRHS and other
4,336

2

 
2,680

1

Total
$
276,409

100
%
 
$
240,281

100
%
(1)
Does not include unbilled revenues of $7.5 million and $7.4 million as of June 30, 2014 and September 30, 2013, respectively.

Loan Receivable

NJNG provides interest-free loans, with terms ranging from two to ten years, to customers that elect to purchase and install certain energy efficient equipment in accordance with its BPU-approved SAVEGREEN program. The loans are recognized at net present value on the Unaudited Condensed Consolidated Balance Sheets. The Company has recorded $3.5 million and $1.9 million in other current assets and $24.9 million and $14.3 million in other noncurrent assets as of June 30, 2014 and September 30, 2013, respectively, on the Unaudited Condensed Consolidated Balance Sheets, related to the loans.

NJR's policy is to establish an allowance for doubtful accounts when loan balances are outstanding for more than 60 days. As of June 30, 2014 and September 30, 2013, there was no allowance for doubtful accounts established.

Recent Updates to the Accounting Standards Codification

In December 2011, the FASB issued ASU No. 2011-11, an amendment to ASC Topic 210, Balance Sheet, requiring additional disclosures about the effect of an entity's rights of setoff and related master netting arrangements to its financial statements. ASU 2013-01, issued in January 2013, further clarified that the amended guidance was applicable to certain financial and derivative instruments. The Company applied the provisions of the amended guidance retrospectively effective October 1, 2013. The guidance did not impact the Company's financial position, results of operations or cash flows, however, it required additional disclosures that are included in Note 4. Derivative Instruments.

In July 2013, the FASB issued ASU No. 2013-11, an amendment to ASC Topic 740, Income Taxes, which clarifies financial statement presentation for unrecognized tax benefits. The ASU requires that an unrecognized tax benefit, or portion thereof, shall be presented in the balance sheet as a reduction to a deferred tax asset for a net operating loss carryforward, similar tax loss or a tax credit carryforward. To the extent such a deferred tax asset is not available or the company does not intend to use it to settle any additional taxes that would result from the disallowance of a tax position, the related unrecognized tax benefit will be presented as a liability in the financial statements. The amended guidance will become effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company currently does not have unrecognized tax benefits recorded on its balance sheet and does not expect any impact to its financial position upon adoption during its first quarter of fiscal 2015.

In April 2014, the FASB issued ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The new guidance changes the definition and reporting of discontinued operations to include only those disposals that represent a strategic shift and that have a major effect on an entity's operations and financial results. The new guidance, which also requires additional disclosures, becomes effective for annual periods beginning on or after December 15, 2014 and interim periods within those years. The company does not expect an impact to its financial position, results of operations and cash flows upon adoption.

In May 2014, the FASB issued ASU No. 2014-09, and added Topic 606, Revenue from Contracts with Customers, to the ASC. ASC 606 supersedes ASC 605, Revenue Recognition, as well as most industry-specific guidance, and prescribes a single, comprehensive revenue recognition model designed to improve financial reporting comparability across entities, industries,

9

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


jurisdictions and capital markets. The new guidance will become effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Upon adoption, the guidance will be applied on a full or modified retrospective basis. The Company is currently evaluating the provisions of ASC 606 to understand the impact, if any, to its financial position, results of operations and cash flows upon adoption.

In June 2014, the FASB issued ASU No. 2014-12, an amendment to ASC Topic 718, Compensation - Stock Compensation, which clarifies the accounting for performance awards when the terms of the award provide that a performance target could be achieved after the requisite service period. The new guidance will become effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The company does not expect a material impact to its financial position, results of operations and cash flows upon adoption.

3.
REGULATION

NJNG is subject to cost-based regulation, therefore, it is permitted to recover authorized operating expenses and earn a reasonable return on its utility investment based on the BPU's approval, in accordance with accounting guidance applicable to regulated operations. The impact of the ratemaking process and decisions authorized by the BPU allows NJNG to capitalize or defer certain costs that are expected to be recovered from its customers as regulatory assets and to recognize certain obligations representing amounts that are probable future expenditures as regulatory liabilities.

Regulatory assets and liabilities included on the Unaudited Condensed Consolidated Balance Sheets are comprised of the following:
(Thousands)
June 30,
2014
September 30,
2013
Regulatory assets-current
 
 
Conservation Incentive Program
$

$
18,887

Underrecovered gas costs
12,635

953

New Jersey Clean Energy Program
15,429

14,532

Total current
$
28,064

$
34,372

Regulatory assets-noncurrent
 
 
Environmental remediation costs
 
 
Expended, net of recoveries
$
31,284

$
46,968

Liability for future expenditures
183,600

183,600

Deferred income taxes
10,718

10,718

Derivatives at fair value, net

19

SAVEGREEN
26,054

30,004

Postemployment and other benefit costs
96,337

101,415

Deferred Superstorm Sandy costs
15,207

14,822

Other
6,317

14,656

Total noncurrent
$
369,517

$
402,202

Regulatory liability-current
 
 
Conservation Incentive Program
$
5,958

$

Derivatives at fair value, net
5,752

1,456

Total current
$
11,710

$
1,456

Regulatory liabilities-noncurrent
 
 
Cost of removal obligation
$
69,000

$
79,315

Derivatives at fair value, net
3


Other
117

332

Total noncurrent
$
69,120

$
79,647


10

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


NJNG's recovery of costs is facilitated through its base tariff rates, BGSS and other regulatory tariff riders. As recovery of regulatory assets is subject to BPU approval, if there are any changes in regulatory positions that indicate recovery is not probable, the related cost would be charged to income in the period of such determination.

Recent regulatory filings and/or actions include the following:

On September 18, 2013, the BPU approved NJNG's filing to reduce the USF recovery rate resulting in a .5 percent decrease for the average residential heat customer's bill effective October 1, 2013.

On October 16, 2013, the BPU provisionally approved NJNG’s fiscal 2014 BGSS/CIP filing to maintain its current BGSS rate along with reductions to its CIP factors effective November 1, 2013, which resulted in a 1 percent reduction to an average residential heat customer's bill. On November 21, 2013, NJNG notified the BPU of its intent to reduce its BGSS rate, effective December 1, 2013, resulting in a 6 percent decrease to the average residential heat customer's bill. On July 23, 2014, the BPU approved these rates on a final basis.

On November 22, 2013, the BPU provisionally approved a Stipulation of Settlement for SBC factors that included recovery of MGP expenditures through June 30, 2013 and a .2 percent reduction to the average residential heat customer's bill related to the SBC RA factor to recover $18.7 million annually, and a 1.9 percent increase related to its NJCEP factor, effective December 1, 2013. On July 23, 2014, the BPU approved these rates on a final basis.

On December 18, 2013, the BPU approved a gas service agreement which will allow NJNG to provide transportation service to Red Oak Power, LLC, an electric generation facility, through September 2022.

On April 23, 2014, the BPU approved a petition filed by NJNG requesting authorization over a three-year period to issue up to $300 million of medium-term notes with a maturity of not more than 30 years, renew its revolving credit facility expiring August 2014 for up to five years, enter into interest rate risk management transactions related to debt securities and redeem, refinance or defease any of NJNG’s outstanding long-term debt securities.

On May 21, 2014, the BPU approved the continuation of the CIP program with no expiration date; however, it will be subject to review in a rate filing in 2017.

On June 2, 2014, NJNG submitted its fiscal 2015 BGSS/CIP filing, which proposes a 4.3 percent reduction to an average residential heat customer's bill related to the CIP factor for fiscal 2015.

On June 2, 2014, NJNG submitted an EE rate filing for the recovery of SAVEGREEN costs, which proposes to maintain the existing rate.

On June 20, 2014, NJNG submitted its annual USF compliance filing proposing to increase the statewide USF rate, resulting in a .4 percent increase to the average residential heat customer’s bill effective October 1, 2014.

On July 23, 2014, the BPU approved a Stipulation of Settlement related to the NJ RISE capital infrastructure program. NJNG will invest $102.5 million over a five-year period in six capital projects designed to enhance the resiliency of its natural gas distribution and transmission systems and help diminish the impact of major weather events in the future. In May 2015, NJNG will submit a filing to recover costs through July 31, 2015, associated with NJ RISE, through an adjustment to base rates as of November 1, 2015. Additional cost recovery will be included in NJNG’s next base rate case scheduled to be filed no later than November 15, 2015.


11

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


4.
DERIVATIVE INSTRUMENTS

The Company is subject to commodity price risk due to fluctuations in the market price of natural gas, SRECs and electricity. To manage this risk, the Company enters into a variety of derivative instruments including, but not limited to, futures contracts, physical forward contracts, financial options and swaps to economically hedge the commodity price risk associated with its existing and anticipated commitments to purchase and sell natural gas, SRECs and electricity. In addition, the Company may utilize foreign currency derivatives as cash flow hedges of Canadian dollar denominated gas purchases. These contracts, with a few exceptions as described below, are accounted for as derivatives. Accordingly, all of the financial and certain of the Company's physical derivative instruments are recorded at fair value on the Unaudited Condensed Consolidated Balance Sheets. For a more detailed discussion of the Company's fair value measurement policies and level disclosures associated with the NJR's derivative instruments, see Note 5. Fair Value.

Since the Company chooses not to designate its financial commodity and physical forward commodity derivatives as accounting hedges or to elect NPNS as appropriate, changes in the fair value of these derivative instruments are recorded as a component of gas purchases or operating revenues, as appropriate for NJRES, on the Unaudited Condensed Consolidated Statements of Operations as unrealized gains or (losses). For NJRES at settlement, realized gains and (losses) on all financial derivative instruments are recognized as a component of gas purchases and realized gains and (losses) on all physical derivatives follow the presentation of the related unrealized gains and (losses) as a component of either gas purchases or operating revenues.

NJRES also enters into natural gas transactions in Canada and, consequently, is exposed to fluctuations in the value of Canadian currency relative to the US dollar. NJRES utilizes foreign currency derivatives to lock in the currency translation rate associated with natural gas transactions denominated in Canadian currency. The derivatives may include currency forwards, futures, or swaps and are accounted for as derivatives. These derivatives are being used to hedge future forecasted cash payments associated with transportation and storage contracts along with purchases of natural gas. The Company has designated these foreign currency derivatives as cash flow hedges of that exposure, and expects the hedge relationship to be highly effective throughout the term. Since NJRES designates its foreign exchange contracts as cash flow hedges, changes in fair value of the effective portion of the hedge are recorded in OCI. When the foreign exchange contracts are settled and the related purchases are recognized in income, realized gains and (losses) are recognized in gas purchases on the Unaudited Condensed Consolidated Statements of Operations.

As a result of NJRES entering into transactions to borrow gas, commonly referred to as “park and loans,” an embedded derivative is created related to 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 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 derivative transaction that is recorded at fair value on the Unaudited Condensed Consolidated Balance Sheets, with changes in value recognized in current period earnings.

Changes in fair value of NJNG's financial derivative instruments are recorded as a component of regulatory assets or liabilities on the Unaudited Condensed Consolidated Balance Sheets, as NJNG has received regulatory approval to defer and to recover these amounts through future BGSS rates as an increase or decrease to the cost of natural gas in NJNG's tariff for gas service.

The Company elects NPNS accounting treatment on all physical commodity contracts at NJNG. These contracts are accounted for on an accrual basis. Accordingly, gains or (losses) are recognized in regulatory assets or liabilities on the Unaudited Condensed Consolidated Balance Sheets when the contract settles and the natural gas is delivered.

NJRCEV hedges certain of its expected production of SRECs through forward sale contracts. The Company intends to physically deliver the SRECs upon settlement and therefore applies NPNS accounting treatment to the contracts. NJRCEV recognizes revenue for SRECs upon transfer of the certificate.


12

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Fair Value of Derivatives

The following table reflects the fair value of NJR's derivative assets and liabilities recognized on the Unaudited Condensed Consolidated Balance Sheets as of:
 
 
 
Fair Value
 
 
 
June 30, 2014
 
September 30, 2013
(Thousands)
Balance Sheet Location
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
NJRES:
 
 
 
 
 
 
 
 
 
Foreign currency contracts
Derivatives - current
 
$
1

 
$
29

 
$
16

 
$
3

 
Derivatives - noncurrent
 

 

 

 
2

Fair value of derivatives designated as hedging instruments
 
$
1

 
$
29

 
$
16

 
$
5

 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
NJNG:
 
 
 
 
 
 
 
 
 
Financial derivative contracts
Derivatives - current
 
$
7,952

 
$
2,201

 
$
3,502

 
$
2,045

 
Derivatives - noncurrent
 
3

 

 
121

 
140

NJRES:
 
 
 
 
 
 
 
 
 
Physical forward commodity contracts
Derivatives - current
 
12,214

 
37,177

 
11,282

 
14,573

 
Derivatives - noncurrent
 
90

 
167

 
541

 
22

Financial derivative contracts
Derivatives - current
 
32,452

 
39,142

 
38,527

 
23,769

 
Derivatives - noncurrent
 
2,737

 
5,350

 
2,099

 
2,294

Fair value of derivatives not designated as hedging instruments
 
$
55,448

 
$
84,037

 
$
56,072

 
$
42,843

Total fair value of derivatives
 
 
$
55,449

 
$
84,066

 
$
56,088

 
$
42,848


At June 30, 2014, the gross notional amount of the foreign currency transactions was approximately $4.9 million, and ineffectiveness in the hedge relationship is immaterial to the financial results of NJR.


13

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Offsetting of Derivatives

NJR transacts under master netting arrangements or similar agreements that allow it to offset derivative assets and liabilities with the same counterparty, however NJR's policy is to present its derivative assets and liabilities on a gross basis in the Unaudited Condensed Consolidated Balance Sheets. The tables below summarize the reported gross amounts, the amounts that NJR has the right to offset but elects not to, financial collateral, as well as the net amounts NJR could present in the Unaudited Condensed Consolidated Balance Sheets but elects not to.
(Thousands)
Amounts Presented in Balance Sheets (1)
Offsetting Derivative Instruments (2)
Financial Collateral Received/Pledged (3)
Net Amounts (4)
As of June 30, 2014:
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
NJRES
 
 
 
 
 
 
 
 
Physical forward commodity contracts
 
$
12,304

 
$
(7,261
)
 
$

 
$
5,043

Financial commodity contracts
 
35,189

 
(35,189
)
 

 

Foreign currency contracts
 
1

 
(1
)
 

 

Total NJRES
 
$
47,494

 
$
(42,451
)
 
$

 
$
5,043

NJNG
 
 
 
 
 
 
 
 
Financial commodity contracts
 
$
7,955

 
$
(2,201
)
 
$
1,256

 
$
7,010

Derivative liabilities:
 
 
 
 
 
 
 
 
NJRES
 
 
 
 
 
 
 
 
Physical forward commodity contracts
 
$
37,344

 
$
(7,958
)
 
$
(500
)
 
$
28,886

Financial commodity contracts
 
44,492

 
(35,189
)
 
(9,301
)
 
2

Foreign currency contracts
 
29

 
(1
)
 

 
28

Total NJRES
 
$
81,865

 
$
(43,148
)
 
$
(9,801
)
 
$
28,916

NJNG
 
 
 
 
 
 
 
 
Financial commodity contracts
 
$
2,201

 
$
(2,201
)
 
$

 
$

 
 
 
 
 
 
 
 
 
As of September 30, 2013:
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
NJRES
 
 
 
 
 
 
 
 
Physical forward commodity contracts
 
$
11,823

 
$
(3,549
)
 
$
(100
)
 
$
8,174

Financial commodity contracts
 
40,626

 
(26,063
)
 
6,870

 
21,433

Foreign currency contracts
 
16

 
(5
)
 

 
11

Total NJRES
 
$
52,465

 
$
(29,617
)
 
$
6,770

 
$
29,618

NJNG
 
 
 
 
 
 
 
 
Financial commodity contracts
 
$
3,623

 
$
(2,185
)
 
$
214

 
$
1,652

Derivative liabilities:
 
 
 
 
 
 
 
 
NJRES
 
 
 
 
 
 
 
 
Physical forward commodity contracts
 
$
14,595

 
$
(3,549
)
 
$
(500
)
 
$
10,546

Financial commodity contracts
 
26,063

 
(26,063
)
 

 

Foreign currency contracts
 
5

 
(5
)
 

 

Total NJRES
 
$
40,663

 
$
(29,617
)
 
$
(500
)
 
$
10,546

NJNG
 
 
 
 
 
 
 
 
Financial commodity contracts
 
$
2,185

 
$
(2,185
)
 
$

 
$

(1)
Derivative assets and liabilities are presented on a gross basis in the balance sheet as the Company does not elect balance sheet offsetting under ASC 210-20.
(2)
Offsetting derivative instruments include: transactions with NAESB netting election, transactions held by FCM's with net margining and transactions with ISDA netting.
(3)
Financial collateral includes cash balances at FCM's as well as cash received from or pledged to other counterparties.
(4)
Net amounts represent presentation of derivative assets and liabilities if the Company were to elect balance sheet offsetting under ASC 210-20.

NJRES utilizes financial derivatives to economically hedge the gross margin associated with the purchase of physical gas for injection into storage and the subsequent sale of physical gas at a later date. The gains or (losses) on the financial transactions that are economic hedges of the cost of the purchased gas are recognized prior to the gains or (losses) on the physical transaction,

14

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


which are recognized in earnings when the natural gas is sold. Therefore, mismatches between the timing of the recognition of realized gains or (losses) on the financial derivative instruments and gains or (losses) associated with the actual sale of the natural gas that is being economically hedged along with fair value changes in derivative instruments creates volatility in the results of NJRES, although the Company's intended economic results relating to the entire transaction are unaffected.

The following table reflects the effect of derivative instruments on the Unaudited Condensed Consolidated Statements of Operations as of:
(Thousands)
Location of gain (loss) recognized in income on derivatives
Amount of gain (loss) recognized
in income on derivatives
 
 
Three Months Ended
Nine Months Ended
 
 
June 30,
June 30,
Derivatives not designated as hedging instruments:
2014
 
2013
2014
 
2013
NJRES:
 
 
 
 
 
 
 
Physical commodity contracts
Operating revenues
$
5,496

 
$
3,595

$
(52,502
)
 
$
(4,264
)
Physical commodity contracts
Gas purchases
(7,728
)
 
(8,809
)
(87,202
)
 
(6,253
)
Financial derivative contracts
Gas purchases
2,293

 
39,601

(139,406
)
 
38,134

Total unrealized and realized (losses)
$
61

 
$
34,387

$
(279,110
)
 
$
27,617


The table above does not include gains and (losses) associated with NJNG's financial derivatives that totaled $1.5 million and $(4.7) million for the three months ended June 30, 2014 and 2013, respectively, and gains that totaled $14.3 million and $1.4 million for the nine months ended June 30, 2014 and 2013, respectively. These derivatives are part of NJNG's risk management activities that relate to its natural gas purchases and BGSS incentive programs. As these transactions are entered into pursuant to and recoverable through regulatory riders, any changes in the value of NJNG's financial derivatives are deferred in regulatory assets or liabilities resulting in no impact to earnings.

As previously noted, NJRES designates its foreign exchange contracts as cash flow hedges, therefore, changes in fair value of the effective portion of the hedges are recorded in OCI and, upon settlement of the contracts, realized gains and (losses) are reclassified from OCI to gas purchases on the Unaudited Condensed Consolidated Statements of Operations. The following tables reflect the effect of derivative instruments designated as cash flow hedges on OCI as of June 30:
(Thousands)
Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)
Amount of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)
Amount of Gain or (Loss) Recognized on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
Three Months Ended
Three Months Ended
Three Months Ended
 
June 30,
June 30,
June 30,
Derivatives in cash flow hedging relationships:
2014
2013
2014
2013
2014
2013
Foreign currency contracts
$
213

$
(14
)
$
44

$
(21
)
$

$


(Thousands)
Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion) (1)
Amount of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)
Amount of Gain or (Loss) Recognized on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
Nine Months Ended
Nine Months Ended
Nine Months Ended
 
June 30,
June 30,
June 30,
Derivatives in cash flow hedging relationships:
2014
2013
2014
2013
2014
2013
Foreign currency contracts
$
(247
)
$
(85
)
$
209

$
23

$

$

(1)
The settlement of foreign currency transactions over the next twelve months is expected to result in the reclassification of $(28,000) from OCI into earnings. The maximum tenor is April 2015.


15

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


NJNG and NJRES had the following outstanding long (short) derivatives as of:
 
 
 
Volume (Bcf)
 
 
 
June 30,
2014
September 30,
2013
NJNG
Futures
 
15.3

22.6

NJRES
Futures
 
(59.3
)
(64.2
)
 
Options
 
0.6

1.5

 
Physical
 
33.0

7.3


Broker Margin

Generally, exchange-traded futures contracts require posted collateral, referred to as margin, usually in the form of cash. The amount of margin required is comprised of a fixed initial amount based on the contract and a variable amount based on market price movements from the initial trade price. The Company maintains separate broker margin accounts for NJNG and NJRES. The balances by company, are as follows:
(Thousands)
Balance Sheet Location
June 30,
2014
September 30,
2013
NJNG
Broker margin - Current assets
$

$
213

NJNG
Broker margin - Current (liabilities)
$
(2,278
)
$

NJRES
Broker margin - Current assets
$
27,904

$
6,368


Wholesale Credit Risk

NJNG and NJRES are exposed to credit risk as a result of their wholesale marketing activities. In addition, NJRCEV engages in SREC sales. As a result of the inherent volatility in the prices of natural gas commodities, derivatives and SRECs, 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 (e.g., failed to deliver or pay for natural gas), then the Company could sustain a loss.

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 current and prospective counterparties' financial statements and/or credit ratings, daily monitoring of counterparties' credit limits and exposure, daily communication with traders regarding credit status and the use of credit mitigation measures, such as collateral requirements and netting agreements. Examples of collateral include letters of credit and cash received for either prepayment or margin deposit. Collateral may be requested due to NJR's election not to extend credit or because exposure exceeds defined thresholds. Most of NJR's wholesale marketing contracts contain standard netting provisions. These contracts include those governed by ISDA and the NAESB. The netting provisions refer to payment netting, whereby receivables and payables with the same counterparty are offset and the resulting net amount is paid to the party to which it is due.

The following is a summary of gross credit exposures grouped by investment and noninvestment grade counterparties, as of June 30, 2014. Internally-rated exposure applies to counterparties that are not rated by S&P or Moody's. In these cases, the Company's or guarantor's financial statements are reviewed, and similar methodologies and ratios used by S&P and/or Moody's are applied to arrive at a substitute rating. Gross credit exposure is defined as the unrealized fair value of physical and financial derivative commodity contracts, plus any outstanding wholesale receivable for the value of natural gas delivered and/or financial derivative commodity contract that has settled for which payment has not yet been received. The amounts presented below have not been reduced by any collateral received or netting and exclude accounts receivable for NJNG retail natural gas sales and services.
(Thousands)
Gross Credit Exposure
Investment grade
 
$
172,089

 
Noninvestment grade
 
8,977

 
Internally rated investment grade
 
16,072

 
Internally rated noninvestment grade
 
13,262

 
Total
 
$
210,400

 


16

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


Conversely, certain of NJNG's and NJRES' derivative instruments are linked to agreements containing provisions that would require cash collateral payments from the Company if certain events occur. These provisions vary based upon the terms in individual counterparty agreements and can result in cash payments if NJNG's credit rating were to fall below its current level. NJNG's credit rating, with respect to S&P, reflects the overall corporate credit profile of NJR. Specifically, most, but not all, of these additional payments will be triggered if NJNG's debt is downgraded by the major credit agencies, regardless of investment grade status. In addition, some of these agreements include threshold amounts that would result in additional collateral payments if the values of derivative liabilities were to exceed the maximum values provided for in relevant counterparty agreements. Other provisions include payment features that are not specifically linked to ratings, but are based on certain financial metrics.

Collateral amounts associated with any of these conditions are determined based on a sliding scale and are contingent upon the degree to which the Company's credit rating and/or financial metrics deteriorate, and the extent to which liability amounts exceed applicable threshold limits. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position on June 30, 2014 and September 30, 2013, was $490,000 and $2 million, respectively, for which the Company had not posted collateral. If all thresholds related to the credit-risk-related contingent features underlying these agreements had been invoked on June 30, 2014 and September 30, 2013, the Company would have been required to post an additional $440,000 and $1.1 million, respectively, to its counterparties. These amounts differ from the respective net derivative liabilities reflected on the Unaudited Condensed Consolidated Balance Sheets because the agreements also include clauses, commonly known as “Rights of Offset,” that would permit the Company to offset its derivative assets against its derivative liabilities for determining additional collateral to be posted, as previously discussed.

5.
FAIR VALUE

Fair Value of Assets and Liabilities

The fair value of cash and temporary investments, commercial paper and borrowings under revolving credit facilities are estimated to equal their carrying amounts due to the short maturity of those instruments. Non-current loan receivables are recorded based on what the company expects to receive, which approximates fair value. The Company regularly evaluates the credit quality and collection profile of its customers to approximate fair value.

The estimated fair value of long-term debt, including current maturities and excluding capital leases, is as follows:
(Thousands)
June 30,
2014
September 30,
2013
Carrying value
$
582,845

$
529,845

Fair market value
$
616,071

$
556,518


NJR utilizes a discounted cash flow method to determine the fair value of its debt. Inputs include observable municipal and corporate yields, as appropriate for the maturity of the specific issue and the Company's credit rating. As of June 30, 2014, NJR discloses its debt within Level 2 of the fair value hierarchy.

Fair Value Hierarchy

NJR applies fair value measurement guidance to its financial assets and liabilities, as appropriate, which include financial derivatives and physical commodity contracts qualifying as derivatives, available for sale securities and other financial assets and liabilities. In addition, authoritative accounting literature prescribes the use of 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 exchange traded futures and options contracts, listed equities, and money market funds. Exchange traded futures and options contracts include all energy contracts traded on the NYMEX/CME and ICE that NJR refers internally to as basis swaps, fixed swaps, futures and options that are cleared through a FCM.

Level 2
Other significant observable inputs such as interest rates or price data, including both commodity and basis pricing that is observed either directly or indirectly from publications or pricing services. 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 for which no basis price is available. Level 2 financial derivatives consist of transactions with

17

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


non-FCM counterparties (basis swaps, fixed swaps and/or options). For some physical commodity contracts the Company utilizes transportation tariff rates that are publicly available and that it considers to be observable inputs that are equivalent to market data received from an independent source. There are no significant judgments or adjustments applied to the transportation tariff inputs and no market perspective is required. Even if the transportation tariff input was considered to be a “model”, it would still be considered to be a Level 2 input as:

1)     The data is widely accepted and public

2)    The data is non-proprietary and sourced from an independent third party

3)    The data is observable and published

These additional adjustments are generally 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.

Assets and liabilities measured at fair value on a recurring basis 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
As of June 30, 2014:
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Physical forward commodity contracts
 
$

 
 
$
12,304

 
 
$

 
$
12,304

Financial derivative contracts - natural gas
 
43,144

 
 

 
 

 
43,144

Financial derivative contracts - foreign exchange
 

 
 
1

 
 

 
1

Available for sale equity securities - energy industry (1)
 
12,082

 
 

 
 

 
12,082

Other (2)
 
1,373

 
 

 
 

 
1,373

Total assets at fair value
 
$
56,599

 
 
$
12,305

 
 
$

 
$
68,904

Liabilities:
 
 
 
 
 
 
 
 
 
 
Physical forward commodity contracts
 
$

 
 
$
37,344

 
 
$

 
$
37,344

Financial derivative contracts - natural gas
 
46,693

 
 

 
 

 
46,693

Financial derivative contracts - foreign exchange
 

 
 
29

 
 

 
29

Total liabilities at fair value
 
$
46,693

 
 
$
37,373

 
 
$

 
$
84,066

As of September 30, 2013:
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Physical forward commodity contracts
 
$

 
 
$
11,823

 
 
$

 
$
11,823

Financial derivative contracts - natural gas
 
44,249

 
 

 
 

 
44,249

Financial derivative contracts - foreign exchange
 

 
 
16

 
 

 
16

Available for sale equity securities - energy industry (1)
 
11,716

 
 

 
 

 
11,716

Other (2)
 
1,129

 
 

 
 

 
1,129

Total assets at fair value
 
$
57,094

 
 
$
11,839

 
 
$

 
$
68,933

Liabilities:
 
 
 
 
 
 
 
 
 
 
Physical forward commodity contracts
 
$

 
 
$
14,595

 
 
$

 
$
14,595

Financial derivative contracts - natural gas
 
28,248

 
 

 
 

 
28,248

Financial derivative contracts - foreign exchange
 

 
 
5

 
 

 
5

Total liabilities at fair value
 
$
28,248

 
 
$
14,600

 
 
$

 
$
42,848

(1)
Included in Other noncurrent assets on the Unaudited Condensed Consolidated Balance Sheets.
(2)
Includes various money market funds.


18

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


6.
INVESTMENTS IN EQUITY INVESTEES

Investment in equity investees includes NJR's equity method and cost method investments.

Equity Method Investments
(Thousands)
June 30,
2014
September 30,
2013
Steckman Ridge
$
128,255

$
129,707

Iroquois
24,257

23,084

Total
$
152,512

$
152,791


As of June 30, 2014, the investment in Steckman Ridge includes loans with a total outstanding principal balance of $70.4 million. The loans accrue interest at a variable rate that resets quarterly and are due October 1, 2023.

NJRES and NJNG have entered into transportation, storage and park and loan agreements with Steckman Ridge and Iroquois. See Note 14. Related Party Transactions for more information on these intercompany transactions.

Cost Method Investments

During the fourth quarter of fiscal 2012, NJR invested $8.8 million in OwnEnergy, a developer of onshore wind projects, for an 18.7 percent ownership interest and the right, but not the obligation, to purchase certain qualified projects. This investment is accounted for in accordance with the cost method of accounting. The Company does not estimate the fair value of its cost method investment since it is impracticable to do so. As of June 30, 2014, the Company has not identified any events or changes in circumstances that may have a significant adverse effect on the fair value of its investment in OwnEnergy.

On October 11, 2013, NJRCEV acquired the development rights of the Two Dot wind project in Montana, which is its first onshore wind project. NJRCEV invested approximately $22 million to construct the 9.7 MW wind project, which was completed in June 2014. In the second fiscal quarter of 2014, NJRCEV acquired the development rights to its second wind project, a $42 million, 20 MW wind farm currently under construction in Carroll County, Iowa, which NJRCEV expects to be operational in the second quarter of fiscal 2015.

7.
EARNINGS PER SHARE

The following table presents the calculation of the Company's basic and diluted earnings per share for:
 
Three Months Ended
Nine Months Ended
 
June 30,
June 30,
(Thousands, except per share amounts)
2014
2013
2014
2013
Net (loss) income
$
(14,274
)
$
29,155

$
166,390

$
134,830

Basic earnings per share




Weighted average shares of common stock outstanding-basic
42,117

41,608

42,072

41,697

Basic (loss) earnings per common share
$(0.34)
$0.70
$3.95
$3.23
Diluted earnings per share




Weighted average shares of common stock outstanding-basic
42,117

41,608

42,072

41,697

Incremental shares (1)

124

384

123

Weighted average shares of common stock outstanding-diluted
42,117

41,732

42,456

41,820

Diluted earnings per common share (2)
$(0.34)
$0.70
$3.92
$3.22
(1)
Incremental shares consist of stock options, stock awards and performance shares.
(2)
Since there was a net loss for the three months ended June 30, 2014, incremental shares of 384 were not included in the computation of diluted loss per common share, as their effect would have been anti-dilutive. There were no anti-dilutive shares excluded from the calculation of diluted earnings per share for the nine months ended June 30, 2014, and for the three and nine months ended June 30, 2013.


19

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


8.
COMMON STOCK EQUITY

Changes in common stock equity during the nine months ended June 30, 2014, are as follows:
(Thousands)
Number of Shares
Common Stock
Premium on Common Stock
Accumulated Other Comprehensive (Loss) Income
Treasury Stock And Other
Retained Earnings
Total
Balance as of September 30, 2013
41,962

$
112,563

$
300,196

 
$
(1,621
)
 
$
(128,638
)
$
604,884

$
887,384

Net income
 
 
 
 
 
 
 
166,390

166,390

Other comprehensive income
 
 
 
 
675

 
 
 
675

Common stock issued under stock plans
324

214

4,187

 

 
9,685


14,086

Tax benefits from stock plans
 
 
348

 
 
 
 
 
348

Cash dividend declared ($1.26 per share)
 
 
 
 
 
 
 
(53,024
)
(53,024
)
Treasury stock and other
(118
)
 
 
 
 
 
(2,774
)
 
(2,774
)
Balance as of June 30, 2014
42,168

$
112,777

$
304,731

 
$
(946
)
 
$
(121,727
)
$
718,250

$
1,013,085


Accumulated Other Comprehensive Income

The following table presents the changes in the components of accumulated other comprehensive income, net of related tax effects:
(Thousands)
Available for Sale Securities
Cash Flow Hedges
Postemployment Benefit Obligation
Total
Balance as of September 30, 2013
$
5,400

 
$
12

 
$
(7,033
)
 
$
(1,621
)
Other comprehensive income, net of tax
 
 
 
 
 
 
 
Other comprehensive income (loss), before reclassifications, net of tax of $(150), $91, $0, $(59)
216

 
(156
)
 

 
60

Amounts reclassified from accumulated other comprehensive income, net of tax of $0, $(77), $(334), $(411)

 
132

(1) 
483

(2) 
615

Net current-period other comprehensive income (loss), net of tax of $(150), $14, $(334), $(470)
216

 
(24
)
 
483

 
675

Balance as of June 30, 2014
$
5,616

 
$
(12
)
 
$
(6,550
)
 
$
(946
)
 
 
 
 
 
 
 
 
Balance as of September 30, 2012
$
4,921

 
$
51

 
$
(15,743
)
 
$
(10,771
)
Other comprehensive income, net of tax
 
 
 
 
 
 
 
Other comprehensive income (loss), before reclassifications, net of tax of $(390), $31, $0, $(359)
565

 
(54
)
 

 
511

Amounts reclassified from accumulated other comprehensive income, net of tax of $155, $(8) $(608), $(461)
(225
)
 
15

(1) 
1,005

(2) 
795

Net current-period other comprehensive income (loss), net of tax of $(235), $23, $(608), $(820)
340

 
(39
)
 
1,005

 
1,306

Balance as of June 30, 2013
$
5,261

 
$
12

 
$
(14,738
)
 
$
(9,465
)
(1)
Consists of realized losses related to foreign currency derivatives, which are reclassified to gas purchases in the Unaudited Condensed Consolidated Statements of Operations.
(2)
Included in the computation of net periodic pension cost, a component of operations and maintenance expense in the Unaudited Condensed Consolidated Statements of Operations.


20

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                                               


9.
DEBT

NJR and NJNG finance working capital requirements and capital expenditures through various short-term debt and long-term financing arrangements, including a commercial paper program, committed unsecured credit facilities and private placement debt shelf facilities. Amounts available under credit facilities are reduced by bank or commercial paper borrowings, as applicable, and any outstanding letters of credit. Neither NJNG nor the results of its operations are obligated or pledged to support the NJR credit or debt shelf facilities.

Credit Facilities