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NewJersey Resources 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-4.4A
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32.1
  6. Ex-32.2
  7. Ex-32.2
WebFilings | EDGAR view
 

 
 
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 MARCH 31, 2011
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 May 2, 2011 was 41,370,942.
 
 

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 4.
 
ITEM 6.
 
 

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 “may,” “intend,” “expect,” “believe” 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 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, qualifications for ITCs and SRECs, financial condition, results of operations, cash flows, capital requirements, market risk and other matters for fiscal 2011 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 Item 1A of NJR's 2010 Annual Report on Form 10-K and Part II, Item 1A of this Form 10-Q, as well as the following:
 
weather and economic conditions;
NJR's dependence on operating subsidiaries;
demographic changes in the New Jersey Natural Gas (NJNG) service territory;
the rate of NJNG customer growth;
volatility of natural gas and other commodity prices and their impact on customer usage, NJNG's incentive programs, NJR Energy Services' (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 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 due;
the 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 postemployment benefit plans as a result of downturns in the financial markets, and 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;
the ability to obtain governmental approvals and/or financing for the construction, development and operation of certain non-regulated energy investments, including our solar energy projects;
risks associated with the management of the Company's joint ventures and partnerships;
risks associated with our investments in solar energy 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 and NJR's eligibility for federal investment tax credits (ITCs) and the future market for Solar Renewable Energy Credits (SRECs);
timing of qualifying for ITCs due to delays or failures to complete planned solar energy projects would result in a change in our effective tax rate and earnings;
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 maintaining NJNG's natural gas transmission and distribution system;
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;
access to adequate supplies of natural gas;
the regulatory and pricing policies of federal and state regulatory agencies;
the costs of compliance with present and future environmental laws, 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.
 
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.

Page 1

New Jersey Resources Corporation
Part I

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

 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
 
Three Months Ended
Six Months Ended
 
March 31,
March 31,
(Thousands, except per share data)
2011
2010
2011
2010
OPERATING REVENUES
 
 
 
 
Utility
$
433,248
 
$
430,706
 
$
723,924
 
$
689,181
 
Nonutility
543,739
 
487,640
 
966,215
 
838,711
 
Total operating revenues
976,987
 
918,346
 
1,690,139
 
1,527,892
 
OPERATING EXPENSES
 
 
 
 
Gas purchases:
 
 
 
 
Utility
235,001
 
276,104
 
395,450
 
431,054
 
Nonutility
548,618
 
427,273
 
977,865
 
721,716
 
Operation and maintenance
37,896
 
37,018
 
75,312
 
73,309
 
Regulatory rider expenses
24,304
 
21,184
 
41,002
 
34,857
 
Depreciation and amortization
8,477
 
7,931
 
16,931
 
15,800
 
Energy and other taxes
29,489
 
26,824
 
50,114
 
43,759
 
Total operating expenses
883,785
 
796,334
 
1,556,674
 
1,320,495
 
OPERATING INCOME
93,202
 
122,012
 
133,465
 
207,397
 
Other income
805
 
1,028
 
1,250
 
2,147
 
Interest expense, net of capitalized interest
5,078
 
5,291
 
10,341
 
10,708
 
INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF AFFILIATES
88,929
 
117,749
 
124,374
 
198,836
 
Income tax provision
28,612
 
46,485
 
42,465
 
78,621
 
Equity in earnings of affiliates
3,610
 
2,953
 
6,527
 
5,904
 
NET INCOME
$
63,927
 
$
74,217
 
$
88,436
 
$
126,119
 
 
 
 
 
 
EARNINGS PER COMMON SHARE
 
 
 
 
BASIC
$1.55
$1.79
$2.14
$3.04
DILUTED
$1.54
$1.78
$2.13
$3.02
 
 
 
 
 
DIVIDENDS PER COMMON SHARE
$0.36
$0.34
$0.72
$0.68
 
 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING
 
 
 
 
BASIC
41,352
 
41,418
 
41,316
 
41,517
 
DILUTED
41,553
 
41,726
 
41,516
 
41,824
 
 
See Notes to Unaudited Condensed Consolidated Financial Statements
 

Page 2

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 
Six Months Ended
 
March 31,
(Thousands)
2011
 
2010
 
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
88,436
 
 
$
126,119
 
Adjustments to reconcile net income to cash flows from operating activities:
 
 
 
Unrealized loss (gain) on derivative instruments
58,049
 
 
(19,208
)
Depreciation and amortization
17,369
 
 
16,267
 
Allowance for equity used during construction
(499
)
 
(917
)
Allowance for bad debt expense
2,572
 
 
1,716
 
Deferred income taxes
(6,374
)
 
48,979
 
Manufactured gas plant remediation costs
(5,727
)
 
(1,755
)
Equity in earnings of affiliates, net of distributions received
(13
)
 
(2,222
)
Cost of removal - asset retirement obligations
(456
)
 
(280
)
Contributions to postemployment benefit plans
(8,068
)
 
(6,187
)
Changes in:
 
 
 
Components of working capital
9,862
 
 
90,359
 
Other noncurrent assets
16,234
 
 
17,518
 
Other noncurrent liabilities
9,624
 
 
(25,394
)
Cash flows from operating activities
181,009
 
 
244,995
 
CASH FLOWS (USED IN) INVESTING ACTIVITIES
 
 
 
Expenditures for
 
 
 
Utility plant
(43,581
)
 
(27,738
)
Solar equipment
(11,533
)
 
 
Real estate properties and other
(367
)
 
(93
)
Cost of removal
(3,605
)
 
(4,432
)
Investments in equity investees
 
 
(4,300
)
Withdrawal from restricted cash construction fund
38
 
 
 
Cash flows (used in) investing activities
(59,048
)
 
(36,563
)
CASH FLOWS (USED IN) FINANCING ACTIVITIES
 
 
 
Proceeds from issuance of common stock
7,297
 
 
6,371
 
Tax benefit from stock options exercised
347
 
 
230
 
Proceeds from sale-leaseback transaction
5,901
 
 
4,925
 
Payments of long-term debt
(23,919
)
 
(3,204
)
Purchases of treasury stock
(7,222
)
 
(24,729
)
Payments of common stock dividends
(28,917
)
 
(27,395
)
Net payments of short-term debt
 
 
(44,700
)
Cash flows (used in) financing activities
(46,513
)
 
(88,502
)
Change in cash and temporary investments
75,448
 
 
119,930
 
Cash and temporary investments at beginning of period
943
 
 
36,186
 
Cash and temporary investments at end of period
$
76,391
 
 
$
156,116
 
CHANGES IN COMPONENTS OF WORKING CAPITAL
 
 
 
Receivables
$
(106,839
)
 
$
(126,345
)
Inventories
141,246
 
 
123,460
 
Recovery of gas costs
28,309
 
 
(49,637
)
Gas purchases payable
(1,285
)
 
79,468
 
Prepaid and accrued taxes
78,809
 
 
49,699
 
Accounts payable and other
(3,414
)
 
(9,154
)
Restricted broker margin accounts
(48,713
)
 
53,225
 
Customers' credit balances and deposits
(77,917
)
 
(50,460
)
Other current assets
(334
)
 
20,103
 
Total
$
9,862
 
 
$
90,359
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
 
 
 
Cash paid for
 
 
 
Interest (net of amounts capitalized)
$
9,172
 
 
$
8,944
 
Income taxes
$
4,047
 
 
$
23,775
 
See Notes to Unaudited Condensed Consolidated Financial Statements

Page 3

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

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
 
ASSETS
(Thousands)
March 31, 2011
September 30, 2010
 
 
 
PROPERTY, PLANT AND EQUIPMENT
 
 
Utility plant, at cost
$
1,535,051
 
$
1,525,348
 
Real estate properties, solar and other, at cost
34,584
 
33,497
 
Total property, plant and equipment
1,569,635
 
1,558,845
 
Accumulated depreciation and amortization
(402,935
)
(423,126
)
Property, plant and equipment, net
1,166,700
 
1,135,719
 
 
 
 
CURRENT ASSETS
 
 
Cash and cash equivalents
76,391
 
943
 
Customer accounts receivable
 
 
Billed
230,434
 
162,961
 
Unbilled revenues
45,501
 
7,411
 
Allowance for doubtful accounts
(4,289
)
(2,993
)
Regulatory assets
14,799
 
51,466
 
Gas in storage, at average cost
195,022
 
336,163
 
Materials and supplies, at average cost
5,965
 
6,070
 
Prepaid state taxes
2,305
 
55,880
 
Assets held for sale
9,995
 
 
Derivatives, at fair value
69,966
 
135,186
 
Restricted broker margin accounts
39,495
 
19,241
 
Deferred taxes
7,532
 
 
Other
16,439
 
12,680
 
Total current assets
709,555
 
785,008
 
 
 
 
NONCURRENT ASSETS
 
 
Investments in equity investees
171,967
 
169,234
 
Regulatory assets
437,273
 
454,601
 
Derivatives, at fair value
6,153
 
7,957
 
Other
10,043
 
10,614
 
Total noncurrent assets
625,436
 
642,406
 
Total assets
$
2,501,691
 
$
2,563,133
 
 
See Notes to Unaudited Condensed Consolidated Financial Statements

Page 4

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

CAPITALIZATION AND LIABILITIES
(Thousands)
March 31, 2011
September 30, 2010
 
 
 
CAPITALIZATION
 
 
Common stock equity
$
785,074
 
$
725,483
 
Long-term debt
429,990
 
428,925
 
Total capitalization
1,215,064
 
1,154,408
 
 
 
 
CURRENT LIABILITIES
 
 
Current maturities of long-term debt
12,168
 
31,257
 
Short-term debt
147,600
 
147,600
 
Gas purchases payable
229,117
 
230,402
 
Accounts payable and other
44,451
 
47,297
 
Dividends payable
14,873
 
13,998
 
Deferred and accrued taxes
45,572
 
23,737
 
New Jersey clean energy program
13,766
 
12,644
 
Derivatives, at fair value
63,644
 
78,447
 
Restricted broker margin accounts
 
28,459
 
Customers' credit balances and deposits
14,039
 
91,957
 
Total current liabilities
585,230
 
705,798
 
 
 
 
NONCURRENT LIABILITIES
 
 
Deferred income taxes
283,108
 
278,551
 
Deferred investment tax credits
6,388
 
6,549
 
Deferred revenue
6,927
 
7,656
 
Derivatives, at fair value
4,517
 
5,640
 
Manufactured gas plant remediation
201,600
 
201,600
 
Postemployment employee benefit liability
92,966
 
93,742
 
Regulatory liabilities
60,262
 
57,648
 
New Jersey clean energy program
12,236
 
18,291
 
Asset retirement obligation
26,380
 
26,009
 
Other
7,013
 
7,241
 
Total noncurrent liabilities
701,397
 
702,927
 
Commitments and contingent liabilities (Note 13)
 
 
 
Total capitalization and liabilities
$
2,501,691
 
$
2,563,133
 
 
See Notes to Unaudited Condensed Consolidated Financial Statements
 

Page 5

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
 
Three Months Ended
Six Months Ended
 
March 31,
March 31,
(Thousands)
2011
2010
2011
2010
Net income
$
63,927
 
$
74,217
 
$
88,436
 
$
126,119
 
Unrealized gain on available for sale securities, net of tax of $(266), $(349), $(552) and $(613), respectively (1)
390
 
501
 
800
 
879
 
Net unrealized gain (loss) on derivatives, net of tax of $(16), $21, $(55) and $43, respectively
26
 
(29
)
95
 
(62
)
Other comprehensive income
416
 
472
 
895
 
817
 
Comprehensive income
$
64,343
 
$
74,689
 
$
89,331
 
$
126,936
 
(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
 

Page 6

New Jersey Resources Corporation
Part I

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                                
 
1.
NATURE OF THE BUSINESS
 
New Jersey Resources Corporation (NJR or the Company) provides regulated gas distribution services and certain non-regulated businesses primarily through the following subsidiaries:
 
New Jersey Natural Gas Company (NJNG) provides natural gas utility service to approximately 494,900 retail customers in central and northern New Jersey and is subject to rate regulation by the New Jersey Board of Public Utilities (BPU). NJNG comprises the Natural Gas Distribution segment;
 
NJR Energy Services Company (NJRES) comprises the Energy Services segment and is the Company's principal non-utility subsidiary that maintains and transacts around a portfolio of natural gas storage and transportation positions and provides wholesale energy and energy management services;
 
NJR Energy Holdings Corporation (NJREH) primarily invests in energy-related ventures through its subsidiaries, NJNR Pipeline Company (Pipeline), which holds the Company's 5.53 percent ownership interest in Iroquois Gas and Transmission System, L.P. (Iroquois) and NJR Steckman Ridge Storage Company, which holds the Company's 50 percent combined interest in Steckman Ridge GP, LLC and Steckman Ridge, LP (collectively, Steckman Ridge). Iroquois and Steckman Ridge comprise the Midstream Assets segment;
 
Effective October 1, 2010, NJR established Clean Energy Ventures (CEV) as a new segment to report the results of operations and assets related to the Company's expected capital investments in renewable energy projects. NJR Clean Energy Ventures (NJRCEV) comprises the Clean Energy Ventures segment. (See Note 14. Business Segment and Other Operations)
 
NJR Retail Holdings Corporation (Retail Holdings) has two principal subsidiaries, NJR Home Services Company (NJRHS) and Commercial Realty & Resources Corporation (CR&R). Retail Holdings and NJR Energy Corporation (NJR Energy) are also 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 (SEC). The September 30, 2010 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 2010 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, 2011.
 
Intercompany transactions and accounts have been eliminated.
 
Gas in Storage
 
The following table summarizes Gas in storage by company as of:
 
March 31, 2011
September 30, 2010
($ in thousands)
Gas in Storage
 
Bcf
Gas in Storage
 
Bcf
NJNG
 
$
32,399
 
4.3
 
 
$
181,098
 
24.7
 
NJRES
 
162,623
 
40.8
 
 
155,065
 
42.3
 
Total
 
$
195,022
 
45.1
 
 
$
336,163
 
67.0
 
 
 
 
 
 

Page 7

New Jersey Resources Corporation
Part I
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                           
 
 

Capitalized and Deferred Interest
 
Included in the Unaudited Condensed Consolidated Balance Sheets are capitalized amounts associated with the debt and equity components of NJNG's Allowance for funds used during construction (AFUDC), which are recorded in utility plant. NJNG's base rates include the ability for NJNG to recover the cost of debt associated with AFUDC and construction work in progress (CWIP). An incremental cost of equity is also recoverable during periods when NJNG's short-term debt balances are lower than its construction work in progress. Corresponding amounts recognized in interest expense and other income, as appropriate, are included in the Unaudited Condensed Consolidated Statements of Operations are as follows:
 
Three Months Ended
Six Months Ended
 
March 31,
March 31,
($ in thousands)
2011
2010
2011
2010
AFUDC:
 
 
 
 
Debt
$
235
 
$
249
 
$
270
 
$
400
 
Equity
481
 
533
 
499
 
917
 
Total
$
716
 
$
782
 
$
769
 
$
1,317
 
Weighted average rate
6.23
%
7.76
%
4.48
%
7.13
%
 
Pursuant to a BPU order, NJNG is permitted to recover carrying costs on uncollected balances related to Societal Benefits Clause (SBC) program costs, which include New Jersey Clean Energy Program (NJCEP), Remediation Adjustment (RA) and Universal Service Fund (USF) expenditures, see Note 3. Regulation. Accordingly, other income included $269,000 and $415,000 of deferred interest related to these SBC program costs for the three months ended March 31, 2011 and 2010, respectively, and $520,000 and $900,000 for the six months ended March 31, 2011 and 2010, respectively.
 
Customer Accounts Receivable
 
Customer accounts receivable include outstanding billings from the following subsidiaries as of:
($ in thousands)
March 31, 2011
 
September 30, 2010
NJNG (1)
$
68,659
 
30
%
 
$
17,983
 
11
%
NJRES
152,792
 
66
 
 
136,064
 
83
 
NJRHS and other
8,983
 
4
 
 
8,914
 
6
 
Total
$
230,434
 
100
%
 
$
162,961
 
100
%
(1)
Does not include unbilled revenues of $45.5 million and $7.4 million as of March 31, 2011 and September 30, 2010, respectively.
 
Accounts receivable increased during six months ended March 31, 2011, due primarily to increases at NJNG as a result of the seasonality of their revenue and at NJRES as a result of higher average natural gas prices and an increase in sales volume.
 
Assets Held for Sale
 
As of March 31, 2011, NJR has classified two real estate properties, both located in Monmouth County, as assets held for sale in the Unaudited Condensed Consolidated Balance Sheets. One of the properties is approximately 4.5 acres of undeveloped land with a net book value of $1.6 million, which is expected to be sold during the third quarter of fiscal 2011. The other property is a 56,400 square foot office building with a net book value of $8.4 million. A contract for sale is currently being negotiated and may be completed during the fourth quarter of fiscal 2011.
 
Recent Updates to the Accounting Standards Codification (ASC)
 
Consolidation:
 
In June 2009, the Financial Accounting Standards Board (FASB) issued guidance requiring qualitative evaluations including an additional emphasis on identifying the party who effectively controls the entity, which replaces the quantitative assessments previously in practice, when determining whether a company has a controlling financial interest in a variable interest entity (VIE). In addition, the assessments will be required on an ongoing basis, rather than limiting the reassessments to when certain triggering

Page 8

New Jersey Resources Corporation
Part I
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                           
 
 

events occur. Additional disclosures provide information on a company's involvement with VIE's. The Company adopted the provisions of the statement prospectively during its first quarter of fiscal 2011 and the adoption had no impact on its financial position, results of operations and cash flows.
 
3. REGULATION
 
As a result of NJNG being subject to cost-based regulation it is permitted to recover authorized operating expenses and earn a reasonable return on their utility investment based on BPU decisions and 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 through rates as regulatory assets and recognizes certain obligations representing probable future events as regulatory liabilities.
  
Regulatory assets included in the Unaudited Condensed Consolidated Balance Sheets are comprised of the following:
(Thousands)
March 31, 2011
September 30, 2010
Regulatory assets-current
 
 
Underrecovered gas costs (1)
$
8,176
 
$
36,485
 
Conservation Incentive Program (1)
6,623
 
14,960
 
Other (1)
 
21
 
Total current
$
14,799
 
$
51,466
 
Regulatory assets-noncurrent
 
 
Environmental remediation costs (Note 13)
 
 
Expended, net of recoveries (2)
$
70,099
 
$
75,707
 
Liability for future expenditures (3)
201,600
 
201,600
 
Deferred income and other taxes (1)
15,010
 
13,860
 
Derivatives, net (Note 4) (1)
10,164
 
16,497
 
Energy Efficiency Program (2)
5,990
 
3,958
 
New Jersey Clean Energy Program (2)
26,002
 
30,935
 
Pipeline Integrity Management (4)
1,148
 
1,148
 
Postemployment benefit costs (Note 10) (1)
106,074
 
106,225
 
Other (5)
1,186
 
4,671
 
Total noncurrent
$
437,273
 
$
454,601
 
(1)
Recoverable, without interest.
(2)
Recoverable, with interest.
(3)
Recovery will be requested when actual expenditures are incurred (see Note 13. Commitments and Contingent Liabilities).
(4)
Recoverable, subject to BPU review and approval in the next base rate case.
(5)
Recoverable, with or without interest depending on the specific program.
 
Recovery of regulatory assets is subject to BPU approval. If there should be 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.
 
Regulatory liabilities included in the Unaudited Condensed Consolidated Balance Sheets are comprised of the following:
(Thousands)
March 31, 2011
September 30, 2010
Regulatory liabilities-noncurrent
 
 
Cost of removal obligation (1)
$
58,219
 
$
57,648
 
Other regulatory liabilities (2)
2,043
 
 
Total noncurrent
$
60,262
 
$
57,648
 
(1)
NJNG accrues and collects for cost of removal in rates. This liability represents collections in excess of actual expenditures.
(2)
Refundable, with or without interest depending on the specific program.
 
 
 
 

Page 9

New Jersey Resources Corporation
Part I
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                           
 
 

Recent regulatory filings and/or actions include the following:
 
Effective October 1, 2010, the BPU approved the recovery of $12.1 million annually related to Conservation Incentive Program (CIP) resulting in a 0.7 percent rate increase to an average residential heat customer's total bill.
 
On October 20, 2010, NJNG filed a petition with the BPU for approval of an extension to NJNG's Accelerated Energy Infrastructure Investment Program (AIP II) for capital investments, in the amount of $52.2 million. On January 24, 2011, NJNG amended the amount of this petition to $60.2 million for capital investments to be made through October 31, 2012. NJNG requested approval from the BPU for the recovery of expenditures through base rates, which would include the Company's overall weighted cost of capital authorized in its last base rate case. On March 30, 2011, the BPU approved the amended AIP II filing. NJNG will submit filings requesting recovery of AIP II investment costs through base rates, which will include an overall weighted average cost of capital of 7.12 percent that includes a 10.3 percent return on equity. Filings will be submitted in June 2011 and October 2012, requesting rate changes to be effective in October 2011 and January 2013, respectively.
 
Effective November 1, 2010, the BPU approved the recovery of the USF program year budget and the recovery of deferred USF administrative costs.
 
NJNG is eligible to receive financial incentives for reducing Basic Gas Supply Service (BGSS) costs through a series of margin-sharing programs that include off-system sales, capacity release, storage incentive and financial risk management (FRM) programs. Success of the programs is subject to market conditions. On April 1, 2011, NJNG filed a petition with the BPU for approval of a five-year extension of these incentive programs from October 31, 2011 through October 31, 2016. NJNG also requested approval of a provision designed to permit the Company to propose modifications to the margin sharing programs, including new incentives, should performance of the incentives or market conditions warrant re-evaluation of the existing structure.
 
4. DERIVATIVE INSTRUMENTS
 
The Company and certain of its subsidiaries are subject to commodity price risk due to fluctuations in the market price of natural gas. To manage this risk, the Company and certain of its subsidiaries enter 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. 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 in 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, changes in the fair value of these derivative instruments are concurrently recorded as a component of gas purchases or operating revenues, as appropriate for NJRES, in 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. Since NJRES designates its foreign exchange contracts as cash flow hedges, changes in fair value are recorded in other comprehensive income. When the foreign exchange contracts are settled, realized gains and losses are recorded to gas purchases in the Unaudited Condensed Consolidated Statements of Operations. Realized and unrealized gains and losses related to NJR Energy's financial derivatives, which have expired, were recorded as a component of operating revenues during fiscal 2010.
  
Changes in fair value of NJNG's derivative instruments, however, are recorded as a component of regulatory assets or liabilities in 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.
 
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 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 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 balance sheet, with changes in value recognized in current period earnings.

Page 10

New Jersey Resources Corporation
Part I
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                           
 
 

The Company continues to elect normal treatment on all physical commodity contracts when appropriate at NJNG. These contracts are accounted for on an accrual basis. Accordingly, gains (losses) are recognized in earnings when the contract settles and the natural gas is delivered.
 
Fair Value of Derivatives
 
The following table reflects the fair value of NJR's derivative assets and liabilities recognized in the Unaudited Condensed Consolidated Balance Sheets as of:
 
 
 
Fair Value
 
 
 
March 31, 2011
 
September 30, 2010
(Thousands)
Balance Sheet Location
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
NJNG:
 
 
 
 
 
 
 
 
 
Financial commodity contracts
Derivatives - current
 
$
10,964
 
 
$
21,128
 
 
$
9,952
 
 
$
24,724
 
 
Derivatives - noncurrent
 
 
 
 
 
 
 
1,725
 
NJRES:
 
 
 
 
 
 
 
 
 
Physical forward commodity contracts
Derivatives - current
 
17,836
 
 
4,595
 
 
18,566
 
 
5,879
 
 
Derivatives - noncurrent
 
4,708
 
 
1,392
 
 
5,482
 
 
179
 
Financial commodity contracts
Derivatives - current
 
41,068
 
 
37,921
 
 
106,653
 
 
47,844
 
 
Derivatives - noncurrent
 
1,356
 
 
3,125
 
 
2,465
 
 
3,736
 
Total fair value of derivatives
 
 
$
75,932
 
 
$
68,161
 
 
$
143,118
 
 
$
84,087
 
 
The Company, through its unregulated wholesale energy services subsidiary, which enters into natural gas transactions in Canada and consequently NJRES, 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. 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.
 
The following table reflects the fair value of NJR's derivative assets and liabilities recognized in the Unaudited Condensed Consolidated Balance Sheets that are designated as hedging instruments as of:
 
 
Fair Value
 
 
 
March 31, 2011
 
 
September 30, 2010
 
(Thousands)
Balance Sheet Location
Asset
Derivatives
Liability
Derivatives
Asset
Derivatives
Liability
Derivatives
NJRES:
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
Derivatives - current
 
$
98
 
 
 
$
 
 
 
$
15
 
 
 
$
 
 
 
Derivatives - noncurrent
 
89
 
 
 
 
 
 
10
 
 
 
 
 
Total fair value of derivatives
 
 
$
187
 
 
 
$
 
 
 
$
25
 
 
 
$
 
 
 
At March 31, 2011, the notional amount of the foreign currency transactions was approximately $3 million, and ineffectiveness in the hedge relationship is immaterial to the financial results of NJR.
 
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 (losses) on the financial transactions that are economic hedges of the cost of the purchased gas are recognized prior to the gains (losses) on the physical transaction, 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 (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.
 
 
 

Page 11

New Jersey Resources Corporation
Part I
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                           
 
 

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
Six Months Ended
 
 
March 31,
March 31,
Derivatives not designated as hedging instruments under ASC 815:
2011
 
2010
2011
 
2010
NJRES:
 
 
 
 
 
 
 
Physical commodity contracts
Operating revenues
$
41,306
 
 
$
23,028
 
$
24,837
 
 
$
22,674
 
Physical commodity contracts
Gas purchases
(9,448
)
 
773
 
(5,739
)
 
154
 
Financial commodity contracts
Gas purchases
496
 
 
41,179
 
(27,775
)
 
65,117
 
Subtotal NJRES
 
32,354
 
 
64,980
 
(8,677
)
 
87,945
 
NJR Energy:
 
 
 
 
 
 
 
Financial commodity contracts
Operating revenues
 
 
(4,762
)
 
 
(6,506
)
Total NJRES and NJR Energy unrealized and realized (losses) gains
$
32,354
 
 
$
60,218
 
$
(8,677
)
 
$
81,439
 
 
Not included in the table above, are (losses) associated with NJNG's financial derivatives that totaled $(2.2) million and $(32) million for the three months ended March 31, 2011 and 2010, respectively and $(4.9) million and $(39.9) million for the six months ended March 31, 2011 and 2010, respectively. These derivatives are part of its regulated risk management activities that serve to mitigate BGSS costs passed on to its customers. 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 and there is no impact to earnings.
 
The following table reflects the effect of derivative instruments on other comprehensive income of derivative instruments designated as cash flow hedges as of:
(Thousands)
Amount of Gain or (Loss) Recognized in OCI on Derivatives (Effective Portion)
Location of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)
Amount of Gain or (Loss) Reclassified from OCI into Income (Effective Portion)
Location of Gain or (Loss) Recognized in Income on Derivatives (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
 
Three Months Ended
Six Months Ended
 
Three Months Ended
Six Months Ended
 
Three Months Ended
Six Months Ended
Derivatives in ASC815 Cash Flow Hedging Relationships
March 31, 2011
March 31, 2011
 
March 31, 2011
March 31, 2011
 
March 31, 2011
March 31, 2011
Foreign currency contracts
$
43
 
$
187
 
 Gas Purchases
$
35
 
$
35
 
 Gas Purchases
$
 
$
 
Total
$
43
 
$
187
 
(1) 
$
35
 
$
35
 
 
$
 
$
 
(1)
The settlement of foreign currency transactions over the next 12 months is expected to result in the reclassification of $98,000 from AOCI into earnings. The maximum tenor is April 2013.
 
NJNG and NJRES had the following outstanding long (short) derivatives as of:
 
 
 
Volume (Bcf)
 
 
 
March 31, 2011
September 30, 2010
NJNG
Futures
 
(2.4
)
20.8
 
 
Swaps
 
21.5
 
(8.7
)
NJRES
Futures
 
(14.4
)
(13.0
)
 
Swaps
 
(13.5
)
(7.3
)
 
Options
 
 
0.6
 
 
Physical
 
88.7
 
36.1
 
 
 

Page 12

New Jersey Resources Corporation
Part I
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                           
 
 

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 broker margin accounts for NJNG and NJRES. The balances by company are as follows:
(Thousands)
Balance Sheet Location
March 31, 2011
September 30, 2010
NJNG broker margin deposit
Broker margin - Current assets
$
20,695
 
$
19,241
 
NJRES broker margin deposit
Broker margin - Current asset (liabilities)
$
18,800
 
$
(28,459
)
 
Wholesale Credit Risk
 
NJNG and NJRES are exposed to credit risk as a result of their wholesale marketing activities. As a result of 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.
 
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 the International Swaps and Derivatives Association (ISDA) and the North American Energy Standards Board (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 March 31, 2011. Internally-rated exposure applies to counterparties that are not rated by Standard & Poor's (S&P) or Moody's Investors Service, Inc. (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 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
 
$
160,662
 
 
Noninvestment grade
 
7,554
 
 
Internally rated investment grade
 
24,609
 
 
Internally rated noninvestment grade
 
15,780
 
 
Total
 
$
208,605
 
 
 
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. 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. As well, 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.

Page 13

New Jersey Resources Corporation
Part I
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                           
 
 

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 March 31, 2011 and September 30, 2010, is $2.1 million and $7.4 million, respectively, for which the Company had not posted any collateral. If all the thresholds related to the credit-risk-related contingent features underlying these agreements had been invoked on March 31, 2011 and September 30, 2010, the Company would have been required to post an additional $200,000 and $5.5 million, respectively, to its counterparties. These amounts differ from the respective net derivative liabilities reflected in the Unaudited Condensed Consolidated Balance Sheets because the credit 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.
 
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. The estimated fair value of long-term debt, including current maturities, is based on quoted market prices for similar issues and is as follows:
(Thousands)
March 31, 2011
September 30, 2010
Carrying value
$
442,158
 
$
460,182
 
Fair market value
$
462,667
 
$
495,035
 
 
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 financial derivative contracts, listed equities, and money market funds.
 
Level 2
Price data, which includes both commodity and basis price data other than Level 1 quotes, 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. 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.
 
NJNG's and NJRES' financial derivatives portfolios consist mainly 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 that result in transporting natural gas to delivery points for which there is no actively quoted market price. In most instances, the cost to transport to the final delivery location is not significant to the overall valuation. If required, NJRES' policy is to use the best information available to determine fair value based on internal pricing models, which would include estimates extrapolated from broker quotes or pricing services.
 
 

Page 14

New Jersey Resources Corporation
Part I
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                           
 
 

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, measurements are adjusted, as needed, for credit risk associated with its counterparties, as well as its 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.
 
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 March 31, 2011:
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Physical forward commodity contracts
 
$
 
 
 
$
22,544
 
 
 
$
 
 
$
22,544
 
Financial derivative contracts - natural gas
 
13,049
 
 
 
40,339
 
 
 
 
 
53,388
 
Financial commodity contracts - foreign exchange
 
 
 
 
187
 
 
 
 
 
187
 
Available for sale equity securities - energy industry (1)
 
11,642
 
 
 
 
 
 
 
 
11,642
 
Other
 
1,939
 
 
 
 
 
 
 
 
1,939
 
Total assets at fair value
 
$
26,630
 
 
 
$
63,070
 
 
 
$
 
 
$
89,700
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Physical forward commodity contracts
 
$
 
 
 
$
5,987
 
 
 
$
 
 
$
5,987
 
Financial commodity contracts - natural gas
 
33,042
 
 
 
29,132
 
 
 
 
 
62,174
 
Other
 
634
 
 
 
 
 
 
 
 
634
 
Total liabilities at fair value
 
$
33,676
 
 
 
$
35,119
 
 
 
$
 
 
$
68,795
 
 
 
 
 
 
 
 
 
 
 
 
As of September 30, 2010:
 
 
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
 
 
Physical forward commodity contracts
 
$
 
 
 
$
24,048
 
 
 
$
 
 
$
24,048
 
Financial derivative contracts - natural gas
 
58,824
 
 
 
60,246
 
 
 
 
 
119,070
 
Financial commodity contracts - foreign exchange
 
 
 
 
25
 
 
 
 
 
25
 
Available for sale equity securities - energy industry (1)
 
10,290
 
 
 
 
 
 
 
 
10,290
 
Other
 
947
 
 
 
 
 
 
 
 
947
 
Total assets at fair value
 
$
70,061
 
 
 
$
84,319
 
 
 
$
 
 
$
154,380
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Physical forward commodity contracts
 
$
 
 
 
$
6,058
 
 
 
$
 
 
$
6,058
 
Financial derivative contracts - natural gas
 
38,497
 
 
 
39,532
 
 
 
 
 
78,029
 
Other
 
936
 
 
 
 
 
 
 
 
936
 
Total liabilities at fair value
 
$
39,433
 
 
 
$
45,590
 
 
 
$
 
 
$
85,023
 
(1)
Included in Investments in equity investees in the Unaudited Condensed Consolidated Balance Sheets.
 

Page 15

New Jersey Resources Corporation
Part I
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                           
 
 

6. INVESTMENTS IN EQUITY INVESTEES
      
NJR's Investments in equity investees include the following investments as of:
(Thousands)
March 31, 2011
September 30, 2010
Steckman Ridge
$
135,878
 
$
134,359
 
Iroquois
24,447
 
24,585
 
Other
11,642
 
10,290
 
Total
$
171,967
 
$
169,234
 
 
NJR uses the equity method of accounting for its investments in Steckman Ridge and Iroquois. Earnings or losses from equity method investments are included in Equity in earnings of affiliates in the Condensed Consolidated Statements of Operations.
 
Other consists of an investment in equity securities of a publicly traded energy company and is accounted for as available for sale securities, with any change in the value of such investment recorded in other comprehensive income, a component of Common stock equity.
 
7.     EARNINGS PER SHARE
  
The following table presents the calculation of the Company's basic and diluted earnings per share for:
 
Three Months Ended
Six Months Ended
 
March 31,
March 31,
(Thousands, except per share amounts)
2011
2010
2011
2010
Net Income, as reported
$
63,927
 
$
74,217
 
$
88,436
 
$
126,119
 
Basic earnings per share
 
 
 
 
Weighted average shares of common stock outstanding-basic
41,352
 
41,418
 
41,316
 
41,517
 
Basic earnings per common share
$1.55
$1.79
$2.14
$3.04
Diluted earnings per share
 
 
 
 
Weighted average shares of common stock outstanding-basic
41,352
 
41,418
 
41,316
 
41,517
 
Incremental shares (1)
201
 
308
 
200
 
307
 
Weighted average shares of common stock outstanding-diluted
41,553
 
41,726
 
41,516
 
41,824
 
Diluted earnings per common share (2)
$1.54
$1.78
$2.13
$3.02
(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 and six months ended March 31, 2011, and 2010.
 
8. DEBT
 
A summary of NJR's and NJNG's long-term debt are as follows:
(Thousands)
March 31, 2011
 
September 30, 2010
NJR
$
50,000
 
 
$
50,000
 
NJNG (1)
329,845
 
 
349,845
 
Total
$
379,845
 
 
$
399,845
 
(1)
Long-term debt excludes lease obligations of $62.3 million and $60.3 million at March 31, 2011 and September 30, 2010, respectively.
 
 
 
 
 
 
 

Page 16

New Jersey Resources Corporation
Part I
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                           
 
 

A summary of NJR's and NJNG's committed credit facilities, which require commitment fees on the unused amounts, are as follows:
(Thousands)
March 31, 2011
 
September 30, 2010
NJR
 
 
 
Bank credit facilities
$
325,000
 
 
$
325,000
 
Amount outstanding at end of period
 
 
 
Notes payable to banks
$
147,600
 
 
$
140,600
 
Weighted average interest rate at end of period
 
 
 
Notes payable to banks
0.54
%
 
0.64
%
NJNG
 
 
 
Bank credit facilities
$
200,000
 
 
$
200,000
 
Amount outstanding at end of period
 
 
 
Commercial paper
$
 
 
$
7,000
 
Weighted average interest rate at end of period
 
 
 
Commercial paper
%
 
0.26
%
 
NJR
 
NJR has a $325 million unsecured committed credit facility expiring in December 2012. As of March 31, 2011, NJR had $147.6 million in borrowings outstanding under the facility.
 
On January 11, 2011, NJR entered into an agreement for an additional $50 million unsecured committed credit line, which was terminated by NJR on February 22, 2011. The additional credit line, was put in place primarily to provide additional working capital to NJRES to meet any potential margin calls that could have arisen in NJRES' normal course of business.
 
As of March 31, 2011, NJR has three letters of credit outstanding, totaling $8.6 million, on behalf of NJRES. Two of those letters of credit, totaling $7.1 million, are used to secure the purchase and/or sale of natural gas; one expires on December 31, 2011, and the other expires on February 1, 2012. The other letter of credit, which totals $1.5 million, is used for margin requirements for natural gas transactions and will expire on June 30, 2011. NJR also has a $675,000 letter of credit outstanding on behalf of CR&R, which will expire on December 3, 2011. The letter of credit is in place to support development activities. These letters of credit reduce the amount available under NJR's committed credit facility by the same amount. NJR does not anticipate that these letters of credit will be drawn upon by the counterparties, and they will be renewed as necessary.
 
NJNG
 
NJNG has a $200 million revolving unsecured committed credit facility, which expires in December 2012. The credit facility is used to support NJNG's commercial paper program and provides for the issuance of letters of credit. As of March 31, 2011, NJNG had no borrowings outstanding under the facility.
 
On October 1, 2010, upon maturity, NJNG redeemed its $20 million Series CC First Mortgage bonds.
 
NJNG received $5.9 million and $4.9 million in December 2010 and 2009, 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.
 
Neither NJNG nor the results of its operations are obligated or pledged to support the NJR or NJRES credit facilities.
 
9.
STOCK BASED COMPENSATION
 
On November 17, 2010, the Company granted 56,325 performance shares, which are market condition awards that vest on September 30, 2013, subject to certain conditions. Also on November 17, 2010, the company granted 36,614 restricted shares, which vest in three equal annual installments, the first occurring on October 15, 2011, and 25,535 restricted shares, all scheduled to vest on November 17, 2013. As of March 31, 2011, 1,982,680 and 71,962 shares remain available for future issuance to employees and directors, respectively.
 
During the six months ended March 31, 2011, included in operation and maintenance expense is $1.2 million related to stock-based compensation compared with $1.4 million during the six months ended March 31, 2010. As of March 31, 2011, there remains $5.5 million of deferred compensation related to unvested restricted and performance shares that is expected to be recognized over the next two and a half years.

Page 17

New Jersey Resources Corporation
Part I
 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)                           
 
 

10. EMPLOYEE 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
Six Months Ended
Three Months Ended
Six Months Ended
 
March 31,
March 31,
March 31,
March 31,
(Thousands)
2011
2010
2011
2010
2011
2010
2011
2010
Service cost
$
1,194
 
$
992
 
$
2,388
 
$
1,984
 
$
836
 
$
704
 
$
1,672
 
$
1,408
 
Interest cost
2,095
 
2,049
 
4,189
 
4,098
 
1,212
 
1,204
 
2,423
 
2,408
 
Expected return on plan assets
(2,873
)
(2,577
)
(5,745
)
(5,154
)
(618
)
(485
)
(1,236
)
(970
)
Recognized actuarial loss
987
 
681
 
1,973
 
1,362
 
653
 
570
 
1,306
 
1,140
 
Prior service cost amortization
12
 
14
 
24
 
28
 
19
 
19
 
38
 
38
 
Recognized net initial obligation
 
 
 
 
89
 
89
 
178
 
178
 
Net periodic benefit cost
$
1,415
 
$
1,159
 
$
2,829
 
$
2,318
 
$
2,191
 
$
2,101
 
$
4,381
 
$
4,202
 
 
The Company does not expect to be required to make additional contributions to fund the pension plans over the next three fiscal years based on current actuarial assumptions; however, funding requirements are uncertain and can depend significantly on changes in actuarial assumptions, returns on plan assets and changes in the demographics of eligible employees and covered dependents. In addition, as in the past, the Company may elect to make contributions in excess of the minimum required amount to the plans. NJR made a discretionary contribution of $4.9 million to the pension plans in October 2010. It is anticipated that the annual funding level to the OPEB plans will range from $5.5 million to $6.6 million annually over the next five years. Additional contributions may vary based on market conditions and various assumptions.
 
11. ASSET 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 are required by New Jersey law when taking such gas distribution pipeline out of service.
 
The following is an analysis of the change in the ARO liability:
(Thousands)
March 31, 2011
 
September 30, 2010
Balance at October 1
$