NEW JERSEY RESOURCES CORP 10-K

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued) Our market price risk is predominately linked with changes in the price of natural gas at the Henry Hub, the delivery point for the NYMEX natural gas futures contracts. Based on price sensitivity analysis, an illustrative 10 percent movement in the natural gas futures contract price, for example, increases (decreases) the reported derivative fair value of all open, unadjusted Henry Hub natural gas futures and fixed price swap positions by approximately $6.5 million. This analysis does not include potential changes to reported credit adjustments embedded in the $5.8 million reported fair value. Derivative Fair Value Sensitivity Analysis (Thousands) Henry Hub Futures and Fixed Price Swaps Percent increase in NYMEX natural gas futures prices 0% 5% 10% 15% 20% Estimated change in derivative fair value $ — $ (3,266) $ (6,532) $ (9,798) $ (13,064) Ending derivative fair value $ 5,826 $ 2,560 $ (706) $ (3,972) $ (7,238) Percent decrease in NYMEX natural gas futures prices 0% (5)% (10)% (15)% (20)% Estimated change in derivative fair value $ — $ 3,266 $ 6,532 $ 9,798 $ 13,064 Ending derivative fair value $ 5,826 $ 9,092 $ 12,358 $ 15,624 $ 18,890 Wholesale Credit Risk The following is a summary of gross and net credit exposures, grouped by investment and non-investment grade counterparties, as of September 30, 2022. Gross credit exposure for Energy Services is defined as the unrealized fair value of derivative and energy trading contracts, plus any outstanding wholesale receivable for the value of natural gas or power delivered and/or financial derivative commodity contract that has settled for which payment has not yet been received. Gross credit exposure for Storage and Transportation is defined as demand and estimated usage fees for contracted services and/or market value of loan balances for which payment has not yet been received. Net credit exposure is defined as gross credit exposure reduced by collateral received from counterparties and/or payables, where netting agreements exist. The amounts presented below exclude accounts receivable for NJNG retail natural gas sales and services. Energy Services’, Clean Energy Ventures’ and Storage and Transportation’s counterparty credit exposure as of September 30, 2022, is as follows: (Thousands) Gross Credit Exposure Net Credit Exposure Investment grade $ 161,677 $ 137,934 Noninvestment grade 29,771 1,319 Internally-rated investment grade 17,041 14,767 Internally-rated noninvestment grade 23,567 13,724 Total $ 232,056 $ 167,744 NJNG’s counterparty credit exposure as of September 30, 2022, is as follows: (Thousands) Gross Credit Exposure Net Credit Exposure Investment grade $ 20,461 $ 19,959 Noninvestment grade 334 — Internally-rated investment grade 72 17 Internally-rated noninvestment grade 22,024 — Total $ 42,891 $ 19,976 Due to the inherent volatility in the market price for natural gas, electricity 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 (for example, failed to make payment for natural gas received), we could sustain a loss. This loss would comprise the loss on natural gas delivered but not paid for and/or the cost of replacing natural gas not delivered or received at a price that exceeds the original contract price. Any such loss could have a material impact on our financial condition, results of operations or cash flows. Page 63 New Jersey Resources Corporation Part II ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Continued) Effects of Interest Rate and Foreign Currency Rate Fluctuations We are also exposed to changes in interest rates on our debt hedges, variable rate debt and changes in foreign currency rates for our business conducted in Canada using Canadian dollars. We do not believe an immediate 10 percent increase or decrease in interest rates or foreign currency rates would have a material effect on our operating results or cash flows. Information regarding NJR’s interest rate risk can be found in the Liquidity and Capital Resources - Debt section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. Effects of Inflation Any change in price levels has an effect on operating results due to the capital-intensive and regulated nature of our utility subsidiary. The Company’s operations are sensitive to increases in the rate of inflation because of its operational and capital spending requirements in both its regulated and non-regulated businesses. We attempt to minimize the effects of inflation through cost control, productivity improvements and regulatory actions, when appropriate. See Item 1A. Risk Factors for additional information related to the impact of recent increases in inflation rates. Page 64 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of New Jersey Resources Corporation is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to the Company’s Management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes policies and procedures that: • pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2022. In making this assessment, management used the criteria for effective internal control over financial reporting described in the Internal Control-Integrated Framework (2013) set forth by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, management concluded that, as of September 30, 2022, the Company’s internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. The conclusion of the Company’s principal executive officer and principal financial officer is based on the recognition that there are inherent limitations in all systems of internal control over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements, errors or fraud. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued its report on the effectiveness of the Company’s internal control over financial reporting as of September 30, 2022, which appears herein. November 17, 2022 Page 65 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareowners and the Board of Directors of New Jersey Resources Corporation: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of New Jersey Resources Corporation and subsidiaries (the “Company”) as of September 30, 2022 and 2021, and the related consolidated statements of operations, comprehensive income, common stock equity, and cash flows, for each of the three years in the period ended September 30, 2022, and the related notes and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 17, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company’'s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Regulation — Impact of Rate-Regulation on Various Account Balances and Disclosures — Refer to Notes 2 and 4 to the financial statements Critical Audit Matter Description New Jersey Natural Gas Company (“NJNG”), a subsidiary of the Company, is a regulated gas distribution company that serves customers in central and northern New Jersey. NJNG is subject to regulation by the New Jersey Board of Public Utilities (the “BPU”), which has jurisdiction with respect to the rates of gas distribution companies in New Jersey. Management has determined NJNG meets the requirements under accounting principles generally accepted in the United States of America to prepare its financial statements in accordance with the ASC 980, Regulated Operations. Page 66 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) NJNG is subject to cost-based regulation; therefore, it is permitted to recover authorized operating expenses and earn a reasonable return on its utility capital investments based on the BPU’s approval. 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 in accordance with accounting guidance applicable to regulated operations. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment, and the timing and amount of assets to be recovered by rates. Decisions to be made by the BPU in the future will impact the accounting for regulated operations, including decisions about the amount of allowable costs and return on invested capital included in rates and any refunds that may be required. Accounting for the economics of rate-regulation impacts multiple financial statement line items and disclosures, such as regulated property, plant, and equipment, regulatory assets and liabilities, operating revenues and depreciation expense. While NJNG expects to recover costs from customers through regulated rates, there is a risk that the BPU will not approve full recovery of such costs or full recovery of all amounts invested in the utility business and a reasonable return on that investment. We identified the impact of rate-regulation as a critical audit matter due to the significant judgments made by management to support its assertions about the impact of regulatory orders on the financial statements, including assessing the probability of both recovery in rates of incurred costs, and refunds to customers. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the BPU, auditing these judgments requires specialized knowledge of accounting for rate regulation and the rate setting process due to its inherent complexities. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the uncertainty around the impact of regulatory orders on the financial statements, including the probability of both recovery in rates of incurred costs, and refunds to customers, included the following, among others: • We tested the effectiveness of controls over the relevant regulatory account balances and disclosures, including management’s controls over the monitoring and evaluation of regulatory developments that may affect the probability of recovering costs in future rates or of a future reduction in rates. • We read relevant regulatory orders issued by the BPU for NJNG and other public utilities in New Jersey, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the probability of recovery in future rates or of a future reduction in rates based on precedence of the BPU’s treatment of similar costs under similar circumstances. We evaluated the external information and compared that to management’s assertions regarding the probability of recovery or refund of regulatory asset and liability balances for completeness. • We obtained an analysis from management regarding the probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities in order to assess management’s assertion that amounts are probable of recovery or a future reduction in rates. • We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances /s/ Deloitte & Touche LLP Morristown, New Jersey November 17, 2022 We have served as the Company’s auditor since 1951. Page 67 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareowners and the Board of Directors of New Jersey Resources Corporation: Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of New Jersey Resources Corporation and subsidiaries (the “Company”) as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended September 30, 2022, of the Company and our report dated November 17, 2022, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s change in accounting policy. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP Morristown, New Jersey November 17, 2022 Page 68 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) CONSOLIDATED STATEMENTS OF OPERATIONS (Thousands, except per share data) Fiscal years ended September 30, 2022 2021 2020 OPERATING REVENUES Utility $ 1,127,417 $ 731,459 $ 729,923 Nonutility 1,778,562 1,425,154 1,223,745 Total operating revenues 2,905,979 2,156,613 1,953,668 OPERATING EXPENSES Natural gas purchases: Utility 547,901 247,734 275,831 Nonutility 1,393,656 1,096,920 1,022,805 Related parties 7,395 7,013 6,083 Operation and maintenance 361,866 366,905 278,143 Regulatory rider expenses 59,437 38,304 34,529 Depreciation and amortization 129,249 111,387 107,368 Total operating expenses 2,499,504 1,868,263 1,724,759 OPERATING INCOME 406,475 288,350 228,909 Other income, net 22,295 24,597 23,878 Interest expense, net of capitalized interest 85,830 78,559 67,597 INCOME BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF AFFILIATES 342,940 234,388 185,190 Income tax provision 76,195 33,286 36,494 Equity in earnings (loss) of affiliates 8,177 ( 83,212 ) 14,311 NET INCOME $ 274,922 $ 117,890 $ 163,007 EARNINGS PER COMMON SHARE Basic $ 2.86 $ 1.23 $ 1.72 Diluted $ 2.85 $ 1.22 $ 1.71 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 96,100 96,227 94,798 Diluted 96,488 96,560 95,103 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Thousands) Fiscal years ended September 30, 2022 2021 2020 Net income $ 274,922 $ 117,890 $ 163,007 Other comprehensive income (loss), net of tax: Reclassifications of losses to net income on derivatives designated as hedging instruments, net of tax of $( 317 ), $( 350 ) and $( 32 ), respectively 1,054 1,021 108 Loss on derivatives designated as hedging instruments, net of tax of $ 0 , $ 0 and $ 3,203 , respectively — — ( 10,505 ) Adjustment to postemployment benefit obligation, net of tax of $( 8,657 ), $( 2,575 ) and $ 567 , respectively 28,648 8,766 ( 2,131 ) Other comprehensive income (loss) 29,702 9,787 ( 12,528 ) Comprehensive income $ 304,624 $ 127,677 $ 150,479 See Notes to Consolidated Financial Statements Page 69 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands) Fiscal years ended September 30, 2022 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 274,922 $ 117,890 $ 163,007 Adjustments to reconcile net income to cash flows from operating activities Unrealized (gain) loss on derivative instruments ( 59,906 ) 54,203 ( 9,644 ) Impairment of equity method investment — 92,000 — Depreciation and amortization 129,249 111,387 107,368 Amortization of acquired wholesale energy contracts 2,561 4,604 4,924 Allowance for equity used during construction ( 11,243 ) ( 20,303 ) ( 17,053 ) Allowance for doubtful accounts 2,401 18,986 2,238 Non-cash lease expense 4,850 3,920 3,851 Deferred income taxes 81,659 23,796 34,346 Equivalent value of ITCs recognized on equipment financing ( 7,542 ) ( 6,482 ) ( 6,482 ) Manufactured gas plant remediation costs ( 17,538 ) ( 17,532 ) ( 7,651 ) Equity in earnings, net of distributions received from equity investees — ( 3,046 ) ( 5,848 ) Cost of removal - asset retirement obligations ( 1,289 ) ( 1,129 ) ( 245 ) Contributions to postemployment benefit plans ( 6,785 ) ( 7,669 ) ( 9,032 ) Taxes related to stock-based compensation ( 144 ) ( 159 ) 647 Changes in: Components of working capital ( 77,687 ) 10,254 ( 8,096 ) Other noncurrent assets ( 38,424 ) 13,715 ( 44,129 ) Other noncurrent liabilities 48,396 ( 3,481 ) 5,280 Cash flows from operating activities 323,480 390,954 213,481 CASH FLOWS USED IN INVESTING ACTIVITIES Expenditures for: Utility plant ( 259,081 ) ( 376,312 ) ( 290,040 ) Solar equipment ( 146,676 ) ( 87,852 ) ( 133,841 ) Storage and Transportation and other ( 153,378 ) ( 110,130 ) ( 24,228 ) Cost of removal ( 39,293 ) ( 50,316 ) ( 22,059 ) Acquisition of assets, net of cash acquired of $ 5.1 million — — ( 523,647 ) Distribution from equity investees in excess of equity in earnings 2,336 3,183 1,907 Investments in equity investees, net of return of capital 5,479 ( 690 ) ( 2,117 ) Cash flows used in investing activities ( 590,613 ) ( 622,117 ) ( 994,025 ) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt 360,000 — 660,000 Payments of long-term debt ( 68,343 ) ( 18,007 ) ( 20,286 ) Proceeds from term loan 150,000 — 350,000 Payments of term loan — — ( 350,000 ) (Payments of) proceeds from short-term debt, net ( 103,350 ) 251,950 99,900 Proceeds from sale leaseback transactions - solar 24,071 17,673 42,927 Proceeds from sale leaseback transactions - natural gas meters 17,300 — 4,000 Payments of common stock dividends ( 127,704 ) ( 116,960 ) ( 117,804 ) Proceeds from equity offering — — 212,900 Cash settlement of equity forward agreement — ( 2,823 ) — Proceeds from issuance of common stock - DRP 14,745 15,105 18,080 Purchases of treasury stock — ( 27,217 ) — Tax withholding payments related to net settled stock compensation ( 4,177 ) ( 1,938 ) ( 3,813 ) Cash flows from financing activities 262,542 117,783 895,904 Change in cash, cash equivalents and restricted cash ( 4,591 ) ( 113,380 ) 115,360 Cash, cash equivalents and restricted cash at beginning of period 6,043 119,423 4,063 Cash, cash equivalents and restricted cash at end of period $ 1,452 $ 6,043 $ 119,423 CHANGES IN COMPONENTS OF WORKING CAPITAL Receivables $ ( 16,658 ) $ ( 81,366 ) $ 5,065 Inventories ( 80,801 ) ( 25,257 ) ( 3,254 ) Recovery of natural gas costs 1,037 ( 13,124 ) 17,479 Natural gas purchases payable 66,352 72,752 ( 41,326 ) Natural gas purchases payable - related parties ( 10 ) 70 1 Deferred revenue 33,802 ( 1,763 ) 1,922 Accounts payable and other ( 34,259 ) 31,826 18,468 Prepaid expenses ( 406 ) ( 1,527 ) 2,548 Prepaid and accrued taxes ( 1,516 ) ( 3,449 ) ( 2,376 ) Restricted broker margin accounts ( 51,165 ) 28,013 ( 6,097 ) Customers’ credit balances and deposits 660 6,652 ( 1,182 ) Other current assets (liabilities) 5,277 ( 2,573 ) 656 Total $ ( 77,687 ) $ 10,254 $ ( 8,096 ) SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION Cash paid for: Interest (net of amounts capitalized) $ 84,375 $ 78,650 $ 66,146 Income taxes $ 4,252 $ 6,381 $ 7,594 Accrued capital expenditures $ 34,674 $ 64,626 $ 19,434 See Notes to Consolidated Financial Statements Page 70 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) CONSOLIDATED BALANCE SHEETS ASSETS (Thousands) September 30, 2022 2021 PROPERTY, PLANT AND EQUIPMENT Utility plant, at cost $ 3,576,691 $ 3,324,611 Construction work in progress 162,087 182,196 Nonutility plant and equipment, at cost 1,577,259 1,124,896 Construction work in progress 199,679 365,346 Total property, plant and equipment 5,515,716 4,997,049 Accumulated depreciation and amortization, utility plant ( 659,737 ) ( 611,827 ) Accumulated depreciation and amortization, nonutility plant and equipment ( 206,053 ) ( 171,709 ) Property, plant and equipment, net 4,649,926 4,213,513 CURRENT ASSETS Cash and cash equivalents 1,107 4,749 Customer accounts receivable: Billed 222,297 212,838 Unbilled revenues 13,769 10,351 Allowance for doubtful accounts ( 19,379 ) ( 24,652 ) Regulatory assets 40,086 30,118 Natural gas in storage, at average cost 273,644 193,606 Materials and supplies, at average cost 20,324 19,561 Prepaid expenses 8,572 8,166 Prepaid and accrued taxes 54,501 51,211 Derivatives, at fair value 24,635 35,251 Restricted broker margin accounts 94,261 72,840 Other current assets 22,270 20,235 Total current assets 756,087 634,274 NONCURRENT ASSETS Investments in equity method investees 106,571 114,529 Regulatory assets 500,666 522,099 Operating lease assets 168,520 173,928 Derivatives, at fair value 6,385 3,403 Intangible assets, net 2,348 5,029 Software costs 6,120 5,582 Other noncurrent assets 64,793 49,921 Total noncurrent assets 855,403 874,491 Total assets $ 6,261,416 $ 5,722,278 See Notes to Consolidated Financial Statements Page 71 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) CAPITALIZATION AND LIABILITIES (Thousands, except share data) September 30, 2022 2021 CAPITALIZATION Common stock, $ 2.50 par value; authorized 150,000,000 shares; outstanding shares September 30, 2022 — 96,249,859 ; September 30, 2021 — 95,709,662 $ 241,616 $ 240,644 Premium on common stock 519,697 502,584 Accumulated other comprehensive loss, net of tax ( 4,826 ) ( 34,528 ) Treasury stock at cost and other; shares September 30, 2022 — 611,045 ; September 30, 2021 — 762,313 ( 6,805 ) ( 12,448 ) Retained earnings 1,067,528 934,610 Common stock equity 1,817,210 1,630,862 Long-term debt 2,485,402 2,162,164 Total capitalization 4,302,612 3,793,026 CURRENT LIABILITIES Current maturities of long-term debt 75,069 72,840 Short-term debt 423,950 377,300 Natural gas purchases payable 235,049 168,697 Natural gas purchases payable to related parties 851 861 Deferred revenue 35,547 1,745 Accounts payable and other 156,580 223,497 Dividends payable 37,534 34,768 Accrued taxes 5,130 3,356 Regulatory liabilities 31,090 28,007 New Jersey Clean Energy Program 15,697 16,308 Derivatives, at fair value 49,848 87,145 Operating lease liabilities 4,562 4,300 Customers’ credit balances and deposits 33,246 32,586 Total current liabilities 1,104,153 1,051,410 NONCURRENT LIABILITIES Deferred income taxes 238,928 163,530 Deferred investment tax credits 2,710 3,010 Deferred revenue 753 847 Derivatives, at fair value 14,191 13,497 Manufactured gas plant remediation 127,060 135,012 Postemployment employee benefit liability 82,867 169,267 Regulatory liabilities 185,634 193,051 Operating lease liabilities 138,382 141,363 Asset retirement obligation 55,035 46,306 Other noncurrent liabilities 9,091 11,959 Total noncurrent liabilities 854,651 877,842 Commitments and contingent liabilities (Note 15) Total capitalization and liabilities $ 6,261,416 $ 5,722,278 See Notes to Consolidated Financial Statements Page 72 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) CONSOLIDATED STATEMENTS OF COMMON STOCK EQUITY (Thousands) Number of Shares Common Stock Premium on Common Stock Accumulated Other Comprehensive (Loss) Income Treasury Stock And Other Retained Earnings Total Balance at September 30, 2019 89,999 $ 226,649 $ 291,331 $ ( 31,787 ) $ ( 10,436 ) $ 906,076 $ 1,381,833 Net income — — — — — 163,007 163,007 Other comprehensive loss — — — ( 12,528 ) — — ( 12,528 ) Common stock issued: Common stock offering 5,333 13,333 199,567 — — — 212,900 Incentive compensation plan 105 261 3,511 — — — 3,772 Dividend reinvestment plan (1) 520 — 2,833 — 15,324 — 18,157 Cash dividend declared ($ 1.27 per share) — — — — — ( 121,582 ) ( 121,582 ) Treasury stock and other ( 8 ) — ( 5,260 ) — 3,597 — ( 1,663 ) Balance at September 30, 2020 95,949 240,243 491,982 ( 44,315 ) 8,485 947,501 1,643,896 Net income — — — — — 117,890 117,890 Other comprehensive income — — — 9,787 — — 9,787 Common stock issued: Common stock offering — — ( 2,823 ) — — — ( 2,823 ) Incentive compensation plan 84 210 4,053 — — — 4,263 Dividend reinvestment plan (1) 431 191 9,372 — 5,593 — 15,156 Cash dividend declared ($ 1.36 per share) — — — — — ( 130,781 ) ( 130,781 ) Treasury stock and other ( 754 ) — — — ( 26,526 ) — ( 26,526 ) Balance at September 30, 2021 95,710 240,644 502,584 ( 34,528 ) ( 12,448 ) 934,610 1,630,862 Net income — — — — — 274,922 274,922 Other comprehensive income — — — 29,702 — — 29,702 Common stock issued: Incentive compensation plan 193 481 8,665 — — — 9,146 Dividend reinvestment plan (1) 355 491 8,450 — 5,800 — 14,741 Cash dividend declared ($ 1.4775 per share) — — — — — ( 142,004 ) ( 142,004 ) Treasury stock and other ( 8 ) — ( 2 ) — ( 157 ) — ( 159 ) Balance at September 30, 2022 96,250 $ 241,616 $ 519,697 $ ( 4,826 ) $ ( 6,805 ) $ 1,067,528 $ 1,817,210 (1) Certain shares sold through the DRP issued from treasury stock are at average cost, which may differ from the actual market price paid. See Notes to Consolidated Financial Statements Page 73 New Jersey Resources Corporation Part II ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (Continued) 1. NATURE OF THE BUSINESS The Company provides regulated natural gas distribution services, transmission and storage services and operates certain unregulated businesses primarily through the following: NJNG provides natural gas utility service to approximately 569,300 customers throughout Burlington, Middlesex, Monmouth, Morris, Ocean and Sussex counties in New Jersey and is subject to rate regulation by the BPU. NJNG comprises the Natural Gas Distribution segment. NJRCEV, the Company’s clean energy subsidiary, comprises the Clean Energy Ventures segment and invests in, owns and operates clean energy projects, including commercial and residential solar installations located in New Jersey, Connecticut, Rhode Island and New York. NJRES comprises the Energy Services segment. Energy Services maintains and transacts around a portfolio of natural gas transportation and storage capacity contracts and provides physical wholesale energy, retail energy and energy management services in the U.S. and Canada. NJR Midstream Holdings Corporation, which comprises the Storage and Transportation segment, invests in energy-related ventures through its subsidiaries. The Company operates natural gas storage and transmission assets through the wholly-owned subsidiaries of Leaf River and Adelphia Gateway and is subject to rate regulation by FERC. The Company holds a 50 percent combined ownership interest in Steckman Ridge, located in Pennsylvania, and a 20 percent ownership interest in PennEast, which are accounted for under the equity method of accounting. NJR Retail Holdings Corporation has one principal subsidiary: NJRHS, which provides heating, central air conditioning, standby generators, solar and other indoor and outdoor comfort products to residential homes throughout New Jersey. NJRHS is included in Home Services and Other operations. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated. Other financial investments or contractual interests that lack the characteristics of a voting interest entity, which are commonly referred to as variable interest entities, are evaluated by the Company to determine if the entity has the power to direct business activities and, therefore, would be considered a controlling interest that the Company would have to consolidate. Based on those evaluations, NJR has determined that it does not have any investments in variable interest entities as of September 30, 2022, 2021 and 2020. Investments in entities over which the Company does not have a controlling financial interest are accounted for either under the equity method or cost method of accounting. Use of Estimates The preparation of financial statements in conformity with GAAP requires the Company to make estimates that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingencies during the reporting period. On a quarterly basis, or more frequently whenever events or changes in circumstances indicate a need, the Company evaluates its estimates, including those related to the calculation of the fair value of derivative instruments, debt, equity method investments, unbilled revenues, allowance for doubtful accounts, provisions for depreciation and amortization, long-lived assets, regulatory assets and liabilities, income taxes, pensions and other postemployment benefits, contingencies related to environmental matters and litigation. ARO are evaluated periodically as required. The Company’s estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Page 74 New Jersey Resources Corporation Part II