REPORTING SEGMENT AND OTHER OPERATIONS DATA

6 Months Ended

Mar. 31, 2020

REPORTING SEGMENT AND OTHER OPERATIONS DATA

15. REPORTING SEGMENT AND OTHER OPERATIONS DATA

The Company organizes its businesses based on a combination of factors, including its products and its regulatory environment. As a result, the Company manages its businesses through the following reporting segments and other operations: the Natural Gas Distribution segment consists of regulated energy and off-system, capacity and storage management operations; the Clean Energy Ventures segment consists of capital investments in clean energy projects; the Energy Services segment consists of unregulated wholesale and retail energy operations; the Midstream segment consists of the Company’s investments in natural gas transportation and storage facilities; the Home Services and Other operations consist of heating, cooling and water appliance sales, installations and services, other investments and general corporate activities.

Information related to the Company's various reporting segments and other operations is detailed below:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2020			2019			2020			2019
Operating revenues
Natural Gas Distribution
External customers	$	297,220		$	301,420		$	516,843		$	501,385
Clean Energy Ventures
External customers	5,995			11,360			12,207			26,257
Energy Services
External customers ⁽¹⁾	313,959			541,794			682,263			1,126,754
Intercompany	(258		)	6,031			1,853			8,338
Midstream
External customers	10,401			—			18,806			—
Intercompany	675			—			1,342			—
Subtotal	627,992			860,605			1,233,314			1,662,734
Home Services and Other
External customers	12,039			11,681			24,531			23,626
Intercompany	326			652			741			1,197
Eliminations	(743		)	(6,683		)	(3,936		)	(9,535		)
Total	$	639,614		$	866,255		$	1,254,650		$	1,678,022
Depreciation and amortization
Natural Gas Distribution	$	18,100		$	13,972		$	34,917		$	27,868
Clean Energy Ventures	9,871			8,091			19,308			16,014
Energy Services ⁽²⁾	27			25			56			52
Midstream	2,397			2			4,078			3
Subtotal	30,395			22,090			58,359			43,937
Home Services and Other	250			222			496			443
Eliminations	139			(1		)	(313		)	(237		)
Total	$	30,784		$	22,311		$	58,542		$	44,143
Interest income ⁽³⁾
Natural Gas Distribution	$	136		$	181		$	243		$	380
Energy Services	52			14			89			14
Midstream	2,085			945			2,782			2,001
Subtotal	2,273			1,140			3,114			2,395
Home Services and Other	208			669			699			1,105
Eliminations	(760		)	(1,390		)	(1,906		)	(2,882		)
Total	$	1,721		$	419		$	1,907		$	618


(1)	Includes sales to Canada for the Energy Services segment, which are immaterial.


(2)	The amortization of acquired wholesale energy contracts is excluded above and is included in gas purchases - nonutility on the Unaudited Condensed Consolidated Statements of Operations.


(3)	Included in other income, net on the Unaudited Condensed Consolidated Statements of Operations.



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2020			2019			2020			2019
Interest expense, net of capitalized interest
Natural Gas Distribution	$	7,473		$	5,762		$	15,305		$	11,865
Clean Energy Ventures	4,835			4,657			9,327			10,085
Energy Services	937			1,624			2,163			3,511
Midstream	5,621			565			8,443			1,108
Subtotal	18,866			12,608			35,238			26,569
Home Services and Other	565			611			837			1,003
Eliminations	(228		)	(710		)	(802		)	(1,577		)
Total	$	19,203		$	12,509		$	35,273		$	25,995
Income tax provision (benefit)
Natural Gas Distribution	$	19,702		$	12,266		$	28,337		$	18,096
Clean Energy Ventures	(22,061		)	(14,042		)	(42,625		)	(37,246		)
Energy Services	(2,449		)	(1,388		)	8,303			8,256
Midstream	1,105			1,219			1,807			2,181
Subtotal	(3,703		)	(1,945		)	(4,178		)	(8,713		)
Home Services and Other	1,956			(659		)	2,175			(851		)
Eliminations	104			(348		)	101			(349		)
Total	$	(1,643	)	$	(2,952	)	$	(1,902	)	$	(9,913	)
Equity in earnings of affiliates
Midstream	$	3,921		$	3,998		$	7,585		$	7,799
Eliminations	(332		)	(627		)	(607		)	(1,267		)
Total	$	3,589		$	3,371		$	6,978		$	6,532
Net financial earnings (loss)
Natural Gas Distribution	$	86,336		$	68,546		$	130,192		$	100,259
Clean Energy Ventures	15,990			21,730			11,074			31,935
Energy Services	313			19,304			(2,598		)	27,674
Midstream	4,258			4,498			7,262			8,149
Subtotal	106,897			114,078			145,930			168,017
Home Services and Other	148			(1,581		)	1,257			(1,505		)
Eliminations	(109		)	(80		)	154			(2		)
Total	$	106,936		$	112,417		$	147,341		$	166,510
Capital expenditures
Natural Gas Distribution	$	72,042		$	79,341		$	149,839		$	139,096
Clean Energy Ventures	24,087			20,394			69,786			52,520
Midstream	5,148			(1,689		)	7,709			—
Subtotal	101,277			98,046			227,334			191,616
Home Services and Other	(111		)	5,055			15			5,786
Total	$	101,166		$	103,101		$	227,349		$	197,402
Investments in equity investees
Midstream	$	757		$	1,457		$	1,266		$	1,457
Total	$	757		$	1,457		$	1,266		$	1,457

The Chief Executive Officer, who uses NFE as a measure of profit or loss in measuring the results of the Company's segments and operations, is the chief operating decision maker of the Company. A reconciliation of consolidated NFE to consolidated net income is as follows:



	Three Months Ended						Six Months Ended
	March 31,						March 31,
(Thousands)	2020			2019			2020			2019
Net financial earnings	$	106,936		$	112,417		$	147,341		$	166,510
Less:
Unrealized (gain) loss on derivative instruments and related transactions	(3,773		)	10,226			(45,539		)	(707		)
Tax effect	897			(2,435		)	10,828			149
Effects of economic hedging related to natural gas inventory	14,622			22,367			5,735			756
Tax effect	(3,475		)	(5,316		)	(1,363		)	(180		)
NFE tax adjustment	10,160			14,002			(186		)	6,671
Net income	$	88,505		$	73,573		$	177,866		$	159,821

The Company uses derivative instruments as economic hedges of purchases and sales of physical gas inventory. For GAAP purposes, these derivatives are recorded at fair value and related changes in fair value are included in reported earnings. Revenues and cost of gas related to physical gas flow is recognized when the gas is delivered to customers. Consequently, there is a mismatch in the timing of earnings recognition between the economic hedges and physical gas flows. Timing differences occur in two ways:


•	unrealized gains and losses on derivatives are recognized in reported earnings in periods prior to physical gas inventory flows; and


•	unrealized gains and losses of prior periods are reclassified as realized gains and losses when derivatives are settled in the same period as physical gas inventory movements occur.

NFE is a measure of the earnings based on eliminating these timing differences, to effectively match the earnings effects of the economic hedges with the physical sale of gas, SRECs and foreign currency contracts. Consequently, to reconcile between net income and NFE, current period unrealized gains and losses on the derivatives are excluded from NFE as a reconciling item. Additionally, realized derivative gains and losses are also included in current period net income. However, NFE includes only realized gains and losses related to natural gas sold out of inventory, effectively matching the full earnings effects of the derivatives with realized margins on physical gas flows. Included in the tax effects are current and deferred income tax expense corresponding with the NFE. NJR also calculates a quarterly tax adjustment based on an estimated annual effective tax rate for NFE purposes.

The Company's assets for the various business segments and business operations are detailed below:



(Thousands)	March 31, 2020			September 30, 2019
Assets at end of period:
Natural Gas Distribution	$	3,243,556		$	3,064,309
Clean Energy Ventures	969,545			864,323
Energy Services	208,562			290,847
Midstream	808,760			240,955
Subtotal	5,230,423			4,460,434
Home Services and Other	134,113			104,411
Intercompany assets⁽¹⁾	(209,337		)	(191,860		)
Total	$	5,155,199		$	4,372,985

(1)

Consists of transactions between subsidiaries that are eliminated and reclassified in consolidation.