UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES ACT OF 1934
For the quarterly period ended March 31, 1997
OR
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 1-8353
NUI CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-1869941
(State of incorporation) (IRS employer identification no.)
550 Route 202-206, PO Box 760, Bedminster, New Jersey
07921-0760
(Address of principal executive offices, including zip code)
(908) 781-0500
(Registrant's telephone number, including area code)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the
registrant's classes of common stock, as of April 30, 1997:
Common Stock, No Par Value: 11,290,679 shares outstanding.<PAGE>
<TABLE>
NUI Corporation and Subsidiaries
Consolidated Statement of Income (Unaudited)
(Dollars in thousands, except per share amounts)
<CAPTION>
Three Months Six Months Twelve Months
Ended Ended Ended
March 31 March 31 March 31
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Operating Margins
Operating revenues $204,077 $170,963 $355,945 $295,730 $529,714 $418,573
Less - Purchased gas
and fuel 131,834 96,356 226,335 164,660 329,798 221,819
Gross receipts and
franchise taxes 13,474 15,394 23,935 26,603 34,259 36,231
------ ------ ------ ------ ------ ------
58,769 59,213 105,675 104,467 165,657 160,523
------ ------ ------- ------- ------- -------
Other Operating Expenses
Operations and
maintenance 22,433 24,250 47,444 47,078 94,716 90,364
Depreciation and
amortization 5,496 5,329 11,276 10,942 21,623 20,743
Other taxes 2,771 2,445 4,968 4,314 8,784 8,162
Income taxes 8,401 8,019 11,552 11,554 7,805 8,140
------ ------ ------ ------ ------ ------
39,101 40,043 75,240 73,888 132,928 127,409
------ ------ ------ ------ ------- -------
Operating Income 19,668 19,170 30,435 30,579 32,729 33,114
Other Income and Expense,
Net 119 26 653 108 1,105 310
Interest Expense 4,474 4,740 9,002 9,786 17,754 19,536
------ ------ ------ ------ ------ ------
Net Income $15,313 $14,456 $22,086 $20,901 $16,080 $13,888
====== ====== ====== ====== ====== ======
Net Income Per Share of
Common Stock $1.37 $1.58 $1.98 $2.29 $1.49 $1.52
==== ==== ==== ==== ==== ====<PAGE>
Dividends Per Share of
Common Stock $0.235 $0.225 $0.47 $0.45 $0.92 $0.90
===== ===== ===== ===== ===== =====
Weighted Average Number
of Shares of Common
Stock Outstanding 11,203,493 9,143,299 11,143,707 9,144,120 10,818,982 9,149,302
========== ========= ========== ========= ========== =========
</TABLE>
See the notes to the consolidated financial statements
1<PAGE>
NUI Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in thousands)
March 31, September 30,
1997 1996
(Unaudited) (*)
ASSETS
Utility Plant
Utility plant, at original cost $653,055 $631,194
Accumulated depreciation and
and amortization (209,189) (200,456)
Unamortized plant acquisition
adjustments 33,039 33,572
------- -------
476,905 464,310
------- -------
Funds for Construction Held by
Trustee 36,454 44,652
------- -------
Investments in Marketable
Securities, at market 2,205 4,417
------- -------
Current Assets
Cash and cash equivalents 5,848 3,736
Accounts receivable (less
allowance for doubtful accounts
of $3,561 and $2,288, respectively) 91,867 43,589
Fuel inventories, at average cost 8,270 29,191
Unrecovered purchased gas costs 13,984 6,987
Prepayments and other 26,292 18,542
------- -------
146,261 102,045
------- -------
Other Assets
Regulatory assets 53,381 52,439
Deferred charges 9,301 9,799
------- -------
62,682 62,238
------- -------
$724,507 $677,662
======= =======
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $199,685 $179,107
Preferred stock - -
Long-term debt 230,100 230,100
------- -------
429,785 409,207
------- -------
Capital Lease Obligations 9,809 10,503
------- -------
Current Liabilities
Current portion of long-term debt
and capital lease obligations 1,473 2,546
Notes payable to banks 75,687 54,895
Accounts payable, customer deposits
and accrued liabilities 65,014 66,372
Federal income and other taxes 11,510 2,947
------- -------
153,684 126,760
------- -------
Deferred Credits and Other Liabilities
Deferred Federal income taxes 60,080 59,328
Unamortized investment tax credits 6,403 6,635
Environmental remediation reserve 33,981 33,981
Regulatory and other liabilities 30,765 31,248
------- -------
131,229 131,192
------- -------
$724,507 $677,662
======= =======
*Derived from audited financial statements
See the notes to consolidated financial statements
2<PAGE>
NUI Corporation and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)
Six Months Twelve Months
Ended Ended
March 31, March 31,
1997 1996 1997 1996
Operating Activities
Net income $22,086 $20,901 $16,080 $13,886
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Depreciation and amortization 11,798 11,408 22,706 21,796
Deferred Federal income taxes 915 2,097 6,387 3,660
Amortization of deferred
investment tax credits (232) (234) (465) (467)
Other 1,809 3,221 3,205 5,063
Effect of changes in:
Accounts receivable, net (48,279) (54,917) (6,733) (23,548)
Fuel inventories 20,921 22,829 (3,470) 2,204
Accounts payable, deposits
and accruals (1,358) 10,748 (3,796) 13,559
Over (under) recovered
purchased gas costs (6,996) (315) (18,561) (17,031)
Gross receipts and
franchise taxes (6,128) 22,619 (27,204) (1,073)
Other 4,420 4,730 (9,748) 3,668
------ ------ ------ ------
Net cash (used in) provided
by operating activities (1,044) 43,087 (21,601) (21,717)
------ ------ ------ ------
Financing Activities
Proceeds from sales of common
stock, net of treasury
stock purchased 2,582 - 33,953 (558)
Dividends to shareholders (5,250) (4,170) (9,780) (8,317)
Proceeds from issuance of
long-term debt - - 39,000 20,000
Funds for construction held
by trustee, net 9,299 376 (20,126) 3,853
Repayments of long-term debt (950) (67) (31,021) (9,905)
Principal payments under
capital lease obligations (969) (1,194) (1,604) (2,087)
Net short-term borrowings
(repayments) 20,792 (19,730) 57,482 6,630
------ ------ ------ ------
Net cash provided by (used
in) financing activities 25,504 (24,785) 67,904 9,616
------ ------ ------ ------
Investing Activities
Cash expenditures for
utility plant (23,360) (15,904) (44,509) (32,890)
Other 1,012 (555) (1,390) (604)
----- ------ ------ ------
Net cash used in investing
activities (22,348) (16,459) (45,899) (33,494)
------ ------ ------ ------
Net increase (decrease) in
cash and cash equivalents $2,112 $1,843 $ 404 $(2,161)
====== ====== ====== ======
Cash and Cash Equivalents
At beginning of period $3,736 $3,601 $5,444 $7,605
At end of period $5,848 5,444 5,848 5,444
Supplemental Disclosures of
Cash Flows
Income taxes paid (refunds
received), net $2,078 $ 375 $ 4,315 $(1,129)
Interest paid $9,605 $10,506 $17,753 $17,436
See the notes to the consolidated financial statements
3<PAGE>
NUI Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
1.Basis of Presentation
The consolidated financial statements include all operating divisions
and subsidiaries of NUI Corporation (collectively referred to as "NUI"
or the "Company"). The Company distributes and sells natural gas and
related services in six states through its Northern and Southern utility
divisions. The Northern Division operates in New Jersey as Elizabethtown
Gas Company. The Southern Division operates in five states as City Gas
Company of Florida, North Carolina Gas Service, Elkton Gas Service
(Maryland), Valley Cities Gas Service (Pennsylvania) and Waverly Gas
Service (New York). In addition to gas distribution operations, the
Company provides gas sales and related services through its NUI Energy,
Inc. subsidiary; wholesale energy brokerage and related services through
its NUI Energy Brokers, Inc. subsidiary, and bill processing and related
customer services for utilities and municipalities through its Utility
Business Services, Inc. subsidiary.
The consolidated financial statements contained herein have been
prepared without audit in accordance with the rules and regulations of
the Securities and Exchange Commission and reflect all adjustments
which, in the opinion of management, are necessary for a fair statement
of the results for interim periods. All adjustments made were of a
normal recurring nature. The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the notes thereto that are included in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1996.
Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
The Company is subject to regulation as an operating utility by the
public utility commissions of the states in which it operates. Because
of the seasonal nature of gas utility operations, the results for
interim periods are not necessarily indicative of the results for an
entire year.
The Company utilizes natural gas futures contracts, some of which extend
beyond one year, for the purpose of hedging the risks associated with
fluctuating prices on forward contracts for the purchase and sale of
natural gas. The Company's subsidiary, NUI Energy Brokers, Inc., records
unrealized gains and losses by marking to market its various financial
and forward commitments. The current value of these contracts is not
material to the financial statements.
2.Common Shareholders' Equity
The components of common shareholders' equity were as follows (dollars
in thousands):<PAGE>
March 31, September 30,
1997 1996
Common stock, no par value $175,931 $171,968
Shares held in treasury (1,619) (1,564)
Retained earnings 27,021 10,117
Unrealized gain (loss) on marketable securities (103) 389
Unearned employee compensation (1,545) (1,803)
------- -------
Total common shareholders' equity $199,685 $179,107
======= =======
3. Purchase of Interest in T.I.C. Enterprises, Inc.
On February, 17, 1997, NUI entered into an LLC Interest Purchase
Agreement (the "Agreement") with T.I.C. Enterprises, Inc. (T.I.C.) and
its sole shareholder. Under the terms of this Agreement, NUI will
acquire a 49% interest in T.I.C. Enterprises, LLC, a newly formed
limited liability company that will continue the business of T.I.C., for
a purchase price of $22 million. The Agreement also includes an
additional incentive payment up to a maximum of $5.2 million to the sole
shareholder if T.I.C.'s fiscal 1997 earnings, before interest and taxes,
exceed $5 million. In addition, NUI has the option, during the period
beginning April 2001 (subject to a one-year extension by the seller), to
purchase the remaining 51% interest in T.I.C.
T.I.C. engages in the business of recruiting, training and managing
sales professionals and serving as sales and marketing representatives
for various businesses, including the Company's subsidiary, NUI Energy,
Inc. The purchase is expected to close in May 1997 and will be
accounted for under the equity method. The excess of the purchase price
over the Company's share of the underlying equity in net assets is
estimated at approximately $20 million, which is expected to be
amortized on a straight line basis over a period ranging from 15 to 20
years.
4. New Accounting Standard
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share"(SFAS 128). This statement supersedes APB Opinion No. 15,
"Earnings per Share" and basically simplifies the computation of
earnings per share. SFAS 128 will be effective for financial statements
for both interim and annual periods ending after December 15, 1997. The
Company does not expect the effect of adopting SFAS No. 128 to have a
material effect on its calculation of earnings per share.
5. Contingencies
Environmental Matters. The Company is subject to federal and state laws
with respect to water, air quality, solid waste disposal and employee
health and safety matters, and to environmental regulations issued by
the United States Environmental Protection Agency (the "EPA"), the New
Jersey Department of Environmental Protection (the "NJDEP") and other
federal and state agencies.<PAGE>
The Company owns, or previously owned, certain properties on which
manufactured gas plants ("MGP") were operated by the Company or by other
parties in the past. Coal tar residues are present on the six MGP sites
located in the Northern Division. The Company has reported the presence
of the six MGP sites to the EPA, the NJDEP and the New Jersey Board of
Public Utilities ("NJBPU"). In 1991, the NJDEP issued an Administrative
Consent Order for an MGP site located at South Street in Elizabeth, New
Jersey, wherein the Company agreed to conduct a remedial investigation
and to design and implement a remediation plan. In 1992 and 1993, the
Company entered into a Memorandum of Agreement with the NJDEP for each
of the other five Northern Division MGP sites. Pursuant to the terms and
conditions of the Administrative Consent Order and the Memoranda of
Agreement, the Company is conducting remedial activities at all six
sites with oversight from the NJDEP.
The Southern Division owned ten former MGP facilities, only three of
which it currently owns. The former MGP sites are located in the states
of North Carolina, South Carolina, Pennsylvania, New York and Maryland.
The Company has joined with other North Carolina utilities to form the
North Carolina Manufactured Gas Plant Group (the "MGP Group"). The MGP
Group has entered into a Memorandum of Understanding with the North
Carolina Department of Environment, Health and Natural Resources
("NCDEHNR") to develop a uniform program and framework for the
investigation and remediation of MGP sites in North Carolina. The
Memorandum of Understanding contemplates that the actual investigation
and remediation of specific sites will be addressed pursuant to
Administrative Consent Orders between the NCDEHNR and the responsible
parties. The NCDEHNR has recently sought the investigation and
remediation of sites owned by members of the MGP Group and has entered
into Administrative Consent Orders with respect to four such sites.
None of these four sites are currently or were previously owned by the
Southern Division.
The Company, with the aid of environmental consultants, regularly
assesses the potential future costs associated with conducting
investigative activities at each of the Company's sites and implementing
appropriate remedial actions, as well as the likelihood of whether such
actions will be necessary. The Company records a reserve if it is
probable that a liability will be incurred and the amount of the
liability is reasonably estimable. Based on the Company's most recent
assessment, the Company has recorded a total reserve for environmental
investigation and remediation costs of approximately $34 million, which
the Company expects to expend during the next twenty years. The reserve
is net of approximately $4 million which will be borne by a prior owner
and operator of two of the Northern Division sites in accordance with a
cost sharing agreement. Of this approximate $34 million reserve,
approximately $30 million relates to Northern Division MGP sites and
approximately $4 million relates to Southern Division MGP sites.
However, the Company believes that it is possible that costs associated
with conducting investigative activities and implementing remedial
activities, if necessary, with respect to all of its MGP sites may
exceed the approximately $34 million reserve by an amount that could
range up to $24 million and be incurred during a future period of time
that may range up to fifty years. Of this $24 million in additional
possible future expenditures, approximately $12 million relates to the
Northern Division MGP sites and approximately $12 million relates to the
Southern Division MGP sites. As compared with the approximately $34
million reserve discussed above, the Company believes that it is less
likely that this additional $24 million will be incurred and therefore
has not recorded it on its books.<PAGE>
The Company's prudently incurred remediation costs for the Northern
Division MGP sites have been authorized by the NJBPU to be recoverable
in rates. The Company also believes that a portion of such costs may be
recoverable from the Company's insurance carriers. The most recent base
rate order for the Northern Division permits the Company to utilize full
deferred accounting for expenditures related to MGP sites. The order
also provides for the recovery of $130,000 annually of MGP related
expenditures incurred prior to the rate order. Accordingly, the Company
has recorded a regulatory asset of approximately $34 million as of March
31, 1997, reflecting the future recovery of environmental remediation
liabilities related to the Northern Division MGP sites. The Company is
also able to recover actual MGP expenses over a rolling seven year
period through its MGP Remediation Adjustment Clause ("RAC"). On
September 3, 1996, the Company made its initial filing under the RAC to
begin recovery of environmental costs incurred from inception through
June 30, 1996. The NJBPU approved the filing on April 2, 1997 at which
time the Company began recovery of approximately $3.1 million of costs.
With respect to costs associated with the Southern Division MGP sites,
the Company intends to pursue recovery from ratepayers, former owners
and operators, and insurance carriers, although the Company is not able
to express a belief as to whether any or all of these recovery efforts
will be successful. The Company is working with the regulatory agencies
to prudently manage its MGP costs so as to mitigate the impact of such
costs on both ratepayers and shareholders.
Other. The Company is involved in various claims and litigation
incidental to its business. In the opinion of management, none of these
claims and litigation will have a material adverse effect on the
Company's results of operations or its financial condition.<PAGE>
<TABLE>
NUI Corporation and Subsidiaries
Summary Consolidated Operating Data
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
(Dollars in thousands)
Firm Sales:
Residential $ 82,374 $ 83,746 $140,745 $140,355 $194,231 $186,635
Commercial 42,374 41,265 73,772 72,759 108,457 99,673
Industrial 8,566 9,221 14,511 14,877 24,955 22,535
Interruptible Sales 15,357 11,797 30,196 23,498 57,348 48,401
Unregulated Sales 43,824 15,663 74,674 25,621 104,419 27,868
Transportation Services 8,014 5,894 14,776 11,689 26,174 20,707
Customer Service, Appliance
Leasing and
Other 3,568 3,377 7,272 6,931 14,130 12,754
------- ------- -------- ------- ------ ------
$204,077 $170,963 $355,945 $295,730 $529,714 $418,573
======= ======= ======= ======= ======= =======
Gas Sold or Transported
(MMcf)
Firm Sales:
Residential 9,845 10,957 16,978 18,592 23,196 24,031
Commercial 5,741 6,853 10,174 11,981 14,768 16,638
Industrial 1,343 1,749 2,713 3,145 4,975 5,425
Interruptible Sales 3,725 3,024 7,433 6,779 15,286 16,731
Unregulated Sales 13,645 4,481 24,141 8,261 35,055 9,269
Transportation Services 8,316 5,169 14,817 12,485 27,383 23,579
------ ------ ------ ------ ------ ------
42,615 32,233 76,256 61,243 120,663 95,673
====== ====== ====== ====== ======= ======
Average Utility Customers
Served
Firm:
Residential 337,629 333,711 335,670 332,561 333,995 330,358
Commercial 24,083 24,743 24,413 24,655 24,363 24,717
Industrial 287 345 316 348 322 373
Interruptible 111 135 123 132 116 136
Transportation 1,954 578 1,266 516 1,043 370
------ ------ ------ ------ ------ ------
364,064 359,512 361,788 358,212 359,839 355,954
======= ======= ======= ======= ======= =======
Degree Days in New Jersey
Actual 2,497 2,829 4,243 4,715 4,871 5,269
Normal 2,673 2,690 4,398 4,415 4,978 4,978
Percentage variance from 7% 5% 4% 7% 2% 6%
normal warmer colder warmer colder warmer colder
Employees (period end) 1,107 1,070
Ratio of Earnings to Fixed
Charges (Twelve months only) 2.07 1.99
</TABLE>
NUI Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis refers to all operating divisions
and subsidiaries of NUI Corporation (collectively referred to as the
"Company"). The Company distributes and sells natural gas in six states
through its Northern and Southern utility divisions. The Northern
Division operates in New Jersey as Elizabethtown Gas Company. The
Southern Division operates in five states as City Gas Company of
Florida, North Carolina Gas Service, Elkton Gas Service (Maryland),
Valley Cities Gas Service (Pennsylvania) and Waverly Gas Service (New
York). In addition to gas distribution operations, the Company provides
retail gas sales and related services through its NUI Energy, Inc.
subsidiary; wholesale energy brokerage and related services through its
NUI Energy Brokers, Inc. subsidiary; and bill processing and related
customer services for utilities and municipalities through its Utility
Business Services, Inc. subsidiary. Because of the seasonal nature of
gas utility operations, the results for interim periods are not
necessarily indicative of the results for an entire year.
Results of Operations
Three-Month Periods Ended March 31, 1997 and 1996
Net Income. Net income for the three-month period ended March 31, 1997
was $15.3 million, or $1.37 per share, as compared with net income of
$14.5 million, or $1.58 per share, for the three-month period ended
March 31, 1996. The increase in the current period was primarily the
result of lower operations and maintenance and interest expenses,
partially offset by lower operating margins.
Net income per share in the current period was affected by the increased
number of outstanding shares of common stock over the prior period,
principally reflecting the Company's issuance of 1.8 million additional
shares in May 1996.
Operating Revenues and Operating Margins. The Company's operating
revenues include amounts billed for the cost of purchased gas pursuant
to purchased gas adjustment clauses. Such clauses enable the Company to
pass through to its customers, via periodic adjustments to customers'
bills, increased or decreased costs incurred by the Company for
purchased gas without affecting operating margins. Since the Company's
utility operations do not earn a profit on the gas commodity element of
its revenues, the Company's level of operating revenues is not
necessarily indicative of financial performance. The Company's operating
revenues increased by $33.1 million, or 19%, for the three-month period
ended March 31, 1997 as compared with the three-month period ended March
31, 1996, principally due to an increase of approximately $28 million in
unregulated revenues due to greater activity in these operations.
Operating revenues also increased by the effect of purchased gas cost
adjustment clauses, increased revenues from interruptible customers due
to higher gas prices incurred, a base rate increase in the Company's
Florida service territory (see "Regulatory Matters") and customer
growth. These increases were partially offset by the effect of warmer
weather in the 1997 period in all of the Company's service territories.<PAGE>
The Company's operating margins decreased by $0.4 million, or 1%, for
the three-month period ended March 31, 1997 as compared with the three-
month period ended March 31, 1996. The decrease principally reflects the
effects of warmer weather in all of the Company's service territories,
part of which was not fully recovered from customers through the
Company's weather normalization clauses. Operating margins also
decreased due to the effect of significantly lower rates billed to
certain of the Company's Florida customers for its energy conservation
programs. The Company is allowed to pass through to its customers costs
incurred for various energy conservation programs. The Company does not
earn a profit on these billings as operations expense is charged or
credited for any difference between amounts billed to customers and
amounts actually incurred. These decreases were partially offset by
higher margins on sales by the Company's unregulated operations, the
effect of a base rate increase in Florida and customer growth. The
Company has weather normalization clauses in its New Jersey and North
Carolina tariffs which are designed to help stabilize the Company's
results by increasing amounts charged to customers when weather has been
warmer than normal and by decreasing amounts charged when weather has
been colder than normal. As a result of these weather normalization
clauses, operating margins were approximately $1.1 million more in the
1997 period than they would have been without such clauses. In the 1996
period, operating margins were approximately $1.0 million less than they
otherwise would have been without such clauses.
Other Operating Expenses. The Company's other operating expenses,
excluding income taxes, decreased by approximately $1.3 million, or 4%,
for the three-month period ended March 31, 1997 as compared with the
three-month period ended March 31, 1996. The decrease was primarily the
result of the capitalization of costs associated with the development
and implementation of new information technology, which will enhance
productivity long-term, lower pension expense and lower expenses charged
for the Company's energy conservation programs (see "Operating Revenues
and Margins"). These decreases were partially offset by additional
expenses related to the growth in the Company's unregulated operations.
The increase in income taxes for the three-month period ended March 31,
1997 as compared with the three-month period ended March 31, 1996, was
principally due to the effect of higher pre-tax income.
Interest Expense. Interest expense decreased by approximately $0.3
million for the three-month period ended March 31, 1997 as compared with
the three-month period ended March 31, 1996. The decrease principally
reflects lower average long-term borrowings as a result of the repayment
of amounts outstanding under the Company's $30 million credit agreement
in May 1996, partially offset by an increase in short-term interest
expense due to higher average borrowings.
Six-Month Periods Ended March 31, 1997 and 1996
Net Income. Net income for the six-month period ended March 31, 1997
was $22.1 million, or $1.98 per share, as compared with net income of
$20.9 million, or $2.29 per share, for the six-month period ended March
31, 1996. The increase in the current period was primarily due to higher
operating margins, higher other income and lower interest expense. These
increases were partially offset by higher other taxes, operations and
maintenance, and depreciation expenses.
Net income per share in the current period was affected by the increased
number of outstanding shares of common stock over the prior period,
principally reflecting the Company's issuance of 1.8 million additional
shares in May 1996.
Operating Revenues and Operating Margins. The Company's operating
revenues increased by $60.2 million, or 20%, for the six-month period
ended March 31, 1997 as compared with the six-month period ended March
31, 1996. The increase was principally due to an increase of
approximately $49 million in unregulated revenues due to greater
activity in these operations, the effect of purchased gas adjustment
clauses, increased revenues from interruptible customers due to higher
gas prices incurred, a base rate increase in the Company's Florida
service territory, increased customer service revenues and customer
growth. These increases were partially offset by the effect of warmer
weather in the 1997 period in all of the Company's service territories.
The Company's operating margins increased by $1.2 million for the six-
month period ended March 31, 1997 as compared with the six-month period
ended March 31, 1996. The increase principally reflects higher margins
on sales by the Company's unregulated operations, including $0.7 million
of net realized and unrealized gains recognized on financial and forward
commitments by NUI Energy Brokers, Inc. (see Note 1 of the Notes to the
Consolidated Financial Statements). Operating margins were also
increased due to the effect of the rate case in Florida, higher customer
service revenues and customer growth. These increases were partially
offset by the effect of warmer weather in the 1997 period in all of the
Company's service territories, part of which was not fully recovered
from customers under weather normalization clauses and lower amounts
billed to the Company's Florida customers for its energy conservation
program. As a result of weather normalization clauses, operating margins
were approximately $1.0 million higher than they would have been without
such clauses. For the six-month period ended March 31, 1996, operating
margins were $2.1 million less than they would have been without such
clauses.
Other Operating Expenses. The Company's other operating expenses,
excluding income taxes, increased by approximately $1.4 million, or 2%,
for the six-month period ended March 31, 1997 as compared with the six-
month period ended March 31, 1996. The increase in operations and
maintenance expenses was primarily the result of expenses incurred to
consolidate two of the Company's New Jersey service facilities and
additional expenses related to the growth in the Company's unregulated
operations. These increases were partially offset by the capitalization
of costs associated with the development and implementation of new
information technology, lower expenses charged for the Company's energy
conservation programs in Florida and the reversal of certain reserves
which management determined to be no longer required. The increase in
depreciation expense was due to additional plant in service. The
increase in other taxes was due to higher payroll-related taxes as a
result of more employees, and an increase in the unemployment rate
charged by the state of New Jersey.
Other Income and (Expense), Net. Other income and expense, net
increased approximately $0.5 million for the six-month period ended
March 31, 1997 as compared with the six-month period ended March 31,
1996. The increase was principally due to the sale of certain marketable
securities resulting in a net realized gain of $0.7 million.
Interest Expense. Interest expense decreased by approximately $0.8
million for the six-month period ended March 31, 1997 as compared with
the six-month period ended March 31, 1996, for the same reasons as
discussed in the "Three-Month Periods Ended March 31, 1997 and 1996"
section.
Twelve-Month Periods Ended March 31, 1997 and 1996
Net Income. Net income for the twelve-month period ended March 31, 1997
was $16.1 million, or $1.49 per share, as compared with $13.9 million,
or $1.52 per share, for the twelve-month period ended March 31, 1996.
The increase in the current period was primarily due to higher operating
margins, higher other income and lower interest expense. These increases
were partially offset by higher operations and maintenance, depreciation
and other taxes expenses.
Net income per share in the current period was affected by the increased
number of outstanding shares of common stock over the prior period,
principally reflecting the Company's issuance of 1.8 million additional
shares in May 1996.
Operating Revenues and Operating Margins. The Company's operating
revenues for the twelve-month period ended March 31, 1997 increased
approximately $111.1 million, or 27%, as compared with the twelve-month
period ended March 31, 1996. The increase was primarily due to an
increase in unregulated sales of approximately $77 million, the effects
of purchased gas adjustment clauses, increased revenues from
interruptible customers due to higher gas prices incurred, increased
customer service revenues, a base rate increase in Florida and customer
growth. These increases were partially offset by warmer weather in the
current period in all of the Company's service territories.
The Company's operating margins increased by $5.1 million, or 3%, for
the twelve-month period ended March 31, 1997 as compared with the
twelve-month period ended March 31, 1996. The increase was principally
the result of higher margins on sales by the Company's unregulated
operations, higher customer service revenues, the base rate increase in
Florida and increases in the number of customers served. As a result of
weather normalization clauses, operating margins were approximately $1.1
million more in the 1997 period than they would have been without such
clauses. For the twelve-month period ended March 31, 1996, operating
margins were $2.1 million less than they would have been without such
clauses.
Other Operating Expenses. The Company's other operating expenses,
excluding income taxes, increased by approximately $5.9 million, or 5%,
for the twelve-month period ended March 31, 1997 as compared with the
twelve-month period ended March 31, 1996. The increase was primarily due
to additional expenses related to the start-up and growth of the
Company's unregulated operations, and expenses incurred to consolidate
two of the Company's New Jersey service facilities. These increases were
partially offset by the capitalization of software development costs and
the reversal of certain reserves which management determined to be no
longer required. Depreciation expense increased due to additional plant
in service. Other taxes increased due to higher payroll-related taxes as
a result of more employees, and an increase in the unemployment rate
charged by the state of New Jersey.
Interest Expense. Interest expense decreased by $1.8 million, or 9%,
for the 1997 period as compared with the 1996 period primarily due to
lower levels of outstanding borrowings.
Regulatory Matters
On May 13, 1997, the New Jersey Board of Public Utilities (the "NJBPU")
approved an order (replacing an interim order dated December 4, 1996)
authorizing the Northern Division to increase its annual purchased gas
adjustment revenues by approximately $22 million. The increase reflects
the Company's projection for higher gas prices in the coming year.
On October 29, 1996, the Florida Public Service Commission (the "FPSC")
voted to authorize the Company to increase its base rates in Florida by
$3.75 million annually. The rate increase reflects a rate base amounting
to $91.9 million, reflecting the addition of investments in system
improvements and expansion projects. Under the approval, the allowed
return on equity is 11.3% with an overall after-tax rate of return of
7.87%. The Company had been granted interim rate relief of $2.2 million
effective in September 1996. The permanent rate increase, which was
effective in December 1996, includes the interim adjustment.
Financing Activities and Resources
The Company had a net use of cash from operating activities of $1.0
million for the six-month period ended March 31, 1997 as compared with
net cash provided by operating activities of $43.1 million for the six-
month period ended March 31, 1996. The decrease in the current period
was primarily due to the timing of the Company's payment of New Jersey
gross receipts and franchise taxes, which was required in March in the
current year as compared to April in the prior year period, an under-
collection of gas costs through the Company's purchased gas adjustment
clauses and a decrease in cash collections from accounts receivable in
the current period due to warmer weather. For the twelve-month period
ended March 31, 1997, the Company had a net use of cash from operating
activities of $19.4 million as compared with net cash provided by
operating activities of $21.8 million for the twelve-month period ended
March 31, 1996. The decrease was mainly attributable to the reasons
discussed above for the six-month period.
Because the Company's business is highly seasonal, short-term debt is
used to meet seasonal working capital requirements. The Company also
borrows under its bank lines of credit to finance portions of its
capital expenditures, pending refinancing through the issuance of equity
or long-term indebtedness at a later date depending upon prevailing
market conditions.
Short-Term Debt. The weighted average daily amounts outstanding of notes
payable to banks and the weighted average interest rates on those
amounts were $66.3 million at 5.2% for the six-month period ended March
31, 1997 and $45.9 million at 5.9% for the six-month period ended March
31, 1996. The weighted average daily amounts of notes payable to banks
increased principally due to the under-collection of gas through the
Company's purchased gas adjustment clauses as a result of significantly
higher gas prices incurred and to additional borrowings to finance
construction expenditures. At March 31, 1997, the Company had
outstanding notes payable to banks amounting to $75.7 million and
available unused lines of credit amounting to $55.3 million.
Long-Term Debt and Funds for Construction Held by Trustee. In November
1994, the Company filed a shelf registration statement with the
Securities and Exchange Commission for an aggregate of up to $100
million of debt and equity securities. As of March 31, 1997, the Company
has issued $70 million of Medium-Term Notes subject to the shelf
registration statement. While the Company has no present intention to
issue additional securities subject to the shelf registration, such
securities may be issued from time to time, depending upon the Company's
needs and prevailing market conditions.
The Company plans to refinance approximately $55 million of its Gas
Facilities Revenue Bonds pending an improvement in interest rates.
The Company deposits in trust the unexpended portion of the net proceeds
from its Gas Facilities Revenue Bonds until drawn upon for eligible
expenditures. As of March 31, 1997, the total unexpended portions of all
of the Company's Gas Facilities Revenue Bonds were $33.3 million and are
classified on the Company's consolidated balance sheet, including
interest earned thereon, as funds for construction held by trustee.
Common Stock. The Company periodically issues shares of common stock in
connection with NUI Direct, the Company's dividend reinvestment and
stock purchase plan, and various employee benefit plans. The proceeds
from such issuances amounted to approximately $2.6 million during the
six-month period ended March 31, 1997 and were used primarily to reduce
outstanding short-term debt. There were no proceeds during the six-month
period ended March 31, 1996 as the Company purchased shares on the open
market to fulfill the plans' requirements at that time. Under the terms
of these plans, the Company may periodically change the method of
purchasing shares from open market purchases to purchases directly from
the Company, or vice versa.
Dividends. On October 29, 1996, the Company increased its quarterly
dividend to $0.235 per share of common stock. The previously quarterly
rate was $0.225 per share of common stock.
The Company's long-term debt agreements include, among other things,
restrictions as to the payment of cash dividends. Under the most
restrictive of these provisions, the Company is permitted to pay
approximately $47 million of cash dividends at March 31, 1997.
Capital Expenditures and Commitments
Capital expenditures, which consist primarily of expenditures to expand
and upgrade the Company's gas distribution systems, were $23.4 million
for the six-month period ended March 31, 1997 as compared with $14.2
million for the six-month period ended March 31, 1996. Capital
expenditures are expected to be approximately $57 million for all of
fiscal 1997, as compared with a total of $37.1 million in fiscal 1996.
The increase over fiscal 1996 is primarily the result of planned capital
investment related to providing gas or transportation service to new
customers, which is mainly expected to occur in the Company's Southern
Division, and to the Company's investment in new information technology
designed to enhance productivity in the long-term.
The Company owns or previously owned six former manufactured gas plant
("MGP") sites in the Northern Division and ten MGP sites in the Southern
Division. The Company, with the aid of environmental consultants,
regularly assesses the potential future costs associated with conducting
remedial actions, as well as the likelihood of whether such actions will
be necessary. The Company records a reserve if it is probable that a
liability will be incurred and the amount of the liability is reasonably
estimable. Based on the Company's most recent assessment, the Company
has recorded a total reserve for environmental investigation and
remediation costs of approximately $34 million, which the Company
expects it will expend in the next twenty years to remediate the
Company's MGP sites. Of this reserve, approximately $30 million relates
to Northern Division MGP sites and approximately $4 million relates to
Southern Division MGP sites. However, the Company believes that it is
possible that costs associated with conducting investigative activities
and implementing remedial actions, if necessary, with respect to all of
its MGP sites may exceed the approximately $34 million reserve by an
amount that could range up to $24 million and be incurred during a
future period of time that may range up to fifty years. Of this $24
million in possible future expenditures, approximately $12 million
relates to the Northern Division MGP sites and approximately $12 million
relates to the Southern Division MGP sites. As compared with the
approximately $34 million reserve discussed above, the Company believes
that it is less likely that this additional $24 million will be incurred
and therefore has not recorded it on its books. The Company believes
that all costs associated with the Northern Division MGP sites will be
recoverable in rates or from insurance carriers. The Company is also
able to recover actual MGP expenses over a rolling seven-year period
through its MGP Remediation Adjustment Clause ("RAC"). On September 3,
1996, the Company made its initial filing under the RAC to begin
recovery of environmental costs incurred from inception through June
30, 1996. The NJBPU approved the filing on April 2, 1997 at which time
the Company began recovery of approximately $3.1 million of costs. With
respect to costs which may be associated with the Southern Division MGP
sites, the Company intends to pursue recovery from ratepayers, former
owners and operators of the sites and from insurance carriers. However,
the Company is not able at this time to express a belief as to whether
any or all of these recovery efforts related to the Southern Division
MGP sites will ultimately be successful. For a further discussion of
environmental matters, see Note 5 of the Notes to the Consolidated
Financial Statements.
Certain of the Company's long-term contracts for the supply, storage and
delivery of natural gas include fixed charges that amount to
approximately $75 million annually. The Company currently recovers, and
expects to continue to recover, such fixed charges through its purchased
gas adjustment clauses. The Company also is committed to purchase, at
market-related prices, minimum quantities of gas that, in the aggregate,
are approximately 10 billion cubic feet per year or to pay certain costs
in the event the minimum quantities are not taken. The Company expects
that minimum demand on its systems for the duration of these contracts
will continue to exceed these minimum purchase obligations.
The implementation of the Federal Energy Regulatory Commission's
("FERC") Order No. 636 required the restructuring of the Company's
contracts with certain pipeline companies that together supply less than
one-third of the Company's total firm gas supply. Under Order No. 636
the pipeline companies are passing through to their customers transition
costs associated with mandated restructuring, such as costs resulting
from buying out unmarketable gas purchase contracts. The Company has
been charged approximately $11 million of such costs through March 31,
1997. All of such costs have been authorized for recovery through the
Company's purchased gas adjustment clauses, including such costs
incurred by the Company's Pennsylvania operations. On April 24, 1997 the
Company received approval from the Pennsylvania Public Utilities
Commission to recover FERC Order 636 costs effective May 1, 1997. The
Company currently estimates that its remaining Order No. 636 transition
obligation will be approximately $7 million, which it expects to also
recover through the Company's purchased gas adjustment clauses as these
costs are incurred. This transition obligation is subject to possible
future FERC actions based upon filings by the Company's pipeline
suppliers.
The Company prepaid approximately $1 million of long-term debt, without
penalty, associated with its Employee Stock Ownership Plan in January
1997. No other long-term debt is scheduled to be repaid over the next
five years.
Purchase of T.I.C. Enterprises, Inc.
On February, 17, 1997, NUI entered into an LLC Interest Purchase
Agreement (the "Agreement") by and among T.I.C. Enterprises, Inc.
(T.I.C.) and its sole shareholder. Under the terms of this Agreement,
NUI will acquire a 49% interest in T.I.C. Enterprises, LLC, a newly
formed limited liability company that will continue the business of
T.I.C., for a purchase price of $22 million. The Agreement also includes
an additional incentive payment up to a maximum of $5.2 million to the
sole shareholder if T.I.C.'s fiscal 1997 earnings, before interest and
taxes, exceed $5 million. In addition, NUI has the option, during the
period beginning April 2001 (subject to a one-year extension by the
seller), to purchase the remaining 51% interest in T.I.C.
T.I.C. engages in the business of recruiting, training and managing
sales professionals and serving as sales and marketing representatives
for various businesses, including the Company's subsidiary, NUI Energy,
Inc. The purchase is expected to close in May 1997 and will be
accounted for under the equity method. The excess of the purchase price
over the Company's share of the underlying equity in net assets is
estimated at approximately $20 million, which is expected to be
amortized on a straight line basis over a period ranging from 15 to 20
years. The Company plans to finance this purchase with proceeds from
short-term debt pending refinancing with proceeds from a common stock
offering in September 1997.<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The following matters were presented for submission to a vote of
security holders through the solicitation of proxies or otherwise during
the second quarter of fiscal 1997.
The Annual Meeting of Shareholders of NUI Corporation was held on March
11, 1997. Proxies for the Annual Meeting were solicited pursuant to
Regulation 14A and there was no solicitation in opposition to
management's nominees. At the meeting, the shareholders elected
directors and ratified the appointment of independent public
accountants.
The total votes were as follows: Against or
For Withheld Abstain
(1) Election of directors to
serve for three-year terms:
James J. Forese 9,913,519 177,157
R. Van Whisnand 9,915,356 175,320
(2) Ratification of the appointment
of Arthur Andersen LLP as
independent public accountants 9,620,897 418,764 51,015
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
No. Description of Exhibit Reference
27 Financial Data Schedule Filed herewith
(b) Reports on Form 8-K
On February 26, 1997, the Company filed a Form 8-K, Item 5, Other
Events, reporting the signing of a definitive agreement to acquire a 49
percent interest in T. I. C. Enterprises, Inc.<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NUI CORPORATION
JOHN KEAN, JR.
May 15, 1997 President and Chief
Executive Officer
STEPHEN M. LIASKOS
May 15, 19971 Vice President and
Controller
(Principal Accounting
Officer)<PAGE>
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