UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the quarterly period ended March 31, 1998
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, 1998: Common Stock, No
Par Value: 12,636,331 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
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Operating Margins
Operating revenues $258,798 $204,483 $494,736 $355,987 $747,387 $529,714
Less - Purchased gas and
fuel 191,761 132,239 367,424 226,335 543,012 329,798
Energy taxes 4,442 13,475 14,524 23,935 24,187 33,956
_____ ______ _______ ______ ______ ______
65,595 58,769 112,788 105,675 180,188 165,960
______ _______ _______ _______ ______
Other Operating Expenses
Operations and
maintenance 23,030 22,433 48,785 47,444 96,617 94,716
Depreciation and
amortization 6,522 5,496 13,076 11,276 24,832 21,623
Other taxes 2,686 2,771 4,947 4,968 9,168 9,087
Income taxes 10,721 8,401 14,476 11,552 12,217 7,805
______ ______ _______ ______ ______ ______
42,959 39,101 81,284 75,240 142,834 133,231
______ ______ _______ ______ ______ ______
Operating Income 19,636 19,668 31,504 30,435 37,354 32,729
Other Income and Expense,
Net
Equity in earnings of TIC (29) - 108 - 1,442 -
Enterprises, LLC, net
Other 74 182 920 1,004 2,096 1,735
Income taxes (16) (63) (360) (351) (1,239) (630)
_____ _____ _____ ______ ______ ______
29 119 668 653 2,299 1,105
_____ ____ _____ ______ ______ ______
Interest Expense 4,602 4,474 9,688 9,002 19,606 17,754
_____ _____ _____ ______ ______ ______
Net Income $15,063 $15,313 $22,484 $22,086 $20,047 $16,080
====== ======= ======= ======= ======= =======
Net Income Per Share of
Common Stock $1.20 $1.37 $1.80 $1.98 $1.68 $1.49
==== ===== ===== ===== ===== =====
Dividends Per Share of $0.245 $0.235 $0.49 $0.47 $0.96 $0.92
Common Stock ===== ===== ===== ===== ===== =====
Weighted Average Number of
Shares of Common Stock
Outstanding 12,579,813 11,203,493 12,508,360 11,143,707 11,936,086 10,818,982
========== ========== == ======= ========== ========== ==========
See the notes to the consolidated financial statements<PAGE>
</TABLE>
NUI Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in thousands)
March 31, September 30,
1998 1997
(Unaudited) (*)
ASSETS
Utility Plant
Utility plant, at original cost $705,555 $680,391
Accumulated depreciation and (227,040) (218,895)
amortization
Unamortized plant acquisition 31,616 32,327
adjustments
_______ _______
510,131 493,823
_______ _______
Funds for Construction Held by 20,351 27,648
Trustee
______ ______
Investment in TIC Enterprises, LLC, 24,038 26,069
net
______ ______
Investments in Marketable - 2,570
Securities, at market
_____ ______
Other Investments 1,342 170
_____ _____
Current Assets
Cash and cash equivalents 2,250 58,793
Accounts receivable (less
allowance for doubtful accounts
of$2,795 and $2,318, 98,223 64,499
respectively)
Investments in marketable 98 1,834
securities, at market
Fuel inventories, at average cost 10,350 31,068
Unrecovered purchased gas costs 6,386 9,602
Prepayments and other 28,752 22,953
_______ _______
146,059 188,749
_______ _______
Other Assets
Regulatory assets 54,198 54,607
Deferred charges 11,692 10,029
_______ _______
65,890 64,636
_______ _______
$767,811 $803,665
======== ========
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $238,570 $218,291
Preferred stock - -
Long-term debt 229,084 229,069
_______ _______
467,654 447,360
_______ _______
Capital Lease Obligations 9,044 9,679
______ _______
Current Liabilities
Notes payable to banks 47,145 54,428
Current portion of long-term debt - 54,600
Current portion of capital lease 1,671 1,587
obligations
Accounts payable, customer 88,868 96,655
deposits and accrued liabilities
Federal income and other taxes 16,116 4,049
_______ _______
153,800 211,319
_______ _______
Deferred Credits and Other
Liabilities
Deferred Federal income taxes 63,589 62,391
Unamortized investment tax 5,951 6,171
credits
Environmental remediation reserve 33,981 33,981
Regulatory and other liabilities 33,792 32,764
_______ _______
137,313 135,307
_______ _______
$767,811 $803,665
======== ========
*Derived from audited financial statements
See the notes to the consolidated financial statements<PAGE>
NUI Corporation and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)
Six Months Twelve Months
Ended Ended
March 31, March 31,
1998 1997 1998 1997
Operating Activities
Net income $22,484 $22,086 $20,047 $16,080
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Depreciation and
amortization 13,615 11,798 25,857 22,706
Deferred Federal
Income taxes 1,274 915 3,605 6,387
Amortization of deferred (221) (232) (453) (465)
investment tax credits
Other 513 1,809 (276) 3,205
Effect of changes in:
Accounts receivable, net (33,724 (48,279) (6,356) (6,733)
Fuel inventories 20,718 20,921 (2,080) (3,470)
Accounts payable, (5,637) (1,358) 23,854 (3,796)
deposits and accruals
Over (under) recovered 3,216 (6,996) 7,598 (18,563)
purchased gas costs
Other 6,645 (1,708) (1,354) (36,952)
______ ______ ___ __ ______
Net cash provided by
(used in) operating
activities 28,883 (1,044) 70,442 ( 21,601)
______ _____ ______ _____
Financing Activities
Proceeds from sales of common
stock, net of
treasury stock 3,272 2,582 28,894 33,953
purchased
Dividends to shareholders (6,155) (5,250) (11,480) (9,780)
Proceeds from issuance of - - 53,569 39,000
long-term debt
Funds for construction held 8,008 9,299 17,493 (20,126)
by trustee, net
Repayments of long-term debt (54,600) (950) (54,600) (31,021)
Principal payments under (897) (969) (1,658) (1,604)
capital lease obligations
Net short-term borrowings ( 7,283) 20,792 (28,542) 57,482
(repayments) _______ ______ ______ ______
Net cash provided by (used (57,655) 25,504 3,676 67,904
in) financing activities ______ ______ ______ _____
Investing Activities
Cash expenditures for utility (26,346 (23,360) (54,352) (44,509)
plant
Investment in TIC - - (22,593) -
Enterprises, LLC
Other (1,425) 1,012 (771) (1,390)
______ _____ _______ ______
Net cash used in investing (27,771) (22,348) (77,716) (45,899)
activities
______ ______ ______ ______
Net increase (decrease) in $(56,543) $2,112 $(3,598) $ 404
cash and cash equivalents
======= ====== ====== =====
Cash and Cash Equivalents
At beginning of period $58,793 $3,736 $5,848 $5,444
At end of period $2,250 $5,848 $2,250 $5,848
Supplemental Disclosures of
Cash Flows
Income taxes paid, net $4,251 $2,078 $7,181 $4,315
Interest paid $14,035 $9,605 $24,190 $17,753
See the Notes to the consolidated financial statements<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 the
"Company"). The Company is a multi-state energy sales, services and
distribution company. Its utility operations distribute natural gas
and provide related customer services in six states through its
Northern and Southern 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,
Elkton Gas (Maryland), Valley Cities Gas (Pennsylvania) and Waverly
Gas (New York). The Company also 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; customer information systems and services through its
Utility Business Services, Inc. subsidiary; and sales and marketing
outsourcing through its 49% equity interest in TIC Enterprises, LLC.
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, 1997. 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.
2.Common Shareholders' Equity
The components of common shareholders' equity were as follows (dollars
in thousands):<PAGE>
March 31, September 30
1998 1997
Common stock, no par value $206,730 $201,549
Shares held in treasury (1,692) (1,615)
Retained earnings 35,629 19,260
Unrealized gain on marketable securities - 120
Unearned employee compensation (2,097) (1,023)
________ ________
Total common shareholders' equity $238,570 $218,291
======== =======
3.New Accounting Standard
During the first quarter of fiscal 1998, the Company adopted Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128). This statement superseded Accounting Principles Board Opinion
No. 15,"Earnings per Share" and simplifies the computation of
earnings per share. The adoption of SFAS 128 did not have an effect on
the Company's calculation of earnings per share.
4.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 (EPA), the
New Jersey Department of Environmental Protection (NJDEP) and other
federal and state agencies.
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"Southern Division MGP sites"). 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
Company.
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.
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, 1998, reflecting the future
recovery of environmental remediation liabilities related to the
Northern Division MGP sites. The Company is able to recover actual MGP
expenses over a rolling seven year period through its MGP Remediation
Adjustment Clause (RAC). The NJBPU approved the Company's initial RAC
rate filing on April 2, 1997 at which time the Company began recovery
of approximately $3.1 million, which represents environmental costs
incurred from inception through June 30, 1996. On August 5, 1997, the
Company submitted a second RAC rate filing to the NJBPU to recover an
additional $0.5 million in environmental costs incurred from July 1,
1996 through June 30, 1997. Approval by the NJBPU on this second RAC
rate filing is expected in the third quarter. 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 Six Months Twelve Months
Ended Ended Ended
March 31, March 31, March 31,
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
(Dollars in thousands)
Firm Sales:
Residential $76,912 $82,374 $140,424 $140,744 $201,437 $194,231
Commercial 35,814 42,374 66,698 73,772 99,160 108,457
Industrial 5,040 8,566 11,498 14,511 20,250 24,955
Interruptible Sales 10,467 15,357 26,040 30,196 51,688 57,348
Unregulated Sales 116,169 44,230 223,203 74,674 326,410 104,419
Transportation Services 10,053 8,014 18,325 14,776 32,166 26,174
Customer Service, Appliance
Leasing and Other 4,343 3,568 8,548 7,272 16,276 14,130
_______ _______ ______ ______ _______ _______
$258,798 $204,483 $494,735 $355,945 $747,387 $529,714
======= ======= ======= ======= ======= =======
Gas Sold or Transported (MMcf)
Firm Sales:
Residential 9,025 9,845 16,471 16,978 22,449 23,196
Commercial 4,609 5,741 8,858 10,174 12,938 14,768
Industrial 1,175 1,343 2,443 2,713 4,549 4,975
Interruptible Sales 3,129 3,725 6,854 7,433 14,495 15,286
Unregulated Sales 44,873 13,645 81,859 24,141 120,537 35,055
Transportation Services 9,141 8,316 16,986 14,817 30,463 27,383
______ ______ _______ ______ _______ ______
71,952 42,615 133,471 76,256 205,431 120,663
====== ====== ======= ====== ======= =======
Average Utility Customers
Served:
Firm
Residential 341,360 337,629 338,699 335,670 337,147 333,995
Commercial 22,952 24,083 23,659 24,413 23,935 24,363
Industrial 250 287 279 316 288 322
Interruptible 107 111 114 123 117 116
Transportation 3,887 1,954 2,677 1,266 2,166 1,043
_______ _______ _______ _______ _______ _______
368,556 364,064 365,428 361,788 363,653 359,839
======= ======= ======= ======= ======= =======
Degree Days in New Jersey
Actual 2,085 2,497 3,863 4,243 4,574 4,871
Normal 2,777 2,673 4,632 4,398 5,250 4,978
Percentage variance from 25% 7% 17% 4% 13% 2%
normal warmer warmer warmer warmer warmer warmer
Employees (period end) 1,161 1,107
Ratio of Earnings to Fixed
Charges (Twelve months only) 2.20 2.07<PAGE>
</TABLE>
NUI Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis refers to NUI Corporation and
all of its operating divisions and subsidiaries (collectively referred
to as the"Company"). The Company is a multi-state energy sales,
services and distribution company. Its utility operations distribute
natural gas in six states through its Northern and Southern 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, Elkton Gas (Maryland), Valley
Cities Gas (Pennsylvania) and Waverly Gas (New York). The Company also
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; customer information
systems and services through its Utility Business Services, Inc.
subsidiary ("UBS"); and sales and marketing outsourcing through its
49% equity interest in TIC Enterprises, LLC ("TIC"). 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
The results for the 1998 periods as compared to the 1997 periods
reflect changes in the New Jersey tax law which resulted in variations
in certain line items on the consolidated statement of income (see
"Regulatory Matters"). Effective January 1, 1998, New Jersey Gross
Receipts and Franchise Taxes (GRAFT) were replaced by a combination of
a New Jersey Sales and Use Tax (NJ Sales Tax), a New Jersey Corporate
Business Tax (NJ CBT) and a temporary Transitional Energy Facility
Assessment (NJ TEFA). In prior periods, GRAFT was recorded as a
single line item in the reduction of operating margins. Effective
January 1, 1998, NJ TEFA is recorded in the energy taxes line item as
a reduction of operating margins, NJ CBT is recorded in the income
taxes line item and NJ Sales Tax is recorded as a reduction of
operating revenues. The legislation was designed to be net income
neutral over a twelve-month period, however for the periods ending
March 31, 1998, the effect of the three new taxes as compared to the
1997 periods had the effect of reducing operating revenues by
approximately $5.8 million, reducing energy taxes by approximately
$7.0 million and increasing income tax expense by approximately $2.4
million. The net effect of the change in the tax law reduced net
income by approximately $0.8 million, or $0.06 per share, as compared
to the prior year periods. This variance is expected to reverse
during the last two quarters of fiscal 1998.
Three-Month Periods Ended March 31, 1998 and 1997
Net Income. Net income for the three-month period ended March 31,
1998 was $15.1 million, or $1.20 per share, as compared with net
income of $15.3 million, or $1.37 per share, for the three-month
period ended March 31, 1997. The decrease in the current period was
primarily the result of the tax law change as described above, as well
as higher operation and maintenance expenses and depreciation and
amortization expense. This reduction was partially offset by
increases to 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 approximately
1 million additional shares in September 1997.
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 sale of the
gas commodity, the Company's level of operating revenues is not
necessarily indicative of financial performance. The Company's
operating revenues increased by $54.3 million, or 27%, for the three-
month period ended March 31, 1998 as compared with the three-month
period ended March 31, 1997, principally due to an increase of
approximately $71.9 million in unregulated revenues due to greater
activity in these operations. This increase was partially offset by a
decrease in revenues of approximately $18.8 million in the Company's
utility operations primarily resulting from the effect of warmer
weather in the 1998 period in all of the Company's service
territories, primarily in New Jersey where it was 25% warmer than
normal. Additionally, utility revenues decreased as a result of the
tax law changes as described above.
The Company's operating margins increased by $3.8 million, or 6.5%,
for the three-month period ended March 31, 1998 as compared with the
three-month period ended March 31, 1997. The Company's utility
distribution margins increased approximately $3.2 million over the
prior year period mainly due to customer growth, as well as
approximately $1.2 million of margins resulting from changes in the
New Jersey tax law (see above) and the classification of such amounts
in the consolidated income statement. Utility distribution margins
also increased approximately $0.9 million over the prior year period
due to the effect of the change in the calculation of the New Jersey
weather normalization clause. On October 22, 1997, the New Jersey
Board of Public Utilities (NJBPU) approved the Company's petition to
revise its weather normalization clause to reflect an increase in the
level of degree days used to determine margin revenue differences
associated with variations between actual degree days within the
months of October through April and the degree days that underlie the
Company's base rates. The adjustment was necessitated by a change in
instrumentation used to measure temperatures in the Company's service
territory. The changes in the weather normalization clause
calculation were effective in October 1996, but were not recorded by
the Company until the fourth quarter of fiscal 1997. The Company's
customer service operations contributed approximately $0.8 million to
the increase in operating margins primarily as a result of a rate
increase in the appliance leasing program in Florida, as well as
customer additions by UBS. Operating margins from the Company's
unregulated operations decreased approximately $0.2 million mainly as
a result of sluggish market conditions and slower customer growth in
the Company's retail market operations. 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 $4.8 million more in the
1998 period than they would have been without such clauses. In the
1997 period, operating margins were approximately $1.1 million more
than they otherwise would have been without such clauses.
Other Operating Expenses. Operations and maintenance expenses
increased by approximately $0.6 million, or 3%, for the three-month
period ended March 31, 1998 as compared with the three-month period
ended March 31, 1997. The increase was primarily the result of higher
expenses associated with the continued growth in the Company's
unregulated operations and the reversal of certain reserves in the
prior year which management determined to be no longer required.
These increases were partially offset by a higher pension credit
primarily as a result of the investment performance of pension plan
assets.
Depreciation and amortization expenses increased by approximately $1
million primarily due to additional plant in service.
Income tax expense increased by approximately $2.3 million mainly due
to the change in the New Jersey tax law described above. Certain
taxes which were previously treated as a reduction of margins are now
classified as state income tax expense.
Interest Expense. Interest expense increased by approximately $0.1
million for the three-month period ended March 31, 1998 as compared
with the three-month period ended March 31, 1997. This increase was
due to higher rates on short-term borrowings and higher average long-
term borrowings as a result of the drawdown of funds for construction
expenditures, partially offset by lower average rates on long-term
debt due to the refinancing of bonds in October 1997. Drawdowns of
construction funds have the effect of lowering interest income on the
funds held by the trustee.
Six-Month Periods Ended March 31, 1998 and 1997
Net Income. Net income for the six-month period ended March 31, 1998
was $22.5 million, or $1.80 per share, as compared with net income of
$22.1 million, or $1.98 per share, for the six-month period ended
March 31, 1997. The increase in the current period was primarily due
to higher operating margins, partially offset by higher operations and
maintenance, depreciation, interest expense and the effect on 1998
results of the tax law changes described above.
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 approximately
1 million additional shares in September 1997.
Operating Revenues and Operating Margins. The Company's operating
revenues increased by $138.8 million, or 39%, for the six-month period
ended March 31, 1998 as compared with the six-month period ended March
31, 1997. The increase was principally due to an increase of
unregulated sales of approximately $148.5 million due to greater
activity in these operations, customer growth and increased customer
service and appliance leasing revenues. These increases were
partially offset by the effect of warmer weather in all of the
Company's service territories, primarily in New Jersey where it was
17% warmer than normal, as well as the effect of the tax law changes
described above.
The Company's operating margins increased by $7.1 million or 6.7% for
the six-month period ended March 31, 1998 as compared with the six-
month period ended March 31, 1997. The increase was primarily
attributable to an increase of $6.2 million in the Company's utility
distribution operations as a result of customer growth, the effects of
changes in the New Jersey tax law (see above), and an additional $1.5
million due to the effect of the change in the calculation of the New
Jersey weather normalization clause. As a result of weather
normalization clauses in total, margins were approximately $5.2
million and $0.9 million higher in the 1998 and 1997 periods,
respectively, than they would have been without such clauses. The
Company's customer service operations contributed approximately $1.3
million to the increase in margins as a result of a rate increase in
the appliance leasing program in Florida and customer additions by
UBS. Operating margins from the Company's unregulated operations
decreased by approximately $0.3 million as a result of sluggish market
conditions and slower customer growth in the Company's retail market
operations.
Other Operating Expenses. Operation and maintenance expenses
increased by approximately $1.3 million, or 3%, for the six-month
period ended March 31, 1998 as compared with the six-month period
ended March 31, 1997. The increase was primarily the result of higher
expenses associated with the continued growth in the Company's
unregulated operations, as well as the reversal of certain reserves in
the prior year that management determined were no longer required.
These increases were partially offset by a higher pension credit
primarily as a result of the investment performance of pension plan
assets.
Depreciation and amortization expenses increased by $1.8 million
primarily due to additional plant in service.
Income tax expense increased by approximately $2.9 million due to the
changes in the New Jersey tax law described above, as well as higher
pre-tax income.
Interest Expense. Interest expense increased by approximately $0.7
million for the six-month period ended March 31, 1998 as compared with
the six-month period ended March 31, 1997. The increase was mainly
due to the reasons discussed under the "Three-Month Period Ended March
31, 1998 and 1997" section.
Twelve-Month Periods Ended March 31, 1998 and 1997
Net Income. Net income for the twelve-month period ended March 31,
1998 was $20 million, or $1.68 per share, as compared with $16.1
million, or $1.49 per share, for the twelve-month period ended March
31, 1997. The increase in the current period was primarily due to
higher operating margins and other income, partially offset by higher
operations and maintenance, depreciation, interest and the effect on
1998 of the tax law changes described above.
Net income per share for the twelve-month period ended March 31, 1998
as compared to the twelve-month period ended March 31, 1997 was
affected by the increased number of outstanding shares reflecting the
Company's issuances of common stock of 1 million additional shares in
September 1997 and 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, 1998 increased
approximately $217.7 million, or 41%, as compared with the twelve-
month period ended March 31, 1997. The increase was primarily due to
an increase in unregulated sales of approximately $222 million,
customer growth, and increased customer service and appliance leasing
revenues. These increases were partially offset by the effect of the
change in the New Jersey tax law described above, as well as warmer
weather in all of the Company's service territories, especially in New
Jersey which was 13% warmer than normal.
The Company's operating margins increased by approximately $14.2
million, or 8.6%, for the twelve-month period ended March 31, 1998 as
compared with the twelve-month period ended March 31, 1997. The
increase reflects approximately $10.6 million of additional margins
generated by the Company's utility distribution operations,
approximately $2.4 million of additional margins generated by the
Company's customer service and appliance leasing operations, and
approximately $1.3 million of additional margins generated by the
Company's unregulated operations. The increase in the utility
distribution operations was mainly due to the changes in the New
Jersey tax law described above, the change in the calculation of the
weather normalization clause in New Jersey, the full effect of a base
rate increase in Florida and customer growth. The increase in customer
service and appliance leasing was mainly due to the full effect of a
rate increase in the appliance leasing program in Florida and customer
additions by UBS. The increase in the unregulated operations was
primarily due to increased sales as well as favorable market
conditions in the last six months of fiscal 1997. As a result of
weather normalization clauses, operating margins were approximately
$6.3 million more in the current twelve-month period than they would
have been without such clauses. For the twelve-month period ended
March 31, 1997, operating margins were $1.1 million more than they
would have been without such clauses.
Other Operating Expenses. Operation and maintenance expenses
increased approximately $1.9 million or 2% for the twelve-month period
ended March 31, 1998 as compared to the twelve-month period ended
March 31, 1997. The increase was primarily due to higher labor costs
resulting from an increased number of employees, and the continued
growth of the Company's unregulated operations, partially offset by a
higher pension credit.
Depreciation and amortization expenses increased by approximately $3.2
million primarily due to additional plant in service.
Income taxes increased by $4.4 million for the twelve-month period
ended March 31, 1998 as compared to the twelve month period ended
March 31, 1997 as a result of changes in the New Jersey tax law as
described above, as well as higher pre-tax income.
Other Income and Expense, Net. Pre-tax other income and expense, net,
increased approximately $1.8 million for the twelve-month period ended
March 31, 1998 as compared with the 1997 period due to approximately
$1.4 million of net equity earnings in TIC and the sale of certain
property in the Southern Division. These increases were partially
offset by lower dividend and interest income as a result of fewer
marketable securities held.
Interest Expense. Interest expense increased by $1.9 million, or 10%,
for the 1998 period as compared with the 1997 period primarily due to
an increase in short-term interest expense resulting from higher
average borrowings in the current period, as well as higher average
long-term borrowings due to the drawdown of funds held for
construction expenditures.
Regulatory Matters
In July 1997, the State of New Jersey enacted legislation that
eliminated the gross receipts and franchise taxes effective January 1,
1998. These taxes were replaced with a 6% sales tax on sales of
electricity and natural gas, a corporate business tax currently paid
by all non-utility corporations in the State, and a third tax called
the Transitional Energy Facilities Assessment tax (TEFA). The
legislation was intended, in part, to provide comparability between
utilities that pay gross receipts and franchise taxes and non-utility
energy companies that do not. A key objective of this legislation was
to maintain energy tax revenue neutrality in 1998, seeking to collect
approximately the same amount in new taxes as collected with gross
receipts and franchise taxes in 1997. The TEFA tax is scheduled to be
phased out at a rate of approximately 20% per year starting in 1999.
These tax changes are designed to have no effect on the Company's net
income over a twelve-month period or on overall rates charged to
customers, until the TEFA reductions occur, and should not have a
material effect on working capital. The Company paid approximately $25
million of gross receipts and franchise taxes to the State in 1997.
See "Results of Operations" for a discussion of the effect of the new
taxes in the 1998 periods.
On November 20, 1997, the Northern Division amended its July 31, 1997
proposal filed with the New Jersey Board of Public Utilities (NJBPU)
to increase its annual purchased gas adjustment revenues by
approximately $14.7 million and change the way it recovers gas supply
costs from its different classes of customers. On January 23, 1998 the
NJBPU issued an order approving an interim stipulation of the parties
concerning a number of the Company's rates, including rates charged
under the purchased gas adjustment clause. The interim stipulation
also provided that the Company was required to propose a timetable for
resolving issues related to offering transportation services to all
customers, and the continuation of the Company's role as merchant and
supplier of last resort. A final order by the NJBPU on the Company's
amended proposal is expected in the third quarter.
Financing Activities and Resources
The Company had net cash provided by operating activities of $28.9
million for the six-month period ended March 31, 1998 as compared with
net cash used in operating activities of $1.0 million for the six-
month period ended March 31, 1997. This increase was primarily
attributable to improved collections on receivables, additional
collections of gas costs under the Company's purchased gas adjustment
clauses, and lower prepaid expenses due to the change in the New
Jersey tax law (see "Results of Operations"). In March 1997, the
Company prepaid estimated New Jersey gross receipts and franchise
taxes for the remainder of calendar 1997. Due to the change in the
tax law, a similar payment was not required in 1998. For the twelve-
month period ended March 31, 1998, the Company had net cash provided
by operating activities of $70.4 million as compared with net cash
used in operating activities of $21.6 million for the twelve-month
period ended March 31, 1997. The increase in net cash provided by
operating activities for the twelve-month period ended March 31, 1998
as compared to the twelve-month period ended March 31, 1997 was mainly
attributable to the reasons given above for the six-month periods, as
well as the timing of the 1996 New Jersey gross receipts and franchise
tax payment which was made in April 1996.
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 $70.1 million at 6.0% for the six-month period
ended March 31, 1998 and $66.3 million at 5.2% for the six-month
period ended March 31, 1997. The weighted average daily amounts of
notes payable to banks increased principally due to additional
borrowings to finance portions of the Company's capital expenditures.
At March 31, 1998, the Company had outstanding notes payable to banks
amounting to $47.1 million and available unused lines of credit
amounting to $98.9 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, 1998, 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 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, 1998, the total unexpended
portions of all of the Company's Gas Facilities Revenue Bonds were
$15.8 million and are classified on the Company's consolidated balance
sheet, including interest earned thereon, as funds for construction
held by trustee.
The Company prepaid $54.6 million of its Gas Facilities Revenue Bonds
in October 1997 with proceeds received in fiscal 1997 from a new bond
issuance.
Common Stock. The Company periodically issues shares of common stock
in connection with NUI Direct, the Company's dividend reinvestment
plan, and other employee benefit plans. The proceeds from such
issuances amounted to approximately $3.3 and $2.6 million for the six-
month periods ended March 31, 1998 and 1997, respectively, and were
used primarily to reduce outstanding short-term debt.
Dividends. On November 6, 1997, the Company increased its quarterly
dividend to $0.245 per share of common stock. The previously
quarterly rate was $0.235 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 $54 million of cash dividends at March 31, 1998.
Capital Expenditures and Commitments
Capital expenditures, which consist primarily of expenditures to
expand and upgrade the Company's gas distribution systems, were $26.7
million for the six-month period ended March 31, 1998 as compared with
$23.4 million for the six-month period ended March 31, 1997. Capital
expenditures are expected to be approximately $60 million for all of
fiscal 1998, as compared with a total of $52.3 million in fiscal 1997.
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 able to recover
actual MGP expenses over a rolling seven-year period through its MGP
Remediation Adjustment Clause (RAC). The NJBPU approved the Company's
initial RAC rate filing on April 2, 1997 at which time the Company
began recovery of approximately $3.1 million, which represents
environmental costs incurred from inception through June 30, 1996. On
August 5, 1997, the Company submitted a second RAC rate filing to the
NJBPU to recover an additional $0.5 million in environmental costs
incurred from July 1, 1996 through June 30, 1997. Approval by the
NJBPU on this second RAC rate filing is expected in the third quarter.
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.
Certain of the Company's long-term contracts for the supply, storage
and delivery of natural gas include fixed charges that amount to
approximately $73 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 9 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 Company is scheduled to repay $20 million of Medium-Term Notes in
August 2002.
Year 2000
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
provision for the impact of the upcoming change in the century. If
not corrected, many computer applications could fail or create
erroneous results which could result in an impact on NUI's operations
and businesses and have a resulting adverse financial impact. The
Company has undertaken a systems readiness program to mitigate the
risks associated with the Year 2000 issue. This program is developed
to identify any systems that are not presently Year 2000 compliant,
and to replace or modify these systems. In addition, the Company is
working with its suppliers on this issue to gain assurance that they
are taking appropriate steps to mitigate Year 2000 problems in their
systems and systems they support. The Company began this process in
fiscal 1997 and anticipates completion during fiscal 1999, with a
remaining estimated cost of approximately $2 million. Although the
Company is endeavoring to ensure that the Year 2000 readiness program
is comprehensive, it can make no assurance that the program will
address all Year 2000 compliance issues in a timely manner.
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 1998.
The Annual Meeting of Shareholders of NUI Corporation was held on
January 27, 1998. 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, approved amendments to two of the Company's stock plans 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:
John Kean 11,098,714 256,829
John Kean, Jr. 11,119,420 236,133
Bernard S. Lee 11,121,448 234,105
(2) Approval of amendment to
the 1996 Stock Option
and Award Plan
10,509,723 717,918 127,912
(3) Approval of amendment to
the 1996 Employee
Stock Purchase Plan 10,923,453 307,166 115,934
(4) Ratification of the
appointment of
Arthur Andersen LLP
as independent
public accountants 10,894,597 407,090 53,866
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
None
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, 1998 President and Chief
Executive Officer
A. MARK ABRAMOVIC
May 15, 1998 Senior Vice President and
Chief
Financial Officer<PAGE>
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