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 EXCHANGE ACT OF 1934
For the quarterly period ended December 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 January 31, 1998: Common Stock,
No Par Value: 12,577,816 shares outstanding. <PAGE>
<TABLE>
NUI Corporation and Subsidiaries
Consolidated Statement of Income (Unaudited)
(Dollars in thousands, except per share amounts)
<CAPTION>
Three Months Ended Twelve Months
December 31, Ended
December 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating Margins
Operating revenues $235,938 $151,462 $693,072 $496,194
Less - Purchased gas and
fuel 175,663 94,096 483,490 293,914
Gross receipts and
franchise taxes 10,082 10,460 33,220 35,875
------ ------ ------ ------
50,193 46,906 176,362 166,405
------- ------- ------- -------
Other Operating Expenses
Operations and maintenance 25,755 25,011 96,020 96,533
Depreciation and
amortization 6,554 5,780 23,806 21,457
Other taxes 2,261 2,197 9,253 8,760
Income taxes 3,755 3,151 9,897 7,423
------- ------- ------- -------
38,325 36,139 138,976 134,173
------- ------- ------- -------
Operating Income 11,868 10,767 37,386 32,232
Other Income and Expense, Net
Equity in earnings of TIC
Enterprises, LLC, net 137 - 1,471 -
Other 846 822 2,204 1,607
Income taxes (344) (288) (1,286) (594)
------- ------- ------- -------
639 534 2,389 1,013
------- ------- ------- -------
Interest Expense 5,086 4,528 19,478 18,022
------- ------- ------- -------
Net Income $ 7,421 $ 6,773 $20,297 $15,223
======= ======= ======= =======
Net Income Per Share of Common $0.60 $0.61 $1.76 $1.48
Stock ===== ===== ===== =====
Dividends Per Share of Common $0.245 $0.235 $0.95 $0.91
Stock ===== ===== ===== =====
Weighted Average Number of
Shares of Common Stock
Outstanding 12,438,460 11,085,220 11,558,664 10,303,893
========== ========== ========== ==========
</TABLE>
See the notes to consolidated financial statements<PAGE>
NUI Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in thousands)
December 31, September 30,
1997 1997
(Unaudited) (*)
ASSETS
Utility Plant
Utility plant, at original cost $690,759 $680,391
Accumulated depreciation and
amortization (222,595) (218,895)
Unamortized plant acquisition
adjustments 31,971 32,327
------- -------
500,135 493,823
------- -------
Funds for Construction Held by Trustee 24,204 27,648
------- -------
Investment in TIC Enterprises, LLC, net 26,216 26,069
------- -------
Investments in Marketable Securities - 2,570
------- -------
Current Assets
Cash and cash equivalents 453 58,793
Accounts receivable (less allowance
for doubtful accounts of $2,356 and
$2,318, respectively) 114,778 64,499
Investment in marketable securities 3,096 1,834
Fuel inventories, at average cost 27,544 31,068
Unrecovered purchased gas costs 9,573 9,602
Prepayments and other 23,722 22,953
------- -------
179,166 188,749
------- -------
Other Assets
Regulatory assets 55,072 54,607
Deferred charges 11,071 10,199
------- -------
66,143 64,806
------- -------
$795,864 $803,665
======= =======
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $224,301 $218,291
Preferred stock - -
Long-term debt 229,076 229,069
------- -------
453,377 447,360
------- -------
Capital Lease Obligations 9,283 9,679
------- -------
Current Liabilities
Notes payable to banks 86,965 54,428
Current portion of long-term debt - 54,600
Current portion of capital lease
obligations 1,542 1,587
Accounts payable, customer deposits
and accrued liabilities 102,570 96,655
Federal income and other taxes 5,526 4,049
------- -------
196,603 211,319
------- -------
Deferred Credits and Other Liabilities
Deferred Federal income taxes 62,952 62,391
Unamortized investment tax credits 6,066 6,171
Environmental remediation reserve 33,981 33,981
Regulatory and other liabilities 33,602 32,764
------- -------
136,601 135,307
------- -------
$795,864 $803,665
======= =======
*Derived from audited financial statements
See the notes to consolidated financial statements<PAGE>
<TABLE>
NUI Corporation and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)
<CAPTION>
Three Months Twelve Months
Ended Ended
December 31, December 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Operating Activities
Net income $7,421 $6,773 $20,297 $15,223
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 6,812 6,671 24,181 23,165
Deferred Federal income taxes 637 471 3,412 6,905
Amortization of deferred
investment tax credits (105) (116) (453) (467)
Other (221) 1,275 (476) 4,997
Effect of changes in:
Accounts receivable, net (50,279) (40,129) (31,061) (8,674)
Fuel inventories 3,524 2,519 (872) (6,455)
Accounts payable, deposits and
accruals 5,915 12,036 22,012 15,190
Over (under) recovered purchased
gas costs 29 (6,797) 4,212 (19,304)
Other 1,443 6,083 (14,347) (10,305)
------ ------ ------ ------
Net cash (used in) provided by
operating activities (24,824) (11,214) 26,905 20,275
------ ------ ------ ------
Financing Activities
Proceeds from sales of common stock,
net of treasury stock purchased 1,400 883 28,721 32,254
Dividends to shareholders (3,070) (2,620) (11,025) (9,251)
Proceeds from issuance of
long-term debt - - 53,569 39,000
Funds for construction held by
trustee, net 3,784 4,076 18,492 (25,151)
Repayments of long-term debt (54,600) - (55,550) (30,094)
Principal payments under capital
lease obligations (441) (491) (1,680) (1,739)
Net short-term borrowings
(repayments) 32,537 21,430 10,640 18,104
------ ------ ------ ------
Net cash provided by (used in)
financing activities (20,390) 23,278 43,167 23,123
------ ------ ------ ------
Investing Activities
Cash expenditures for utility plant (11,548) (10,277) (52,637) (37,502)
Investment in TIC Enterprises, LLC - - (22,584) -
Other (1,578) (178) 257 (2,750)
------ ------ ------ ------
Net cash used in investing
activities (13,126) (10,455) (74,964) (40,252)
------ ------ ------ ------
Net increase (decrease) in cash and
cash equivalents $(58,340) $1,609 (4,892) $ 3,146
====== ===== ===== =====
Cash and Cash Equivalents
At beginning of period $58,793 $3,736 $5,345 $ 2,199
At end of period 453 5,345 453 5,345
Supplemental Disclosures of
Cash Flows
Income taxes paid (refunds
received), net $2,300 $(547) $7,855 $ 2,065
Interest paid $7,429 $5,518 $21,671 $18,087
</TABLE>
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 natural gas utility operations distribute
natural gas and provide related customer 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, 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):
December 31, September 30,
1997 1997
Common stock, no par value $203,026 $201,549
Shares held in treasury (1,692) (1,615)
Retained earnings 23,611 19,260
Unrealized gain on marketable securities - 120
Unearned employee compensation (644) (1,023)
------- -------
Total common shareholders' equity $224,301 $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 December 31, 1997, 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 Spring. 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.
NUI Corporation and Subsidiaries
Summary Consolidated Operating Data
Three Months Twelve Months
Ended Ended
December 31, December 31,
1997 1996 1997 1996
Operating Revenues (Dollars
in thousands)
Firm Sales:
Residential $63,512 $58,370 $206,899 $195,603
Commercial 30,884 31,398 105,720 107,348
Industrial 6,458 5,945 23,776 25,610
Interruptible Sales 15,573 14,839 56,578 53,788
Unregulated Sales 107,034 30,444 254,471 75,331
Transportation Services 8,272 6,762 30,127 24,054
Customer Service, Appliance
Leasing and Other 4,205 3,704 15,501 14,460
------ ------- ------- ------
$235,938 $151,462 $693,072 $496,194
======= ======= ======= =======
Gas Sold or Transported
(MMcf)
Firm Sales:
Residential 7,446 7,133 23,269 24,308
Commercial 4,249 4,433 14,070 15,880
Industrial 1,268 1,370 4,717 5,381
Interruptible Sales 3,725 3,708 15,091 14,585
Unregulated Sales 36,986 10,496 89,309 25,855
Transportation Services 7,845 6,501 29,638 24,236
------ ------ ------- ------
61,519 33,641 176,094 110,245
====== ====== ======= =======
Average Utility Customers
Served
Firm Sales:
Residential 336,038 334,437 336,032 333,143
Commercial 24,366 24,237 24,344 24,401
Industrial 308 314 305 328
Interruptible Sales 121 121 121 126
Transportation 1,467 1,174 1,533 849
------ ------- ------- ------
362,300 360,283 362,335 358,847
======= ======= ======= =======
Degree Days in New Jersey
Actual 1,778 1,746 4,804 5,203
Normal 1,725 1,725 4,978 4,978
Percentage variance from
normal 3% 1% 3% 5%
colder colder warmer colder
Employees (period end) 1,147 1,109
Ratio of Earnings to Fixed
Charges (Twelve months
only) 2.15 1.99
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 natural gas utility operations
distribute natural gas and provide related customer 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, 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 ("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
Three-Month Periods Ended December 31, 1997 and 1996
Net Income. Net income for the three-month period ended December 31,
1997 was $7.4 million, or $0.60 per share, as compared with net income
of $6.8 million, or $0.61 per share, for the three-month period ended
December 31, 1996. The increase in net income in the current period
was primarily due to higher operating margins, partially offset by
higher operations and maintenance expenses, interest and depreciation
expenses.
Net income per share in the current period was also 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 $84.5 million, or 56%, for the three-
month period ended December 31, 1997 as compared with the three-month
period ended December 31, 1996, principally due to an increase of
approximately $74.8 million in unregulated revenues due to greater
activity in these operations. Operating revenues also increased as a
result of customer growth and colder weather in the Company's utility
operations.
The Company's operating margins increased by $3.3 million, or 7.0%,
for the three-month period ended December 31, 1997 as compared with
the three-month period ended December 31, 1996. The increase
principally reflects an increase of approximately $3 million by the
Company's utility distribution operations primarily due to the effect
of colder weather not fully returned to customers through the
Company's weather normalization clauses, the full effect of a rate
increase in Florida which was effective during the first quarter of
fiscal 1997, and customer growth. The Company's customer service
operations contributed approximately $0.5 million increase in
operating margins primarily due to the effect of a rate increase in
the appliance leasing program. Operating margins from the Company's
unregulated operations decreased approximately $0.2 million mainly as
a result of changing market conditions and slower customer additions
in the Company's retail market operations. The Company has weather
normalization clauses in its New Jersey and North Carolina tariff
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 weather normalization clauses,
operating margins were approximately $0.4 million less in the fiscal
1998 period, than they otherwise would have been without such clauses.
In the fiscal 1997 period, operating margins were approximately $0.2
million less than they otherwise would have been without such clauses.
Other Operating Expenses. Operations and maintenance expenses
increased approximately $0.7 million, or 3%, for the three-month
period ended December 31, 1997 as compared with the three-month period
ended December 31, 1996. The increase was primarily the result of
higher expenses associated with the continued growth in the Company's
unregulated operations and to reversal of certain reserves in the
prior year period 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 the
pension plan assets.
Depreciation and amortization expenses increased approximately $0.8
million primarily due to additional plant in service.
Income tax expense increased by approximately $0.6 million in the
current as a result of higher pre-tax income.
Other Income and (Expense), Net. Other income and expense, net
increased approximately $0.1 million for the three-month period ended
December 31, 1997 as compared with the three-month period ended
December 31, 1996, principally due to approximately $0.1 million of
net equity earnings of TIC.
Interest Expense. Interest expense increased by approximately $0.6
million for the three-month period ended December 31, 1997 as compared
with the three-month period ended December 31, 1996. The increase
principally reflects higher average short-term borrowings (see
_Financing Activities and Resources_) and higher average long-term
borrowings due to the draw down of funds held for construction
purposes. Such draw downs have the effect of lowering interest income
on the funds held by trustee.
Twelve-Month Periods Ended December 31, 1997 and 1996
Net Income. Net income for the twelve-month period ended December 31,
1997 was $20.3 million, or $1.76 per share, as compared with $15.2
million, or $1.48 per share, for the twelve-month period ended
December 31, 1996. The increase in the current period was primarily
due to higher operating margins, higher other income and lower
operations and maintenance expense, partially offset by higher
depreciation, general taxes and interest expenses.
Net income per share for the twelve-month period ended December 31,
1997 was also affected by the increased average number of outstanding
shares of NUI common stock as compared with the prior twelve-month
period, principally reflecting the Company's issuance of 1 million
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 December 31, 1997 increased
approximately $196.9 million, or 39.7%, as compared with the twelve-
month period ended December 31, 1997. The increase was principally due
to an increase in unregulated sales of approximately $176.9 million,
the effect of purchased gas adjustment clauses, a base rate increase
in the Company's Florida service territory, increased customer service
and appliance leasing revenues, and customer growth. These increases
were partially offset by the effect of warmer weather, mainly in New
Jersey, where it was 8% warmer than the prior year and 3% warmer than
normal.
The Company's operating margins increased by approximately $10
million, or 6%, for the twelve-month period ended December 31, 1997 as
compared with the twelve-month period ended December 31, 1996. The
increase reflects approximately $6.6 million of additional margins
generated by the Company's utility distribution operations,
approximately $1.7 million of additional margins on sales by the
Company's unregulated operations, and approximately $1.7 million of
additional customer service and appliance leasing revenues. The
increase in utility distribution margins was mainly due to the full
effect of the base rate increase in Florida and customer growth,
partially offset by the effect of warmer weather in the current
twelve-month period in all of the Company's service territories, part
of which was not fully recovered from customers under weather
normalization clauses. The increase in customer service and appliance
leasing margins was primarily due to the full effect of a rate
increase in the Company's Florida appliance leasing program. As a
result of weather normalization clauses, operating margins were
approximately $2.5 million more in the current twelve-month period,
than they otherwise would have been without such clauses. In the prior
twelve-month period, operating margins were approximately $1.0 million
less than they otherwise would have been without such clauses.
Other Operating Expenses. Operations and maintenance expenses
decreased approximately $0.5 million, or 1%, for the twelve-month
period ended December 31, 1997 as compared with the twelve-month
period ended December 31, 1996. The decrease was primarily due to a
higher pension credit, the capitalization of costs associated with the
development and implementation of new information technology, lower
insurance expenses and the reversal of certain reserves which
management determined to be no longer required. These decreases were
partially offset by an increase in expenses associated with the
continued growth in the Company's unregulated operations.
The increase in depreciation and amortization expenses of
approximately $2.3 million was primarily due to additional plant in
service.
Other taxes increased approximately $0.5 million as a result of higher
real estate, sales and payroll-related taxes.
Income taxes increased by $2.4 million for the twelve-month period
ended December 31, 1997 due to higher pre-tax income.
Other Income and Expense, Net. Pre-tax other income and expense, net,
increased approximately $2.1 million for the twelve-month period ended
December 31, 1997 as compared with the 1996 period, principally due to
approximately $1.5 million of net equity earnings in TIC and the sale
of property in the Southern Division which resulted in a gain of
approximately $0.7 million.
Interest Expense. Interest expense increased by $1.5 million, or 8%,
for the 1997 period as compared with the 1996 period primarily due an
increase in short-term interest expense due to higher levels of
outstanding borrowings. This increase was partially offset by 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.
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 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.
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. The filing proposes to
collect separately the commodity component of purchased gas and the
fixed costs the Company incurs on behalf of its customers to supply
gas service. The filing also includes a request to incorporate a
performance based mechanism whereby Northern Division customers and
the Company would benefit from the Company's ability to secure gas at
rates more favorable than a market index benchmark. The proposed
mechanism would provide an 80/20 sharing, with Northern Division
customers receiving the greater percentage of risk and opportunity on
the difference between a monthly market benchmark and the actual cost
of purchased gas. Action by the NJBPU on the Company's proposal is
expected in the Spring.
Financing Activities and Resources
The Company had a net use of cash from operating activities of $24.8
million and $11.2 million for the three-month periods ended December
31, 1997 and 1996, respectively. The increase in net cash used for
operating activities for the three-month period ended December 31,
1997 was primarily due to the timing of payments to gas suppliers
partially offset by additional collections of gas costs under the
Company's purchased gas adjustment clauses. For the twelve-month
period ended December 31, 1997, the Company's net cash provided by
operating activities was $26.9 million as compared with $20.3 million
in the prior year period. The increase in net cash provided by
operating activities for the twelve-month period ended December 31,
1997 was mainly due to collections of gas costs under the Company's
purchased gas adjustment clauses.
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 $79.4 million at 5.95% for the three-month period
ended December 31, 1997 and $65.2 million at 5.35% for the three-month
period ended December 31, 1996. 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
and to the timing of payments to gas suppliers. At December 31, 1997,
the Company had outstanding notes payable to banks amounting to $87
million and available unused lines of credit amounting to $54 million.
Notes payable to banks increased as of December 31, 1997 as compared
to the balance outstanding at September 30, 1997, due to seasonal
borrowing requirements.
On February 9, 1998, the Company sold its remaining portfolio of
marketable securities for approximately $3 million. The proceeds were
used to pay down short-term debt. Accordingly, the investment in
marketable securities is classified as a current asset in the
accompanying consolidated balance sheet.
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 or equity securities. As of December 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 deposits in trust the unexpended portion of the net
proceeds from its Gas Facilities Revenue Bonds until drawn upon for
eligible expenditures. As of December 31, 1997, the total unexpended
portions of all of the Company's Gas Facilities Revenue Bonds were $20
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 $1.5 million and $0.9 million for
the three-month periods ended December 31, 1997 and 1996,
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 previous 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 $41.8 million of cash dividends at December 31, 1997.
Capital Expenditures and Commitments
Capital expenditures, which consist primarily of expenditures to
expand and upgrade the Company's gas distribution systems, were $11.5
million for the three-month period ended December 31, 1997 as compared
with $10.3 million for the three-month period ended December 31, 1996.
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 Spring. 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 11 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 $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.<PAGE>
PART II - OTHER INFORMATION
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<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.
February 13, 1998 President and Chief
Executive Officer
A. MARK ABRAMOVIC
February 13, 1998 Sr. Vice President and
Chief Financial Officer
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