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 June 30, 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 July 31, 1998: Common Stock, No
Par Value: 12,677,087 shares outstanding.<PAGE>
<TABLE>
NUI Corporation and Subsidiaries
Consolidated Statement of Income (Unaudited)
(Dollars in thousands, except per share amounts)
<CAPTION>
Three Months Nine Months Twelve Months
Ended Ended Ended
June 30, June 30, June 30,
1998 1997 1998 1997 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Operating Margins
Operating revenues $169,004 $125,175 $663,740 $481,120 $791,216 $559,372
Less - Purchased gas and
fuel 130,299 83,575 497,723 309,910 589,736 357,678
Energy taxes 2,551 5,895 17,075 29,830 20,843 33,593
------- ------ ------- ------- ------- -------
36,154 35,705 148,942 141,380 180,637 168,101
------- ------- ------- ------- ------- -------
Other Operating Expenses
Operations and maintenance 23,511 22,071 72,297 69,515 98,058 93,419
Depreciation and
amortization 6,326 5,811 19,401 17,087 25,346 22,052
Other taxes 2,568 1,967 7,515 6,934 9,770 8,897
Income taxes (221) 357 14,255 11,909 11,639 8,845
------- ------- ------- ------- ------- -------
32,184 30,206 113,468 105,445 144,813 133,213
------- ------- ------- ------- ------- -------
Operating Income 3,970 5,499 35,474 35,935 35,824 34,888
------- -------- ------- ------- ------- -------
Other Income and (Expense), Net
Equity in earnings of TIC
Enterprises, LLC, net 42 562 150 562 922 562
Other 132 281 1,052 1,284 1,948 1,923
Income taxes (61) (295) (421) (646) (1,005) (891)
------- ------- ------- ------- -------
113 548 781 1,200 1,865 1,594
------- ------- ------- ------- ------- -------
Interest Expense 4,515 4,682 14,203 13,684 19,439 18,034
------- ------- ------- ------- ------- -------
Net Income (Loss) $ (432) $ 1,365 $ 22,052 $ 23,451 $ 18,250 $ 18,448
======= ======= ======= ======= ======= =======
Net Income (Loss) Per Share of
Common Stock $ (0.03) $ (0.12) $ 1.76 $ 2.10 $ 1.49 $ 1.66
======= ======= ======= ======= ======= =======
Dividends Per Share of
Common Stock $ 0.245 $ 0.235 $ 0.735 $ 0.705 $ 0.97 $ 0.93
======= ======= ======= ======= ======= =======
Weighted Average Number of
Shares of Common Stock
Outstanding 12,654,101 11,292,773 12,556,940 11,193,400 12,276,789 11,122,876
========== ========== ========== ========== ========== ==========
</TABLE>
See the notes to the consolidated financial statements<PAGE>
<TABLE>
NUI Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in thousands)
<CAPTION>
June 30, September 30,
1998 1997
(Unaudited) (*)
<S> <C> <C>
ASSETS
Utility Plant
Utility plant, at original cost $722,540 $680,391
Accumulated depreciation and amortization (232,753) (218,895)
Unamortized plant acquisition adjustments 31,259 32,327
------- -------
521,046 493,823
------- -------
Funds for Construction Held by Trustee 15,539 27,648
Investment in TIC Enterprises, LLC, net 24,080 26,069
Investments in Marketable Securities,
at market - 2,570
Other Investments 1,513 170
------- -------
Current Assets
Cash and cash equivalents 407 58,793
Accounts receivable (less
allowance for doubtful
accounts of $2,318 as of both dates) 73,715 64,499
Investments in marketable
securities, at market 97 1,834
Fuel inventories, at average cost 22,237 31,068
Unrecovered purchased gas costs 4,667 9,602
Prepayments and other 40,730 22,953
------- -------
141,853 188,749
------- -------
Other Assets
Regulatory assets 52,125 54,607
Deferred charges and other 10,476 10,029
------- -------
62,601 64,636
------- -------
$766,632 $803,665
======= =======
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $235,266 $218,291
Preferred stock - -
Long-term debt 229,091 229,069
------- -------
464,357 447,360
------- -------
Capital Lease Obligations 8,615 9,679
------- -------
Current Liabilities
Notes payable to banks 59,466 54,428
Current portion of long-term debt - 54,600
Current portion of capital lease
obligations 1,657 1,587
Accounts payable, customer
deposits and accrued liabilities 86,423 96,655
Federal income and other taxes 10,816 4,049
------- -------
158,362 211,319
------- -------
Deferred Credits and Other Liabilities
Deferred Federal income taxes 64,226 62,391
Unamortized investment tax credits 5,835 6,171
Environmental remediation reserve 33,981 33,981
Regulatory and other liabilities 31,256 32,764
------- -------
135,298 135,307
------- -------
$766,632 $803,665
======= =======
</TABLE>
*Derived from audited financial statements
See the notes to the consolidated financial statements<PAGE>
<TABLE>
NUI Corporation and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)
<CAPTION>
Nine Months Twelve Months
Ended Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Operating Activities
Net income $ 22,052 $23,451 $ 18,250 $ 18,448
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Depreciation and
amortization 20,154 18,340 25,854 24,257
Deferred Federal
income taxes 1,911 1,372 3,785 3,645
Amortization of
deferred investment
tax credits (336) (348) (452) (464)
Other 480 1,145 355 1,058
Effect of changes in:
Accounts receivable, net (9,216) (21,858) (8,269) (14,266)
Fuel inventories 8,831 9,517 (2,563) (3,522)
Accounts payable,
deposits and accruals (8,082) 10,997 9,054 14,174
Over (under)
recovered purchased
gas costs 4,935 312 2,009 (6,154)
Other (10,472) (608) (19,571 (5,141)
------ ------ ------ ------
Net cash provided by
operating activities 30,257 42,320 28,452 32,035
Financing Activities
Proceeds from sales of
common stock, net of
treasury stock purchased 3,782 4,030 27,956 3,833
Dividends to shareholders (9,252) (7,886) (11,941) (10,334)
Proceeds from issuance of
long-term debt - - 53,569 -
Funds for construction held
by trustee, net 13,115 13,635 18,264 15,818
Repayments of long-term debt (54,600) (950) (54,600) (987)
Principal payments under
capital lease obligations (1,339) (1,370) (1,699) (1,760
Net short-term borrowings
(repayments) 5,038 5,835 (1,264) 32,950
------ ------ ------ ------
Net cash (used in)
provided by financing
activities (43,256) 13,294 30,285 39,520
------ ------ ------ ------
Investing Activities
Cash expenditures for
utility plant (43,408) (35,923) (58,851) (49,896)
Investment in TIC
Enterprises, LLC (11) (22,000) (595) (22,000)
Other (1,968) 641 (952) (1,834)
------ ------ ------ ------
Net cash used in
investing activities (45,387) (57,282) (60,398) (73,730)
------ ------ ------ ------
Net decrease in cash and
cash equivalents $(58,386) $(1,668) $(1,661) $(2,175)
======= ====== ====== ======
Cash and Cash Equivalents
At beginning of period $ 58,793 $ 3,736 $ 2,068 $ 4,243
At end of period $ 407 $ 2,068 $ 407 $ 2,068
Supplemental Disclosures
of Cash Flows
Income taxes paid, net $ 5,262 $ 3,909 $ 6,361 $ 4,552
Interest paid $ 17,433 15,165 22,028 15,691
</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. It's 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 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):
June 30, September 30,
1998 1997
Common stock, no par value $ 207,243 $ 201,549
Shares held in treasury (1,695) (1,615)
Retained earnings 32,102 19,260
Unrealized gain on marketable securities - 120
Unearned employee compensation (2,384) (1,023)
-------- --------
Total common shareholders' equity $ 235,266 $ 218,291
======== ========
3.Restructuring
On June 4, 1998, the Company announced a reorganization plan to
better position itself in an increasingly competitive
environment. The reorganization plan also included an early
retirement program, which was accepted by 73 of the 77 eligible
employees. In accordance with Statement of Financial Accounting
Standards No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination
Benefits", the Company will record a special termination charge
associated with these retirements in the fourth quarter of fiscal
1998. In addition, as a result of the reorganization effort, the
Company has displaced some of its existing employees. While the
cost of the reorganization effort has not yet been finalized, it
is estimated to be $10 to $12 million and will be recorded in the
fourth quarter of fiscal 1998.
4.New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 "Accounting
for Derivative Instruments and Hedging Activities" (SFAS 133).
This statement establishes accounting and reporting standards
regarding derivative instruments. SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at their
fair value as either an asset or liability, and that changes in
the fair value be recognized currently in earnings unless certain
criteria are met.
SFAS 133 is effective for fiscal years beginning after June 15,
1999. At this time, the Company has elected not to adopt SFAS
133 prior to its effective date. While the impact of adopting
SFAS 133 has not yet been quantified, due to it's nature, there
could be an impact on earnings when adopted.
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.
5.Contingencies
Environmental Matters. The Company is subject to federal and
state laws with respect to water, air quality, solid waste
disposal and employee health and safety matters, and to
environmental regulations issued by the United States
Environmental Protection Agency (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 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 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 June 30, 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. On January 23, 1998 the NJBPU issued an order
approving an interim stipulation concerning rate recovery of
costs incurred under the second RAC filing. Final approval by
the NJBPU on this matter is expected in the fourth quarter. The
Company has also been successful in recovering a portion of MGP
remediation costs incurred for the Northern Division from the
Company's insurance carriers and continues to pursue additional
recovery. 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 Nine Months Twelve Months
Ended Ended Ended
June 30, June 30, June 30,
<S> <C> <C> <C> <C> <C> <C>
1998 1997 1998 1997 1998 1997
Operating Revenues (Dollars
in thousands)
Firm Sales:
Residential $34,553 $41,064 $174,977 $177,769 $198,965 $199,172
Commercia l 14,399 20,623 81,097 92,849 94,482 105,995
Industrial 4,253 4,476 15,751 18,456 20,558 23,268
Interruptible Sales 9,983 11,224 36,023 41,946 49,921 54,329
Unregulated Sales 93,078 36,801 316,281 116,937 377,225 134,473
Transportation Services 8,177 7,097 26,502 21,996 33,123 27,432
Customer Service, Appliance
Leasing and Other 4,561 3,890 13,109 11,167 16,942 14,703
------ ------ ------- ------- ------- -------
$169,004 $125,175 $663,740 $481,120 $791,216 $559,372
======= ======= ======= ======= ======= =======
Gas Sold or Transported
(MMcf)
Firm Sales:
Residential 3,377 3,922 19,848 20,968 21,836 23,163
Commercial 1,828 2,445 10,686 12,617 12,323 14,523
Industrial 1,007 1,086 3,450 3,798 4,471 4,835
Interruptible Sales 3,090 3,508 9,944 10,942 14,076 14,701
Unregulated Sales 38,836 17,102 120,695 41,407 142,107 47,852
Transportation Services 6,716 6,645 23,702 21,461 30,535 28,183
------- ------- ------- ------- ------- -------
54,854 34,708 188,325 111,193 225,348 133,257
======= ======= ======= ======= ======= =======
Average Utility Customers
Served
Firm:
Residential 339,146 335,884 38,848 335,892 337,849 334,697
Commercial 23,257 24,386 23,525 24,430 23,633 24,314
Industrial 276 299 278 310 282 317
Interruptible 105 120 111 122 113 117
Transportation Services 3,373 1,546 2,909 1,381 2,606 1,253
------- ------- ------ ------- ------- -------
366,157 362,235 365,671 362,135 364,483 360,698
======= ======= ======= ======= ======= =======
Degree Days in New Jersey
Actual 476 656 4,339 4,899 4,394 4,945
Normal 575 538 5,207 4,936 5,249 4,978
Percentage variance 17% 22% 17% 1% 16% 1%
from normal warmer colder warmer warmer warmer warmer
Employees (period end) 1,166 1,121
Ratio of Earnings to Fixed
Charges (Twelve months
only) 2.13 2.20<PAGE>
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 ("Energy"); 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 three and nine-month
periods ending June 30, 1998, the effect of the three new taxes
as compared to the 1997 periods had the effect of reducing
operating revenues by approximately $2.8 and $8.6 million,
reducing energy taxes by approximately $3.3 and $10.3 million and
increasing income tax expense by approximately $0.1 and $2.5
million, respectively. The net effect of the change in the tax
law increased net income by approximately $0.3 million, or $.02
per share, in the three-month period ended June 30, 1998, and
decreased net income by $0.5 million, or $.04 per share, for the
nine-month period ended June 30, 1998, as compared to the prior
year periods. The net effect of the change for the twelve-month
period ending June 30, 1998 was equal to the effect of the change
on nine-month period.
Three-Month Periods Ended June 30, 1998 and 1997
Net Income (Loss). Net loss for the three-month period ended
June 30, 1998 was $0.4 million, or $0.03 per share, as compared
with net income of $1.4 million, or $0.12 per share, for the
three-month period ended June 30, 1997. The decrease in the
current period was primarily the result of higher operations and
maintenance, depreciation, other taxes, and lower other income,
partially offset by slightly higher margins.
Operating Revenues and Operating Margins. The Company's operating
revenues include amounts billed for the cost of purchased gas
pursuant to purchased gas adjustment clauses. Such clauses enable
the Company to pass through to its customers, via periodic
adjustments to customers' bills, increased or decreased costs
incurred by the Company for purchased gas without affecting
operating margins. Since the Company's utility operations do not
earn a profit on the gas commodity element of its revenues, the
Company's level of operating revenues is not necessarily
indicative of financial performance. The Company's operating
revenues increased by $43.8 million, or 35%, for the three-month
period ended June 30, 1998 as compared with the three-month
period ended June 30, 1997, principally due to an increase of
approximately $56.3 million in unregulated revenues due to
greater activity. This increase was partially offset by a
decrease 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, mainly in New Jersey where it
was 17% warmer than normal. Additionally, utility revenues
decreased as a result of the tax law changes described above.
The Company's operating margins increased by $0.4 million, or 1%,
for the three-month period ended June 30, 1998 as compared with
the three-month period ended June 30, 1997. The Company's utility
distribution margins reflected a decrease of approximately $0.1
million as increases due to customer growth, higher Energy
Conservation Program rates in Florida and the effect of the
change in the New Jersey tax law described above were offset by
warmer weather in all of the Company's service territories. The
Company's customer service operations increased by approximately
$0.6 million as a result of customer additions by UBS, as well as
increased equipment repair and contract service in New Jersey.
Operating margins from the Company's energy sales and service
operations showed a slight decrease mainly as a result of lower
gas trading profits.
Other Operating Expenses. Operations and maintenance expenses
increased by approximately $1.4 million, or 7%, for the three-
month period ended June 30, 1998 as compared with the three-month
period ended June 30, 1997. The increase was primarily as a
result of higher expenses primarily relating to investments in
the Company's unregulated operations, as well as the 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 due to the investment
performance of pension plan assets.
Depreciation and amortization expense increased by approximately
$0.5 million primarily due to additional plant in service.
Income tax expense decreased by approximately $0.6 million as
lower pre-tax income was partially offset by the change in the
New Jersey tax law described above.<PAGE>
Other Income and (Expense), Net. Other income and expense, net
decreased approximately $0.4 million for the three-month period
ended June 30, 1998 as compared with the three-month period ended
June 30, 1997, primarily due to lower net equity earnings from
TIC, as the prior year reflected equity in TIC since the
effective acquisition date of January 1, 1997. Additionally, the
prior year reflected higher dividend income related to more
marketable equity securities held, and a gain on the sale of
leased property.
Interest Expense. Interest expense decreased by approximately
$0.2 million for the three-month period ended June 30, 1998 as
compared with the three-month period ended June 30, 1997. The
decrease was primarily due to lower average short-term borrowings
and lower average interest rates on long-term debt due to the
refinancing of bonds in October 1997. These decreases were
partially offset by drawdowns of construction funds which have
the effect of lowering interest income on the funds held by the
trustee.
Nine-Month Periods Ended June 30, 1998 and 1997
Net Income. Net income for the nine-month period ended June 30,
1998 was $22.1 million, or $1.76 per share, as compared with net
income of $23.5 million, or $2.10 per share, for the nine-month
period ended June 30, 1997. The decrease in the current period
was primarily due to higher operations and maintenance,
depreciation and interest expenses, and the effect on 1998
results of the New Jersey tax law changes described above. These
increases were partially offset by higher margins.
Net income per share in the current period was affected by the
increased number of outstanding shares of common stock over the
prior period, principally reflecting the Company's issuance of
1.0 million additional shares in September 1997.
Operating Revenues and Operating Margins. The Company's operating
revenues increased by $182.6 million, or 38%, for the nine-month
period ended June 30, 1998 as compared with the nine-month period
ended June 30, 1997. The increase was principally due to an
increase of unregulated sales of approximately $199.3 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 the 1998 period 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 $7.6 million, or 5%,
for the nine-month period ended June 30, 1998 as compared with
the nine-month period ended June 30, 1997. The increase was
primarily attributable to an increase of $6.1 million in the
Company's utility distribution operations as a result of customer
growth in all territories, the effects of changes in the New
Jersey tax law described above, and an additional $1.5 million
due to the effect of a change in the calculation of the New
Jersey weather normalization clause. 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. 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
October 1, 1996, but were not recorded by the Company until the
fourth quarter of fiscal 1997. Operating margins increased in
the customer service operations by approximately $1.9 million due
to the effect of an increase in the appliance leasing rates in
Florida, customer additions by UBS and increased customer service
activity in New Jersey. Operating margins from the Company's
unregulated operations decreased by approximately $0.1 million
primarily due to lower gas trading profits. 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
weather normalization clauses, operating margins were
approximately $5.6 million and $0.7 million higher in the 1998
and 1997 periods, respectively, than they would have been without
such clauses.
Other Operating Expenses. Operations and maintenance expenses
increased by approximately $2.8 million, or 4%, for the nine-
month period ended June 30, 1998 as compared with the nine-month
period ended June 30, 1998. The increase was primarily the result
of higher expenses associated with the continued growth of the
Company's unregulated operations plus the reversal of certain
reserves in the prior year which management determined were no
longer required. These increases were partially offset by a
higher pension credit due to the investment performance of
pension plan assets.
Depreciation and amortization increased approximately $2.3
million over the prior year period primarily due to additional
plant in service.
Income tax expense increased by approximately $2.3 million as a
result of the change in the New Jersey tax law described above,
partially offset by lower pre-tax income.
Other Income and (Expense), Net. Other income and expense, net
decreased approximately $0.4 million for the nine-month period
ended June 30, 1998 as compared with the nine-month period ended
June 30, 1997. The decrease was primarily due to lower results
from TIC in the current year as a result of start-up costs
related to the addition of new vendor partnerships.
Interest Expense. Interest expense increased by approximately
$0.5 million for the nine-month period ended June 30, 1998 as
compared with the nine-month period ended June 30, 1997. The
increase was primarily due to 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.
Twelve-Month Periods Ended June 30, 1998 and 1997
Net Income. Net income for the twelve-month period ended June 30,
1998 was $18.3 million, or $1.49 per share, as compared with
$18.4 million, or $1.66 per share, for the twelve-month period
ended June 30, 1997. The decrease in the current period was
primarily due to higher operations and maintenance, depreciation
and interest expenses, and the effect of the changes in the New
Jersey tax law described above. These variances were partially
offset by higher operating margins.
Net income per share for the twelve-month period ended June 30,
1998 as compared to the twelve-month period ended June 30, 1997
was affected by the increased number of outstanding shares of
common stock reflecting the Company's issuances of 1.0 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 June 30, 1998
increased approximately $231.8 million, or 41%, as compared with
the twelve-month period ended June 30, 1997. The increase was
primarily due to an increase in sales by the Company's
unregulated operations of approximately $242.8 million, and
increased customer service and appliance leasing revenues. These
increases were partially offset by warmer weather in the current
period in all of the Company's service territories, as well as
the effect of the changes in the New Jersey tax law described
above.
The Company's operating margins increased by $12.5 million, or
7%, for the twelve-month period ended June 30, 1998 as compared
with the twelve-month period ended June 30, 1997. The increase
reflects approximately $9.2 million of additional margins
generated by the Company's utility distribution operations,
approximately $2.5 million of additional margins generated by the
Company's customer service and appliance leasing operations, and
approximately $2.1 million of additional margins generated by the
Company's unregulated operations. The increase in the Company's
utility distribution operations was primarily due to customer
growth, changes in the New Jersey tax law described above and the
change in the calculation of the weather normalization clause in
New Jersey. The increase in the customer service and appliance
leasing operations was primarily due to the an increase in
leasing rates in Florida, customer additions by UBS, and
increased customer service activity in New Jersey. The increase
in the unregulated operations was primarily due to increased
activity as well as favorable market conditions in the quarter
ended September 30, 1997. As a result of weather normalization
clauses, operating margins were approximately $5.6 million and
$0.7 million more in the 1998 and 1997 periods, respectively,
than they would have been without such clauses.
Other Operating Expenses. Operations and maintenance expenses
increased approximately $4.6 million, or 5%, for the twelve-month
period ended June 30, 1998 as compared with the twelve-month
period ended June 30, 1997. The increase was primarily the result
of higher expenses related to the continued growth of the
Company's unregulated operations, and the reversal of certain
reserves in the prior year period that management determined were
no longer required. These increases were partially offset by a
higher pension credit due to the investment performance of
pension plan assets.
Depreciation and amortization expense increased by approximately
$3.3 million over the prior year period primarily as a result of
additional plant in service.
Income taxes increased by approximately $2.8 million over the
prior year period due primarily to the changes in the New Jersey
tax law described above.
Interest Expense. Interest expense increased by $1.4 million for
the 1998 period as compared with the 1997 period. The increase
was primarily due to the 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.
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 corporations in the State, and the NJ TEFA.
The legislation was intended, in part, to provide comparability
between utilities that paid gross receipts and franchise taxes
and non-utility energy companies that did not. A key objective of
this legislation was to maintain energy tax revenue neutrality in
1998. The NJ 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 NJ 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 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 fourth quarter.<PAGE>
Financing Activities and Resources
The Company had net cash provided by operating activities of
$30.3 million for the nine-month period ended June 30, 1998 as
compared with $42.3 million for the nine-month period ended
June 30, 1997. The decrease was primarily due to more timely
payments of accounts payable and accruals in the current year,
partially offset by better collections on receivables and
additional collections of gas costs under the Company's purchased
gas adjustment clauses. For the twelve-month period ended June
30, 1998, the Company had net cash provided by operating
activities of $28.5 million as compared with $32.0 million for
the twelve-month period ended June 30, 1997. The decrease was
primarily due to the same reasons described for the nine-month
period.
Because the Company's business is highly seasonal, short-term
debt is used to meet seasonal working capital requirements. The
Company also borrows under its bank lines of credit to finance
portions of its capital expenditures, pending refinancing through
the issuance of equity or long-term indebtedness at a later date
depending upon prevailing market conditions.
Short-Term Debt. The weighted average daily amounts outstanding
of notes payable to banks and the weighted average interest rates
on those amounts were $63.4 million at 5.8% for the nine-month
period ended June 30, 1998 and $64.4 million at 5.3% for the
nine-month period ended June 30, 1997. At June 30, 1998, the
Company had outstanding notes payable to banks amounting to $59.5
million and available unused lines of credit amounting to
$86.5 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 June 30,
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 June 30, 1998, the total
unexpended portions of all of the Company's Gas Facilities
Revenue Bonds were $10.7 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 $3.9 and $4.0
million for the nine-month periods ended June 30, 1998 and 1997,
respectively, and were used primarily to reduce outstanding
short-term debt. Effective May 26, 1998 several of these plans
commenced purchasing shares on the open market to fulfill the
plans' requirements. Under the terms of these plans, the Company
may periodically change the method of purchasing from open market
purchases to purchases directly from the Company, or vice versa.
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 $50.7 million of cash dividends at
June 30, 1998.
Capital Expenditures and Commitments
Capital expenditures, which consist primarily of expenditures to
expand and upgrade the Company's gas distribution systems, were
$43.8 million for the nine-month period ended June 30, 1998 as
compared with $35.9 million for the nine-month period ended June
30, 1997. Capital expenditures are expected to be approximately
$60 million for fiscal 1998, as compared with a total of $52.3
million in fiscal 1997.
The Company owns or previously owned six former 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. On January 23, 1998 the NJBPU issued an order approving an
interim stipulation concerning rate recovery of costs incurred
under the second RAC filing. Final approval by the NJBPU on this
matter is expected in the fourth 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 $74 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 was 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.<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
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.
August 14, 1998 President and Chief
Executive Officer
A. MARK ABRAMOVIC
August 14, 1998 Senior Vice President and
Chief Financial Officer<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 521,046
<OTHER-PROPERTY-AND-INVEST> 41,132
<TOTAL-CURRENT-ASSETS> 141,853
<TOTAL-DEFERRED-CHARGES> 62,601
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 766,632
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 207,243
<RETAINED-EARNINGS> 32,100
<TOTAL-COMMON-STOCKHOLDERS-EQ> 235,266
0
0
<LONG-TERM-DEBT-NET> 229,091
<SHORT-TERM-NOTES> 59,466
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 8,615
<LEASES-CURRENT> 1,657
<OTHER-ITEMS-CAPITAL-AND-LIAB> 232,537
<TOT-CAPITALIZATION-AND-LIAB> 766,632
<GROSS-OPERATING-REVENUE> 633,740
<INCOME-TAX-EXPENSE> 14,676
<OTHER-OPERATING-EXPENSES> 614,011
<TOTAL-OPERATING-EXPENSES> 628,266
<OPERATING-INCOME-LOSS> 35,474
<OTHER-INCOME-NET> 781
<INCOME-BEFORE-INTEREST-EXPEN> 36,255
<TOTAL-INTEREST-EXPENSE> 14,203
<NET-INCOME> 22,052
0
<EARNINGS-AVAILABLE-FOR-COMM> 22,052
<COMMON-STOCK-DIVIDENDS> 9,252
<TOTAL-INTEREST-ON-BONDS> 5,488
<CASH-FLOW-OPERATIONS> 30,257
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.76
</TABLE>
