UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 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
550 Route 202-206, P. O. 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)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:
Common Stock, No Par Value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 of 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:
X
Indicate by check mark if disclosure of delinquent filers, pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference to Part III of
this Form 10-K or any amendment to the Form 10-K:
X
The aggregate market value of 11,901,584 shares of common stock held by
non-affiliates of the registrant calculated using the $24.3125 per share
closing price on November 30, 1998 was $289,357,261.
The number of shares outstanding for each of the registrant's classes of
common stock, as of November 30, 1998:<PAGE>
Common Stock, No Par Value: 12,656,781 shares outstanding.
Documents incorporated by reference: NUI Corporation's definitive Proxy
Statement for the Company's Annual Meeting of Stockholders, filed with
the Securities and Exchange Commission on December 28, 1998.<PAGE>
NUI Corporation
Annual Report on Form 10-K For The
Fiscal Year Ended September 30, 1998
TABLE OF CONTENTS
PART I
Page
Item 1. Business................................................1
Item 2. Properties..............................................9
Item 3. Legal Proceedings.......................................9
Item 4. Submission of Matters to a Vote of Security Holders.....9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................10
Item 6. Selected Financial Data................................11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................13
Item 8. Financial Statements and Supplementary Data............22
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................22
PART III
Item 10. Directors and Executive Officers of the Registrant....23
Item 11. Executive Compensation................................23
Item 12. Security Ownership of Certain Beneficial Owners and
Management...........................................23
Item 13. Certain Relationships and Related Transactions........23
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..............................................24<PAGE>
NUI Corporation
Annual Report on Form 10-K for the
Fiscal Year Ended September 30, 1998
PART I
Item 1. Business
NUI Corporation (NUI or the Company) was incorporated in New Jersey in
1969. NUI is a multi-state energy sales, services and distribution
company. The Company's natural gas utility distribution operations serve
approximately 366,000 customers in six states along the eastern seaboard
and comprise Elizabethtown Gas (New Jersey), 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 it's NUI Energy, Inc.
subsidiary; wholesale energy brokerage and related services through its
NUI Energy Brokers, Inc. subsidiary; energy project development and
consulting through its NUI Energy Solutions, Inc. subsidiary;
environmental project development services through its NUI Environmental
Group, Inc. subsidiary; customer account management and field operations
systems and services through its Utility Business Services, Inc.
subsidiary; and sales and marketing outsourcing through its 49% equity
interest in TIC Enterprises, LLC (see Note 2 of the Notes to the
Consolidated Financial Statements).
The principal executive offices of the Company are located at 550 Route
202-206, Box 760, Bedminster, NJ 07921-0760; telephone: (908) 781-0500.
Territory and Customers Served
See Item 6 - "Selected Financial Data-Summary Consolidated Operating
Data" for summary information by customer class with respect to
operating revenues, gas volumes sold or transported and average number
of utility customers served. The Company's primary business is its
utility operations, which serve approximately 366,000 customers, of
which 67% are in New Jersey and 33% are in other states. Most of the
Company's utility customers are residential and commercial customers who
purchase gas primarily for space heating. The Company's operating
revenues for fiscal 1998 amounted to approximately $828 million, of
which 36% was generated by utility operations in New Jersey, 13% was
generated by utility operations in other states and 51% by the Company's
unregulated activities. Gas volumes sold or transported in fiscal 1998
amounted to 245.7 million Mcf, of which approximately 26% was sold or
transported in New Jersey, 7% was sold or transported in other states
and 67% represented unregulated sales. An Mcf is a basic unit of
measurement for natural gas comprising 1,000 cubic feet of gas.
Natural Gas Utility Operations
Elizabethtown Gas. The Company, through Elizabethtown Gas
(Elizabethtown), provides gas service to approximately 244,000 customers
in franchised territories within seven counties in central and
northwestern New Jersey. Elizabethtown's 1,300 square-mile service
territory has a total population of approximately 950,000. Most of the
state's customers are located in densely-populated central New Jersey,
where increases in the number of customers are primarily from
conversions to gas heating from alternative forms of heating.<PAGE>
Elizabethtown's gas volumes sold or transported and customers served for
the past three fiscal years were as follows:<PAGE>
Gas Volumes Sold or Transported (in thousands of Mcf)
1998 1997 1996
Firm Sales:
Residential 18,299 19,485 20,862
Commercial 7,587 9,333 11,337
Industrial 3,903 4,085 4,709
Interruptible Sales 11,927 12,886 11,885
Unregulated Sales 17,124 14,753 7,062
Transportation Sales 23,367 22,510 19,793
------ ------ ------
Total 82,207 83,052 75,648
====== ====== ======
Utility Customers Served (twelve-month average)
1998 1997 1996
Firm Sales:
Residential-Heating 168,475 165,305 162,156
Residential-Non-heating 56,358 57,380 58,558
Commercial 15,907 16,922 17,232
Industrial 229 262 291
Interruptible Sales 72 72 72
Transportation Services 2,773 1,373 600
------- ------- -------
Total 243,814 241,314 238,909
======= ======= =======
Gas volumes sold to the Company's firm customers are sensitive to the
weather in New Jersey. In fiscal 1998, the weather in New Jersey was 17%
warmer than normal and 9% warmer than the prior year. Additionally,
weather in fiscal 1997 was 4% warmer than normal and 11% warmer than
fiscal 1996. While the effect of the warm weather has caused sales of
gas to decline, Elizabethtown's tariff contains a weather normalization
clause that is designed to help stabilize the Company's results by
increasing amounts charged to customers when weather has been warmer
than normal and 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 $2.0 million higher in
fiscals 1998 and 1997, respectively, than they would have been without
such clauses. For a further discussion on variations in revenues, see
Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
The growth in the number of residential heating customers principally
reflects the Company's marketing emphasis to convert residential non-
heating customers to full gas heating service. Approximately 70% of the
residential heating customers added in New Jersey since 1991 represented
homes that were converted to gas heating from other forms of space
heating and the remainder consisted of new homes.<PAGE>
In response to proposed new energy legislation in New Jersey, the
Company recently filed a proposed residential transportation program to
allow customers to contract with third-party suppliers by September
2001. Action by the New Jersey Board of Public Utilities (NJBPU) on
this proposal is anticipated in early 1999.
Effective January 1, 1995, the NJBPU authorized new tariffs designed to
provide for the unbundling of natural gas transportation and sales
service to commercial and industrial customers. As of September 30,
1998, 2,930 commercial sales customers had switched to transportation-
only service under the new tariff. The commercial sales market
continues to grow. In fiscal 1998, 673 schools and businesses converted
to gas heating systems with the Company or switched from interruptible
service to commercial firm service.
The Company's industrial customers also have the ability to utilize
transportation service and purchase their gas from other suppliers. The
rate charged to transportation customers remains regulated as to price
and returns. Tariffs for transportation service have been designed to
provide the same margins as bundled sales tariffs. Therefore, except
for the regulatory risk of full recovery of gas costs, the Company is
financially indifferent as to whether it transports gas or sells gas and
transportation together.
Elizabethtown's "interruptible" customers have alternative energy
sources and use gas on an "as available" basis. Variations in the volume
of gas sold or transported to these customers do not have a significant
effect on the Company's earnings because in accordance with New Jersey
regulatory requirements, 80% of the margins that otherwise would be
realized on gas sold or transported to interruptible customers are used
to reduce gas costs charged to firm sales customers. This percentage was
reduced, effective May 12, 1997, from 90% of interruptible sales margins
and 95% of transportation margins.
The Company provides gas sales and transportation services comprising
20% of the primary fuel requirements of a 614 megawatt cogeneration
facility that began commercial operation in New Jersey in July 1992 to
supply electric power to New York City. In fiscal 1998, sales and
transportation of gas to this customer accounted for approximately 7% of
the Company's operating revenues and approximately 9% of total gas sold
or transported. The Company was authorized by the NJBPU to retain a
total of approximately $2.3 million of the operating margins realized
from these sales. The Company reached this maximum during fiscal 1995
and, therefore, all margins realized from the sale of gas to this
customer in fiscals 1998, 1997 and 1996 were used to reduce gas costs
charged to firm customers.
In order to maximize the value of the Company's gas supply portfolio, in
fiscal 1995 the Company began selling available gas supply and excess
interstate pipeline capacity to other gas service companies and to
customers located outside of the Company's service territories. The
price of gas sold to these customers is not regulated by the NJBPU,
however the NJBPU has authorized the Company to retain 15% of the
margins realized from these sales. This percentage was decreased from
20% effective August 20, 1998. The percentage of these margins that is
not retained is used to reduce gas costs charged to firm customers.
City Gas Company of Florida. City Gas Company of Florida (City Gas) is
the second largest natural gas utility in Florida, supplying gas to over
98,000 customers in Dade and Broward Counties in south Florida, and in<PAGE>
Brevard, Indian River and St. Lucie Counties in central Florida. City
Gas' service areas cover approximately 3,000 square miles and have a
population of approximately 1.7 million.
City Gas' gas volumes sold or transported and customers served for the
past three fiscal years were as follows:
Gas Volumes Sold or Transported (in thousands of
Mcf)
1998 1997 1996
Firm Sales:
Residential 1,880 1,850 2,130
Commercial 3,572 3,944 4,096
Interruptible Sales 461 1,162 1,259
Unregulated Sales 5,956 4,124 1,779
Transportation Sales 3,388 2,277 908
------ ------ ------
Total 15,257 13,357 10,172
====== ====== ======<PAGE>
Utility Customers Served (twelve-month average)
1998 1997 1996
Firm Sales:
Residential 93,227 92,724 92,179
Commercial 4,748 4,706 4,629
Interruptible Sales 10 16 19
Transportation Services 125 51 36
------ ------ ------
Total 98,110 97,497 96,863
====== ====== ======
City Gas' residential customers purchase gas primarily for water
heating, clothes drying and cooking. Some customers, principally in
central Florida, also purchase gas to provide space heating during the
relatively mild winter season. Year-to-year growth in the average number
of residential customers primarily reflects new construction. The rate
of residential market growth has slowed in fiscal 1998 and 1997, as
build-out commitments from prior years expansions in the south Florida
service areas were concluded. On March 31, 1998, City Gas purchased a
city-owned and operated propane distribution system from Port St. Lucie.
The system was converted to natural gas during the year and added 1,200
residential homes and one major commercial property. The volume from
the residential market in fiscal 1996 benefited from cooler weather in
Central Florida than experienced in fiscals 1998 and 1997.
City Gas' commercial business consists primarily of schools, businesses
and public facilities, of which the number of customers tends to
increase concurrently with the continuing growth in population within
its service areas. As with its residential markets, the Company is
seeking to maximize the utilization of its existing mains by emphasizing
marketing efforts toward potential commercial business along these
lines.
City Gas' industrial customers and certain commercial customers, are
served under tariffs applicable to "interruptible" customers. Unlike
Elizabethtown, City Gas' interruptible customers do not generally have
alternative energy sources, although their service is on an "as
available" basis. The Company retains all of the operating margins from
sales to these customers.
Certain commercial and industrial customers have converted their natural
gas service from a sales basis to a transportation basis. City Gas'
transportation tariff provides margins on transportation services that
are substantially the same as margins earned on gas sales. In November
1997, the Florida Public Service Commission (FPSC) approved City Gas'
proposal to offer unbundled gas service to certain small commercial
customers, in a manner similar to that currently in place in the
Company's New Jersey service territory.
During fiscal 1996, the Company began selling available gas supply and
excess interstate pipeline capacity to other gas service companies and
to customers located outside of the Company's service territories. The
price of gas sold to these customers is not regulated by the FPSC;
however, the FPSC has ordered that 50% of the margins realized from
these sales be used to reduce gas costs charged to firm customers.<PAGE>
North Carolina Gas. The Company, through North Carolina Gas, provides
gas service to approximately 13,800 customers in Rockingham and Stokes
Counties in North Carolina, which territories comprise approximately 560
square miles. During fiscal 1998, North Carolina Gas sold or transported
approximately 4.4 million Mcf of gas as follows: 18% sold to residential
customers, 11% sold to commercial customers, 20% sold to industrial
customers on system, 13% sold to industrial customers through
unregulated off-system sales, and 38% transported to commercial and
industrial customers. The North Carolina Public Utilities Commission has
ordered that 75% of margins realized from off-system sales be used to
reduce gas costs charged to firm customers.
Elkton Gas Service ("Elkton"). The Company, through Elkton, provides
gas service to approximately 3,800 customers in franchised territories
comprising approximately 14 square miles within Cecil County, Maryland.
During fiscal 1998, Elkton sold approximately 761,000 Mcf of gas as
follows: 24% sold to residential customers, 20% sold to commercial
customers and 56% sold to industrial customers.
Valley Cities Gas Service ("VCGS") and Waverly Gas Service ("WGS").
VCGS and WGS provide gas service to approximately 6,200 customers in
franchised territories comprising 104 square miles within Bradford
County, Pennsylvania and the Village of Waverly, New York and
surrounding areas, respectively. During fiscal 1998, VCGS and WGS sold
or transported approximately 3.9 million Mcf of gas as follows: 13% sold
to residential customers, 7% sold to commercial customers, 3% sold to
industrial customers on system, 16% sold to industrial customers through
unregulated sales off-system, and 61% transported to commercial and
industrial customers.
Gas Supply and Operations
In recent years, the gas industry has been undergoing structural changes
in response to policies of the Federal Energy Regulatory Commission
(FERC) and local regulatory commissions designed to increase
competition. Traditionally, interstate pipelines were wholesalers of
natural gas to local distribution companies and generally did not
provide separate transportation or other services for specific
customers. In 1992, the FERC issued Order No. 636 that, among other
things, mandated the separation or "unbundling" of interstate pipeline
sales, transportation and storage services and established guidelines
for capacity management effective in 1993. In fiscal 1995, the NJBPU
unbundled the services provided and the rates charged to New Jersey
commercial and small industrial customers as well. The transition to
more competitive rates and services has the effect of increasing the
opportunity for local gas distribution companies, and industrial and
commercial customers to purchase natural gas from alternative sources,
while increasing the potential business and regulatory risk borne by a
local gas distribution company with respect to the acquisition and
management of natural gas services.
The Company endeavors to utilize its pipeline capacity efficiently by
matching capacity to its load profile to the extent feasible. To this
end, the Company has had a broad unbundled service tariff for certain of
its customers since 1987. The Company continues to avail itself of
opportunities to improve the utilization of its pipeline capacity by
pursuing broad based customer growth, including off-peak markets and
utilizing capacity release and off-system sales opportunities afforded
by Order No. 636 when operationally feasible.
The Company's gas supply during fiscal 1998 came from the following
sources: approximately 18% from purchases under contracts with primary
pipeline suppliers and additional purchases under their filed tariffs;
approximately 82% from purchases from various producers and gas
marketers, and purchases under long-term contracts with independent
producers and less than 1% from propane and liquefied natural gas
("LNG"). The Company manages its gas supply portfolio to assure a
diverse, reliable and secure supply of natural gas at the lowest
reasonable cost. In fiscal 1998, the Company's largest single supplier
accounted for approximately 10% of the Company's total gas purchases.
The Company has long-term gas delivery contracts with seven interstate
pipeline companies. Under these contracts, the Company has a right to
deliver, on a firm year-round basis, of up to 93.7 million Mcf of
natural gas annually with a maximum of approximately 277,000 Mcf per
day. Both the price and conditions of service under these contracts are
regulated by the FERC.
The Company has long-term gas purchase contracts for the supply of
natural gas for its system with seven suppliers, including one
interstate pipeline company, three gas marketers and three independent
producers. Under these contracts, the Company has a right to purchase,
on a firm year-round basis, up to 36 million Mcf of natural gas annually
with a maximum of approximately 98,600 Mcf per day. In order to achieve
greater supply flexibility, and to more closely match its gas supply
portfolio to changes in the market it serves, the Company recently
allowed a long-term gas supply contract to expire at the conclusion of
its primary terms. As a result, the Company has reduced its fixed gas
cost obligations. The Company has replaced the supply with both spot
market gas and shorter-term, seasonal firm supply, thus reducing the
average term of its long-term obligations. In addition, the Company has
access to spot market gas through the interstate pipeline system to
supplement or replace, on a short-term basis, portions of its long-term
gas purchase contracts when such actions can reduce overall gas costs or
are necessary to supply interruptible customers. In fiscal 1995, the
Company, along with seven other Northeastern and Mid-Atlantic gas
distribution companies, formed the East Coast Natural Gas Cooperative
LLC (the "Co-op"). The Co-op was formed with the goal of jointly
managing certain portions of the members' gas supply portfolios, to
increase reliability and reduce costs of service to customers, and to
improve the competitive position of the member companies. Participation
in and reliance upon certain contractual arrangements among Co-op
members has allowed the Company to reduce costs associated with winter
services.
In order to have available sufficient quantities of gas during the
heating season, the Company stores gas during non-peak periods and
purchases supplemental gas, including propane, LNG and gas available
under contracts with certain large cogeneration customers, as it deems
necessary. The storage contracts provide the Company with an aggregate
of 15 million Mcf of natural gas storage capacity and provide the
Company with the right to receive a maximum daily quantity of 176,100
Mcf. The contracts with cogeneration customers provide 35,800 Mcf of
daily gas supply to meet peak loads by allowing the Company to take back
capacity and supply that otherwise is dedicated to serve those
customers.
The Company has an LNG storage and vaporization facility in New Jersey
for handling peak gas demand. It has a daily delivery capacity of
29,800 Mcf and storage capacity of 131,000 Mcf.
The Company's maximum daily sendout in fiscal 1998 was approximately
348,500 Mcf in New Jersey and 77,900 Mcf in the other service
territories combined. The Company maintains sufficient gas supply and
delivery capacity for a maximum daily sendout capacity for New Jersey of
approximately 402,500 Mcf and approximately 121,300 Mcf for the other
service territories combined.
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 nine 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 distributes gas through approximately 6,100 miles of steel,
cast iron and plastic mains. The Company has physical interconnections
with five interstate pipelines in New Jersey and one interstate pipeline
in Florida. In addition, the Company has physical interconnections in
North Carolina and Pennsylvania with interstate pipelines, which also
connect to New Jersey. Common interstate pipelines along the Company's
operating system provide the Company with greater flexibility in
managing pipeline capacity and supply, and thereby optimizing system
utilization.
Regulation
The Company is subject to regulation with respect to, among other
matters, rates, service, accounting and the issuance of securities. The
Company is subject to regulation as an operating utility by the public
utility commissions of the states in which it operates. The Company is
also subject to regulation by the United States Department of
Transportation under the Natural Gas Pipeline Safety Act of 1968, with
respect to the design, installation, testing, construction and
maintenance of pipeline facilities. Natural gas purchases,
transportation service and storage service provided to the Company by
interstate pipeline companies are subject to regulation by the FERC (see
"Gas Supply and Operations"). In addition, the Company is subject to
federal and state legislation with respect to water, air quality, solid
waste disposal and employee health and safety matters, and to
environmental regulations issued by the United States Environmental
Protection Agency, the New Jersey Department of Environmental Protection
and other federal and state agencies.
The Company's current rates and tariffs for New Jersey reflect a rate
case that was settled in October 1991, under which the Company obtained
a weather normalization clause - see "Elizabethtown Gas". In December
1994, the NJBPU authorized new tariffs which are designed to provide for
unbundling of natural gas transportation and sales services for
Elizabethtown's commercial and industrial customers. The new tariffs
became effective on January 1, 1995 and are designed to be neutral as to
the operating margins of the Company.
The current rates and tariffs for the Florida operations were authorized
on October 29, 1996. The FPSC voted to authorize the Company to increase
its base rates in Florida by $3.75 million annually. The rate increase
reflected a rate base amounting to $91.9 million, which includes the
addition of investments in system improvements and expansion projects.
Under the approval, the allowed return on equity is 11.3% with an
overall after-tax rate of return of 7.9%. The increase became effective
on November 28, 1996. The FPSC order also gives the Company the
flexibility to negotiate rates with certain business customers that have
access to other energy sources.
The current rates and tariffs for the North Carolina, Maryland,
Pennsylvania and New York operations were authorized between October
1988 and September 1995. These operations serve approximately 20,000
customers in aggregate. The tariff for NCGS reflects a weather
normalization clause for its temperature sensitive residential and
commercial customers.
The Company's tariffs for each state in which it operates contain
adjustment clauses that enable the Company to recover purchased gas
costs. The adjustment clauses provide for periodic reconciliations of
actual recoverable gas costs with the estimated amounts that have been
billed. Under or over recoveries at the reconciliation date are
recovered from or refunded to customers in subsequent periods.
Seasonal Aspects
Sales of gas to some classes of customers are affected by variations in
demand due to changes in weather conditions, including normal seasonal
variations throughout the year. The demand for gas for heating purposes
is closely related to the severity of the winter heating season.
Seasonal variations affect short-term cash requirements.
Unregulated Operations
NUI Energy, Inc. (NUI Energy) provides retail gas sales and related
services to unbundled retail commercial and industrial customers. NUI
Energy's operating margins were $2.5 million in fiscal 1998 as compared
with $2.4 million in fiscal 1997 and $1.1 million in fiscal 1996.
However, expenses related to the growth of this operation have resulted
in net losses in each of these years. In an effort to increase
efficiencies in the operation, during fiscal 1998, NUI Energy sold its
contracts with 833 non-strategic commercial accounts outside of the
Company's utility distribution service territories. These volumes have
been replaced by sales to a single commercial aggregator in these same
non-strategic areas.
NUI Energy Brokers, Inc. (NUI Energy Brokers) was formed in 1996 to
provide the wholesale energy trading, brokering, and risk management
activities of the Company. NUI Energy Brokers trades physical natural
gas in four geographic regions: the Northeast, Southeast, Gulf Coast,
and Mid Continent. In addition, NUI Energy Brokers trades futures and
options contracts on the New York Mercantile Exchange. The risk
associated with trading activities is closely monitored on a daily basis
and controlled in accordance with the Company's Risk Management Policy.
As in any commodity brokerage activity, however, there are risks
pertaining to market changes and credit exposure that can be managed but
not eliminated. Therefore, the earnings from NUI Energy Brokers are
likely to be more volatile than the Company's utility distribution
business. NUI Energy Brokers generated margins of $2.8 million in
fiscal 1998, $3.6 million in fiscal 1997 and $1.6 million in fiscal
1996.
Utility Business Services, Inc. (UBS) provides customer information
systems and geographic information system services to investor-owned and
municipal utilities, as well as third-party providers in the gas, water
and wastewater markets. WINS, the premiere customer information system
developed and maintained by UBS, is presently serving almost 20 clients
with state-of-the-art capabilities in support of almost 600,000
customers. In addition to generating over three million bills each year,
UBS assists clients in allied areas such as automatic meter reading,
payment processing, and account recovery. Geographic information
services are currently provided to nine clients.
NUI Environmental Group, Inc. (NUI Environmental) was formed by the
Company in fiscal 1996 to develop a solution to the rapidly decreasing
accessibility of the New York/New Jersey harbor to international
commercial shipping traffic. On December 23, 1998, NUI Environmental was
selected from a group of sixteen firms that responded to a request for
proposal by the State of New Jersey to participate in a Sediment
Decontamination Demonstration Project designed to identify new
technologies for the productive dredging of the harbor. NUI
Environmental must demonstrate the effectiveness of its technology
through the pilot scale project, in which it must treat 200 gallons of
dredged material from the harbor. If successful in the pilot program,
NUI Environmental will contract with the State of New Jersey to treat
between 30,000 and 150,000 cubic yards of material.
On May 18, 1997, the Company closed on its acquisition of a 49% interest
in TIC Enterprises, LLC (TIC), a newly formed limited liability company,
for a purchase price of $22 million. The acquisition was effective as of
January 1, 1997 and is being accounted for under the equity method. TIC
engages in the business of recruiting, training and managing sales
professionals and serving as sales and marketing representatives for
various businesses (see Note 2 of the Notes to the Consolidated
Financial Statements).
NUI Energy Solutions, Inc. (NUI Energy Solutions) was formed by the
Company in fiscal 1998 to provide energy management and consulting
services to existing and new customers. NUI Energy Solutions realized
success in 1998, primarily through its project of converting a New
Jersey State corrections facility to gas, resulting in a contract for
NUI Energy Solutions to modify their boilers and a seven year contract
to supply gas commodity. Additionally, during the year, NUI Energy
Solutions was selected by Union County in New Jersey for a seven year
contract to be the County's exclusive energy manager. Due to start-up
costs associated with this business, NUI Energy Solutions recorded a
loss in fiscal 1998.
Persons Employed
As of September 30, 1998, the Company employed 1,081 persons, of which
296 employees in New Jersey were represented by the Utility Workers
Union of America (Local 424), 93 employees in Florida (Locals 769 and
385) and 17 employees in Pennsylvania (Local 529) were represented by
the Teamsters Union, and 44 employees in North Carolina were represented
by the International Brotherhood of Electrical Workers (Local 2291). The
current collective bargaining agreement with the New Jersey union was
negotiated effective December 10, 1998 and expires on November 20, 2001.
The North Carolina union collective bargaining agreement was negotiated
on August 20, 1998, and expires on August 20, 2001. The collective
bargaining agreement in Pennsylvania was negotiated on November 30, 1997
and expires on September 30, 1999. The collective bargaining agreement
in Florida was negotiated on March 31, 1998 and expires on March 31,
2001.
Competition
The Company competes with distributors of other fuels and forms of
energy, including electricity, fuel oil and propane, in all portions of
the territories in which it has distribution mains. In addition, in
1992, the FERC issued Order No. 636 (see "Gas Supply and Operations").
Subsequently, initiatives were sponsored in various states, the purposes
of which were to "unbundle" or separate into distinct transactions, the
purchase of the gas commodity from the purchase of transportation
services for the gas. To that end, as discussed under "Regulation",
several of the Company's operating divisions have unbundled commercial
and industrial gas purchase and transportation rates.
The unbundled sale of gas to customers is subject to competition from
unregulated marketers and brokers, which generally do not bear the
obligations or costs related to operating a regulated utility. Tariffs
for transportation service have generally been designed to provide the
same margins as bundled sales tariffs. Therefore, except for the
regulatory risk of full recovery of gas costs, the Company is
financially indifferent as to whether it transports gas, or sells gas
and transportation together. The Company also faces the risk of loss of
transportation service for large industrial customers which may have the
ability to build connections to interstate gas pipelines and bypass the
Company's distribution system. Gas distributors can also expect
increased competition from electricity as deregulation in that industry
decreases prices and increases supply sources. Alternatively,
opportunities may increase for gas service to fuel generators for large
industrial customers, replacing electric utility service.
The Company believes that in order to compete effectively, it must offer
a greater variety of services at competitive prices. To this end, the
Company has undertaken substantial measures to reorganize itself to
prepare for the competitive challenges of the deregulated energy
services market. During fiscal 1998, each of the major service lines of
the Company were established as separate business units. This is
expected to provide several benefits, including focusing management
efforts on potential growth opportunities in its core business, and
streamlining the management structure of the Company. See Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results
of Operations - Competition and Outlook" for a discussion of these
actions.
Franchises
The Company holds non-exclusive municipal franchises and other consents
which enable it to provide natural gas in the territories it serves. The
Company intends to seek to renew these franchises and consents as they
expire.
Environment
Reference is made to Item 7- "Management's Discussion and Analysis of
Financial Condition and Results of Operations- Capital Expenditures and
Commitments" and Note 11, "Commitments and Contingencies" of the "Notes
to the Consolidated Financial Statements" for information regarding
environmental matters affecting the Company.
Item 2. Properties
The Company owns approximately 6,114 miles of steel, cast iron and
plastic gas mains, together with gate stations, meters and other gas
equipment. In addition, the Company owns peak shaving plants, including
an LNG storage facility in Elizabeth, New Jersey.
The Company also owns real property in Union, Middlesex, Warren, Sussex
and Hunterdon counties in New Jersey, and in Dade, Broward, Brevard and
St. Lucie counties in Florida, portions of which are under lease to
others. The Company's properties include office buildings in Hialeah and
Rockledge, Florida that serve as the principal operating offices for the
Florida operations; and office buildings in both Reidsville, North
Carolina and Sayre, Pennsylvania that serve as operating offices for the
North Carolina and the Pennsylvania and New York operations,
respectively. The Company also owns various service centers in New
Jersey, Florida, North Carolina, Maryland and Pennsylvania from which
the Company dispatches service crews and conducts construction and
maintenance activities.
The Company leases office space in Bedminster, New Jersey that serves as
its corporate headquarters, and leases certain other facilities in New
Jersey and Florida that are operated as customer business offices or
operating offices. The Company also leases approximately 160,000 square
feet in an office building in Union, New Jersey.
Subject to minor exceptions and encumbrances, all other property
materially important to the Company and all principal plants are owned
in fee simple, except that most of the mains and pipes are installed in
public streets under franchise or statutory rights or are constructed on
rights of way acquired from the apparent owner of the fee.
Item 3. Legal Proceedings
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.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was presented for submission to a vote of security holders
through the solicitation of proxies or otherwise during the last quarter
of fiscal 1998.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
NUI common stock is listed on the New York Stock Exchange and is traded
under the symbol "NUI". The quarterly cash dividends paid and the
reported price range per share of NUI common stock for the two years
ended September 30, 1998 were as follows:
Quarterly Price Range
Cash
Dividend High Low
Fiscal
1998:
First $0.245 $29.625 $21.375
Quarter
Second 0.245 28.625 25.188
Quarter
Third 0.245 29.438 23.313
Quarter
Fourth 0.245 25.938 20.313
Quarter
Fiscal
1997:
First $0.235 $23.500 $18.875
Quarter
Second 0.235 23.625 19.250
Quarter
Third 0.235 22.500 19.000
Quarter
Fourth 0.235 24.813 19.750
Quarter
There were 6,425 shareholders of record of NUI common stock at
November 30, 1998.
It is the Company's intent to continue to pay quarterly dividends in the
foreseeable future. NUI's dividend policy is reviewed on an ongoing
basis and is dependent upon the Company's expectation of future
earnings, cash flow, financial condition, capital requirements and other
factors.
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 was permitted to pay $38
million of cash dividends at September 30, 1998.
Item 6. Selected Financial Data
Selected Consolidated Financial Data
(in thousands, except per share amounts)
Fiscal Years Ended September 30,
1998 1997 1996 1995 1994
Operating Revenues $828,036 $608,596 $469,499 $376,884 $405,240
Net Income $ 12,314 19,649 14,896 5,517 10,780
Net Income Per Share $0.98 $1.75 $1.52 $0.60 $1.25
Dividends Paid Per Share $0.98 $0.94 $0.90 $0.90 $1.60
Total Assets $776,847 $803,665 $677,662 $610,165 $601,648
Capital Lease
Obligations $ 8,566 $ 9,679 $ 10,503 $ 11,114 $ 11,932
Long-Term Debt $229,098 $229,069 $230,100 $222,060 $160,928
Common Shareholders'
Equity $222,992 $218,291 $179,107 $140,912 $142,768
Common Shares
Outstanding 12,680 12,429 11,086 9,201 9,157
Notes to the Selected Consolidated Financial Data:
Net Income for fiscal 1998 includes restructuring and other non-
recurring charges amounting to $5.9 million (after tax), or $0.47 per
share.
Net Income for fiscal 1995 includes restructuring and other non-
recurring charges amounting to $5.6 million (after tax), or $0.61 per
share.
Net income for fiscal 1994 includes the reversal of $1.8 million of
income tax reserves and restructuring and other non-recurring charges
amounting to $0.6 million (after tax). The effect of these items
increased net income by $1.2 million, or $0.14 per share.<PAGE>
Summary Consolidated Operating Data
Fiscal Years Ended September 30,
1998 1997 1996 1995 1994
Operating Revenues
(Dollars in thousands)
Firm Sales:
Residential $198,072 $201,757 $194,332 $173,395 $191,297
Commercial 91,970 106,234 107,067 98,541 110,574
Industrial 19,684 23,263 25,321 20,083 25,809
Interruptible Sales 45,594 55,844 50,539 48,282 53,077
Unregulated Sales 421,751 177,881 55,678 7,498 1,426
Transportation Services 33,338 28,617 23,085 17,696 13,273
Customer Service,
Appliance
Leasing and Other 17,627 15,000 13,477 11,389 9,784
------- ------- ------- ------- ------
$828,036 $608,596 $469,499 $376,884 $405,240
======= ======= ======= ======= =======
Gas Sold or Transported
(MMcf)
Firm Sales:
Residential 21,771 22,956 24,810 21,276 22,558
Commercial 12,076 14,254 16,575 15,455 16,175
Industrial 4,463 4,819 5,407 5,217 5,323
Interruptible Sales 13,183 15,074 16,003 18,365 16,024
Unregulated Sales 163,418 62,819 17,804 3,398 689
Transportation Services 30,831 28,294 25,051 22,154 17,290
------- ------- ------- ------- ------
245,742 148,216 105,650 85,865 78,059
======= ======= ======= ======= ======
Average Utility Customers
Served
Firm Sales:
Residential 338,958 335,632 332,440 328,644 312,515
Commercial 23,407 24,312 24,484 24,519 22,638
Industrial 275 306 338 430 382
Interruptible Sales 111 121 120 118 101
Transportation Services 2,948 1,460 668 184 137
------- ------- ------- ------- -------
365,699 361,831 358,050 353,895 335,773
======= ======= ======= ======= =======
Degree Days in New Jersey 4,356 4,772 5,343 4,333 4,944
Employees (year end) 1,081 1,126 1,086 1,079 1,186
Ratio of Earnings to Fixed
Charges 1.85 2.11 2.00 1.37 1.66<PAGE>
Item 7. 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. It's utility operations distribute natural gas and
related services in six states along the eastern seaboard and comprise
Elizabethtown Gas (New Jersey), 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 (NUI
Energy); wholesale energy brokerage and related services through its NUI
Energy Brokers, Inc. subsidiary (NUI Energy Brokers); energy project
development and consulting through its NUI Energy Solutions, Inc.
subsidiary; environmental project development services through its NUI
Environmental Group, Inc. subsidiary; customer account management and
field operations 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).
Results of Operations
The results for the 1998 fiscal year as compared to 1997 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
(Sales Tax), a New Jersey Corporate Business Tax (CBT) and a temporary
Transitional Energy Facilities Assessment (TEFA). In prior periods,
GRAFT was recorded as a single line item as a reduction of operating
margins. Effective January 1, 1998, TEFA is recorded in the energy
taxes line item as a reduction of operating margins, CBT is recorded in
the income taxes line item and 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 variations of certain line
items on the consolidated statement of income for fiscal 1998 as
compared to fiscal 1997 and fiscal 1996 exist. The three new taxes had
the effect of reducing operating revenues by approximately $9.9 million,
reducing energy taxes by approximately $11.8 million and increasing
income tax expense by approximately $1.9 million.
Fiscal Years Ended September 30, 1998 and 1997
Net Income. Net income for fiscal 1998 was $12.3 million, or $.98 per
share, as compared with net income of $19.6 million, or $1.75 per share
in fiscal 1997. The decrease in the current year was primarily due to
after-tax non-recurring charges of approximately $5.9 million, or $.47
per share, associated with the restructuring of operations, an early
retirement program and other workforce reductions (see Note 3 of the
Notes to the Consolidated Financial Statements). Absent these non-
recurring charges, net income would have been $18.2 million, or $1.45
per share. The decrease in recurring earnings was mainly attributed to
higher depreciation, other taxes and lower other income, partially
offset by higher operating margins.
Net income per share in the current year was also affected by the
increased average number of outstanding shares of common stock over the
prior year, principally reflecting the Company's issuance of 1.0 million
additional shares in September 1997 (see Financing Activities and
Resources-Common Stock).
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 utility 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 regulated operating revenues is not
necessarily indicative of financial performance. The Company's operating
revenues increased by $219.4 million, or 36%, in fiscal 1998 as compared
with fiscal 1997. The increase was principally due to an increase in
unregulated sales of approximately $244.4 million mainly due to
increased operations by NUI Energy Brokers, customer growth and
increased customer service and appliance leasing revenues. These
increases were partially offset by the effect of warmer weather in 1998
in all of the Company's service territories, primarily in New Jersey
where it was 17% warmer than normal and 9% warmer than the prior year,
as well as the effect of the tax law changes previously described.
The Company's operating margins increased by $6.9 million, or 4%, in
fiscal 1998 as compared with fiscal 1997. The increase was primarily
attributable to an increase of approximately $5.2 million in the
Company's utility distribution operations as a result of customer growth
and the effects of changes in the New Jersey tax law previously
described. These increases were partially offset by the effect of
warmer weather in fiscal 1998 in all of the Company's service
territories, part of which was not fully recovered from customers under
weather normalization clauses. 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 $2.0 million higher in fiscal 1998 and 1997, respectively,
than they would have been without such clauses. Operating margins
increased in the customer service operations by approximately $2.4
million due to customer additions by UBS, an increase in the appliance
leasing rates in Florida and increased customer service activity in New
Jersey. Operating margins from the Company's unregulated operations
decreased by approximately $0.8 million primarily due to a lack of
market volatility, which negatively impacted margins, and lower off-
system sales associated with warm temperatures of the past winter.
Other Operating Expenses. Operations and maintenance expenses increased
by approximately $1.2 million, or 1%, in fiscal 1998 as compared with
fiscal 1997. The increase was primarily due to expenses associated with
the continued growth of the Company's unregulated operations. These
increases were partially offset by a higher pension credit due to the
investment performance of pension plan assets.
The Company incurred approximately $9.7 million of non-recurring charges
in the fourth quarter of fiscal 1998 associated with the restructuring
of the Company's operations, an early retirement program for non-
bargaining unit personnel and other workforce reductions (see Note 3 of
the Notes to the Consolidated Financial Statements).
Depreciation and amortization increased approximately $1.9 million in
fiscal 1998 as compared to the prior year, primarily due to additional
plant in service.
The increase in other general taxes of approximately $0.5 million was
primarily due to higher payroll-related taxes as a result of a higher
average number of employees in fiscal 1998 as compared to fiscal 1997.
Income tax expense decreased by approximately $1.0 million in fiscal
1998 as compared to fiscal 1997 as a result of lower pre-tax income,
partially offset by the change in the New Jersey tax law noted above.
Other Income and (Expense), Net. Other income and expense, net,
decreased by approximately $1.5 million in fiscal 1998 as compared to
fiscal 1997. The decrease was primarily due to the lower results from
TIC in the current year as a result of additional investments made by
TIC in 1998 to grow its sales programs and increase its product lines.
Additionally, the prior year results reflected a pre-tax gain of
approximately $0.7 million from the sale of certain property in Florida.
Fiscal Years Ended September 30, 1997 and 1996
Net Income. Net income for fiscal 1997 was $19.6 million, or $1.75 per
share, as compared with net income of $14.9 million or $1.52 per share
in fiscal 1996. The increase in 1997 was primarily due to higher
margins and other income, partially offset by higher operations and
maintenance, depreciation, general taxes and interest expenses.
Net income per share in 1997 was also affected by the increased average
number of outstanding shares of common stock over the prior year,
principally reflecting the full effect of the Company's issuance of 1.8
million additional shares in May 1996 (see Financing Activities and
Resources-Common Stock).
Operating Revenues and Operating Margins. The Company's operating
revenues increased by $139.1 million, or 30%, in fiscal 1997 as compared
with fiscal 1996. The increase was principally due to approximately
$122.2 million of additional revenues generated by the Company's
unregulated operations, 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 (see Regulatory Matters). These increases were partially offset
by the effect of warmer weather, mainly in New Jersey where it was 4%
warmer than normal and 11% warmer than the prior year.
The Company's operating margins increased by $8.3 million, or 5%, in
fiscal 1997 as compared with fiscal 1996. The increase reflects
approximately $3.6 million of additional margins generated by the
Company's utility distribution operations, approximately $3.1 million of
additional margins on sales by the Company's unregulated operations and
approximately $1.6 million of additional customer service and appliance
leasing revenues. The increase in utility distribution margins was
mainly due to the effect of the rate case in Florida and customer
growth, partially offset by the effect of warmer weather in the fiscal
1997 period in all of the Company's service territories, part of which
was not fully recovered from customers under weather normalization
clauses, and lower amounts billed to certain of the Company's Florida
customers for its energy conservation program. The Company is allowed to
pass through to its customers costs incurred for various energy
conservation programs. The Company does not earn a profit on these
billings as operations expense is charged or credited for any difference
between amounts billed to customers and amounts actually incurred. As a
result of weather normalization clauses, operating margins were
approximately $2.0 million higher in fiscal 1997 than they would have
been without such clauses. In fiscal 1996, operating margins were $2.2
million less than they would have been without such clauses.
Other Operating Expenses. Operations and maintenance expenses increased
by approximately $0.9 million, or 1%, in fiscal 1997 as compared with
fiscal 1996. The increase was primarily the result of additional
expenses related to the growth in the Company's unregulated operations
and expenses resulting from the consolidation of two of the Company's
New Jersey service facilities. These increases were partially offset by
the capitalization of costs associated with the development and
implementation of new information technology, lower pension and
insurance expenses, lower expenses charged for the Company's energy
conservation programs in Florida and the reversal of certain reserves
which management determined to be no longer required.
Depreciation and amortization increased approximately $1.7 million over
the 1996 period primarily due to additional plant in service.
The increase in other taxes of approximately $0.8 million in fiscal 1997
was mainly due to higher real estate, sales and payroll-related taxes.
The increase in income taxes of approximately $1.5 million in fiscal
1997 was the result of higher pre-tax income.
Other Income and (Expense), Net. Pre-tax other income and expense, net,
increased approximately $2.6 million in fiscal 1997 as compared with
fiscal 1996. The increase was primarily due to approximately $1.3
million of net equity earnings in TIC for the period January 1, 1997
through September 30, 1997 (see Note 2 of the Notes to the Consolidated
Financial Statements), the sale of certain marketable securities
resulting in a realized gain of $0.7 million, and the sale of certain
property in Florida, which resulted in a gain of approximately $0.7
million.
Regulatory Matters
On August 20, 1998, the New Jersey Board of Public Utilities (NJBPU)
approved the Company's petition to increase its annual purchased gas
revenues in New Jersey by $9 million. Additionally, the Company was
authorized to retain 15% of margins from utility off-system sales and
capacity release credits. The Company previously retained 20% of margins
from these items.
The Company has recently filed a petition with the NJBPU to continue its
existing purchased gas adjustment rate through September 30, 1999. The
Company has also recently filed a proposed residential transportation
program to allow customers to contract with third-party suppliers by
September 2001. Action on both of these proposals is anticipated in
early 1999.
In July 1997, the State of New Jersey enacted legislation which
eliminated the current 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, that is, 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 over five
years. A 13% reduction is expected 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 will
not have a material effect on working capital. The Company paid
approximately $27 million to the State for these taxes in 1998.
On October 29, 1996, the Florida Public Service Commission (FPSC) voted
to authorize the Company to increase its base rates in Florida by $3.75
million annually. The rate increase reflects a rate base amounting to
$91.9 million, reflecting the addition of investments in system
improvements and expansion projects. Under the approval, the allowed
return on equity is 11.3% with an overall after-tax rate of return of
7.9%.
Financing Activities and Resources
The Company's net cash provided by operating activities was $20.9
million in fiscal 1998, $40.5 million in fiscal 1997 and $22.5 million
in fiscal 1996. The decrease in fiscal 1998 as compared with fiscal 1997
was primarily due to the timing of payments to gas suppliers, as well as
the timing of payments relating to energy taxes. The increase in fiscal
1997 as compared with fiscal 1996 was primarily due to additional
collections of gas costs through the Company's purchased gas adjustment
clauses and the timing of payments to gas suppliers.
Because the Company's primary business is highly seasonal, short-term
debt is used to meet seasonal working capital requirements. The Company
also borrows under its bank lines of credit to finance portions of its
capital expenditures, pending refinancing through the issuance of equity
or long-term indebtedness at a later date depending upon prevailing
market conditions.
Short-Term Debt. The weighted average daily amounts outstanding of notes
payable to banks and the weighted average interest rates on those
amounts were $66.8 million at 5.7% in fiscal 1998, $66.0 million at 5.5%
in fiscal 1997 and $39.9 million at 5.6% in fiscal 1996. The weighted
average daily amounts of notes payable to banks increased in fiscal 1997
as compared to fiscal 1996 principally due to borrowings to initially
finance the Company's acquisition of the 49% interest in TIC (see Common
Stock), and additional borrowings to finance portions of the Company's
construction expenditures.
At September 30, 1998, the Company had outstanding notes payable to
banks amounting to $87.6 million and available unused lines of credit
amounting to $58.4 million.
Long-Term Debt and Funds for Construction Held by Trustee. On July 9,
1997, the Company issued $54.6 million of tax-exempt Gas Facilities
Revenue Refunding Bonds at an interest rate of 5.7%. The bonds mature on
June 1, 2032 and were used to refinance previously issued Gas Facilities
Revenue Bonds in the aggregate principal amounts and rates of $46.2
million at 6.75% and $8.4 million at 6.625% on October 1, 1997. The
proceeds from the refunding bonds were invested in temporary cash
investments and were held in trust until the old bonds were called.
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 September 30, 1998, the
Company has issued $70 million of Medium-Term Notes subject to the shelf
registration statement. The Company currently anticipates issuing
additional securities subject to the shelf registration in the Spring of
1999.
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 September 30, 1998 and 1997, the total unexpended
portions of all of the Company's Gas Facilities Revenue Bonds were $7.1
million and $23.8 million, respectively, and are classified on the
Company's consolidated balance sheet, including interest earned thereon,
as funds for construction held by trustee.
The Company plans to issue approximately $40 million of tax-exempt Gas
Facilities Revenue Bonds in the first quarter of fiscal 1999. Proceeds
from the bonds will be deposited in trust and drawn upon to finance
certain New Jersey construction expenditures.
Common Stock. On September 25, 1997, the Company issued an additional
1.0 million shares of common stock. The net proceeds from the offering
totaled $22.6 million and were used to reduce outstanding short-term
debt incurred to finance the Company's acquisition of a 49% interest in
TIC and for other general corporate purposes.
On May 20, 1996, the Company issued 1.8 million shares of common stock.
The net proceeds from the offering totaled $31.1 million and were used
to reduce outstanding debt.
The Company periodically issues shares of common stock in connection
with NUI Direct, the Company's dividend reinvestment and stock purchase
plan, and various employee benefit plans. The proceeds from such
issuances amounted to approximately $4.0 million, $5.7 million and $0.3
million in fiscal 1998, 1997 and 1996, 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
shares from open market purchases to purchases directly from the
Company, or vice versa. The increase in proceeds received in fiscal 1998
and 1997 as compared to fiscal 1996 reflects that the plans commenced
purchasing shares directly from the Company in October 1996.
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 $38 million of cash dividends at September 30, 1998.
Capital Expenditures and Commitments
Capital expenditures, which consist primarily of expenditures to expand
and upgrade the Company's gas distribution systems, were $60.9 million
in fiscal 1998, $52.3 million in fiscal 1997 and $37.1 million in fiscal
1996. The increases in fiscal 1998 and 1997 were primarily the result of
planned capital investment related to providing gas or transportation
service to new customers, and to the Company's investment in new
information technology designed to enhance productivity in the long
term. The Company's capital expenditures are expected to be
approximately $59 million in fiscal 1999.
The Company owns or previously owned six former MGP sites in the state
of New Jersey and ten former MGP sites in the states of North Carolina,
South Carolina, Pennsylvania, New York and Maryland. 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 New Jersey MGP sites and
approximately $4 million relates to the MGP sites located outside New
Jersey. 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 this reserve by an amount that could range up to an additional
$24 million and be incurred during a future period of time that may
range up to 50 years. Of this $24 million in possible additional
expenditures, approximately $12 million relates to the New Jersey sites
and approximately $12 million relates to the remaining MGP sites. As
compared with the $34 million reserve currently recorded on the
Company's books as 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 New Jersey MGP sites will be recoverable in rates or
from insurance carriers. In New Jersey, the Company is currently
recovering environmental costs on an annual basis through base rates and
over a rolling seven-year period through its MGP Remediation Adjustment
Clause. As a result, the Company has begun rate recovery of
approximately $4.4 million of environmental costs incurred through June
30, 1997. Recovery of an additional $0.9 million in environmental costs
incurred between July 1, 1997 and June 30, 1998 is currently pending
NJBPU approval. With respect to costs which may be associated with the
MGP sites located outside the state of New Jersey, 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 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 nine billion cubic feet (Bcf) 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 prepaid $54.6 million of its Gas Facilities Revenue Bonds in
October 1997 with proceeds received from a new bond issuance (see
Financing Activities and Resources-Long-Term Debt and Funds for
Construction Held by Trustee). The Company is scheduled to repay $20
million of Medium-Term Notes in August 2002.
Purchase of Interest in TIC Enterprises, LLC
On May 18, 1997, the Company closed on its acquisition of a 49% interest
in TIC Enterprises, LLC, a limited liability company, for a purchase
price of $22.0 million. The acquisition was effective as of January 1,
1997 and is being accounted for under the equity method. Under the terms
of an LLC Interest Purchase Agreement, the limited liability company
will continue the business previously conducted by TIC Enterprises, Inc.
NUI has the option, during the period beginning April 1, 2001 (subject
to a one-year extension by the seller), to purchase the remaining 51%
interest in TIC.
TIC engages in the business of recruiting, training and managing sales
professionals and serving as sales and marketing representatives for
various businesses. The excess of the purchase price over the Company's
share of the underlying equity in net assets of TIC is approximately
$20.6 million, and is being amortized on a straight line basis over a
25-year period.
Market Risk Exposure
The Company's wholesale trading subsidiary, NUI Energy Brokers, uses
derivatives for multiple purposes: 1) to hedge price commitments and
minimize the risk of fluctuating gas prices, 2) to take advantage of
market information and opportunities in the marketplace, and 3) to
fulfill its trading strategies and, therefore, ensure favorable prices
and margins. These derivative instruments include forwards, futures,
options, and swaps.
The risk associated with uncovered derivative positions is closely
monitored on a daily basis, and controlled in accordance with NUI Energy
Brokers' Risk Management Policy. This policy has been approved by the
Company's Board of Directors and dictates policies and procedures for
all trading activities. The policy defines both value-at-risk (VaR) and
loss limits, and all traders are required to read and follow this
policy. At the end of each day, all trading positions are marked to
market and a VaR is calculated. This information, as well as the status
of all limits, is disseminated to senior management daily.
Energy Brokers utilizes the variance/covariance VaR methodology. Using
a 95% confidence interval and a one day time horizon, as of September
30, 1998, NUI Energy Brokers' VaR was $185,000.
Year 2000
Many existing computer programs and systems with embedded digital
microcontrollers, use only two digits to identify a year in the date
field, or were not designed in other ways to provide for the upcoming
change in the century. If not corrected, many systems that use digital
technology could fail or create errors that may result in a significant
adverse impact on NUI's ability to provide service, its regulatory
relations and financial condition.
NUI has developed a Risk Mitigation Plan (the Plan) as an internal guide
to its systems readiness program. The purpose of the program is to
mitigate the risks associated with Year 2000 technology issues. The Plan
includes the following phases: (i) development of a detailed inventory
of all information technology (IT) and non-IT systems that incorporate
any technology component including embedded microprocessors and
microcontrollers (Inventory Phase); (ii) assessment of those systems for
Year 2000 vulnerability (Assessment Phase); (iii) remediation of the
affected systems (Remediation Phase); and (iv) testing of sub-systems,
hardware, operating and application software running as integrated
systems (Testing Phase). In addition, the Plan requires (v) an analysis
of the risk of system failure and the consequences of failure in order
to focus testing resources and prioritization of resources under
contingency plans (Risk Analysis). The Inventory, Assessment and the
Risk Analysis Phases include material direct third-party suppliers and
vendors. The final phase is (vi) contingency planning, which is
described below.
Under the Plan, NUI has established an executive level Year 2000
Committee (the Committee) to monitor the Company's Year 2000 progress.
This Committee is chaired by NUI's Chief Operating Officer and includes
the senior managers of all NUI's business units, the Chief
Administrative Officer, General Counsel and Secretary and the Vice
President of Corporate Development and Treasurer. The Committee receives
monthly reports from a project coordinator and team. Members of the team
are responsible for NUI gas distribution system controls, computer
hardware, operating and communication systems, and for critical
suppliers. The Chairman of the Committee is scheduled to report to NUI's
Board of Directors on Year 2000 issues on a periodic basis.
All major billing, field service, networked information technology and
gas distribution control and monitoring systems have been inventoried.
Substantial completion of detailed inventorying of known material
systems with embedded microcontrollers comprising environmental and
support systems, such as telephone systems, heating and air
conditioning, and backup electric generating systems are currently
scheduled for completion by the end of February 1999.
Assessment of financial and field service systems is substantially
complete, and assessment of the natural gas distribution control and
monitoring systems is nearly complete. The Assessment Phase is currently
scheduled for substantial completion by February 1999.
Other than the hand-held meter reading units, all known hardware and
operating systems that handle billing and field service, and which
required remediation, have been replaced. The remediation of IT systems
developed by NUI is nearly complete. NUI's billing systems in
Pennsylvania and North Carolina are currently scheduled to be replaced
by March 1999. NUI's financial systems will be upgraded to a new
version of third-party supplied software, which is currently scheduled
for completion in September 1999. Hand-held meter-reading units will be
replaced and certain telephone systems may require remediation that is
scheduled for completion by the end of March 1999. Any other
remediation will be reviewed as and when the need arises.
Individual programs are generally being tested on a stand-alone basis as
they are remediated. However, suites of programs must be tested as
entire systems, running on remediated hardware and operating systems.
Completion of such integrated testing for billing and field service
software is currently planned for the end of February 1999. Integrated
testing of other systems is scheduled for completion by the end of
September 1999.
The Risk Analysis Phase involved NUI assigning priority ratings to each
of its major systems, based on both the risk of the systems' failure and
the potential consequences to the underlying business. This was without
taking into account alternatives available under contingency planning.
Systems supporting business processes which might affect human safety
were assigned the highest rating.
NUI's systems and customers are vulnerable to systems operated by third-
parties that may not be Year 2000 ready. NUI has identified its critical
direct suppliers and vendors. These include, at the very highest level
of importance, interstate pipeline suppliers, telecommunications
carriers, and electric suppliers. Interstate pipeline suppliers must
appropriately schedule and control gas supplies to NUI's own
distribution systems. Telecommunications carriers' digital circuits are
used to control and monitor NUI's gas distribution system with voice
circuits as emergency backup and for customers' reporting of
emergencies. Electricity supplies are critical to NUI's customers for
natural gas heating equipment and industrial process control.
NUI is assessing the Year 2000 readiness of its critical suppliers and
the substantial portion of the assessment work will occur throughout
1999. Assessment of third party systems is currently scheduled to be
substantially complete by June 1999. NUI will continue to work with
these suppliers through 1999 to gain greater assurance that appropriate
steps are being taken to ensure security of supply and the continued
accurate exchange of critical data. Any remediation and contingency
planning will be reviewed and determined based on the results of such
third-party assessment.
The total estimated costs of assessing, remediating and testing NUI's
systems for Year 2000 compliance is approximately $3.3 million, of which
approximately $1.8 million has been incurred through September 30, 1998.
Approximately 50% of these costs will relate to capital projects. The
Company has, and will continue, to fund these costs from the operations
of the Company. These estimated costs do not include any third-party
remediation that may be required, or any resulting contingency planning.
Customers are dependent on NUI's reliable and secure gas supply,
emergency response and billing services. Each of these services relies
on the Company's computer systems. A failure in these systems could
materially interrupt the normal flow of these services and significantly
impact human safety and physical property and have a significant adverse
financial impact on NUI, its customers and suppliers. NUI and third-
party critical suppliers are also interdependent, and failure of third-
party suppliers to be Year 2000 ready could significantly impact the
Company's ability to serve its customers. Third-party systems have yet
to be reviewed and NUI has not ascertained a reasonably likely worst
case scenario. Due to the general uncertainty of the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of
third-parties, the Company is unable to determine at this time whether
the consequences of year 2000 failures will have a material impact on
the Company's results of operations or financial condition. The Plan is
expected to significantly reduce the Company's level of uncertainty
about the Year 2000 problem and the readiness of third-parties. The
Company believes that due to its Plan, the likelihood of major
consequences should be reduced.
Contingency plans will be developed as necessary for the Company's own
systems and its third-party relationships, in response to its
assessments, remediation and testing activities. Contingency planning is
currently scheduled to be completed by June 1999.
Competition and Outlook
The Company has undertaken substantial measures to reorganize itself to
prepare for the competitive challenges of the deregulated energy
services market. During fiscal year 1998, each of the major service
lines of the Company were established as separate business units. This
is expected to provide several benefits, including focusing management
efforts on potential growth opportunities in its core businesses, and
streamlining the management structure of the Company. The Company
believes that by restructuring, it is also anticipating changes that
will be mandated by legislation and regulation in the future.
The Company's core business operations are organized under three primary
lines of business: Distribution Services, Customer Services, and Energy
Sales and Services. In addition, the Company owns an interest in TIC
(see Purchase of Interest in TIC Enterprises, LLC). The outlook for
each is discussed below.
Distribution Services
Distribution Services is the primary business of the Company, defined as
the distribution, and/or transportation, of energy to retail customers.
Such distribution service is regulated as to price, safety and return by
the regulatory commissions of the states in which the Company operates.
The Company has growth opportunities in its distribution business.
Almost half of the planned capital investment of $59 million in fiscal
1999 is related to providing gas and/or transportation service to new
customers. While the Company is confident that these fiscal 1999
investments will earn a return in excess of its cost of capital, there
can be no assurance that the expected margins from each capital
investment will be fully realized.
The sale of gas by utility companies to commercial and industrial
customers has been "unbundled," or separated from the transportation
service component, by several state regulatory commissions, including
the NJBPU and the FPSC. In these states, while the sale of the gas
commodity to commercial and industrial customers is now competitive, the
transportation service remains regulated as to price and returns and
subject to various restrictions and franchise protections. It is
anticipated that additional states will unbundle these services for
commercial and industrial customers and that, in the near term, states
will begin to unbundle these services for residential customers as well.
Tariffs for transportation service have generally been designed to
provide the same margins as bundled sales tariffs. Therefore, except for
the regulatory risk of full recovery of gas costs, the Company is
financially indifferent as to whether it transports gas or sells gas and
transportation together. Unbundling provides the Company with an
opportunity to make additional margins through its unregulated marketing
subsidiary, NUI Energy, by competing with other unregulated marketers
and brokers for sales of gas.
The Company also faces the risk of loss of transportation service for
large industrial customers who may have the ability to build connections
to interstate gas pipelines and thereby bypass the Company's
distribution system. Gas distributors can also expect increased
competition from electricity as deregulation in that industry decreases
prices and increases supply sources. Alternatively, opportunities may
increase for gas service to fuel generators for large industrial
customers, replacing electric utility service.
Customer Services
The Customer Services unit provides repair and maintenance for customer-
owned gas facilities and appliances and, through its UBS subsidiary,
provides customer account management services and field operations
systems and services for utility companies.
The Company intends to implement several measures, including the use of
new communications technology and scheduling methods, to improve the
response time to customer appliance service requests. The Company
believes that it can succeed in providing competitive appliance services
by focusing on high quality service, thereby maximizing the value of its
relationships with its customers. There are, however, several large,
well capitalized competitors in the Company's market area. These
competitors include neighboring utilities and large retail service
chains.
The Company's UBS subsidiary focuses on providing high quality customer
account management and field operations services primarily to small-to-
medium sized utility companies and municipalities. These customers
typically find UBS' services more affordable than those of its larger
competitors, while providing comparable quality for their needs.
Energy Sales and Services
The Company's primary operations in Energy Sales and Services are
composed of three business lines. The Company's subsidiary, NUI Energy,
markets gas service to unbundled retail commercial and industrial
customers.
NUI Energy Brokers performs wholesale sales and brokering of energy,
primarily to utilities and energy marketing companies. NUI Energy
Brokers also is the provider of energy to the Company's retail marketing
subsidiary, NUI Energy. The Company minimizes its risks in this business
by limiting its financial and physical positions at any one time. As in
any commodity brokerage activity, however, there are risks pertaining to
market changes and credit exposure that can be managed but not
eliminated. Therefore, the earnings from NUI Energy Brokers are likely
to be more volatile than the Company's distribution business (see Market
Risk Exposure).
The third business line within Energy Sales and Services is off-system
sales, or the use of utility-owned gas assets to make sales to customers
outside of NUI's service areas. Such assets include pipeline capacity
and gas storage facilities. These assets are managed separately from
non-utility assets, and their use is monitored and regulated by state
regulatory commissions. Pursuant to regulatory agreements in some states
in which the Company operates, the Company is able to retain a portion
of the margins from these sales in varying percentages depending on the
state in which the assets are owned.
TIC Enterprises, LLC
TIC provides outsourced sales and sales management services to companies
that need efficient access to the small-to-medium sized business market
across the United States. TIC's growing sales partnerships with several
major companies reflect a trend toward outsourcing in American business,
which NUI expects to capitalize on through its investment in TIC. TIC
will also allow NUI to offer a wide range of telecommunications services
and office equipment in addition to energy. NUI expects that TIC will
also be an asset in the formation of partnerships with other energy
companies trying to find ways to gain access to customers and new
products in the newly deregulated energy markets.
Effects of Inflation
The Company's tariffs provide purchased gas adjustment clauses through
which rates charged to customers are adjusted for changes in the cost of
gas on a reasonably current basis. Increases in other utility costs and
expenses not otherwise offset by increases in revenues or reductions in
other expenses could have an adverse effect on earnings due to the time
lag associated with obtaining regulatory approval to recover such
increased costs and expenses, and the uncertainty of whether regulatory
commissions will allow full recovery of such increased costs and
expenses.
Forward-Looking Statements
This document contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. The
Company cautions that, while it believes such statements to be
reasonable and are made in good faith, such forward-looking statements
almost always vary from actual results, and the differences between
assumptions made in making such statements and actual results can be
material, depending upon the circumstances. Factors, which may make the
actual results differ from anticipated results include, but are not
limited to, economic conditions; unforeseen competition; weather
conditions; fluctuations in the price of natural gas and other forms of
energy; the outcome of certain assumptions made in regard to Year 2000
issues; and other uncertainties, all of which are difficult to predict
and many of which are beyond the control of the Company. Accordingly,
investors should not rely upon these forward-looking statements in
making investment decisions.
Item 8. Financial Statements and Supplementary Data
Consolidated financial statements of the Company as of September 30,
1998 and 1997 and for each of the three years in the period ended
September 30, 1998, the auditors' report thereon, and the unaudited
quarterly financial data for the two-year period ended September 30,
1998, are included herewith as indicated on "Index to Financial
Statements and Schedule" on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors and officers of the Company is included
in the definitive Proxy Statement for the Company's Annual Meeting of
Stockholders, which is incorporated herein by reference. Such Proxy
Statement was filed with the Securities and Exchange Commission on
December 28, 1998.
Item 11. Executive Compensation
Information concerning executive compensation is included in the
definitive Proxy Statement for the Company's Annual Meeting of
Stockholders, which is incorporated herein by reference. Such Proxy
Statement was filed with the Securities and Exchange Commission on
December 28, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners
and management is included in the definitive Proxy Statement for the
Company's Annual Meeting of Stockholders, which is incorporated herein
by reference. Such Proxy Statement was filed with the Securities and
Exchange Commission on December 28, 1998.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions is
included in the definitive Proxy Statement for the Company's Annual
Meeting of Stockholders, which is incorporated herein by reference. Such
Proxy Statement was filed with the Securities and Exchange Commission on
December 24, 1998.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Consolidated financial statements of the Company as of
September 30, 1998 and 1997 and for each of the three years in the
period ended September 30, 1998 and the auditors' report thereon, and
the unaudited quarterly financial data for the two-year period ended
September 30, 1998 are included herewith as indicated on the "Index to
Financial Statements and Schedule" on page F-1.
(2) The applicable financial statement schedule for the fiscal
years 1998, 1997 and 1996 is included herewith as indicated on the
"Index to Financial Statements and Schedule" on page F-1.
(3) Exhibits:
Exhibit Description Reference
No.
2(i) Letter Agreement, dated June 29, Incorporated by
1993, by and between NUI reference to Exhibit
Corporation and Pennsylvania & 2(i) to Registration
Southern Gas Company Statement No. 33-50561
2(ii) Agreement and Plan of Merger, Incorporated by
dated as of July 27, 1993, by and reference to Exhibit
between NUI Corporation and 2(ii) to Registration
Pennsylvania & Southern Gas Statement No. 33-50561
Company
3(i) Certificate of Incorporation, Incorporated by
amended and restated as of reference to Exhibit
December 1, 1995 3(i) of NUI's Form 10-K
Report for Fiscal 1995
3(ii) By-Laws, amended and restated as Incorporated by
of September 23, 1997 reference to Exhibit
3(ii) of NUI's Form 10-K
Report for Fiscal
1997
4(i) Rights Agreement between NUI Incorporated by
Corporation and Mellon Securities reference to NUI's Form
Trust Company dated November 28, 8-K dated December 1,
1995 1995
10(i) Service Agreement by and between Incorporated by
Transcontinental Gas Pipe Line reference to Exhibit
Corporation and Elizabethtown Gas 10(i) to Registration
Company ("EGC"), dated Statement No. 33-
February 1, 1992 (#3686) 50561
10(ii) Service Agreement under Rate Incorporated by
Schedule GSS by and between reference to Exhibit
Transcontinental Gas Pipe Line 10(ii) of NUI's Form
Corporation and EGC, dated 10-K Report for Fiscal
July 1, 1996 1997
10(iii) Service Agreement under Rate Incorporated by
Schedule LG-A by and between reference to Exhibit
Transcontinental Gas Pipe Line 10(iii) to Registration
Corporation and EGC, dated Statement No. 33-50561
January 12, 1971
10(iv) Service Agreement by and between Incorporated by
Transcontinental Gas Pipe Line reference to Exhibit
Corporation and EGC, dated 10(iv) of NUI's Form
November 1, 1995 10-K Report for Fiscal
(Contract #1.1997) 1996
10(v) Service Agreement by and between Incorporated by
Transcontinental Gas Pipe Line reference to Exhibit
Corporation and EGC, dated 10(v) of NUI's Form 10-
November 1, 1995 K Report for Fiscal
(Contract #1.1995) 1996
10(vi) Firm Gas Transportation Agreement Incorporated by
by and among Transcontinental Gas reference to Exhibit
Pipe Line Corporation, EGC and 10(vi) to Registration
National Fuel Gas Supply Statement No. 33-50561
Corporation, dated November 1,
1984
10(vii) Service Agreement by and among Incorporated by
Transcontinental Gas Pipe Line reference to Exhibit
Corporation and EGC, dated 10(vii) of NUI's Form
November 1, 1995 10-K Report for Fiscal
(Contract #1.1998) 1996
10(viii) Service Agreement for Rate Incorporated by
Schedule CDS by and between Texas reference to Exhibit
Eastern Transmission Corporation 10(viii) to NUI's Form
and EGC, dated December 1, 1993 10-K Report for Fiscal
(Contract #800361) 1994
10(ix) Service Agreement under Rate Incorporated by
Schedule FTS-7 by and between reference to Exhibit
Texas Eastern Transmission 10(ix) to NUI's Form
Corporation and EGC, dated 10-K Report for Fiscal
October 25, 1994 (Contract 1994
#331720)
10(x) Service Agreement for Rate Incorporated by
Schedule FTS-5 by and between reference to Exhibit
Texas Eastern Transmission 10(x) of NUI's Form 10-
Corporation and EGC, dated March K Report for Fiscal
18, 1996 (Contract #331501) 1997
10(xi) Service Agreement under Rate Incorporated by
Schedule FTS-8 by and between reference to Exhibit
Texas Eastern Transmission 10(xi) to NUI's Form
Corporation and EGC, dated 10-K Report for Fiscal
June 28, 1994 (Contract #331013) 1994
10(xii) Firm Transportation Service Incorporated by
Agreement under FTS-2 Rate reference to Exhibit
Schedule by and between City Gas 10(xii) of NUI's Form
and Florida Gas Transmission, 10-K Report for Fiscal
dated August 12, 1993 1997
10(xiii) Service Agreement for Rate Incorporated by
Schedule FTS-2 by and between reference to Exhibit
Texas Eastern Transmission 10(xiii) to
Corporation and EGC, dated Registration Statement
June 1, 1993 (Contract #330788) No. 33-50561
10(xiv) Service Agreement under NTS Rate Incorporated by
Schedule by and between Columbia reference to Exhibit
Gas Transmission Corporation and 10(xiv) to NUI's Form
EGC, dated November 1, 1993 10-K Report for Fiscal
(Contract #39275) 1993
10(xv) Service Agreement under SST Rate Incorporated by
Schedule by and between Columbia reference to Exhibit
Gas Transmission Corporation and 10(xv) to NUI's Form
EGC, dated November 1, 1993 10-K Report for Fiscal
(Contract #38045) 1993
10(xvi) Service Agreement under FTS Rate Incorporated by
Schedule by and between Columbia reference to Exhibit
Gas Transmission Corporation and 10(xvi) to NUI's Form
EGC, dated November 1, 1993 10-K Report for Fiscal
(Contract #37882) 1993
10(xvii) Gas Transportation Agreement Incorporated by
under FT-G Rate Schedule by and reference to Exhibit
between Tennessee Gas Pipeline 10(xvii) to NUI's Form
Company and EGC (Contract #597), 10-K Report for Fiscal
dated September 1, 1993 1993
10(xviii) Gas Transportation Agreement Incorporated by
under FT-G Rate Schedule by and reference to Exhibit
between Tennessee Gas Pipeline 10(xviii) to NUI's Form
Company and EGC (Contract #603), 10-K Report for Fiscal
dated September 1, 1993 1993
10(xix) Service Agreement by and between Incorporated by
Transcontinental Gas Pipe Line reference to Exhibit
Company and EGC, dated 10(xix) of NUI's Form
November 1, 1995 (Contract #3832) 10-K Report for Fiscal
1996
10(xx) Firm Transportation Service Incorporated by
Agreement under FTS-1 Rate reference to Exhibit
Schedule by and between City Gas 10(xx) of NUI's Form
and Florida Gas Transmission 10-K Report for Fiscal
dated October 1, 1993 (Contract # 1993
5034)
10(xxi) Lease Agreement between EGC and Incorporated by
Liberty Hall Joint Venture, dated reference to Exhibit
August 17, 1987 10(vi) of EGC's Form
10-K Report for Fiscal
1987
10(xxii) 1988 Stock Plan Incorporated by
reference to Exhibit
10(viii) to
Registration Statement
No. 33-21525
10(xxii) First Amendment to 1988 Stock Incorporated by
Plan reference to Exhibit
10(xxxiii) to
Registration Statement
No. 33-46162
10(xxiii) Form of Termination of Employment Incorporated by
and Change in Control Agreements reference to Exhibit
10(xxiii) of NUI's Form
10-K Report for Fiscal
1995
10(xxiv) Firm Transportation Service Incorporated by
Agreement under FTS-2 Rate reference to Exhibit
Schedule by and between City Gas 10(xxiv) of NUI's Form
and Florida Gas Transmission, 10-K Report for Fiscal
dated December 12, 1991 and 1994
Amendment dated November 12, 1993
(Contract #3608)
10(xxv) Service Agreement under Rate Incorporated by
Schedule LG-A by and between reference to Exhibit
Transcontinental Gas Pipeline and 10(xxv) of NUI's Form
North Carolina Gas Service 10-K Report for Fiscal
Division of Pennsylvania & 1994
Southern Gas Company, dated
August 5, 1971
10(xxvi) Service Agreement under Rate Incorporated by
Schedule GSS by and between reference to Exhibit
Transcontinental Gas Pipeline and 10(xxvi) of NUI's Form
North Carolina Gas Service, dated 10-K Report for Fiscal
July 1, 1996 1997
10(xxvii) 1996 Employee Stock Purchase Plan Incorporated by
reference to Exhibit
10(xxvii) of NUI's Form
10-K Report for Fiscal
1996
10(xxviii) Service Agreement under Rate Incorporated by
Schedule FT by and between reference to Exhibit
Transcontinental Gas Pipeline and 10(xxviii) of NUI's
North Carolina Gas Service Form 10-K Report for
Division of Pennsylvania & Fiscal 1994
Southern Gas Company, dated
February 1, 1992 (Contract #
0.3922)
10(xxix) 1996 Directors Stock Purchase Incorporated by
Plan reference to Exhibit
10(xxix) of NUI's Form
10-K Report for Fiscal
1996
10(xxx) Gas Storage Contract under Rate Incorporated by
Schedule FS by and between reference to Exhibit
Tennessee Gas Pipeline Company 10(xxx) of NUI's Form
and Pennsylvania & Southern Gas 10-K Report for Fiscal
Company, dated September 1, 1993 1994
(Contract #2277)
10(xxxi) Gas Transportation Agreement Incorporated by
under Rate Schedule FT-A by and reference to Exhibit
between Tennessee Gas Pipeline 10(xxxi) of NUI's Form
Co. and Pennsylvania & Southern 10-K Report for Fiscal
Gas Company, dated September 1, 1994
1993 (Contract #935)
10(xxxii) Gas Transportation Agreement Incorporated by
under Rate Schedule FT-A by and reference to Exhibit
between Tennessee Gas Pipeline 10(xxxii) of NUI's Form
Co. and Pennsylvania & Southern 10-K Report for Fiscal
Gas Company, dated September 1, 1994
1993 (Contract #936)
10(xxxiii) Gas Transportation Agreement Incorporated by
under Rate Schedule FT-A by and reference to Exhibit
between Tennessee Gas Pipeline 10(xxxiii) of NUI's
Co. and Pennsylvania & Southern Form 10-K Report for
Gas Company, dated September 1, Fiscal 1994
1993 (Contract #959)
10(xxxiv) Gas Transportation Agreement Incorporated by
under Rate Schedule FT-A by and reference to Exhibit
between Tennessee Gas Pipeline 10(xxxiv) of NUI's Form
Co. and Pennsylvania & Southern 10-K Report for Fiscal
Gas Company, dated September 1, 1994
1993 (Contract #2157)
10(xxxv) Employment Agreement, dated as of Incorporated by
July 29, 1988, between NUI reference to Exhibit
Corporation and Jack Langer 10(xxxv) of NUI's Form
10-K Report for Fiscal
1994
10(xxxvi) Service Agreement for Rate Incorporated by
Schedule FT by and reference to Exhibit
between Transcontinental Gas Pipe 10(xxxvi) of NUI's Form
Line Corporation and EGC 10-K Report for Fiscal
(Contract #1.0431) dated April 1, 1995
1995
10(xxxvii) Service Agreement for Rate Incorporated by
Schedule FT by and reference to Exhibit
between Transcontinental Gas Pipe 10(xxxvii) of NUI's
Line Corporation and EGC Form 10-K Report for
(Contract #1.0445) dated April 1, Fiscal 1995
1995
10(xxxviii) Service Agreement for Rate Incorporated by
Schedule SS-1 by and between reference to Exhibit
Texas Eastern Transmission 10(xxxviii) of NUI's
Corporation and EGC (Contract Form 10-K Report for
(#400196) dated September 23, Fiscal 1995
1994
10(xxxix) Gas Storage Agreement under Rate Incorporated by
Schedule FS by and between reference to Exhibit
Tennessee Gas Pipeline Company 10(xxxix) of NUI's Form
and EGC (Contract #8703) dated 10-K Report for Fiscal
November 1, 1994 1995
10(xl) Consulting Agreement, dated as of Incorporated by
March 24, 1995, between NUI reference to Exhibit
Corporation and John Kean 10(xl) of NUI's Form
10-K Report for Fiscal
1995
10(xli) Form of Deferred Compensation Incorporated by
Agreement reference to Exhibit
10(xli) ) of NUI's Form
10-K Report for Fiscal
1995
10(xlii) 1996 Stock Option and Stock Award Incorporated by
Plan reference to Exhibit
10(xlii) of NUI's Form
10-K Report for Fiscal
1996
10(xliii) Service Agreement under Rate Incorporated by
Schedule FT by and between Elkton reference to Exhibit
Gas and Eastern Shore Natural Gas 10(xliii) of NUI's Form
Company, dated as of November 1, 10-K Report for Fiscal
1997 (Contract #010003) 1997
10(xliv) Service Agreement under Rate Incorporated by
Schedule FT by and between Elkton reference to Exhibit
Gas and Eastern Shore Natural Gas 10(xliv) of NUI's Form
Company, dated as of November 1, 10-K Report for Fiscal
1997 (Contract #010011) 1997
10(xlv) Service Agreement under Rate Incorporated by
Schedule FT by and between Elkton reference to Exhibit
Gas and Eastern Shore Natural Gas 10(xlv) of NUI's Form
Company, dated as of November 1, 10-K Report for Fiscal
1997 (Contract #010012) 1997
10(xlvi) Service Agreement under Rate Incorporated by
Schedule FT by and between Elkton reference to Exhibit
Gas and Eastern Shore Natural Gas 10(xlvi) of NUI's Form
Company, dated as of November 1, 10-K Report for Fiscal
1997 (Contract #010013) 1997
10(xlvii) Service Agreement under Rate Incorporated by
Schedule FT by and between Elkton reference to Exhibit
Gas and Eastern Shore Natural Gas 10(xlvii) of NUI's Form
Company, dated as of November 1, 10-K Report for Fiscal
1997 (Contract #020003) 1997
10(xlviii) Service Agreement under Rate Incorporated by
Schedule FT by and between Elkton reference to Exhibit
Gas and Eastern Shore Natural Gas 10(xlviii) of NUI's
Company, dated as of November 1, Form 10-K Report for
1997 (Contract #020005) Fiscal 1997
12 Consolidated Ratio of Earnings to Filed herewith
Fixed Charges
21 Subsidiaries of NUI Corporation Filed herewith
23 Consent of Independent Public Filed herewith
Accountants
27 Financial Data Schedule Filed herewith
Exhibits listed above which have heretofore been filed with the
Securities and Exchange Commission pursuant to the Securities Act of
1933 or the Securities Exchange Act of 1934, and which were designated
as noted above and have not been amended, are hereby incorporated by
reference and made a part hereof with the same effect as if filed
herewith.
The Company is a party to various agreements with respect to long-term
indebtedness to which the total amount of indebtedness authorized under
each agreement, respectively, does not exceed 10% of the total assets of
the Company on a consolidated basis. The Company hereby agrees to
furnish to the Securities and Exchange Commission copies of such
agreements upon request.
(b) Reports on Form 8-K:
None
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Consolidated Financial Statements of NUI Corporation and Subsidiaries:
Report of Independent Public Accountants.............F-2
Consolidated Financial Statements as of
September 30, 1998 and 1997 and for each
of the Three Years in the Period
Ended September 30, 1998.............................F-3
Unaudited Quarterly Financial Data for
the Two-Year Period Ended September 30, 1998
(Note 12 of the Notes to the Company's Consolidated
Financial Statements)...............................F-18
Financial Statement Schedule of NUI Corporation and Subsidiaries:
Report of Independent Public Accountants.............F-2
Schedule II - Valuation and Qualifying Accounts
for each of the Three Years in the
Period Ended September 30, 1998.....................F-20
All other schedules are omitted because they are not required, are
inapplicable or the information is otherwise shown in the financial
statements or notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NUI Corporation:
We have audited the accompanying consolidated balance sheet and
statement of consolidated capitalization of NUI Corporation (a New
Jersey corporation) and Subsidiaries as of September 30, 1998 and 1997,
and the related consolidated statements of income, cash flows and
shareholders' equity, for each of the three years in the period ended
September 30, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of NUI
Corporation and Subsidiaries as of September 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the three
years in the period ended September 30, 1998, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item
14(a)(2) is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
November 10, 1998
NUI Corporation and Subsidiaries
Consolidated Statement of Income
(Dollars in thousands, except per share amounts)
Years Ended September 30,
1998 1997 1996
Operating Margins
Operating revenues $828,036 $608,596 $469,499
Less- Purchased gas and fuel 629,221 401,923 268,123
Energy taxes 18,852 33,598 36,624
------- ------- -------
179,963 173,075 164,752
------- ------- -------
Other Operating Expenses
Operations and maintenance 96,506 95,276 94,350
Depreciation and amortization 24,952 23,032 21,289
Restructuring and other non-
recurring charges 9,686 -- --
Other taxes 9,733 9,189 8,433
Income taxes 8,307 9,293 7,807
------- ------- -------
149,184 136,790 131,879
------- ------- -------
Operating Income 30,779 36,285 32,873
------- ------- -------
Other Income and Expense, Net
Equity in Earnings (Losses) of
TIC Enterprises, LLC, net (56) 1,334 --
Other 1,207 2,180 897
Income taxes (403) (1,230) (337)
------- ------- -------
748 2,284 560
------- ------- -------
Interest Expense 19,213 18,920 18,537
------- ------- -------
Net Income $12,314 $19,649 $14,896
======= ======= =======
Net Income Per Share of Common
Stock $ .98 $ 1.75 $ 1.52
====== ====== ======
Dividends Per Share of Common $ .98 $ .94 $ .90
Stock ====== ====== ======
Weighted Average Number of Shares
of Common Stock Outstanding 12,584,335 11,253,513 9,819,431
========== ========== =========
See the notes to the consolidated financial statements.
NUI Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in thousands)
September 30,
1998 1997
ASSETS
Utility Plant
Utility plant, at original cost $737,323 $680,391
Accumulated depreciation and (234,484) (218,895)
amortization
Unamortized plant acquisition
adjustments, net 30,904 32,327
-------- --------
533,743 493,823
------- -------
Funds for Construction Held by Trustee 12,254 27,648
------- -------
Investment in TIC Enterprises, LLC 23,874 26,069
------- -------
Investments in Marketable Securities,
at market - 2,570
------- -------
Other Investments 1,687 170
------- --------
Current Assets
Cash and cash equivalents 929 58,793
Accounts receivable (less allowance for
doubtful accounts of $1,714 in 1998 62,673 64,499
and $2,318 in 1997)
Fuel inventories, at average cost 34,937 31,068
Unrecovered purchased gas costs 8,061 9,602
Prepayments and other 37,790 24,787
------- -------
144,390 188,749
Other Assets ------- -------
Regulatory assets 50,475 54,607
Deferred assets 10,424 10,029
------- -------
60,899 64,636
------- -------
$776,847 $803,665
======= =======
CAPITALIZATION AND LIABILITIES
Capitalization (See accompanying
statements)
Common shareholders' equity $222,992 $218,291
Preferred stock -- --
Long-term debt 229,098 229,069
------- -------
452,090 447,360
------- -------
Capital Lease Obligations 8,566 9,679
------- -------
Current Liabilities
Notes payable to banks 87,630 54,428
Current portion of long-term debt -- 54,600
Current portion of capital lease 1,810 1,587
obligations
Accounts payable, customer deposits and 87,158 96,655
accrued liabilities
Federal income and other taxes 5,635 4,049
------- -------
182,233 211,319
Other Liabilities ------- -------
Deferred Federal income taxes 62,519 62,391
Unamortized investment tax credits 5,710 6,171
Environmental remediation reserve 33,981 33,981
Regulatory and other liabilities 31,748 32,764
------- -------
133,958 135,307
------- -------
$776,847 $803,665
======= =======
See the notes to the consolidated financial statements.
NUI Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(Dollars in thousands)
Years Ended
September 30,
1998 1997 1996
Operating Activities
Net Income $12,314 $19,649 $14,896
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 26,050 24,040 22,315
Deferred Federal income taxes 357 3,246 7,569
Non-cash portion of restructuring
charges 7,301 - -
Amortization of deferred investment tax
credits (461) (464) (467)
Other 1,743 1,020 4,617
Effects of changes in:
Accounts receivable, net 1,826 (20,911) (13,371)
Fuel inventories (3,869) ( 1,877) (1,562)
Accounts payable, deposits and
accruals (7,347) 28,133 8,310
Over (under) recovered purchased
gas costs 1,541 (2,614) (11,882)
Other (18,604) (9,707) ( 7,895)
------ ------ ------
Net cash provided by operating
activities 20,851 40,515 22,530
------ ------ ------
Financing Activities
Proceeds from sales of common stock, net 3,658 28,204 31,371
of treasury stock purchased
Dividends to shareholders (12,311) (10,575) ( 8,700)
Proceeds from issuance of long-term debt -- 53,569 39,000
Funds for construction held by trustee,
net 16,670 18,784 (29,049)
Repayments of long-term debt (54,600) (950) (30,138)
Principal payments under capital
lease obligations (1,792) (1,730) (1,829)
Net short-term borrowings (repayments) 33,202 (467) 16,960
------ ------ ------
Net cash (used for) provided by
financing activities (15,173) 86,835 17,615
------ ------ ------
Investing Activities
Cash expenditures for utility plant (59,969) (51,366) (37,053)
Investment in TIC Enterprises, LLC - (22,584) --
Other ( 3,573) 1,657 ( 2,957)
------ ------ ------
Net cash (used for) investing
activities (63,542) (72,293) (40,010)
------ ------ ------
Net Increase (Decrease) in Cash
and Cash Equivalents $(57,864) $55,057 $ 135
====== ====== ======
Cash and Cash Equivalents
At beginning of period $58,793 $ 3,736 $ 3,601
At end of period $ 929 $58,793 $ 3,736
Supplemental Disclosures of Cash Flows
Income taxes paid (refunds received),
net $ 6,482 $ 5,008 $ 2,612
Interest paid $22,094 $19,760 $18,654
See the notes to the consolidated financial statements.
NUI Corporation and Subsidiaries
Consolidated Statement of Capitalization
(Dollars in thousands)
September 30,
1998 1997
Long-Term Debt
Gas facilities revenue bonds
6.625% due October 1, 2021 $ -- $ 8,400
6.75% due October 1, 2021 -- 46,200
6.35% due October 1, 2022 46,500 46,500
6.40% due October 1, 2024* 20,000 20,000
Variable rate due June 1, 2026* 39,000 39,000
5.70% due June 1, 2032 54,600 54,600
Medium-term notes
7.125% due August 1, 2002 20,000 20,000
8.35% due February 1, 2005 50,000 50,000
------- -------
230,100 284,700
Current portion of long-term debt -- (54,600)
Unamortized debt discount (1,002) (1,031)
------- -------
229,098 229,069
------- -------
Preferred Stock, 5,000,000 shares
authorized; none issued -- --
Common Shareholders' Equity
Common Stock, no par value; shares
authorized: 30,000,000; shares outstanding: 207,356 201,549
12,680,398 in 1998 and 12,428,952 in 1997
Shares held in treasury: 106,739 shares (1,932) (1,615)
in 1998 and 98,475 shares in 1997
Retained earnings 19,263 19,260
Valuation of marketable securities -- 120
Unearned employee compensation (1,695) (1,023)
------- -------
222,992 218,291
------- -------
Total Capitalization $452,090 $447,360
======== ========
* The total unexpended portions of the net proceeds from these bonds,
amounting to $7.1 million and $23.8 million as of September 30, 1998 and
September 30, 1997, respectively, are carried on the Company's
consolidated balance sheet as funds for construction held by trustee,
including interest earned thereon, until drawn upon for eligible
construction expenditures.
See the notes to the consolidated financial statements.
<TABLE>
NUI Corporation and Subsidiaries
Consolidated Statement of Shareholders' Equity
(Dollars in thousands)
<CAPTION>
Common Stock Unrealized
Gain(Loss)-
Shares Paid-in Held in Retained Marketable Employee
Outstanding Amount Treasury Earnings Securites Compensation Total
<C> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 30, 1995 9,201,237 $139,093 $(1,265) $ 3,921 $ 232 $(1,069) $140,912
Common stock
issued:
Public
offering 1,800,000 31,067 31,067
Other* 86,973 1,548 1,548
Treasury stock
transactions (2,334) 260 (299) (39)
Net income 14,896 14,896
Cash dividends (8,700) (8,700)
Unrealized
gain 157 157
Unearned
compensation (734) (734)
---------- ------- ------ ------ ------- ------ ------
Balance,
September 30, 1996 11,085,876 $171,968 $(1,564) $10,117 $ 389 $(1,803) $179,107
Common stock
issued:
Public
offering 1,011,400 22,610 22,610
Other* 337,420 6,971 6,971
Treasury stock
transactions (5,744) (51) (51)
Net income 19,649 19,649
Cash dividends (10,575) (10,575)
Unrealized
loss (269) (269)
Unearned
compensation (288) (288)
ESOP
transactions 69 1,068 1,137
---------- ------- ------ ------ ----- ----- -------
Balance,
September 30, 1997 12,428,952 $201,549 $(1,615) $19,260 $ 120 $(1,023) $218,291
Common stock
issued* 259,710 5,807 5,807
Treasury stock
transactions (8,264) (317) (317)
Net income 12,314 12,314
Cash dividends (12,311) (12,311)
Unrealized
(loss) (120) (120)
Unearned
compensation (672) (672)
---------- -------- ------ ------ ----- ------ -------
Balance,
September 30,1998 12,680,398 $207,356 $(1,932) $19,263 $ - $(1,695) $222,992
========== ======= ===== ====== ===== ====== =======
</TABLE>
* Represents common stock issued in connection with NUI Direct and
various employee benefit plans.
See the notes to the consolidated financial statements.
NUI Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements
include all operating divisions and subsidiaries of NUI Corporation
(collectively referred to as the Company). The Company is a multi-state
energy sales, services and distribution company. Its utility operations
distribute natural gas and related services in six states along the
eastern seaboard and comprise Elizabethtown Gas (New Jersey), 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 (NUI Energy); wholesale energy brokerage and related
services through its NUI Energy Brokers, Inc. subsidiary (NUI Energy
Brokers); energy project development and consulting through its NUI
Energy Solutions, Inc. subsidiary; environmental project development
services through its NUI Environmental Group, Inc. subsidiary; customer
account management and field operations 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) (see Note 2). All intercompany accounts and transactions have been
eliminated in consolidation.
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.
Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
Regulation. The Company is subject to regulation as an operating utility
by the public utility commissions of the states in which it operates.
Utility Plant. Utility plant is stated at its original cost.
Depreciation is provided on a straight-line basis over the remaining
estimated lives of depreciable property by applying composite average
annual rates as approved by the state commissions. The composite average
annual depreciation rate was 3% in fiscal 1998, fiscal 1997, and fiscal
1996. At the time properties are retired, the original cost plus the
cost of retirement, less salvage, is charged to accumulated
depreciation. Repairs of all utility plant and replacements and renewals
of minor items of property are charged to maintenance expense as
incurred.
The net unamortized plant acquisition adjustments represent the
remaining portion of the excess of the purchase price over the book
value of net assets acquired. The excess is being amortized on a
straight-line basis over 30 years from the date of acquisition. The
results of operations of acquired entities have been included in the
accompanying consolidated financial statements for the periods
subsequent to their acquisition.
Operating Revenues and Purchased Gas and Fuel Costs. Operating revenues
include accrued unbilled revenues through the end of each accounting
period. Operating revenues also reflect adjustments attributable to
weather normalization clauses that are accrued during the winter heating
season and billed or credited to customers in the following year.
Costs of purchased gas and fuel for the Company's regulated utilities
are recognized as expenses in accordance with the purchased gas
adjustment clause applicable in each state. Such clauses provide for
periodic reconciliations of actual recoverable gas costs and the
estimated amounts that have been billed to customers. Under or over
recoveries are deferred when they arise and are recovered from or
refunded to customers in subsequent periods.
Environmental Reserve. 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.
Stock Compensation. The Company follows the accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees", and related interpretations in accounting for its
employee stock based compensation. The Company has elected to adopt the
disclosure-only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation" (SFAS 123),
which requires proforma disclosure of the effect of adopting the
accounting under SFAS 123. If the Company had adopted SFAS 123, there
would not have been a material effect on the results of operation or
financial position.
Income Taxes. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", which requires the liability method to be used to account
for deferred income taxes. Under this method, deferred income taxes
related to tax and accounting basis differences are recognized at the
statutory income tax rates in effect when the tax is expected to be
paid.
Investment tax credits, which were generated principally in connection
with additions to utility plant made prior to January 1, 1986, are being
amortized over the estimated service lives of the properties that gave
rise to the credits.
Regulatory Assets and Liabilities. The Company's utility operations
follow the accounting for regulated enterprises prescribed by Statement
of Financial Accounting Standards No. 71, "Accounting for the Effects of
Certain Types of Regulation" (SFAS 71). In general, SFAS 71 requires
deferral of certain costs and obligations, based upon orders received
from regulators, to be recovered from or refunded to customers in future
periods. The following represents the Company's regulatory assets and
liabilities deferred in the accompanying consolidated balance sheet as
of September 30, 1998 and 1997 (in thousands):
1998 1997
Regulatory Assets
Environmental investigation and $34,686 $34,217
remediation costs
Unrecovered gas costs 2,265 7,091
Postretirement and other employee 12,515 10,041
benefits
Deferred piping allowances 2,108 2,512
Other 753 746
------ ------
$52,327 $54,607
======= =======
Regulatory Liabilities
Net overcollection of income taxes $ 4,986 $ 5,250
Refunds to customers 2,478 2,442
Other 302 272
------- -------
$ 7,766 $ 7,964
======= =======
Although the gas distribution industry is becoming increasingly
competitive, the Company's utility operations continue to recover their
costs through cost-based rates established by the public utility
commissions. As a result, the Company believes that the accounting
prescribed under SFAS 71 remains appropriate.
Cash Equivalents. Cash equivalents consist of a money market account
which invests in securities with original maturities of three months or
less.
Net Income Per Share of Common Stock. Net income per share of common
stock is based on the weighted average number of shares of NUI common
stock outstanding. 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.
New Accounting Standards. In June 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" (SFAS 131). SFAS 131 requires disclosures for each
business segment that are similar to current requirements, with the
addition of quarterly disclosures and more detailed geographic
disclosures. The Company is not required to adopt SFAS 131 until fiscal
1999. SFAS 131 relates solely to disclosure provisions, and therefore
will not have any effect on the results of operations, financial
position and cash flows of the Company.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activitie" (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 its nature, there could be an
impact on earnings when adopted.
2. Purchase of Interest in TIC Enterprises, LLC
On May 18, 1997, the Company closed on its acquisition of a 49% interest
in TIC Enterprises, LLC, a limited liability company (LLC), for a
purchase price of $22.0 million. The acquisition was effective as of
January 1, 1997 and is being accounted for under the equity method.
Under the terms of an LLC Interest Purchase Agreement, the limited
liability company is continuing the business previously conducted by TIC
Enterprises, Inc. NUI has the option, during the period beginning
April 1, 2001 (subject to a one-year extension by the seller), to
purchase the remaining 51% interest in TIC.
TIC engages in the business of recruiting, training and managing sales
professionals and serving as sales and marketing representatives for
various businesses. The excess of the purchase price over the Company's
share of the underlying equity in net assets of TIC was approximately
$20.6 million, and is being amortized on a straight line basis over a
25-year period.
3. Restructuring and Other Non-Recurring Charges
In the current year, the Company incurred approximately $9.7 million of
pre-tax, non-recurring charges related to the restructuring of its
operations, an early retirement program for non-bargaining unit
personnel and other workforce reductions.
In June 1998, the Company offered an early retirement program to its
non-bargaining unit personnel. The program was accepted by 74 of the
eligible 77 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 recorded a special termination charge of
approximately $7.3 million. In addition, the Company recorded
approximately $1.5 million of other benefit expenses associated with
these employees and approximately $0.9 million of other charges
associated with the restructuring of the Company.
4.Capitalization
Long-Term Debt. On July 9, 1997, the Company issued $54.6 million of
tax exempt Gas Facilities Revenue Refunding Bonds at an interest rate of
5.7%. The bonds mature on June 1, 2032 and were used to refinance
previously issued Gas Facilities Revenue Bonds in the aggregate
principal amounts and rates of $46.2 million at 6.75% and $8.4 million
at 6.625%. The proceeds from the refunding bonds were held in trust
until the old bonds were called on October 1, 1997.
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 September 30, 1998 and 1997, the total unexpended
portions of all of the Company's Gas Facilities Revenue Bonds were $7.1
million and $23.8 million, respectively, and are classified on the
Company's consolidated balance sheet, including interest earned thereon,
as funds for construction held by trustee.
The Company is scheduled to repay $20 million of Medium-Term Notes in
August 2002.
Preferred Stock. The Company has 5,000,000 shares of authorized but
unissued preferred stock. Shares of Series A Junior Participating
Preferred Stock have been reserved for possible future issuance in
connection with the Company's Shareholder Rights Plan described below.
Shareholder Rights Plan. In November 1995, the Company's Board of
Directors adopted a Shareholder Rights Plan under which shareholders of
NUI common stock were issued as a dividend one right to buy one one-
hundredth of a share of Series A Junior Participating Preferred Stock at
a purchase price of $50 (Right) for each share of common stock held.
The Rights initially attach to the shares of NUI common stock and can be
exercised or transferred only if a person or group (an Acquirer), with
certain exceptions, acquires, or commences a tender offer to acquire
beneficial ownership of 15% or more of NUI common stock. Each Right,
except those held by the Acquirer, may be used by the non-acquiring
shareholders to purchase, at the Right's exercise price, shares of NUI
common stock having a market value equivalent to twice the Right's
exercise price, thus substantially reducing the Acquirer's ownership
percentage.
The Company may redeem the Rights at $0.001 per Right at any time prior
to the occurrence of any such event. All Rights expire on November 27,
2005.
Common Stock. On September 25, 1997, the Company issued an additional
1.0 million shares of NUI common stock. The net proceeds from the
offering totaled $22.6 million and were used to reduce outstanding
short-term debt incurred to finance the Company's acquisition of a 49%
interest in TIC (see Note 2) and other general corporate purposes.
The Company periodically issues shares of common stock in connection
with NUI Direct, the Company's dividend reinvestment and stock purchase
plan, and various employee benefit plans. 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 shares from
open market purchases to purchases directly from the Company, or vice
versa.
At September 30, 1998, shares reserved for issuance under the Company's
common stock plans were: NUI Direct, 62,855; Savings and Investment
Plan, 122,135; 1996 Stock Option and Stock Award Plan, 414,307; 1996
Employee Stock Purchase Plan, 147,615; and the 1996 Director Stock
Purchase Plan, 29,978.
Stock Plans. The Company's Board of Directors believes that the
interests of both directors and management should be closely aligned
with that of shareholders. As a result, under the 1996 Stock Option and
Stock Award Plan, the 1996 Director Stock Purchase Plan and the 1988
Stock Plan, the Company has a long-term compensation program for
directors, executive officers and key employees involving shares of NUI
common stock.
Each non-employee director of the Company earns an annual retainer fee
that consists of a grant of shares of NUI common stock which are
deferred until their retirement from the Board. During 1998, such
retainer fee granted was equivalent to a fair market value of $15,000 on
the date of grant. In addition, non-employee directors who also chair
committees of the Board receive additional deferred grants with a fair
market value of $2,500 on the date of grant. Deferred stock grants are
increased on each common stock dividend payment date by an amount equal
to the number of shares of NUI common stock which would have been
purchased had all deferred stock grants been issued and the dividends
reinvested in additional shares.
Restricted shares of stock granted as long-term compensation for
executive officers and key employees amounted to 74,600 in fiscal 1998,
69,800 in fiscal 1997 and 65,113 shares in fiscal 1996. As of September
30, 1998, a total of 128,313 shares of restricted stock that have been
granted as long-term compensation are subject to future vesting
requirements, and are restricted from resale.
Executive officers and key employees are eligible to be granted options
for the purchase of NUI common stock at prices equal to the market price
per share on the date of grant. The option must be exercised within ten
years from the date of grant. As of September 30, 1998 there were 5,000
options outstanding and exercisable at a price of $17.625 per share.
During fiscal 1998, 4,800 options were exercised at a price of $15.77
per share. There were no other transactions during the last three
fiscal years.
Dividend Restrictions. 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 was
permitted to pay approximately $38 million of cash dividends at
September 30, 1998.
5. Notes Payable to Banks
At September 30, 1998, the Company's outstanding notes payable to banks
were $87.6 million with a combined weighted average interest rate of
5.8%. Unused lines of credit at September 30, 1998 were approximately
$58.4 million.
The weighted average daily amounts outstanding of notes payable to banks
and the weighted average interest rates on those amounts were $66.8
million at 5.7% in fiscal 1998, $66.0 million at 5.5% in fiscal 1997 and
$39.9 million at 5.6% in fiscal 1996.
6. Leases
Utility plant held under capital leases amounted to $24.6 million at
September 30, 1998 and $22.9 million at September 30, 1997, with related
accumulated amortization of $14.3 million and $12.5 million,
respectively. These properties consist principally of leasehold
improvements and office furniture and fixtures. A summary of future
minimum payments for properties held under capital leases follows (in
thousands):
1999 $ 2,526
2000 7,345
2001 672
2002 527
2003 172
2004 and thereafter -
-------
Total future minimum payments 11,242
Amount representing interest (866)
Current portion of capital
lease obligations (1,810)
------
Capital lease obligations $8,566
======
Minimum payments under noncancelable operating leases, which relate
principally to office space, are approximately $3.0 million in fiscal
1999, and $3.3 million in each of fiscal years 2000 through 2003.
Rents charged to operations expense were $6.1 million in fiscal 1998,
$5.7 million in fiscal 1997, and $5.3 million in fiscal 1996.
7. Financial Instruments
Derivatives. The Company's wholesale trading subsidiary, NUI Energy
Brokers, utilizes the following financial instruments to provide
competitive energy supplies and enhance the Company's profitability:
forward contracts, which commit the Company to purchase or sell physical
natural gas in the future; swap agreements, which require payments to
(or receipt of payments from) counterparties based on the differential
between a fixed price and an index price of natural gas; and futures and
options contracts, bought on the New York Mercantile Exchange (NYMEX),
to buy or sell natural gas at a fixed price in the future.
NUI Energy Brokers accounts for its risk management activities by
marking to market all trading positions, and calculating a value-at-
risk, on a daily basis. The values used for these calculations reflect
NYMEX settlement prices, established pricing models, and quoted market
volatilities. The Company manages open positions with a strict Risk
Management Policy that limits its exposure to market risk and requires
that any breach of policy be reported to senior management.
Margin requirements for natural gas futures contracts are recorded in
other current assets. Realized and unrealized gains and losses are
recorded in the consolidated statement of income under purchased gas and
fuel. At September 30, 1998, NUI Energy Brokers' futures positions
consisted of 5,262 long contracts and 4,466 short contracts at prices
ranging from $1.88 to $2.87 per Mcf, none of which extend beyond
February 2001, representing 97,280 MMcf of natural gas. In addition, NUI
Energy Brokers has forward sales and purchase commitments associated
with contracts totaling approximately 174,000 MMcf of natural gas, with
terms extending through August 2002. Margin deposits with brokers were
approximately $5.5 million at September 30, 1998. Net realized and
unrealized gains on derivative trading for fiscal 1998 and 1997 were
$2.8 and $2.4 million, respectively, which has been included in income.
During fiscal 1998, the Company's retail sales subsidiary, NUI Energy,
made some use of derivatives to hedge its sales contracts. However, at
September 30, 1998, NUI Energy had no unrealized derivatives positions
in its portfolio. NUI Energy no longer uses derivatives and will always
have a balanced portfolio, and therefore no market risk exposure.
The Company is exposed to credit risk in the event of default or non-
performance by one of its trading partners. The Company adheres to
credit policies that management believes minimizes overall credit risk.
Other Financial Instruments. The fair value of the Company's cash
equivalents, funds for construction held by trustee and notes payable to
banks are approximately equivalent to their carrying value. The fair
value of the Company's long-term debt exceeded its carrying value by
approximately $19 and $11 million as of September 30, 1998 and 1997,
respectively. The fair value of long-term debt was estimated based on
quoted market prices for the same or similar issues.
8. Consolidated Taxes
The provision for Federal and State income taxes was comprised of the
following (in thousands):
1998 1997 1996
Currently payable -
Federal $6,747 $ 7,205 $ 647
State 2,166 595 244
Deferred -
Federal 357 3,246 7,569
State (99) (59) 151
Amortization of investment (461) (464) (467)
tax credits
------ ------ ------
Total provision for income $8,710 $10,523 $8,144
====== ======= ======
The components of the Company's net deferred Federal tax liability
(asset) as of September 30, 1998 and 1997 are as follows (in thousands):
1998 1997
Depreciation and other utility
plant differences $55,093 $50,620
Plant acquisition adjustments 10,023 10,544
Alternative minimum tax credit (5,008) (3,670)
Unamortized investment tax credit (1,823) (2,144)
Deferred charges and regulatory
assets 5,522 8,357
Energy taxes 1,953 2,375
Other (3,241) (3,691)
------ ------
$62,519 $62,391
======= =======
The alternative minimum tax credit can be carried forward indefinitely
to reduce the Company's future tax liability.
The Company's effective income tax rates differ from the statutory
Federal income tax rates due to the following (in thousands):
1998 1997 1996
Pre-tax income $21,024 $30,172 $23,040
------- ------- -------
Federal income taxes computed at
Federal statutory tax rate of 35% 7,358 10,560 8,064
Increase (reduction) resulting
from:
Excess of book over tax 357 354 360
depreciation
Amortization of investment tax (461) (464) (467)
credits
Federal benefit of state tax (723) (188) (138)
provision
Other, net 112 (275) (70)
------- ------- -------
Total provision for Federal
income taxes 6,643 9,987 7,749
Provision for State income taxes 2,067 536 395
------- ------- ------
Total provision for income taxes 8,710 10,523 8,144
(Less) provision included in
other income and expense (403) (1,230) (337)
------- ------- ------
Provision for income taxes $8,307 $9,293 $7,807
======= ======= ======
9. Retirement Benefits
Pension Benefits. The Company has non-contributory defined benefit
retirement plans which cover all of its employees other than the City
Gas of Florida union employees who participate in a union-sponsored
multi-employer plan. The Company funds its plans in accordance with the
requirements of the Employee Retirement Income Security Act of 1974 and
makes contributions to the union sponsored plan in accordance with its
contractual obligations. Benefits paid under the Company's plans are
based on years of service and levels of compensation. The Company's
actuarial calculation of pension expense is based on the projected unit
cost method.
The components of pension expense for the Company's plans were as
follows (in thousands):
1998 1997 1996
Service cost $ 2,370 $ 1,849 $ 1,973
Interest cost 6,459 6,480 6,103
Actual return on plan (10,603) (36,984) (15,076)
assets
Net amortization and (4,915) 26,089 6,653
deferral
Special termination 7,301 1,150 --
benefits
------- ------- -------
Pension (credit) expense $ 612 $(1,416) $ (347)
======= ======= =======
The status of the Company's funded plans as of September 30 was as
follows (in thousands):
1998 1997
Actuarial present value of
benefit obligations:
Vested benefits $92,780 $73,154
Non-vested benefits 4,125 2,791
------- -------
Accumulated benefit obligations 96,905 75,945
Projected increases in 17,328 11,457
compensation levels
------- -------
Projected benefit obligation 114,233 87,402
Market value of plan assets 140,975 137,290
------- -------
Plan assets in excess of 26,742 49,888
projected benefit obligation
Unrecognized net gain (20,973) (42,969)
Unrecognized prior service cost 543 658
Unrecognized net transition (1,967) (2,619)
asset
------- -------
Pension prepayment $ 4,345 $ 4,958
======= =======
The projected benefit obligation was calculated using a discount rate of
6.5% in fiscal 1998 and 7.5% in fiscal 1997 and an assumed annual
increase in compensation levels of 4% in both fiscal 1998 and fiscal
1997. The expected long-term rate of return on assets was calculated at
9.75% and 9% in fiscal 1998 and fiscal 1997, respectively. The assets of
the Company's funded plans are invested primarily in publicly-traded
fixed income and equity securities.
Certain key employees also participate in an unfunded supplemental
retirement plan. The projected benefit obligation under this plan was
$5.8 million as of September 30, 1998 and $4.3 million as of September
30, 1997, and the expense for this plan was approximately $0.7 million
in fiscal 1998, $0.6 million in fiscal 1997 and $0.4 million in fiscal
1996.
Postretirement Benefits Other Than Pensions. The Company provides
certain health care benefits to all retirees receiving benefits under a
Company pension plan other than the City Gas Company of Florida plan,
who reach retirement age while working for the Company.
The Company accounts for these plans under Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS 106), which, among other things,
requires companies to accrue the expected cost of providing other
postretirement benefits to employees and their beneficiaries during the
years that eligible employees render the necessary service. The Company
does not currently fund these future benefits.
The components of postretirement benefit expense other than pensions for
the years ended September 30, 1998 and 1997 were as follows (in
thousands):
1998 1997
Service cost $824 $564
Interest cost 1,748 2,123
Amortization of transition 774 1,028
obligation
Other - 26
------ ------
Net postretirement expense $3,346 $3,741
====== ======
The status of the Company's postretirement plans other than pensions as
of September 30, 1998 and 1997 was as follows (in thousands):
1998 1997
Accumulated postretirement benefit
obligation:
Retirees $20,059 $14,790
Fully eligible active plan 930 2,019
participants
Other active plan participants 11,339 6,264
------- -------
Total accumulated postretirement 32,328 23,073
benefit obligations
Unrecognized transition obligation (11,603) (11,270)
Unrecognized net (loss) (8,193) (1,572)
------- -------
Accrued postretirement benefit $12,532 $10,231
obligation ======= =======
The health care trend rate assumption is 10% in 1999 gradually
decreasing to 5.5% for the year 2005 and later. The discount rate used
to compute the accumulated postretirement benefit obligation was 6.5% in
fiscal 1998 and 7.5% in fiscal 1997. An increase in the health care
trend rate assumption by one percentage point in all years would
increase the accumulated postretirement benefit obligation by
approximately $5.3 million and the aggregate annual service and interest
costs by approximately $0.6 million.
On September 23, 1998, the New Jersey Board of Public Utilities (NJBPU)
issued an order approving the Company's petition to increase its base
rates in New Jersey by approximately $2.4 million annually to recover
postretirement benefits computed under SFAS 106. The rate increase was
effective October 1, 1998 and allows for previously deferred costs, as
well as future SFAS 106 costs, to be recovered over a rolling 15-year
period. The Company has previously received an order from the North
Carolina Utilities Commission to include in rates the amount of
postretirement benefit expense other than pensions computed under SFAS
106.
The Company continually evaluates alternative ways to manage these
benefits and control their costs. Any changes in the plan or revisions
to assumptions that affect the amount of expected future benefit may
have a significant effect on the amount of the reported obligation and
the annual deferral and expense.
10. Business Segment Information
The Company's operations are organized under three primary lines of
business: Distribution Services, Energy Sales and Services and Customer
Services. The Distribution Services segment distributes natural gas in
six states through the Company's regulated utility divisions. The Energy
Sales and Services segment reflects the operations of the Company's
Energy and Energy Brokers subsidiaries, as well as utility off-system
sales. The Customer Services segment provides appliance repair and
maintenance, mapping services to outside utilities and payment
processing and collections primarily for water and sewage usage.
The following table provides information concerning the major segments
of the Company for each of the three years ended September 30, 1998.
Revenues include intersegment sales to affiliated entities, which are
eliminated in consolidation. Identifiable assets include only those
attributable to the operations of each segment.
(dollars in thousands) 1998 1997 1996
Revenues:
Distribution $391,033 $418,426 $403,100
Energy Sales & 427,300 180,111 60,379
Services
Customer Services 14,736 12,290 10,722
Intersegment (5,033) (2,231) (4,702)
Revenues -------- -------- --------
Total Revenues $828,036 $608,596 $469,499
======== ======== ========
Operating Margins:
Distribution $159,352 $154,119 $150,477
Energy Sales & 5,875 6,666 3,553
Services
Customer Services 14,736 12,290 10,722
-------- -------- --------
Total $179,963 $173,075 $164,752
======== ======== ========
Pre-Tax Operating
Income:
Distribution $ 44,619 $ 42,579 $ 39,313
Energy Sales & 2,164 2,592 1,313
Services
Customer Services 3,573 2,840 2,025
Other (1,584) (2,433) (1,951)
Restructuring and
other non-recurring (9,686) - -
charges -------- -------- --------
Total 39,086 45,578 40,680
Income Taxes 8,307 9,293 7,807
-------- -------- --------
Total Operating Income $ 30,779 $ 36,285 $ 32,873
======== ======== ========
Depreciation &
Amortization:
Distribution $ 20,661 $ 18,518 $ 17,287
Energy Sales & 243 50 23
Services
Customer Services 2,464 2,031 2,028
Other 1,584 2,433 1,951
-------- -------- --------
Total Depreciation & $ 24,952 $ 23,032 $ 21,289
Amortization ======== ======== ========
Capital Expenditures:
Distribution $ 54,817 $ 41,216 $ 34,311
Energy Sales & 457 507 26
Services
Customer Services 1,682 1,285 908
Other 3,952 9,271 1,814
-------- -------- --------
Total Capital $ 60,908 $ 52,279 $ 37,059<PAGE>
Expenditures ======== ======== ========
Identifiable Assets:
Distribution $648,942 $697,889 $645,247
Energy Sales & 39,849 28,638 7,415
Services
Customer Services 29,153 15,458 14,958
Other 58,903 61,680 10,042
-------- -------- --------
Total Identifiable $776,847 $803,665 $677,662
Assets ======== ======== ========
11. Commitments and Contingencies
Commitments. Capital expenditures are expected to be approximately $59
million in fiscal 1999.
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. In New Jersey, the Company has reported the
presence of the six MGP sites to the EPA, the NJDEP and the NJBPU. In
1991, the NJDEP issued an Administrative Consent Order for the 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 New
Jersey 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 Company also owns, or previously owned, ten former MGP facilities
located in the states of North Carolina, South Carolina, Pennsylvania,
New York and Maryland. The Company has joined with other North Carolina
utilities to form the North Carolina Manufactured Gas Plant Group (the
MGP Group). The MGP Group has entered into a Memorandum of Understanding
with the North Carolina Department of Environment, Health and Natural
Resources (NCDEHNR) to develop a uniform program and framework for the
investigation and remediation of MGP sites in North Carolina. The
Memorandum of Understanding contemplates that the actual investigation
and remediation of specific sites will be addressed pursuant to
Administrative Consent Orders between the NCDEHNR and the responsible
parties. The NCDEHNR has recently sought the investigation and
remediation of sites owned by members of the MGP Group and has entered
into Administrative Consent Orders with respect to four such sites.
None of these four sites are currently or were previously owned by the
Company.
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 20 years. The reserve is net of approximately $4 million which
will be borne by a prior owner and operator of two of the New Jersey
sites in accordance with a cost sharing agreement. Of this reserve,
approximately $30 million relates to the six New Jersey MGP sites and
approximately $4 million relates to the ten sites located outside New
Jersey. 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 this reserve by an amount that could range up to an
additional $24 million and be incurred during a future period of time
that may range up to 50 years. Of this additional $24 million in
possible future expenditures, approximately $12 million relates to the
New Jersey MGP sites and approximately $12 million relates to the sites
located outside New Jersey. As compared with the $34 million reserve
currently recorded on the Company's books as 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 New Jersey
MGP sites have been authorized by the NJBPU to be recoverable in rates.
The most recent NJBPU base rate order permits the Company to utilize
full deferred accounting for expenditures related to its New Jersey
sites and provides for the recovery of $130,000 annually. As of July
1996, the Company is also able to recover MGP expenditures over a
rolling seven-year period through its NJBPU approved MGP Remediation
Adjustment Clause. As a result, the Company has begun rate recovery of
approximately $4.4 million of environmental costs incurred through June
30, 1997. Recovery of an additional $0.9 million in environmental costs
incurred between July 1, 1997 and June 30, 1998 is currently pending
NJBPU approval. Accordingly, the Company has recorded a regulatory asset
of approximately $34 million as of September 30, 1998, reflecting the
future recovery of environmental remediation liabilities related to New
Jersey MGP sites. The Company has also been successful in recovering a
portion of MGP remediation costs incurred for the New Jersey sites from
the Company's insurance carriers and continues to pursue additional
recovery. With respect to costs associated with the remaining MGP sites
located outside New Jersey, 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.
Gas Procurement Contracts. 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 nine billion cubic feet
(Bcf) 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.
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.
12. Unaudited Quarterly Financial Data
The quarterly financial data presented below reflects the seasonal
nature of the Company's operations which normally results in higher
earnings during the heating season, which is primarily in the first two
fiscal quarters. (in thousands, except per share amounts):
Fiscal Quarters
First Second Third Fourth
1998:
Operating Revenues $235,938 $258,798 $169,004 $164,296
Operating Income (Loss) 11,868 19,636 3,970 (4,695)
Net Income (Loss) 7,421 15,063 (432) (9,738)
Net Income (Loss) 0.60 1.20 (0.03) (0.77)
Per Share
1997:
Operating Revenues $151,462 $204,483 $125,175 $127,476
Operating Income 10,767 19,668 5,499 351
Net Income (Loss) 6,773 15,313 1,365 (3,802)
Net Income (Loss) 0.61 1.37 0.12 (0.33)
Per Share
During the fourth quarter of fiscal 1998, the Company recorded after-tax
restructuring and other non-recurring charges totaling $5.9 million
($9.7 million before income taxes), or $0.47 per share (see Note 3).
Quarterly net income (loss) per share in both fiscal 1998 and fiscal
1997 does not total to the annual amounts due to rounding and to changes
in the average common shares outstanding.<PAGE>
<TABLE>
SCHEDULE II
NUI Corporation and Subsidiaries
Valuation and Qualifying Accounts
For each of the Three Years in the
Period Ended September 30, 1998
(Dollars in thousands)
<CAPTION>
Additions
Balance, Charged to Balance,
Beginning Costs and End of
Description of Period Expenses Other Deductions Period
<S> <C> <C> <C> <C> <C>
1998
Allowance for doubtful
accounts $ 2,318 $ 2,942 $ 244(a) $ 3,700(b) $ 1,714
Environmental
remediation reserve(c) $33,981 -- -- -- $33,981
Restructuring reserve $ 0 1,008 -- 452 $ 556
1997
Allowance for doubtful
accounts $ 2,288 $ 2,305 $1,088(a) $ 3,363(b) $ 2,318
Environmental
remediation reserve(c) $33,981 -- -- -- $33,981
1996
Allowance for doubtful
accounts $ 1,689 $ 3,369 $ 863(a) $ 3,633(b) $ 2,288
Environmental
remediation reserve(c) $33,981 -- -- -- $33,981
<F1>
(a) Recoveries
<F2>
(b)Uncollectible
amounts written off.
<F3>
(c) The related cost of the reserve established in fiscal 1991, as well as
$5.6 million of fiscal 1994 additions, was recorded as a regulatory asset.
The remaining fiscal 1994 additions of $1.9 million and all of fiscal 1995
additions was recorded as an additional utility plant acquisition
adjustment. See "Commitments and Contingencies-Environmental Matters",
Note 11 of the Notes to the Consolidated Financial Statements.
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in
the Township of Bedminster, State of New Jersey, on the day of December
NUI CORPORATION
By: JAMES R. VAN HORN
Chief Administrative Officer,
General Counsel and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
JOHN KEAN, JR. President, Chief December 28, 1998
Executive Officer and
Director (Principal
executive officer)
JOHN KEAN Chairman and Director December 28, 1998
A. MARK ABRAMOVIC Senior Vice President, December 28, 1998
Chief Operating Officer
and Chief Financial
Officer (Principal
financial and
accounting officer)
C. R. CARVER Director December 28, 1998
JAMES J. FORESE Director December 28, 1998
DR. VERA KING Director December 28, 1998
FARRIS
J. RUSSELL HAWKINS Director December 28, 1998
BERNARD S. LEE Director December 28, 1998
R. V. WHISNAND Director December 28, 1998
JOHN WINTHROP Director December 28, 1998<PAGE>
<TABLE>
EXHIBIT 12
NUI CORPORATION AND SUBSIDIARIES
CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
(000's)
<CAPTION>
Year Ended September 30,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Income from continuing
operations before
income taxes $21,024 $30,172 $23,040 $ 8,644 $12,883
Less:
Adjustment related to
equity investments
investments (402) (2,317) -- -- --
Add:
Interest element of
rentals charged to
income (a) 3,239 3,299 2,930 3,220 3,173
Interest expense 20,496 21,374 19,808 20,032 16,443
------- ------- ------- ------- -------
Earnings as defined $44,357 $52,528 $45,782 $31,896 $32,449
======= ======= ======= ======= =======
Interest expense 20,496 21,374 19,808 19,814 16,323
Capitalized interest 272 186 150 218 120
Interest element of
rentals charged
to income (a) 3,239 3,299 2,930 3,220 3,173
------- ------- ------- ------- -------
Fixed charges as
defined $24,007 $24,859 $22,888 $23,252 $19,616
======= ======= ======= ======= =======
CONSOLIDATED RATIO OF
EARNINGS TO FIXED
CHARGES 1.85 2.11 2.00 1.37 1.66
---- ---- ---- ---- ----
<F1>
(a) Includes the interest element of rentals where determinable
plus 1/3 of rental expense where no readily defined interest
element can be determined.
</TABLE>
EXHIBIT NO. 21
SUBSIDIARIES OF NUI CORPORATION
NUI Capital Corp. (a Florida corporation) is a wholly-owned
subsidiary of NUI Corporation.
NUI Energy, Inc. (a Delaware Corporation), NUI Energy
Brokers, Inc. (a Delaware Corporation), Utility Business
Services, Inc. (a New Jersey Corporation), NUI Environmental
Group, Inc. (a New Jersey Corporation), NUI Energy Solutions Inc.
(a New Jersey Corporation), NUI Sales Management, Inc. (a
Delaware Corporation) and NUI International, Inc. (a Delaware
Corporation) are wholly-owned subsidiaries of NUI Capital Corp.<PAGE>
EXHIBIT NO. 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated November 6, 1997,
included in the Form 10-K, into the Company's previously filed
Registration Statements File No. 33-56509 relating to Amendment
No. 1 to Form S-3 Registration Statement, File No. 33-51459
relating to NUI Direct, File No. 33-57183 relating to the Savings
and Investment Plan, File No. 33-24169 relating to the 1988
Stock Plan, File No. 333-02425 relating to the 1996 Stock Option
and Stock Award Plan, File No. 333-02421 relating to the Employee
Stock Purchase Plan, and File No. 333-02423 relating to the 1996
Director Stock Purchase Plan.
ARTHUR ANDERSEN LLP
New York, New York
December 24, 1998<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 553,743
<OTHER-PROPERTY-AND-INVEST> 37,815
<TOTAL-CURRENT-ASSETS> 144,390
<TOTAL-DEFERRED-CHARGES> 60,899
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 776,847
<COMMON> 0
<CAPITAL-SURPLUS-PAID-IN> 207,356
<RETAINED-EARNINGS> 19,263
<TOTAL-COMMON-STOCKHOLDERS-EQ> 222,992
0
0
<LONG-TERM-DEBT-NET> 229,098
<SHORT-TERM-NOTES> 87,630
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 8,566
<LEASES-CURRENT> 1,810
<OTHER-ITEMS-CAPITAL-AND-LIAB> 226,751
<TOT-CAPITALIZATION-AND-LIAB> 776,847
<GROSS-OPERATING-REVENUE> 828,036
<INCOME-TAX-EXPENSE> 8,710
<OTHER-OPERATING-EXPENSES> 140,877
<TOTAL-OPERATING-EXPENSES> 149,184
<OPERATING-INCOME-LOSS> 30,779
<OTHER-INCOME-NET> 748
<INCOME-BEFORE-INTEREST-EXPEN> 31,527
<TOTAL-INTEREST-EXPENSE> 19,213
<NET-INCOME> 12,314
0
<EARNINGS-AVAILABLE-FOR-COMM> 12,314
<COMMON-STOCK-DIVIDENDS> 12,311
<TOTAL-INTEREST-ON-BONDS> 7,375
<CASH-FLOW-OPERATIONS> 20,851
<EPS-PRIMARY> 0.98
<EPS-DILUTED> 0.98
</TABLE>
