UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to_________
Commission File Number 1-8353
NUI CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-1869941
(State of incorporation) (IRS employer identification no.)
550 Route 202-206, PO Box 760, Bedminster, New Jersey 07921-0760
(Address of principal executive offices, including zip code)
(908) 781-0500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes - X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the registrant's
classes of common stock, as of July 31, 2000: Common Stock, No
Par Value: 12,987,368 shares outstanding.
NUI Corporation and Subsidiaries
Consolidated Statement of Income (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Nine Months
Ended Ended
June 30 June 30
2000 1999 2000 1999
Operating Margins
Operating revenues $199,124 $160,678 $712,724 $644,838
Less - Purchased gas and
fuel 154,927 117,118 531,359 472,047
Energy taxes 2,392 2,664 11,616 12,187
------- ------- ------- -------
41,805 40,896 169,749 160,604
------- ------- ------- -------
Other Operating Expenses
Operations and maintenance 25,583 25,271 80,281 76,397
Depreciation and
amortization 6,892 6,919 21,912 20,703
Restructuring and other
non-recurring items - (1,840) - (3,954)
Other taxes 2,307 2,211 7,136 6,897
Income taxes 1,227 1,760 18,759 19,014
------- ------- ------- -------
36,099 34,321 128,088 119,057
------- ------- ------- -------
Operating Income 5,706 6,575 41,661 41,547
Other Income and Expense,
Net
Equity in earnings of TIC
Enterprises, LLC, net (245) 460 369 716
Other 48 12 65 121
Income taxes 69 (165) (152) (293)
------- ------- ------- -------
(128) 307 282 544
------- ------- ------- --------
Interest Expense 4,114 4,458 15,125 14,987
------- ------- ------- -------
Net Income $1,464 $2,424 $26,818 $27,104
===== ===== ====== ======
Net Income Per Share of
Common Stock $0.11 $0.19 $2.08 $2.13
===== ===== ===== =====
Dividends Per Share of
Common Stock $0.245 $0.245 $0.735 $0.735
===== ====== ===== =====
Weighted Average Number of
Shares of Common Stock
Outstanding 12,956,647 12,733,055 12,912,975 12,708,265
========== ========== ========== ==========
See the notes to the consolidated financial statements.
NUI Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in thousands)
June 30, September 30,
2000 1999
(Unaudited) (*)
ASSETS
Utility Plant
Utility plant, at original cost $808,619 $779,131
Accumulated depreciation and
amortization (276,060) (256,898)
Unamortized plant acquisition
adjustments 29,824 30,242
---------- ---------
562,383 552,475
---------- ---------
Funds for Construction Held by
Trustee 29,758 37,413
---------- ---------
Investment in TIC Enterprises, LLC,
net 25,285 24,905
---------- ---------
Other Investments 1,246 1,385
---------- ----------
Current Assets
Cash and cash equivalents 1,445 1,561
Accounts receivable (less
allowance for doubtful accounts of
$1,987 and $1,697, respectively) 102,015 85,056
Fuel inventories, at average cost 20,014 28,573
Unrecovered purchased gas costs - 901
Prepayments and other 66,866 50,108
---------- ---------
190,340 166,199
---------- ---------
Other Assets
Regulatory assets 50,143 51,615
Deferred charges 15,609 10,234
---------- ---------
65,752 61,849
---------- ---------
$874,764 $844,226
======= =======
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $258,880 $237,318
Preferred stock - -
Long-term debt 268,938 268,911
---------- ---------
527,818 506,229
---------- ---------
Capital Lease Obligations 2,639 2,599
---------- ---------
Current Liabilities
Notes payable to banks 62,240 73,615
Current portion of capital lease 1,286 7,776
obligations
Accounts payable, customer deposits 108,042 108,023
and accrued liabilities
Overrecovered purchased gas costs 8,229 -
Federal income and other taxes 19,969 4,359
---------- ---------
199,766 193,773
---------- ---------
Deferred Credits and Other Liabilities
Deferred Federal income taxes 73,768 69,951
Unamortized investment tax credits 4,906 5,251
Environmental remediation reserve 33,560 33,981
Regulatory and other liabilities 32,307 32,442
---------- ---------
144,541 141,625
---------- ---------
$874,764 $844,226
======= =======
*Derived from audited financial statements
See the notes to the consolidated financial statements.
NUI Corporation and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)
Nine Months Ended
June 30,
2000 1999
Operating Activities
Net income $26,818 $27,104
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 23,185 21,298
Deferred Federal income taxes 3,817 3,817
Non-cash portion of restructuring and
other non-recurring items - (4,726)
Amortization of deferred investment tax
credits (345) (345)
Other 1,393 1,282
Effect of changes in:
Accounts receivable, net (15,601) (14,227)
Fuel inventories 8,559 19,466
Accounts payable, deposits and accruals (2,157) 876
Overrecovered purchased gas costs 9,130 25,856
Other (3,672) (4,285)
------- -------
Net cash provided by operating activities 51,127 76,116
------- -------
Financing Activities
Proceeds from sales of common stock, net of
treasury stock purchased 642 332
Dividends to shareholders (9,502) (9,330)
Proceeds from issuance of long-term debt - 39,804
Funds for construction held by trustee, net 9,202 (29,515)
Principal payments under capital lease
obligations (7,660) (1,238)
Net repayments of short-term borrowings (11,610) (45,575)
-------- --------
Net cash used in financing activities (18,928) (45,522)
-------- --------
Investing Activities
Cash expenditures for utility plant (30,356) (25,831)
Other (1,959) (3,336)
-------- --------
Net cash used in investing activities (32,315) (29,167)
-------- --------
Net (decrease) increase in cash and cash
equivalents ($116) $1,427
====== =====
Cash and Cash Equivalents
At beginning of period $1,561 $929
At end of period $1,445 $2,356
Supplemental Disclosures of Cash Flows
Income taxes paid, net $1,277 $4,109
Interest paid $17,056 $16,356
See the notes to the consolidated financial statements
NUI Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
1.Basis of Presentation
The consolidated financial statements include all operating divisions
and subsidiaries of NUI Corporation (collectively referred to as the
Company). The Company is a multi-state company engaged in the sale
and distribution of natural gas, energy commodity trading and
marketing, and telecommunications. The Company's utility divisions
serve more than 375,000 customers in six states along the eastern
seaboard of the United States and comprise Elizabethtown Gas (NJ),
City Gas Company of Florida, North Carolina Gas, Valley Cities Gas
(PA), Elkton Gas (MD) and Waverly Gas (NY). The Company's non-
regulated businesses include NUI Energy Brokers (Energy Brokers), an
energy wholesaler; NUI Energy, Inc. (NUI Energy), an energy retailer;
NUI Energy Solutions, Inc., an energy project development and
consulting entity; NUI Environmental Group, Inc., an environmental
project development subsidiary; Utility Business Services, Inc.,
(UBS), a customer and geographic information systems and services
subsidiary; and NUI Telecom, Inc., (NUI Telecom), a full-service
telecommunications company (see Note 3). The Company also provides
sales outsourcing through its 49 percent equity interest in TIC
Enterprises, LLC. All intercompany accounts and transactions have been
eliminated in consolidation.
The consolidated financial statements contained herein have been
prepared without audit in accordance with the rules and regulations of
the Securities and Exchange Commission and reflect all adjustments
which, in the opinion of management, are necessary for a fair
statement of the results for interim periods. All adjustments made
were of a normal recurring nature. The preparation of financial
statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. The consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes
thereto that are included in the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1999.
The Company is subject to regulation as an operating utility by the
public utility commissions of the states in which it operates.
Because of the seasonal nature of gas utility operations, the results
for interim periods are not necessarily indicative of the results for
an entire year.
2.Common Shareholders' Equity
The components of common shareholders' equity were as follows (dollars
in thousands):
June 30, September 30,
2000 1999
Common stock, no par value $215,423 $209,984
Shares held in treasury (2,246) (2,311)
Retained earnings 48,697 31,380
Unearned employee compensation (2,994) (1,735)
------ ------
Total common shareholders' equity $258,880 $237,318
======= =======
3. Purchase of NUI Telecom
On November 12, 1999, the Company closed on its acquisition of
International Telephone Group, Inc. (ITG). The acquisition was
treated as a merger whereby ITG merged with and into a subsidiary of
the Company. ITG subsequently changed its name to NUI Telecom, Inc.
The purchase price totaled $3.8 million and included the issuance of
113,200 shares of NUI common stock, with the remainder paid in cash.
NUI Telecom is a full service telephone company that provides its
customers with a single service solution for all their
telecommunication requirements including local, long distance,
cellular, internet, and data communications services. The Agreement
and Plan of Merger contains a provision whereby the previous
shareholders of NUI Telecom will receive an additional $1.0 million in
NUI common stock if NUI Telecom achieves certain revenue targets no
later than December 31, 2003.
The acquisition is being accounted for as a purchase. The excess of
the purchase price over the fair value of the net assets of NUI
Telecom is estimated to be approximately $4.5 million, which includes
the additional earnings contingency noted above, and is being
amortized on a straight-line basis over a 20-year period.
4. Purchase of Virginia Gas Company
On June 14, 2000, the Company entered into a definitive merger
agreement with Virginia Gas Company (VGC) providing for a merger of
either the subsidiary into VGC or VGC into the subsidiary depending
upon certain circumstances. Under the terms of the agreement, NUI
will acquire all of the common stock of VGC for $4.00 per share in NUI
common stock, with the exchange ratio to be established near the time
of closing. The transaction value is estimated to be $22 million.
VGC is engaged in activities including: pipeline operation; natural
gas storage, gathering, marketing and distribution services; natural
gas exploration, production and well operation; and propane
distribution. The company conducts its operations primarily in the
Commonwealth of Virginia.
The merger will be accounted for as a purchase, and is expected to
close early in fiscal year 2001.
5.Restructuring and Other Non-Recurring Items
During fiscal 1999, the Company recognized approximately $4.0 million
of pre-tax, non-recurring items (approximately $1.8 million during the
third quarter of fiscal 1999) relating primarily to the recognition of
pension settlement gains as a result of the Company's restructuring
efforts over the past year. These gains were partially offset by a
special termination charge related to the New Jersey bargaining unit
early retirement program, the write-off of certain non-recoverable
regulatory assets, and other charges deemed to be separate from
recurring operations.
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" (SFAS 88), the Company recorded a special termination charge
during fiscal 1998 when the cost was recognizable. In March 1999, the
Company recorded a settlement gain of approximately $6.8 million as a
result of satisfaction of all future liabilities associated with these
employees.
In January 1999, the Company offered an early retirement program to
its bargaining unit employees in New Jersey. The program was accepted
by 32 of the eligible 35 employees. In accordance with SFAS 88, the
Company recorded a special termination charge of approximately $1.8
million in the second quarter of fiscal 1999 associated with these
retirements. In June 1999, the Company recorded a settlement gain of
approximately $3.2 million as the result of satisfaction of all future
liabilities associated with these employees. Also in June 1999, the
Company recorded an additional $0.6 million of other benefit expenses
associated with these employees.
The Company recorded approximately $1.8 million of charges relating to
the write-off of certain regulatory assets which will not be recovered
through rates. The Company also recorded $l.8 million of charges
relating to other items which were deemed to be separate from
recurring earnings.
6.Contingencies
Environmental Matters. The Company is subject to federal and state
laws with respect to water, air quality, solid waste disposal and
employee health and safety matters, and to environmental regulations
issued by the United States Environmental Protection Agency (EPA), the
New Jersey Department of Environmental Protection (NJDEP) and other
federal and state agencies.
The Company owns, or previously owned, certain properties on which
manufactured gas plants (MGP) were operated by the Company or by other
parties in the past. In New Jersey, the Company has reported the
presence of the six MGP sites to the EPA, the NJDEP and the New Jersey
Board of Public Utilities (NJBPU). In 1991, the NJDEP issued an
Administrative Consent Order for 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, 10 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 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 is the minimum amount that the
Company expects to expend during the next 20 years. Of this reserve,
approximately $30 million relates to the six New Jersey MGP sites and
approximately $4 million relates to the 10 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. 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 $5.5 million of environmental costs incurred through
June 30, 1998. Recovery of an additional $2.0 million in environmental
costs incurred between July 1, 1998 and June 30, 1999 is currently
pending NJBPU approval. Accordingly, the Company has recorded
regulatory assets of approximately $35 million as of June 30, 2000,
reflecting the future recovery of environmental remediation costs
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 $67 million annually. The
Company currently recovers, and expects to continue to recover, such
fixed charges through its purchased gas adjustment clauses. As a
result of the forthcoming unbundling of natural gas services in New
Jersey and Pennsylvania, these contracts may result in the realization
of stranded costs by the Company. Management believes the outcome of
these actions will not have a material adverse effect on the Company's
results. The Company also is committed to purchase, at market-related
prices, minimum quantities of gas that, in the aggregate, are
approximately 2.6 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.
7. Business Segment Information
The Company's operations are organized and managed by three primary
segments: 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 NUI Energy, NUI Energy Brokers and NUI
Energy Solutions subsidiaries, as well as off-system sales by the
utility divisions. The Customer Services segment reflects the
operations of the Company's UBS and NUI Telecom subsidiaries, as well
as appliance leasing, repair and maintenance operations. The Company
also has corporate operations that do not generate any revenues or
operating margins.
The following table provides information concerning the major segments
of the Company for the three and nine-month periods ended June 30,
2000 and 1999. Revenues include intersegment sales to affiliated
entities, which are eliminated in consolidation. All of the Company's
operations are in the United States and therefore do not need separate
disclosure by geographic region.
Three Months Ended Nine Months Ended
June 30 June 30,
(Dollars in thousands) 2000 1999 2000 1999
Revenues:
Distribution Services $ 79,280 $ 72,576 $342,676 $325,485
Energy Sales and Services 128,190 92,920 391,264 330,230
Customer Services 6,612 4,163 21,783 12,139
Intersegment Revenues (14,958) (8,981) (42,999) (23,016)
------- ------- ------- -------
Total Revenues $199,124 $160,678 $712,724 $644,838
======= ======= ======= =======
Pre-Tax Operating Income
(Loss):
Distribution Services $ 4,721 $ 3,830 $ 54,860 $ 53,400
Energy Sales and Services 1,365 2,148 5,026 5,887
Customer Services 822 311 1,107 (413)
------- ------- ------- -------
Total Pre-Tax Operating
Income (Loss) $ 6,908 $ 6,289 $ 60,993 $ 58,874
======= ======= ======= =======
A reconciliation of the Company's segment pre-tax operating income to
amounts reported on the consolidated financial statements is as
follows:
Three Months Ended Nine Months Ended
June 30, June 30,
(Dollars in thousands) 2000 1999 2000 1999
Segment Pre-Tax Operating
Income $6,908 $6,289 $60,993 $58,874
Non-segment pre-tax
operating loss 25 2,046 (574) 1,688
----- ----- ------ ------
Pre-Tax Operating Income $6,933 $8,335 $60,419 $60,562
===== ===== ====== ======
NUI Corporation and Subsidiaries
Summary Consolidated Operating Data
Three Months Ended Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
Operating Revenues (Dollars
in thousands)
Firm Sales:
Residential $36,777 $35,843 $182,818 $177,298
Commercial 14,619 13,794 75,518 73,980
Industrial 1,686 1,578 7,227 7,401
Interruptible Sales 15,850 11,644 42,468 34,153
Unregulated Sales 114,987 84,420 353,802 308,668
Transportation Services 9,925 8,665 33,322 29,504
Customer Service, Appliance
Leasing and Other 5,280 4,734 17,569 13,834
------- ------- ------- -------
$199,124 $160,678 $712,724 $644,838
======= ======= ======= =======
Gas Sold or Transported
(MMcf)
Firm Sales:
Residential 3,407 3,359 20,959 19,859
Commercial 1,613 1,668 9,708 9,636
Industrial 241 144 1,056 1,197
Interruptible Sales 3,765 3,929 11,129 11,694
Unregulated Sales 31,454 43,179 111,811 150,123
Transportation Services 8,766 7,331 29,072 23,760
------- ------- ------- -------
49,246 59,610 183,735 216,269
======= ======= ======= =======
Average Utility Customers
Served
Firm Sales:
Residential 348,122 345,556 348,461 344,384
Commercial 23,426 23,461 23,581 23,393
Industrial 238 222 240 256
Interruptible Sales 44 50 45 58
Transportation 3,828 3,565 3,736 3,507
------- ------- ------- -------
375,658 372,854 376,063 371,598
======= ======= ======= =======
Degree Days in New Jersey
Actual 566 464 4,494 4,347
Normal 554 574 5,131 5,151
Percentage variance from 2% 19% 12% 16%
normal colder warmer warmer warmer
Employees (period end) 1,076 995
NUI Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis refers to NUI Corporation and
all of its operating divisions and subsidiaries (collectively referred
to as the Company). The Company is a multi-state company engaged in
the sale and distribution of natural gas, energy commodity trading and
marketing, and telecommunications. The Company's utility divisions
serve more than 375,000 customers in six states along the eastern
seaboard of the United States and comprise Elizabethtown Gas (NJ),
City Gas Company of Florida, North Carolina Gas, Valley Cities Gas
(PA), Elkton Gas (MD) and Waverly Gas (NY). The Company's non-
regulated businesses include NUI Energy Brokers (Energy Brokers), an
energy wholesaler; NUI Energy, Inc. (NUI Energy), an energy retailer;
NUI Energy Solutions, Inc., an energy project development and
consulting entity; NUI Environmental Group, Inc., an environmental
project development subsidiary; Utility Business Services, Inc.,
(UBS), a customer and geographic information systems and services
subsidiary; and NUI Telecom, Inc., (NUI Telecom), a full-service
telecommunications company (see Note 3 of the Notes to the
Consolidated Financial Statements). The Company also provides sales
outsourcing through its 49 percent equity interest in TIC Enterprises,
LLC (TIC).
Results of Operations
Three-Month Periods Ended June 30, 2000 and 1999
Net Income. Net income for the three-month period ended June 30,
2000 was $1.5 million, or $0.11 per share, as compared with net income
of $2.4 million, or $0.19 per share, for the three-month period ended
June 30, 1999. Net income in the prior period included non-recurring
items, which contributed $1.1 million, or $0.08 per share, which were
primarily associated with the Company's early retirement programs (see
Note 5 of the Notes to the Consolidated Financial Statements). Absent
these non-recurring items, net income would have been $1.4 million, or
$0.11 per share.
Net income per share in the current period was also affected by the
increased number of outstanding shares of common stock over the prior
year period, primarily related to the purchase of NUI Telecom (see
Note 3 of the Notes to the Consolidated Financial Statements).
Operating Revenues and Operating Margins. The Company's operating
revenues include amounts billed for the cost of purchased gas pursuant
to purchased gas adjustment clauses. Such clauses enable the Company
to pass through to its customers, via periodic adjustments to
customers' bills, increased or decreased costs incurred by the Company
for purchased gas without affecting operating margins. Since the
Company's utility operations do not earn a profit on the sale of the
gas commodity, the Company's level of regulated operating revenues is
not necessarily indicative of financial performance.
The Company's operating revenues increased by $38.4 million, or 24
percent, for the three-month period ended June 30, 2000 as compared
with the three-month period ended June 30, 1999. The Company's
Distribution Services' revenue increased by approximately $6.7
million, mainly due to customer growth. Customer Services' revenue
increased by approximately $1.1 million, net of intercompany
transactions, due to the recent acquisition of NUI Telecom (see Note 3
of the Notes to the Consolidated Financial Statements). Energy Sales
and Services' revenue increased by approximately $30.7 million, net of
intercompany transactions, primarily due to higher gas prices and an
increase in unregulated off-system sales.
The Company's operating margins increased by $0.9 million, or two
percent, for the three-month period ended June 30, 2000 as compared
with the three-month period ended June 30, 1999. The increase was
primarily attributable to an increase of approximately $1.3 million in
the Company's Distribution Services segment as a result of customer
growth. Operating margins from the Company's Energy Sales and Services
segment decreased by approximately $1.1 million primarily due to the
impact of unprecedented higher gas prices experienced throughout the
nation this summer. While NUI's wholesale business, NUI Energy
Brokers, increased operating margins more than 26 percent in the
quarter, NUI's retail subsidiary, NUI Energy, was adversely impacted
by the rising gas costs. NUI Energy customers continue to sign up for
retail gas service, however they are opting to enter month-to-month
agreements rather than long-term contracts. This decreases the mark-
to-market value of these contracts as compared to last year.
Operating margins increased in the Customer Services segment by
approximately $0.7 million, net of intercompany transactions, due to
the inclusion of results from NUI Telecom (see Note 3 of the Notes to
the Consolidated Financial Statements).
Other Operating Expenses. Operations and maintenance expenses
increased approximately $0.3 million, or one percent, for the three-
month period ended June 30, 2000 as compared with the three-month
period ended June 30, 1999. The increase was primarily the result of
operating expenses of NUI Telecom in fiscal 2000 (see Note 3 of the
Notes to the Consolidated Financial Statements). Absent the addition
of expenses from NUI Telecom, operations and maintenance expenses
would have decreased by approximately $0.7 million as compared to the
prior period, due primarily to overall cost controls and a decrease in
certain benefit costs.
Fiscal 1999 results also include non-recurring gains of approximately
$1.8 million incurred as a result of the Company's early retirement
programs (see Note 5 of the Notes to the Consolidated Financial
Statements).
Other Income (Expense). Other income and expense decreased
approximately $0.4 million due to lower equity earnings in TIC. The
decrease was primarily the result of additional costs of establishing
a sales force to represent the United States Postal Service under the
terms of TIC's exclusive nationwide contract signed last December.
Interest Expense. Interest expense decreased by approximately $0.3
million for the three-month period ended June 30, 2000 as compared to
the three-month period ended June 30, 1999. In accordance with a
recently approved Stipulation by the New Jersey Board of Public
Utilities (see Regulatory Matters), the Company was allowed to recover
carrying costs computed on previously deferred expenses incurred for
the investigation and remediation of manufactured gas plant sites in
New Jersey. Partially offsetting this decrease was an increase in
short-term interest expense due to higher interest rates and higher
average debt outstanding (see Financing Activities and Resources).
Nine-Month Periods Ended June 30, 2000 and 1999
Net Income. Net income for the nine-month period ended June 30, 2000
was $26.8 million, or $2.08 per share, as compared with net income of
$27.1 million, or $2.13 per share, for the period ended June 30, 1999.
Net income in the prior period included non-recurring items, which
contributed $2.3 million, or $0.18 per share, which were primarily
associated with the Company's early retirement programs (see Note 5 of
the Notes to the Consolidated Financial Statements). Absent these
non-recurring items, net income would have been $24.8 million, or
$1.95 per share.
Net income per share in the current period was also affected by the
increased number of outstanding shares of common stock over the prior
year period, primarily related to the purchase of NUI Telecom (see
Note 3 of the Notes to the Consolidated Financial Statements).
Operating Revenues and Operating Margins. The Company's operating
revenues increased by $67.9 million, or 11 percent, for the nine-month
period ended June 30, 2000 as compared with the nine-month period
ended June 30, 1999. The Company's Distribution Services' revenue
increased by approximately $17.2 million, mainly due to customer
growth and the impact of slightly colder weather in the current
period. Weather in New Jersey was 12% warmer than normal, but 3%
colder than the prior year period. Customer Services' revenue
increased by approximately $5.3 million, net of intercompany
transactions, due to the recent acquisition of NUI Telecom (see Note 3
of the Notes to the Consolidated Financial Statements) and higher
sales by UBS and the appliance services operations. Energy Sales and
Services' revenue increased by approximately $45.4 million, net of
intercompany transactions, due to higher gas prices and an increase in
unregulated off-system sales.
The Company's operating margins increased by $9.1 million, or 6
percent, for the nine-month period ended June 30, 2000 as compared
with the nine-month period ended June 30, 1999. The increase was
primarily attributable to an increase of approximately $5.5 million in
the Company's Distribution Services segment as a result of customer
growth and increased sales due to slightly colder weather in the
current period. As a result of weather normalization clauses,
operating margins were approximately $4.9 million and $5.4 million
higher in the fiscal 2000 and 1999 periods, respectively, than they
otherwise would have been without such clauses. Operating margins from
the Company's Energy Sales and Services segment decreased by
approximately $0.3 million due primarily to lower results from NUI
Energy which were adversely impacted from the unprecedented high gas
prices this past quarter. Operating margins increased in the Customer
Services segment by approximately $3.9 million, net of intercompany
transactions, due to higher sales by UBS and the appliance services
operations, as well as the recent acquisition of NUI Telecom (see Note
3 of the Notes to the Consolidated Financial Statements).
Other Operating Expenses. Operations and maintenance expenses
increased approximately $3.9 million, or five percent, for the nine-
month period ended June 30, 2000 as compared with the nine-month
period ended June 30, 1999. The increase was primarily the result of
operating expenses of NUI Telecom since its acquisition date (see Note
3 of the Notes to the Consolidated Financial Statements), higher bad
debt expense due to the increase in operating revenues, and higher
materials and supplies expenses associated with the increased activity
in the appliance service business. These increases were partially
offset by decreases in telephone and certain benefits costs.
Fiscal 1999 results also include non-recurring gains of approximately
$4.0 million incurred as a result of the Company's early retirement
programs (see Note 5 of the Notes to the Consolidated Financial
Statements).
Depreciation and amortization increased approximately $1.2 million in
the current period primarily due to additional plant in service.
Regulatory Matters
On July 21, 2000, the Company filed a petition with the New Jersey
Board of Public Utilities (NJBPU) to increase its purchased gas
adjustment rate effective October 1, 2000. The rate increase is
equivalent to a revenue requirement of approximately $47 million and
is required as a result of unprecedented high gas prices that have
occurred throughout the country (see Financial Activities and
Resources). A decision by the NJBPU is expected by the end of the
fiscal year.
On April 30, 1999, the Company made a filing with the NJBPU which will
enable all customers in New Jersey to choose an alternative supplier
of natural gas. This filing was in accordance with the "Electric
Discount and Energy Competition Act" legislation, which was signed
into law in New Jersey on February 9, 1999. The legislation has
several provisions that affect gas utilities. It provides all gas
customers with the ability to choose an alternate natural gas
supplier. At the same time, the utility will continue to offer basic
gas supply service through December 2002 when the NJBPU will decide if
the gas supply function should be removed from the utility and made
competitive. In accordance with the legislation and with a NJBPU
order dated March 2, 2000, the Company filed testimony on March 17,
2000 in a proceeding to determine whether customers should be afforded
the option of contracting with an alternative provider of billing,
meter reading and other customer account services that may be deemed
competitive by December 31, 2000.
In January 2000, the NJBPU approved a Phase I stipulation that enables
all customers to choose an alternative supplier of natural gas while
the utility continues to offer basic gas supply services. Included in
the stipulation was the approval by the NJBPU for the retroactive
recovery of carrying costs on deferred expenditures incurred for the
investigation and remediation of New Jersey manufactured gas plant
sites. In addition, as part of the settlement, the Company has agreed
to make a filing to address additional issues raised in the April 1999
filing.
Financing Activities and Resources
The Company's net cash provided by operating activities was $51.1
million and $76.1 million for the nine-month periods ended June 30,
2000 and 1999, respectively. The decrease was primarily due to an
increase in prices paid for purchased gas and the timing of amounts
collected from customers through purchased gas adjustment clauses.
Because the Company's business is highly seasonal, short-term debt is
used to meet seasonal working capital requirements. The Company also
borrows under its bank lines of credit to finance portions of its
capital expenditures, pending refinancing through the issuance of
equity or long-term indebtedness at a later date, depending upon
prevailing market conditions.
Short-Term Debt. The weighted average daily amounts outstanding of
notes payable to banks and the weighted average interest rates on
those amounts were $72.1 million at 6.6 percent for the nine-month
period ended June 30, 2000 and $70.9 million at 5.4 percent for the
nine-month period ended June 30, 1999. At June 30, 2000, the Company
had outstanding notes payable to banks amounting to $62.2 million and
available unused lines of credit amounting to $93.8 million.
During the past several months, natural gas prices throughout the
United States have increased to unprecedented highs for this time of
year. These price increases have resulted in the need for higher
levels of short-term borrowings than anticipated. There is a lag from
the time of payment for purchased gas by the Company to collection of
such gas costs from customers through purchased gas adjustment
clauses. Accordingly, the third quarter results for fiscal 2000
reflect the impact of this lag, which is expected to continue into the
fourth quarter of fiscal 2000. As noted under Regulatory Matters, the
Company has filed for an increase in its purchased gas adjustment rate
and is seeking to receive a resolution on this filing by the NJBPU in
the first quarter of fiscal 2001.
Long-Term Debt and Funds for Construction Held by Trustee. On
December 8, 1998, the Company issued $40 million of tax-exempt Gas
Facilities Revenue Bonds at an interest rate of 5.25 percent. These
bonds will mature in November 2033 and the proceeds will be used to
finance a portion of the Company's capital expenditure program in New
Jersey.
The Company deposits in trust the unexpended portion of the net
proceeds from its Gas Facilities Revenue Bonds until drawn upon for
eligible expenditures. As of June 30, 2000, the total unexpended
portions of all of the Company's Gas Facilities Revenue Bonds were
$25.7 million and are classified on the Company's consolidated balance
sheet, including interest earned thereon, as funds for construction
held by trustee.
Common Stock. On November 12, 1999, the Company issued 113,200
shares of NUI common stock that was used for the purchase of NUI
Telecom (see Note 3 of the Notes to the Consolidated Financial
Statements).
Dividends. 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 $69.2 million of cash dividends at June 30, 2000.
Capital Expenditures and Commitments
Capital expenditures, which consist primarily of expenditures to
expand and upgrade the Company's gas distribution systems, were $30.4
million for the nine-month period ended June 30, 2000 as compared to
$25.8 million for the nine-month period ended June 30, 1999. Capital
expenditures are expected to be approximately $49 million for all of
fiscal 2000, as compared with a total of $48 million in fiscal 1999.
The Company owns or previously owned six former manufactured gas plant
(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 is the minimum
amount that the Company expects it will expend in the next 20 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 MGP 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 $5.5 million of environmental costs incurred
through June 30, 1998. Recovery of an additional $2.0 million in
environmental costs incurred between July 1, 1998 and June 30, 1999 is
currently pending NJBPU approval. With respect to costs that 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 $67 million annually. The Company currently recovers,
and expects to continue to recover, such fixed charges through its
purchased gas adjustment clauses. As a result of the forthcoming
unbundling of natural gas services in New Jersey and Pennsylvania,
these contracts may result in the realization of stranded costs by the
Company. Management believes the outcome of these actions will not
have a material adverse effect on the Company's results. The Company
also is committed to purchase, at market-related prices, minimum
quantities of gas that, in the aggregate, are approximately 2.6
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 is scheduled to repay $20 million of Medium-Term Notes in
August 2002.
Market Risk Exposure
The Company's wholesale trading subsidiary, NUI Energy Brokers, uses
derivatives for multiple purposes: i) to hedge price commitments and
minimize the risk of fluctuating gas prices, ii) to take advantage of
market information and opportunities in the marketplace, and iii) 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.
NUI Energy Brokers utilizes the variance/covariance VaR methodology.
Using a 95 percent confidence interval and a one day time horizon, as
of June 30, 2000, NUI Energy Brokers' VaR was $428,000.
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.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
No. Description of Exhibit Reference
27 Financial Data Schedule Filed herewith
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NUI CORPORATION
JOHN KEAN, JR.
August 14, 2000 President and Chief
Executive Officer
A. MARK ABRAMOVIC
August 14, 2000 Sr. Vice President, Chief
Operating Officer & Chief
Financial Officer
