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 March 31, 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 No - X
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the registrant's
classes of common stock, as of April 30, 2000: Common Stock, No
Par Value: 12,968,242 shares outstanding.
<TABLE>
NUI Corporation and Subsidiaries
Consolidated Statement of Income (Unaudited)
(Dollars in thousands, except per share amounts)
<CAPTION>
Three Months Six Months
Ended Ended
March 31 March 31
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Operating Margins
Operating revenues $279,908 $254,562 $513,600 $484,160
Less - Purchased gas and fuel 201,422 180,008 376,432 354,929
Energy taxes 5,086 5,495 9,224 9,523
------- ------ ------- ------
73,400 69,059 127,944 119,708
------- ------ ------- -------
Other Operating Expenses
Operations and maintenance 28,276 26,704 54,698 51,126
Depreciation and amortization 7,317 6,869 14,930 13,784
Restructuring and other non-
recurring items - (2,114) - (2,114)
Other taxes 2,648 2,713 4,829 4,686
Income taxes 12,291 12,331 17,532 17,254
------ ------ ------ ------
50,532 46,503 91,989 84,736
------ ------ ------ ------
Operating Income 22,868 22,556 35,955 34,972
Other Income and Expense, Net
Equity in earnings of TIC
Enterprises, LLC, net 387 413 614 256
Other (25) 42 17 109
Income taxes (127) (159) (221) (128)
------ ------ ------ ------
235 296 410 237
------ ------ ------ ------
Interest Expense 5,386 5,090 11,011 10,529
------ ------ ------ ------
Net Income $ 17,717 $ 17,762 $ 25,354 $ 24,680
====== ====== ====== ======
Net Income Per Share of Common Stock $1.37 $1.40 $1.97 $1.94
==== ==== ==== ====
Dividends Per Share of Common Stock $0.245 $0.245 $0.49 $0.49
===== ===== ==== ====
Weighted Average Number of Shares
of Common Stock Outstanding 12,946,392 12,719,055 12,891,259 12,695,869
========== ========== ========== ==========
</TABLE>
See the notes to the consolidated financial statements
NUI Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in thousands)
March 31, September 30,
2000 1999
(Unaudited) (*)
ASSETS
Utility Plant
Utility plant, at original cost $800,969 $779,131
Accumulated depreciation and
amortization (271,436) (256,898)
Unamortized plant acquisition
adjustments 30,012 30,242
------- -------
559,545 552,475
------- -------
Funds for Construction Held by
Trustee 32,173 37,413
------- -------
Investment in TIC Enterprises, LLC,
net 25,530 24,905
------- -------
Other Investments 1,312 1,385
------- -------
Current Assets
Cash and cash equivalents 3,144 1,561
Accounts receivable (less
allowance for doubtful accounts
of $1,823 and $1,697,
respectively) 122,240 85,056
Fuel inventories, at average cost 7,271 28,573
Unrecovered purchased gas costs - 901
Prepayments and other 54,322 50,108
------- -------
186,977 166,199
------- -------
Other Assets
Regulatory assets 50,471 51,615
Deferred charges 14,640 10,234
------- -------
65,111 61,849
------- -------
$870,648 $844,226
======= =======
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $260,374 $237,318
Preferred stock - -
Long-term debt 268,929 268,911
------- -------
529,303 506,229
------- -------
Capital Lease Obligations 2,972 2,599
------- -------
Current Liabilities
Notes payable to banks 49,245 73,615
Current portion of capital lease
obligations 7,392 7,776
Accounts payable, customer
deposits and accrued liabilities 107,807 108,023
Overrecovered purchased gas costs 9,049 -
Federal income and other taxes 20,361 4,359
------- -------
193,854 193,773
------- -------
Deferred Credits and Other
Liabilities
Deferred Federal income taxes 72,496 69,951
Unamortized investment tax
credits 5,021 5,251
Environmental remediation reserve 33,798 33,981
Regulatory and other liabilities 33,204 32,442
------- -------
144,519 141,625
------- -------
$870,648 $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)
Six Months Ended
March 31,
2000 1999
Operating Activities
Net income $25,354 $24,680
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 15,653 14,190
Deferred Federal income taxes 2,545 2,545
Non-cash portion of restructuring
and other non-recurring items - (2,114)
Amortization of deferred investment
tax credits (230) (230)
Other (439) 1,151
Effect of changes in:
Accounts receivable, net (35,826) (50,347)
Fuel inventories 21,302 25,657
Accounts payable, deposits and
accruals (2,392) 9,941
Overrecovered purchased gas costs 9,950 25,874
Other 11,068 6,761
-------- --------
Net cash provided by operating
activities 46,985 58,108
-------- --------
Financing Activities
Proceeds from sales of common stock,
net of treasury stock purchased 2,471 155
Dividends to shareholders (6,331) (6,217)
Proceeds from issuance of long-term
debt - 39,795
Funds for construction held by
trustee, net 6,297 (33,810)
Principal payments under capital lease
obligations (1,223) (902)
Net short-term borrowings (24,605) (36,985)
-------- --------
Net cash used in financing
activities (23,391) (37,964)
-------- --------
Investing Activities
Cash expenditures for utility plant (20,511) (16,759)
Investment in NUI Telecom (730) -
Other (770) (1,979)
------- -------
Net cash used in investing
activities (22,011) (18,738)
------- -------
Net increase in cash and cash
equivalents $1,583 $1,406
======= =======
Cash and Cash Equivalents
At beginning of period $1,561 $929
At end of period $3,144 $2,335
Supplemental Disclosures of Cash Flows
Income taxes paid, net $613 $4,118
Interest paid $11,742 $10,639
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 energy sales, services and
distribution, and telecommunications 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's
non-regulated subsidiaries include NUI Energy, Inc. (NUI Energy), an
energy retailer; NUI Energy Brokers, Inc. (NUI Energy Brokers), an
energy wholesaler; NUI Energy Solutions, Inc. (NUI Energy Solutions),
an energy project development and consulting entity; NUI Environmental
Group, Inc., an environmental project development subsidiary; Utility
Business Services, Inc., a customer and geographic information systems
and services subsidiary; and NUI Telecom, Inc., a telecommunications
services subsidiary (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):
March 31, September 30,
2000 1999
Common stock, no par value $215,190 $209,984
Shares held in treasury (2,246) (2,311)
Retained earnings 50,403 31,380
Unearned employee compensation (2,973) (1,735)
------- -------
Total common shareholders' equity $260,374 $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 net assets of NUI Telecom is estimated to
be approximately $4.5 million, which includes the additional earnings
contingency noted above, and is expected to be amortized on a
straight-line basis over a 20-year period.
4. Restructuring and Other Non-Recurring Items
The Company recognized approximately $2.1 million of pre-tax, non-
recurring items in the second quarter of fiscal 1999 relating
primarily to the recognition of a settlement gain on the Company's
1998 early retirement program, partially offset by a special
termination charge on the 1999 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
the 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 $2.0
million associated with these retirements in the second quarter of
fiscal 1999.
The Company also recorded approximately $1.1 million of charges, in
the second quarter of fiscal 1999, relating to the write-off of
certain regulatory assets which will not be recovered through rates,
as well as other items which were deemed to be separate from recurring
earnings.
5. Contingencies
Environmental Matters. The Company is subject to federal and state
laws with respect to water, air quality, solid waste disposal and
employee health and safety matters, and to environmental regulations
issued by the United States Environmental Protection Agency (EPA), the
New Jersey Department of Environmental Protection (NJDEP) and other
federal and state agencies.
The Company owns, or previously owned, certain properties on which
manufactured gas plants (MGP) were operated by the Company or by other
parties in the past. 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 March 31, 2000,
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 $68 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, 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.
6. 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 provides appliance
leasing, repair and maintenance, mapping services to utilities and
payment processing and collections primarily for water and waste-water
usage, and telecommunications services. 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 six-month periods ended March 31,
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 Six Months Ended
Ended March 31,
March 31,
(Dollars in thousands) 2000 1999 2000 1999
Revenues:
Distribution Services $153,991 $147,078 $263,396 $252,900
Energy Sales and
Services 134,077 112,998 263,074 237,310
Customer Services 7,893 3,299 15,171 7,976
Intersegment Revenues (16,053) (8,813 (28,041) (14,035)
-------- -------- -------- --------
Total Revenues $279,908 $254,562 $513,600 $484,160
======= ======= ======= =======
Pre-Tax Operating
Income (Loss):
Distribution Services $33,736 $32,726 $50,139 $49,570
Energy Sales and
Services 2,263 3,151 3,661 3,739
Customer Services (146) (879) 285 (724)
------ ------ ------ ------
Total Pre-Tax Operating
Income (Loss) $35,853 $34,998 $54,085 $52,585
====== ====== ====== ======
A reconciliation of the Company's segment pre-tax operating income to
amounts reported on the consolidated financial statements is as
follows:
Three Months Six Months Ended
Ended March 31,
March 31,
(Dollars in thousands) 2000 1999 2000 1999
Segment Pre-Tax $35,853 $34,998 $54,085 $52,585
Operating Income
Non-segment pre-tax
operating loss (694) (2,225) (598) (2,473)
------ ------ ------ ------
Pre-Tax Operating
Income $35,159 $32,773 $53,487 $50,112
====== ====== ====== ======
NUI Corporation and Subsidiaries
Summary Consolidated Operating Data
Three Months Six Months Ended
Ended March 31,
March 31,
2000 1999 2000 1999
Operating Revenues (Dollars in
thousands)
Firm Sales:
Residential $ 88,830 $ 84,861 $146,041 $141,455
Commercial 35,062 34,418 60,899 60,186
Industrial 3,178 2,670 5,541 5,823
Interruptible Sales 13,434 11,712 26,618 22,509
Unregulated Sales 119,948 104,821 238,815 224,248
Transportation Services 13,136 11,381 23,397 20,839
Customer Service, Appliance
Leasing and Other 6,320 4,699 12,289 9,100
------ ------ ------ ------
$279,908 $254,562 $513,600 $484,160
======= ======= ======= =======
Gas Sold or Transported (MMcf)
Firm Sales:
Residential 10,737 10,246 17,552 16,500
Commercial 4,606 4,653 8,095 7,968
Industrial 438 421 815 1,053
Interruptible Sales 3,773 4,216 7,364 7,765
Unregulated Sales 39,088 48,235 80,357 96,412
Transportation Services 11,857 9,194 20,306 16,429
------ ------ ------- -------
70,499 76,965 134,489 146,127
====== ======= ======= =======
Average Utility Customers Served
Firm Sales:
Residential 349,904 345,043 348,800 343,798
Commercial 23,953 23,502 23,736 23,359
Industrial 241 269 242 273
Interruptible Sales 45 62 46 62
Transportation 3,631 3,538 3,644 3,478
------- ------- ------- -------
377,774 372,414 376,468 370,970
======= ======= ======= =======
Degree Days in New Jersey
Actual 2,398 2,417 3,928 3,883
Normal 2,748 2,745 4,578 4,577
Percentage variance from normal 13% 12% 14% 15%
warmer warmer warmer warmer
Employees (period end) 1,077 1,051
NUI Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis refers to NUI Corporation and
all of its operating divisions and subsidiaries (collectively referred
to as the Company). The Company is a multi-state energy sales,
services and distribution, and telecommunications 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's non-regulated subsidiaries include NUI Energy,
Inc. (NUI Energy), an energy retailer; NUI Energy Brokers, Inc. (NUI
Energy Brokers), an energy wholesaler; 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 geographical information
systems and services subsidiary; and NUI Telecom, Inc., a
telecommunications services subsidiary. The Company also provides
sales outsourcing through its 49 percent equity interest in TIC
Enterprises, LLC (TIC).
Results of Operations
Three-Month Periods Ended March 31, 2000 and 1999
Net Income. Net income for the three-month period ended March 31,
2000 was $17.7 million, or $1.37 per share, as compared with net
income of $17.8 million, or $1.40 per share, for the period ended
March 31, 1999. Net income in the prior period was affected by non-
recurring items, which contributed $1.3 million, or $0.10 per share.
These items were primarily associated with the Company's early
retirement programs (see Note 4 of the Notes to the Consolidated
Financial Statements). Absent these non-recurring items, net income
would have been $16.5 million, or $1.30 per share. The increase in
recurring earnings in the current period was attributable to higher
margins, partially offset by higher operations and maintenance
expenses, interest, depreciation and amortization, and other income.
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 $25.3 million, or 10
percent, for the three-month period ended March 31, 2000 as compared
with the three-month period ended March 31, 1999. The Company's
Distribution Services' revenue increased by approximately $6.9
million, mainly due to customer growth. Weather in New Jersey was
approximately 13 percent warmer than normal for the three-month period
ending March 31, 2000 and was 1 percent warmer compared to the prior
year period. Customer Services' revenue increased by approximately
$3.1 million, net of intercompany transactions, mainly 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 $15.3 million, net of intercompany
transactions, mainly due to an increase in unregulated off-system
sales by the Company's utility divisions.
The Company's operating margins increased by $4.3 million, or 6
percent, for the three-month period ended March 31, 2000 as compared
with the three-month period ended March 31, 1999. The increase was
primarily attributable to an increase of approximately $1.8 million in
the Company's Distribution Services segment as a result of customer
growth. 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
$2.7 million and $2.5 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 $0.6 million due to
slightly unfavorable market conditions in the wholesale trading
operations of the Company. Operating margins increased in the
Customer Services segment by approximately $3.1 million, net of
intercompany transactions, due to higher sales from UBS and 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 $1.6 million, or 6 percent, for the three-
month period ended March 31, 2000 as compared with the three-month
period ended March 31, 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). Absent the
addition of expenses from NUI Telecom, operations and maintenance
expenses would have been flat compared to the prior period.
Six-Month Periods Ended March 31, 2000 and 1999
Net Income. Net income for the six-month period ended March 31, 2000
was $25.4 million, or $1.97 per share, as compared with net income of
$24.7 million, or $1.94 per share, for the period ended March 31,
1999. The increase in the current period was primarily due to higher
margins and other income, partially offset by higher operations and
maintenance expenses, depreciation, interest expenses and the effect
of non-recurring items, in the prior period, which contributed $1.3
million, or $0.10 per share to net income. These non-recurring items
were primarily associated with the Company's early retirement programs
(see Note 4 of the Notes to the Consolidated Financial Statements).
Absent these non-recurring items, net income would have been $23.4
million, or $1.84 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 $29.4 million, or 6 percent, for the six-month
period ended March 31, 2000 as compared with the six-month period
ended March 31, 1999. The Company's Distribution Services' revenue
increased by approximately $10.5 million, mainly due to customer
growth. Customer Services' revenue increased by approximately $4.2
million, net of intercompany transactions, mainly 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 $14.7 million, net of intercompany
transactions, mainly due to an increase in unregulated off-system
sales by the Company's utility divisions.
The Company's operating margins increased by $8.2 million, or 7
percent, for the six-month period ended March 31, 2000 as compared
with the six-month period ended March 31, 1999. The increase was
primarily attributable to an increase of approximately $3.2 million in
the Company's Distribution Services segment as a result of customer
growth. As a result of weather normalization clauses, operating
margins were approximately $4.9 million and $5.0 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 increased by approximately $0.8
million. Operating margins increased in the Customer Services segment
by approximately $4.2 million, net of intercompany transactions, due
to higher sales from UBS and 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 $3.6 million, or 7 percent, for the six-month
period ended March 31, 2000 as compared with the six-month period
ended March 31, 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 the costs of telephone and computer systems.
Depreciation and amortization increased approximately $1.1 million in
the current period primarily due to additional plant in service.
Regulatory Matters
On April 30, 1999, the Company made a filing with the New Jersey Board
of Public Utilities (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 provide basic gas service through December 2002 when the
NJBPU will decide if the gas supply function should be 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 provide basic gas supply services. The
Company is currently awaiting the formal issuance of a NJBPU order.
As part of the settlement, the Company has agreed to make a filing
within one week of the issuance of the NJBPU order to address
additional issues raised in the April 1999 filing.
Financing Activities and Resources
The Company's net cash provided by operating activities was $49.0
million and $58.1 million for the six-month periods ended March 31,
2000 and 1999, respectively. The change in the six-month period ended
March 31, 2000 was primarily due to a reduction in overrecovered gas
costs under the Company's purchased gas adjustment clause, partially
offset by timing of payments to gas suppliers and collections on
receivables.
Because the Company's business is highly seasonal, short-term debt is
used to meet seasonal working capital requirements. The Company also
borrows under its bank lines of credit to finance portions of its
capital expenditures, pending refinancing through the issuance of
equity or long-term indebtedness at a later date, depending upon
prevailing market conditions.
Short-Term Debt. The weighted average daily amounts outstanding of
notes payable to banks and the weighted average interest rates on
those amounts were $79.5 million at 6.8 percent for the six-month
period ended March 31, 2000 and $86.1 million at 5.7 percent for the
six-month period ended March 31, 1999. At March 31, 2000, the Company
had outstanding notes payable to banks amounting to $49.2 million and
available unused lines of credit amounting to $106.8 million. Notes
payable to banks decreased as of March 31, 2000 as compared to the
balance outstanding at September 30, 1999, due to seasonal borrowing
requirements.
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 March 31, 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. The Company periodically issues shares of common stock
in connection with NUI Direct, the Company's dividend reinvestment
plan and certain 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. The proceeds from such issuances amounted to were not
significant in both the six-month periods ended March 31, 2000 and
1999 due to the plans purchasing shares directly in the open market
rather than from the Company.
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 $70.7 million of cash dividends at March 31, 2000.
Capital Expenditures and Commitments
Capital expenditures, which consist primarily of expenditures to
expand and upgrade the Company's gas distribution systems, were $21.7
million for the six-month period ended March 31, 2000 as compared to
$16.8 million for the six-month period ended March 31, 1999. Capital
expenditures are expected to be approximately $48.6 million for all of
fiscal 2000, as compared with a total of $47.9 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 $68 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, 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 March 31, 2000, NUI Energy Brokers' VaR was $72,000.
Year 2000
The Company had developed readiness plans to address the possible
exposures related to the impact on its computer systems of the Year
2000. Since entering the Year 2000, the Company has not experienced
any major disruptions to its business nor is it aware of any
significant Year 2000-related disruptions impacting its customers and
suppliers.
The Company will continue to monitor its critical systems for Year
2000-related issues that could arise anytime throughout the year, such
as customer or vendor problems. Contingency plans, supplementing
existing disaster recovery and business continuity plans, have been
developed as necessary for the Company's own systems and its third-
party relationships, in response to its assessments, remediation and
testing activities and will be used as necessary for ongoing problems.
The specific actions identified include measures such as manual
workarounds, deployment of backup or secondary technologies,
rearranging work schedules, and substitution of suppliers, as
appropriate. The Company believes that due to its planning activities,
the likelihood of major consequences in the future due to the Year
2000 should be greatly reduced.
The total estimated costs incurred associated with Year 2000 readiness
activities are approximately $3.5 million, a majority of which were
incurred prior to the current fiscal year. Approximately 50 percent
of these costs were related to capital projects. The Company has, and
where necessary will continue to, fund these costs from the operations
of the Company.
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 4. Submission of Matters to a vote of Security Holders
The following matters were presented for submission to a vote of
security holders through the solicitation of proxies or otherwise
during the second quarter of fiscal 2000.
The Annual Meeting of Shareholders of NUI Corporation was held on
March 27, 2000. Proxies for the Annual Meeting were solicited
pursuant to Regulation 14A and there was no solicitation in opposition
to management's nominees. At the meeting, the shareholders approved
an agreement to reorganize the Company's corporate structure, elected
directors and ratified the appointment of independent public
accountants.
The total votes were as follows:
For Against or Abstain
Witheld
(1) Approval of the reorganization 8,595,769 153,863 68,621
of the corporate structure
(2) Election of directors to serve
for three-year terms:
James J. Forese 10,789,936 255,937
R. Van Whisnand 10,791,317 254,556
(3) Ratification of the appointment
of Arthur Andersen LLP as
independent public accountants 10,895,236 116,306 34,329
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
No. Description of Exhibit Reference
27 Financial Data Schedule Filed herewith
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NUI CORPORATION
JOHN KEAN, JR.
May 12, 2000 President and Chief
Executive Officer
A. MARK ABRAMOVIC
May 12 , 2000 Sr. Vice President, Chief
Operating Officer & Chief
Financial Officer
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