UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to_______
Commission File Number 1-8353
NUI Corporation
(Exact name of registrant as specified in its charter)
New Jersey 22-1869941
(State of incorporation) (IRS employer identification no.)
550 Route 202-206, PO Box 760, Bedminster, New Jersey 07921-0760
(Address of principal executive offices, including zip code)
(908) 781-0500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of each of the registrant's
classes of common stock, as of January 31, 2000: Common Stock,
No Par Value: 12,842,177 shares outstanding.
NUI Corporation and Subsidiaries
Consolidated Statement of Income (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended
December 31,
1999 1998
Operating Margins
Operating revenues $233,692 $229,598
Less _ Purchased gas and fuel 175,010 174,921
Energy taxes 4,138 4,028
-------- --------
54,544 50,649
-------- --------
Other Operating Expenses
Operations and maintenance 26,422 24,422
Depreciation and amortization 7,613 6,915
Other taxes 2,181 1,973
------- -------
36,216 33,310
------- -------
Pre-Tax Operating Income 18,328 17,339
Other Income and Expense
Equity in earnings (losses) of 227 (158)
TIC Enterprises, LLC, net
Other 42 67
--------- ---------
269 (91)
-------- --------
Interest Expense 5,625 5,439
-------- --------
Net Income Before Income Taxes 12,972 11,809
-------- --------
Income Taxes 5,335 4,891
-------- --------
Net Income $ 7,637 $ 6,918
======= =======
Net Income Per Share of Common $ 0.60 $ 0.55
Stock
======== ========
Dividends Per Share of Common $ 0.245 $ 0.245
Stock
======== =========
Weighted Average Number of Shares
of Common Stock Outstanding 12,776,434 12,673,187
========== ==========
See the notes to the consolidated financial statements
NUI Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in thousands)
December 31, September 30,
1999 1999
(Unaudited) (*)
ASSETS
Utility Plant
Utility plant, at original cost $788,782 $779,131
Accumulated depreciation and
amortization (263,197) (256,898)
Unamortized plant acquisition
adjustments 29,828 30,242
------- --------
555,413 552,475
------- --------
Funds for Construction Held by
Trustee 36,661 37,413
------- -------
Investment in TIC Enterprises, LLC, 25,132 24,905
net
------- -------
Other Investments 1,350 1,385
------- -------
Current Assets
Cash and cash equivalents 3,192 1,561
Accounts receivable (less
allowance for doubtful accounts
of $1,823 and $1,697, 110,514 85,056
respectively)
Fuel inventories, at average cost 20,309 28,573
Unrecovered purchased gas costs 10,846 901
Prepayments and other 55,307 50,108
------- -------
200,168 166,199
------- -------
Other Assets
Regulatory assets 51,095 51,615
Deferred charges 14,533 10,234
------- -------
65,628 61,849
------- -------
$884,352 $844,226
======== ========
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $245,083 $237,318
Preferred stock - -
Long-term debt 268,920 268,911
------- -------
514,003 506,229
------- -------
Capital Lease Obligations 2,864 2,599
------- -------
Current Liabilities
Notes payable to banks 98,805 73,615
Current portion of capital lease 7,559 7,776
obligations
Accounts payable, customer 105,005 108,023
deposits and accrued liabilities
Federal income and other taxes 13,263 4,359
------- -------
224,632 193,773
------- -------
Deferred Credits and Other
Liabilities
Deferred Federal income taxes 71,223 69,951
Unamortized investment tax 5,136 5,251
credits
Environmental remediation reserve 33,865 33,981
Regulatory and other liabilities 32,629 32,442
------- -------
142,853 141,625
------- -------
$884,352 $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)
Three Months Ended
December 31,
1999 1998
Operating Activities
Net income $7,637 $6,918
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 7,620 6,915
Deferred Federal income taxes 1,272 1,272
Amortization of deferred investment tax
credits (115) (115)
Other 857 693
Effect of changes in:
Accounts receivable, net (24,100) (53,226)
Fuel inventories 8,264 6,324
Accounts payable, deposits and
accruals (5,194) 18,705
(Under) over recovered purchased gas
costs (9,945) 943
Other 3,389 863
------ ------
Net cash used in operating activities (10,315) (10,708)
------ ------
Financing Activities
Proceeds from sales of common stock, net of
treasury stock purchased 79 105
Dividends to shareholders (3,163) (3,106)
Proceeds from issuance of long-term debt - 40,000
Funds for construction held by trustee, net 1,196 (35,881)
Principal payments under capital lease
obligations (595) (445)
Net short-term borrowings 24,955 18,750
------ ------
Net cash provided by financing activities 22,472 19,423
------ ------
Investing Activities
Cash expenditures for utility plant (9,867) (8,447)
Investment in ITG (688) -
Other 29 (118)
------- -------
Net cash used in investing activities (10,526) (8,565)
------- -------
Net increase in cash and cash equivalents $1,631 $150
====== ======
Cash and Cash Equivalents
At beginning of period $1,561 $929
At end of period $3,192 $1,079
Supplemental Disclosures of Cash Flows
Income taxes paid (refunds received), net $(3,385) $(805)
Interest paid $6,815 $5,994
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. (UBS), a customer and geographic information systems
and services subsidiary; and International Telephone Group, Inc.
(ITG), a telecommunications services subsidiary (see Note 3). The
Company also provides sales outsourcing through its 49 percent
equity interest in TIC Enterprises, LLC (TIC). 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):
December 31, September 30,
1999 1999
Common stock, no par value $212,798 $209,984
Shares held in treasury (2,246) (2,311)
Retained earnings 35,854 31,380
Unearned employee compensation (1,323) (1,735)
------- -------
Total common shareholders' equity $245,083 $237,318
======= =======
3. Purchase of ITG
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. 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. ITG 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 ITG will receive an additional $1.0 million in NUI
common stock if ITG 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 ITG 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.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 $36 million as of
December 31, 1999, 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.
5. 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 three-month periods ended December 31,
1999 and 1998. 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
December 31,
(Dollars in thousands) 1999 1998
Revenues:
Distribution Services $109,405 $105,831
Energy Sales and Services 128,997 124,312
Customer Services 7,278 4,677
Intersegment Revenues (11,988) (5,222)
------- ------
Total Revenues $233,692 $229,598
======= =======
Pre-Tax Operating Income:
Distribution Services $ 16,403 $ 16,844
Energy Sales and Services 1,398 588
Customer Services 431 155
------- -------
Total Pre-Tax Operating
Income $ 18,232 $ 17,587
======== ========
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
December 31,
(Dollars in thousands) 1999 1998
Segment Pre-Tax Operating $18,232 $17,587
Income
Non-segment pre-tax
operating income (loss) 96 (248)
------- -------
Pre-Tax Operating Income $18,328 $17,339
======= =======
NUI Corporation and Subsidiaries
Summary Consolidated Operating Data
Three Months
Ended
December 31,
1999 1998
Operating Revenues (Dollars in
thousands)
Firm Sales:
Residential $57,211 $56,594
Commercial 25,837 25,768
Industrial 2,363 3,153
Interruptible Sales 13,184 10,797
Unregulated Sales 118,867 119,427
Transportation Services 10,261 9,458
Customer Service, Appliance
Leasing and Other 5,969 4,401
-------- -------
$233,692 $229,598
======== ========
Gas Sold or Transported (MMcf)
Firm Sales:
Residential 6,815 6,254
Commercial 3,489 3,315
Industrial 377 632
Interruptible Sales 3,591 3,549
Unregulated Sales 41,269 48,177
Transportation Services 8,449 7,235
------ -------
63,990 69,162
======= =======
Average Utility Customers
Served
Firm Sales:
Residential 347,696 342,553
Commercial 23,519 23,216
Industrial 243 277
Interruptible Sales 47 62
Transportation 3,657 3,418
------- -------
375,162 369,526
======= =======
Degree Days in New Jersey
Actual 1,530 1,466
Normal 1,829 1,832
Percentage variance from normal 16% 20%
warmer warmer
Employees (period end) 1,060 1,056
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 International Telephone Group, Inc. (ITG), 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 December 31, 1999 and 1998
Net Income. Net income for the three-month period ended December
31, 1999 was $7.6 million, or $0.60 per share, as compared with net
income of $6.9 million, or $0.55 per share, for the period ended
December 31, 1998. The increase in the current period was primarily
due to higher margins and other income, partially offset by higher
operations and maintenance expenses, depreciation, and interest
expenses.
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 $4.1 million, or 2
percent, for the three-month period ended December 31, 1999 as
compared with the three-month period ended December 31, 1998. The
Company's Distribution Services' revenue increased by approximately
$3.6 million, mainly due to customer growth and slightly colder
weather as compared to last year. Weather in New Jersey was
approximately 16 percent warmer than normal for the three-month
period ending December 31, 1999, but was 4 percent colder compared
to the prior year period. Customer Services' revenue increased by
approximately $1.1 million, net of intercompany transactions, mainly
due to the recent acquisition of ITG (see Note 3 of the Notes to the
Consolidated Financial Statements). These increases were partially
offset by a decrease of approximately $0.6 million, net of
intercompany transactions, in Energy Sales and Services' revenue,
mainly due to a decrease in unregulated sales by NUI Energy Brokers.
The Company's operating margins increased by $3.9 million, or 8
percent, for the three-month period ended December 31, 1999 as
compared with the three-month period ended December 31, 1998. The
increase was primarily attributable to an increase of approximately
$1.4 million in the Company's Distribution Services segment as a
result of customer growth and slightly colder weather as compared to
last year. 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 $2.1 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 increased by approximately $1.4
million due to favorable market conditions in the wholesale trading
operations of the Company. Operating margins increased in the
Customer Services segment by approximately $1.1 million, net of
intercompany transactions, due to higher sales from UBS and the
recent acquisition of ITG (see Note 3 of the Notes to the
Consolidated Financial Statements).
Other Operating Expenses. Operations and maintenance expenses
increased approximately $2.0 million, or 8 percent, for the three-
month period ended December 31, 1999 as compared with the three-
month period ended December 31, 1998. The increase was primarily the
result of higher benefits costs, operating expenses of ITG since its
acquisition date (see Note 3 of the Notes to the Consolidated
Financial Statements), and higher materials and supplies expenses
associated with the increased activity in the appliance service
business. These increases were partially offset by decreases in
rents and lease expense due to a reduction in the costs of leased
software.
Depreciation and amortization increased approximately $0.7 million
in the current period primarily due to additional plant in service.
Other Income and Expense. Other income and expense increased
approximately $0.2 million for the three-month period ended December
31, 1999 as compared with the three-month period ended December 31,
1998. The increase reflects improved results from TIC of
approximately $0.4 million as a result of higher revenues from TIC's
various sales programs.
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 a result of 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 by December 31, 1999. 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. The NJBPU will also
conduct proceedings 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. On January 19, 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. As part of the
settlement, the Company has agreed to make a filing by February 29,
2000 to address additional issues raised in the April filing.
Financing Activities and Resources
The Company's net use of cash in operating activities was $10.3
million and $10.7 million for the three-month periods ended December
31, 1999 and 1998, respectively. The change in the three-month
period ended December 31, 1999 was primarily due to an increase in
unrecovered gas costs under the Company's purchased gas adjustment
clause and the timing of payments to gas suppliers, partially offset
by improved 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 $85.9 million at 6.07 percent for the three-month
period ended December 31, 1999 and $98.5 million at 5.73 percent for
the three-month period ended December 31, 1998. At December 31,
1999, the Company had outstanding notes payable to banks amounting
to $98.8 million and available unused lines of credit amounting to
$37.4 million. Notes payable to banks increased as of December 31,
1999 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 December 31, 1999, the total unexpended
portions of all of the Company's Gas Facilities Revenue Bonds were
$30.8 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 were not
significant in both the three-month periods ended December 31, 1999
and 1998 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 ITG (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 $55.9 million of cash dividends at
December 31, 1999.
Capital Expenditures and Commitments
Capital expenditures, which consist primarily of expenditures to
expand and upgrade the Company's gas distribution systems, were
$10.5 million for the three-month period ended December 31, 1999 as
compared to $8.4 million for the three-month period ended December
31, 1998. Capital expenditures are expected to be approximately
$51.1 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 December 31, 1999, NUI Energy Brokers' VaR was $202,000.
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 leap year or customer and 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 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.
February 11, 2000 President and Chief
Executive Officer
A. MARK ABRAMOVIC
February 11 , 2000 Sr. Vice President, Chief
Operating Officer & Chief
Financial Officer
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