UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 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, P. O. Box 760, Bedminster, New Jersey 07921-0760
(Address of principal executive offices, including zip code)
(908) 781-0500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class:
Common Stock, No Par Value New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 of 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days: X
Indicate by check mark if disclosure of delinquent filers, pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant's knowledge, in definitive
proxy or information statements incorporated by reference to Part III
of this Form 10-K or any amendment to the Form 10-K: X
The aggregate market value of 12,258,999 shares of common stock held
by non-affiliates of the registrant calculated using the $28.875 per
share closing price on November 30, 2000 was $353,978,596.
The number of shares outstanding for each of the registrant's classes
of common stock, as of November 30, 2000:
Common Stock, No Par Value: 12,979,793 shares outstanding.
Documents incorporated by reference: NUI Corporation's definitive
Proxy Statement for the Company's Annual Meeting of Stockholders,
filed with the Securities and Exchange Commission on December 19,
2000.
NUI Corporation
Annual Report on Form 10-K For The
Fiscal Year Ended September 30, 2000
TABLE OF CONTENTS
PART I
Page
Item 1. Business 1
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security
Holders 10
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 21
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 21
PART III
Item 10. Directors and Executive Officers of the
Registrant 21
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial Owners
and Management 21
Item 13. Certain Relationships and Related Transactions 21
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 22
NUI Corporation
Annual Report on Form 10-K for the
Fiscal Year Ended September 30, 2000
PART I
Item 1. Business
NUI Corporation (collectively referred to as the Company) was
incorporated in New Jersey in 1969. 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 376,000 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; NUI Telecom, Inc. (NUI Telecom), a full-
service telecommunications company (see Note 2 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).
The principal executive offices of the Company are located at
550 Route 202-206, Box 760, Bedminster, NJ 07921-0760; telephone:
(908) 781-0500.
The Company's operations are organized and managed under three primary
segments: Distribution Services, Energy Sales and Services and
Customer Services. The Company also has corporate operations that do
not currently generate operating revenues. Reference is made to Note
10, "Business Segment Information" of the "Notes to the Consolidated
Financial Statements" for a discussion regarding financial information
about the business segments of the Company. See also Item 6-"Selected
Financial Data-Summary Consolidated Operating Data" for summary
information by customer class with respect to operating revenues, gas
volumes sold or transported and average number of utility customers
served. A discussion of the business of each segment follows.
Distribution Services Segment
Products and Services
The Distribution Services segment distributes natural gas in six
states through the Company's regulated utility divisions. Such
distribution services are regulated as to price, safety and return by
the regulatory commissions of the states in which in the Company
operates (see Regulation). The Distribution Services segment serves
approximately 376,000 customers, of which 67% are in New Jersey and
33% are in other states. Most of the Company's utility customers are
residential and commercial customers who purchase gas primarily for
space heating. Distribution Services' operating revenues for fiscal
2000 amounted to approximately $409.8 million, of which 76% was
generated by utility operations in New Jersey and 24% was generated by
utility operations in other states. Gas volumes sold or transported in
fiscal 2000 amounted to 86.6 million Mcf, of which approximately 79%
was sold or transported in New Jersey and 21% was sold or transported
in other states. An Mcf is a basic unit of measurement for natural gas
comprising 1,000 cubic feet of gas. A description of each of the
Company's utility divisions follows.
Elizabethtown Gas (Elizabethtown). The Company, through
Elizabethtown, provides gas service to approximately 251,000 customers
in franchised territories within seven counties in central and
northwestern New Jersey. Elizabethtown's 1,300 square-mile service
territory has a total population of approximately 950,000. Most of the
state's customers are located in densely-populated central New Jersey,
where increases in the number of customers are primarily from
conversions to gas heating from alternative forms of heating.
Elizabethtown's regulated gas volumes sold or transported and
customers served for the past three fiscal years were as follows:
Regulated Gas Volumes Sold or Transported (in thousands
of Mcf)
2000 1999 1998
Firm Sales:
Residential 19,725 18,818 18,299
Commercial 6,857 6,802 7,587
Industrial 454 732 3,903
Interruptible Sales 14,712 15,477 11,927
Transportation Sales 27,076 24,586 23,367
------ ------ ------
Total 68,824 66,415 65,083
====== ====== ======
Utility Customers Served (twelve-month average)
2000 1999 1998
Firm Sales:
Residential _ Heating 176,255 172,406 168,475
Residential - Non-heating 55,452 55,946 56,358
Commercial 16,159 15,821 15,907
Industrial 205 208 229
Interruptible Sales 23 25 72
Transportation Services 3,103 3,155 2,773
------- ------- -------
Total 251,197 247,561 243,814
======= ======= =======
Gas volumes sold to Elizabethtown's firm customers are sensitive to
the weather in New Jersey. In fiscal 2000, the weather in New Jersey
was 11% warmer than normal and 5% colder than the prior year.
Additionally, weather in fiscal 1999 was 16% warmer than normal and 1%
warmer than fiscal 1998. While the effect of the warm weather has
impacted sales to heating customers, Elizabethtown's tariff contains a
weather normalization clause that is designed to help stabilize the
Company's results by increasing amounts charged to customers when
weather has been warmer than normal and decreasing amounts charged
when weather has been colder than normal. As a result of weather
normalization clauses, operating margins were approximately $4.4
million and $5.4 million higher in fiscal 2000 and 1999, respectively,
than they would have been without such clauses. For a further
discussion on variations in revenues, see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations".
Elizabethtown's commercial and industrial customers currently have the
ability to utilize transportation service and purchase their gas from
other suppliers. The rate charged to transportation customers remains
regulated as to price and returns. Tariffs for transportation service
have been designed to provide the same margins as bundled sales
tariffs. Therefore, except for the regulatory risk of full recovery
of gas costs, Elizabethtown is financially indifferent as to whether
it transports gas or sells gas and transportation together.
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 a result of the "Electric Discount and
Energy Competition Act" legislation. The legislation 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 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 basis 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 30,
1999 filing.
Elizabethtown's "interruptible" customers have alternative energy
sources and use gas on an "as available" basis. Variations in the
volume of gas sold or transported to these customers do not have a
significant effect on the Company's earnings because in accordance
with New Jersey regulatory requirements, 80% of the margins that
otherwise would be realized on gas sold or transported to
interruptible customers are used to reduce gas costs charged to firm
sales customers.
City Gas Company of Florida. City Gas Company of Florida (City Gas)
is the second largest natural gas utility in Florida, supplying gas to
over 100,000 customers in Dade and Broward Counties in south Florida,
and in Brevard, Indian River and St. Lucie Counties in central
Florida. City Gas' service areas cover approximately 3,000 square
miles and have a population of approximately 1.7 million.
City Gas' regulated gas volumes sold or transported and customers
served for the past three fiscal years were as follows:
Regulated Gas Volumes Sold or Transported (in
thousands of Mcf)
2000 1999 1998
Firm Sales:
Residential 1,854 1,738 1,880
Commercial 3,077 3,353 3,572
Industrial 159 --- ---
Interruptible Sales 70 111 461
Transportation Sales 4,701 4,174 3,388
------ ------ ------
Total 9,861 9,376 9,301
------ ------ ------
Utility Customers Served (twelve-month average)
2000 1999 1998
Firm Sales:
Residential 95,442 94,784 93,227
Commercial 4,530 4,699 4,748
Industrial 8 --- ---
Interruptible Sales 4 4 10
Transportation Services 617 315 125
------- ------ ------
Total 100,601 99,802 98,110
------- ------ ------
City Gas' residential customers purchase gas primarily for water
heating, clothes drying and cooking. Some customers, principally in
central Florida, also purchase gas to provide space heating during the
relatively mild winter season. Year-to-year growth in the average
number of residential customers primarily reflects new construction.
City Gas' commercial business consists primarily of schools,
businesses and public facilities, of which the number of customers
tends to increase concurrently with the continuing growth in
population within its service areas. As with its residential markets,
the Company is seeking to maximize the utilization of its existing
mains by emphasizing marketing efforts toward potential commercial
business along these lines.
Certain commercial and industrial customers have converted their
natural gas service from a sales basis to a transportation basis.
City Gas' transportation tariff provides margins on transportation
services that are substantially the same as margins earned on gas
sales. In November 1997, the Florida Public Service Commission (FPSC)
approved City Gas' proposal to offer unbundled gas service to certain
small commercial customers, in a manner similar to that currently in
place in the Company's New Jersey service territory.
City Gas was notified on October 17, 2000 that it had received
approval from the FPSC to increase its annual base rates by $1.64
million. The increase represents a portion of the Company's request
for a total increase of $7.2 million to recover the cost of service
enhancements and reliability improvements since City Gas' last base
rate increase in 1996. The Company is expecting a decision from the
FPSC on the remaining $5.56 million by January 2001. If the full
increase is granted, the new rate level would provide for an allowed
return on equity of 11.7 percent and an overall rate of return of 7.88
percent.
North Carolina Gas. The Company, through North Carolina Gas, provides
gas service to approximately 13,700 customers in Rockingham and Stokes
Counties in North Carolina, which territories comprise approximately
560 square miles. During fiscal 2000, the regulated operations of
North Carolina Gas sold or transported approximately 3.6 million Mcf
of gas as follows: 22% sold to residential customers, 13% sold to
commercial customers, 18% sold to industrial customers and 47%
transported to commercial and industrial customers.
Elkton Gas Service (Elkton). The Company, through Elkton, provides
gas service to approximately 4,300 customers in franchised territories
comprising approximately 14 square miles within Cecil County,
Maryland. During fiscal 2000, Elkton sold approximately 895,000 Mcf of
gas as follows: 25% sold to residential customers, 19% sold to
commercial customers and 56% sold to industrial customers.
Valley Cities Gas Service (VCGS) and Waverly Gas Service (WGS). VCGS
and WGS provide gas service to approximately 6,400 customers in
franchised territories comprising 104 square miles within Bradford
County, Pennsylvania and the Village of Waverly, New York and
surrounding areas, respectively. During fiscal 2000, the regulated
operations of VCGS and WGS sold or transported approximately 3.4
million Mcf of gas as follows: 16% sold to residential customers, 8%
sold to commercial customers, 24% sold to industrial customers and 52%
transported to commercial and industrial customers.
On October 5, 2000, the Company agreed to sell the assets and
customers of VCGS and WGS to C&T Enterprises, Inc. of Pennsylvania.
The transaction is expected to close during the latter portion of
fiscal 2001 after all regulatory approvals have been obtained (see
Item 7- Management's Discussion and Analysis _ Sale of Valley Cities
Gas and Waverly Gas for further discussion of this transaction).
Holding Company
As a result of recent federal and state regulatory changes intended to
promote competition among natural gas and electricity suppliers, the
Company believes a holding company structure will allow it to take full
advantage of these changes. In addition, the holding company structure
will allow for greater flexibility to pursue unregulated business and
financing opportunities while insulating the regulated utility business
from the risks and costs associated with unregulated activities.
NUI filed for authorization to re-establish its holding company
structure in Maryland, New Jersey, New York, North Carolina and
Pennsylvania. Authorizations have been received in Maryland, New
York and Pennsylvania and are pending in New Jersey and North
Carolina. No formal approval is required in Florida.
Gas Supply and Operations
In recent years, the gas industry has been undergoing structural
changes in response to policies of the Federal Energy Regulatory
Commission (FERC) and local regulatory commissions designed to
increase competition. Traditionally, interstate pipelines were
wholesalers of natural gas to local distribution companies and
generally did not provide separate transportation or other services
for specific customers. In 1992, the FERC issued Order No. 636 that,
among other things, mandated the separation or "unbundling" of
interstate pipeline sales, transportation and storage services and
established guidelines for capacity management effective in 1993. In
fiscal 1995, the NJBPU unbundled the services provided and the rates
charged to New Jersey commercial and small industrial customers as
well. The transition to more competitive rates and services has the
effect of increasing the opportunity for local gas distribution
companies, and industrial and commercial customers to purchase natural
gas from alternative sources, while increasing the potential business
and regulatory risk borne by a local gas distribution company with
respect to the acquisition and management of natural gas services.
The Company endeavors to utilize its pipeline capacity efficiently by
matching capacity to its load profile to the extent feasible. To this
end, the Company has had a broad unbundled service tariff for certain
of its customers since 1987. The Company continues to avail itself of
opportunities to improve the utilization of its pipeline capacity by
pursuing broad based customer growth, including off-peak markets and
utilizing capacity release and off-system sales opportunities afforded
by Order No. 636 when operationally feasible.
The Company's gas supply for its utility divisions during fiscal 2000
came from the following sources: approximately 14 percent from long
term purchase contracts; approximately 66 percent from seasonal or
monthly purchase contracts and 20 percent from daily purchases made in
the spot market. The Company manages its gas supply portfolio to
assure a diverse, reliable and secure supply of natural gas at the
lowest reasonable cost. In fiscal 2000, the Company's largest single
supplier accounted for approximately 12 percent of the Company's total
gas purchases.
The Company has long-term gas delivery contracts with seven interstate
pipeline companies. Under these contracts, the Company has a right to
deliver, on a firm year-round basis, of up to 91.3 million Mcf of
natural gas annually with a maximum of approximately 268,000 Mcf per
day. Both the price and conditions of service under these contracts
are regulated by the FERC.
The Company has long-term gas purchase contracts for the supply of
natural gas for its system with five suppliers, including one
interstate pipeline company and five gas marketers. Under these
contracts, the Company has a right to purchase, on a firm year-round
basis, up to 18.1 million Mcf of natural gas annually with a maximum
of approximately 50,000 Mcf per day. In order to achieve greater
supply flexibility, and to more closely match its gas supply portfolio
to changes in the market it serves, the Company recently allowed a
long-term gas supply contract to expire at the conclusion of its
primary terms. As a result, the Company has reduced its fixed gas cost
obligations. The Company has replaced the supply with shorter-term,
seasonal and monthly firm supply, thus reducing the average term of
its gas purchase obligations. In addition, the Company has access to
spot market gas through the interstate pipeline system to supplement
or replace, on a short-term basis, portions of its long-term gas
purchase contracts when such actions can reduce overall gas costs or
are necessary to supply interruptible customers. In fiscal 1995, the
Company, along with seven other Northeastern and Mid-Atlantic gas
distribution companies, formed the East Coast Natural Gas Cooperative
LLC (the "Co-op"). The Co-op was formed with the goal of jointly
managing certain portions of the members' gas supply portfolios, to
increase reliability and reduce costs of service to customers, and to
improve the competitive position of the member companies.
Participation in and reliance upon certain contractual arrangements
among Co-op members has allowed the Company to reduce costs associated
with winter services.
In order to have available sufficient quantities of gas during the
heating season, the Company stores gas during non-peak periods and
purchases supplemental gas, including propane, LNG and gas available
under contracts with certain large cogeneration customers, as it deems
necessary. The storage contracts provide the Company with an aggregate
of 14 million Mcf of natural gas storage capacity and provide the
Company with the right to receive a maximum daily quantity of 176,536
Mcf. The contracts with cogeneration customers provide 26,200 Mcf of
daily gas supply to meet peak loads by allowing the Company to take
back capacity and supply that otherwise is dedicated to serve those
customers.
The Company has a LNG storage and vaporization facility in New Jersey
for handling peak gas demand. It has a daily delivery capacity of
29,800 Mcf and storage capacity of 131,000 Mcf.
The Company's maximum daily sendout in fiscal 2000 was approximately
415,700 Mcf in New Jersey and 100,300 Mcf in the other service
territories combined. The Company maintains sufficient gas supply and
delivery capacity for a maximum daily sendout capacity for New Jersey
of approximately 408,100 Mcf and approximately 124,300 Mcf for the
other service territories combined.
Certain of the Company's long-term contracts for the supply, storage
and delivery of natural gas include fixed charges that amount to
approximately $68.6 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 2.7
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 distributes gas through approximately 6,500 miles of
steel, cast iron and plastic mains. The Company has physical
interconnections with five interstate pipelines in New Jersey and one
interstate pipeline in Florida. In addition, the Company has physical
interconnections in North Carolina and Pennsylvania with interstate
pipelines, which also connect to New Jersey. Common interstate
pipelines along the Company's operating system provide the Company
with greater flexibility in managing pipeline capacity and supply, and
thereby optimizing system utilization.
Regulation
The Company is subject to regulation with respect to, among other
matters, rates, service, accounting and the issuance of securities.
The Company is subject to regulation as an operating utility by the
public utility commissions of the states in which it operates. The
Company is also subject to regulation by the United States Department
of Transportation under the Natural Gas Pipeline Safety Act of 1968,
with respect to the design, installation, testing, construction and
maintenance of pipeline facilities. Natural gas purchases,
transportation service and storage service provided to the Company by
interstate pipeline companies are subject to regulation by the FERC
(see "Gas Supply and Operations"). In addition, the Company is subject
to federal and state legislation with respect to water, air quality,
solid waste disposal and employee health and safety matters, and to
environmental regulations issued by the United States Environmental
Protection Agency, the New Jersey Department of Environmental
Protection and other federal and state agencies.
The Company's current rates and tariffs for New Jersey reflect a rate
case that was settled in October 1991, under which the Company
obtained a weather normalization clause - see "Elizabethtown Gas". In
December 1994, the NJBPU authorized new tariffs which are designed to
provide for unbundling of natural gas transportation and sales
services for Elizabethtown's commercial and industrial customers. The
new tariffs became effective on January 1, 1995 and are designed to be
neutral as to the operating margins of the Company. 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 a result of the "Electric Discount and Energy
Competition Act" legislation, which was signed into law in New Jersey
on February 9, 1999 (see Item 7- "Management's Discussion and Analysis
- Regulatory Matters").
The current rates and tariffs for the Florida operations were
authorized on October 29, 1996. The Company's City Gas division was
notified on October 17, 2000, that it had received approval from the
Florida Public Service Commission (FPSC) to increase its annual base
rates on an interim basis by $1.64 million. The increase represents a
portion of the Company's request for a total rate increase of $7.2
million to cover the cost of service enhancements and reliability
improvements since City Gas' last base rate increase in 1996. The
Company is expecting a decision from the FPSC on the remaining $5.56
million by January 2001. If the full increase is granted, the new rate
level would provide for an allowed return on equity of 11.7 percent and
an overall allowed rate of return of 7.88 percent. While the Company is
optimistic that this increase will be granted, there can be no
assurance that the expected returns will be fully realized.
The current rates and tariffs for the North Carolina, Maryland,
Pennsylvania and New York operations were authorized between October
1988 and September 1995. These operations serve approximately 20,000
customers in aggregate. The tariff for NCGS reflects a weather
normalization clause for its temperature sensitive residential and
commercial customers.
The Company's tariffs for each state in which it operates contain
adjustment clauses that enable the Company to recover purchased gas
costs. The adjustment clauses provide for periodic reconciliations of
actual recoverable gas costs with the estimated amounts that have been
billed. Under or over recoveries at the reconciliation date are
recovered from or refunded to customers in subsequent periods.
Franchises
The Company holds non-exclusive municipal franchises and other
consents which enable it to provide natural gas in the territories it
serves. The Company intends to seek to renew these franchises and
consents as they expire.
Seasonal Aspects
Sales of gas to some classes of customers are affected by variations
in demand due to changes in weather conditions, including normal
seasonal variations throughout the year. The demand for gas for
heating purposes is closely related to the severity of the winter
heating season. Seasonal variations affect short-term cash
requirements.
The effects of weather that is above or below normal is offset in New
Jersey and North Carolina through weather normalization clauses
contained in the tariffs in those jurisdictions. The weather
normalization clauses are designed to help stabilize the Company's
results by increasing amounts charged to customers when weather has
been warmer than normal and decreasing amounts charged when weather
has been colder than normal.
Competition
The Company competes with distributors of other fuels and forms of
energy, including electricity, fuel oil and propane, in all portions
of the territories in which it has distribution mains. In addition, in
1992, the FERC issued Order No. 636 (see "Gas Supply and Operations").
Subsequently, initiatives were sponsored in various states, the
purposes of which were to "unbundle" or separate into distinct
transactions, the purchase of the gas commodity from the purchase of
transportation services for the gas. To that end, as discussed under
"Regulation", several of the Company's operating divisions have
unbundled commercial and industrial gas purchase and transportation
rates.
The unbundled sale of gas to customers is subject to competition from
unregulated marketers and brokers, which generally do not bear the
obligations or costs related to operating a regulated utility. Tariffs
for transportation service have generally been designed to provide the
same margins as bundled sales tariffs. Therefore, except for the
regulatory risk of full recovery of gas costs, the Company is
financially indifferent as to whether it transports gas, or sells gas
and transportation together. The Company also faces the risk of loss
of transportation service for large industrial customers which may
have the ability to build connections to interstate gas pipelines and
bypass the Company's distribution system. Gas distributors can also
expect increased competition from electricity as deregulation in that
industry decreases prices and increases supply sources. Alternatively,
opportunities may increase for gas service to fuel generators for
large industrial customers, replacing electric utility service.
Environment
Reference is made to Item 7- "Management's Discussion and Analysis of
Financial Condition and Results of Operations- Capital Expenditures
and Commitments" and Note 11, "Commitments and Contingencies" of the
"Notes to the Consolidated Financial Statements" for information
regarding environmental matters affecting the Company.
Energy Sales & Services Segment
Products and Services
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.
Together, this segment offers wholesale and retail energy sales,
energy portfolio management, risk management, utility asset
management, project development and energy consulting services.
NUI Energy, Inc. (NUI Energy) provides retail energy sales and related
services to unbundled retail commercial and industrial customers. NUI
Energy's operating margins were $2.4 million in fiscal 2000 as
compared with $4.1 million in fiscal 1999 and $2.5 million in fiscal
1998.
NUI Energy Brokers, Inc. (NUI Energy Brokers) was formed in 1996 to
provide the wholesale energy trading, brokering, and risk management
activities of the Company. In addition to providing these services to
third parties, NUI Energy Brokers is also responsible for the supply
acquisition activity for NUI's Distribution Services segment. NUI
Energy Brokers trades physical natural gas in four geographic regions:
the Northeast, Southeast, Gulf Coast, and Mid Continent. In addition,
NUI Energy Brokers trades futures and options contracts on the New
York Mercantile Exchange. The risk associated with trading activities
is closely monitored on a daily basis and controlled in accordance
with the Company's Risk Management Policy. As in any commodity
brokerage activity, however, there are risks pertaining to market
changes and credit exposure that can be managed but not eliminated.
Therefore, the earnings from NUI Energy Brokers are likely to be more
volatile than the Company's utility distribution business (see Item 7,
_Management's Discussion and Analysis-Market Risk Exposure_). NUI
Energy Brokers generated margins of $12.8 million in fiscal 2000, $8.3
million in fiscal 1999 and $2.8 million in fiscal 1998.
NUI Energy Solutions, Inc. (NUI Energy Solutions) was formed by the
Company in fiscal 1998 to provide energy management and consulting
services to existing and new customers. NUI Energy Solutions'
operating margins in fiscal 2000 was $1 million. Due to start-up
costs associated with this business, NUI Energy Solutions recorded a
loss in both fiscal 1999 and 1998.
Another business line within Energy Sales and Services is off-system
sales, or the use of utility-owned gas assets to make sales to
customers outside of NUI's service areas. Such assets include pipeline
capacity and gas storage facilities. These assets are managed
separately from non-utility assets, and their use is monitored and
regulated by state regulatory commissions. Pursuant to regulatory
agreements in some states in which the Company operates, the Company
is able to retain a portion of the margins from these sales in varying
percentages depending on the state in which the assets are owned.
Off-system sales margins totaled $1,580,000 in fiscal 2000, $771,000
in fiscal 1999 and $453,000 in fiscal 1998.
Customer Services Segment
Products and Services
The Customer Services segment is comprised of the Company's Utility
Business Service, Inc. subsidiary, NUI Telecom, Inc. subsidiary and
its appliance business operations. Together this segment provides
telecommunications services, including local, long distance, cellular,
internet and data communications services; appliance repair,
maintenance, installation and leasing; customer information system
services including bill printing, mailing, collection and payment
processing; network analysis; facilities database management; and
operations mapping and field computing for other utilities.
During fiscal 1999, the Company completed the separation of its
appliance servicing and leasing business from its Distribution
Services segment. This group performed more than 76,500 revenue-
producing appliance service jobs in fiscal 2000 as compared to 74,000
jobs in fiscal 1999. The appliance group generated revenues of $14.6
million in fiscal 2000, $12.3 million in fiscal 1999 and $11.7 million
in fiscal 1998.
Utility Business Services, Inc. (UBS) provides customer information
systems and geographic information system services to investor-owned
and municipal utilities, as well as third-party providers in the gas,
water and wastewater markets. WINS CIS, the premiere customer
information system developed and maintained by UBS, is presently
serving approximately 27 clients with state-of-the-art capabilities in
support of more than 650,000 customers. In addition to generating over
three million bills each year, UBS assists clients in allied areas
such as automatic meter reading, payment processing, and account
recovery. In fiscal 1999, UBS introduced a natural gas version of
WINS CIS by converting three of the Company's Distribution Services
utility divisions to the new system. UBS is expected to convert the
remaining Distribution Services utility divisions in fiscal 2001. UBS
is currently working on a web-enabled version of WINS CIS and plans to
address the needs of the electric industry in the near term.
Geographic information services are currently provided to 5 clients.
UBS had margins of $3.9 in fiscal 2000 and $3.7 million in fiscals
1999 and 1998.
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 (see Note 2 of
the Notes to the Consolidated Financial Statements). NUI Telecom
generated revenues of $5.2 million in fiscal 2000.
Other NUI Operations
NUI Environmental. NUI Environmental Group, Inc. (NUI Environmental)
was formed by the Company in fiscal 1996 to develop a solution to the
rapidly decreasing accessibility of the New York/New Jersey harbor to
international commercial shipping traffic. On December 23, 1998, NUI
Environmental was selected from a group of sixteen firms that
responded to a request for proposal by the State of New Jersey to
participate in a Sediment Decontamination Demonstration Project
designed to identify new technologies for the productive dredging of
the harbor. On November 14, 2000, NUI Environmental received a
$485,000 contract from the State of New Jersey to complete a Pilot
Study to demonstrate the effectiveness of an innovative process for
the treatment of dredged material from the harbor. The Sediment
Decontamination Program involves two phases: the Pilot Study and a
full-scale Demonstration Project. Funding for the Demonstration
Project (which could range from $2.2 million to $5.9 million) will be
determined after the successful completion of the Pilot Study.
TIC Enterprises. On May 18, 1997, the Company closed on its
acquisition of a 49% interest in TIC Enterprises, LLC (TIC), limited
liability company, for a purchase price of $22 million. The
acquisition was effective as of January 1, 1997 and is being accounted
for under the equity method. TIC engages in the business of
recruiting, training and managing sales professionals and serving as
sales and marketing representatives for various businesses. Among
these businesses are Nortel Networks, Nextel Communications, Qwest
Communications, AT&T and the United States Postal Service. In early
December 1999, TIC was awarded a national contract from the United
States Postal Service (USPS) to market its expedited delivery
services. TIC contributed $1.3 million of equity earnings in fiscal
2000, $1.2 million in fiscal 1999 and was flat in fiscal 1998.
In August 2000, TIC positioned itself to capitalize upon the
tremendous growth opportunities in the integration of voice and data
communications equipment by entering into a distribution agreement
with Nortel Networks (Nortel), a global internet and communications
leader, under which TIC will exclusively distribute certain Nortel
products and services throughout the United States. At that time, TIC
terminated its previous arrangement to exclusively distribute another
supplier's telecommunications equipment and will now only distribute
Nortel business solutions.
Under this agreement, TIC will serve a much larger market than it had
with its previous supplier and will be able to offer a broader range
of telephony and data products and services targeted to small and
medium sized businesses businesses with up to 250 employees, a market
size more than 12 times the size of TIC's current target market. These
offerings significantly expand TIC's offerings to customers and TIC
estimates that the new arrangement could create $200 million in
revenue during its first full year, more than tripling its previous
telecommunications equipment business of approximately $60 million per
year.
Persons Employed
As of September 30, 2000, the Company employed a total of 1,078
persons, of which 270 employees in New Jersey were represented by the
Utility Workers Union of America (Local 424) and 46 employees were
represented by the Communications Workers of America (Local 1023); 82
employees in Florida (Locals 769 and 385) and 13 employees in
Pennsylvania (Local 529) were represented by the Teamsters Union; and
37 employees in North Carolina were represented by the International
Brotherhood of Electrical Workers (Local 2291). The current Utility
Workers Union of America collective bargaining agreement with the New
Jersey union was negotiated effective December 10, 1998 and expires on
November 20, 2001. The North Carolina union collective bargaining
agreement was negotiated on August 20, 1998, and expires on August 20,
2001. The collective bargaining agreement in Pennsylvania is currently
being negotiated. The union is currently working without a contract.
A final resolution is expected shortly. The collective bargaining
agreement in Florida was negotiated on March 31, 1998 and expires on
March 31, 2001. The Communications Workers of America contract became
effective November 1, 2000 and expires on March 31, 2003.
Persons employed by segment are as follows: Distribution Services
segment- 684; Energy Sales and Services- 42; and Customer Services-
197 persons. In addition, the Corporate office of NUI employed a total
of 155 persons, which employees primarily work in shared services for
the entire corporation.
Available Information
The Company files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange
Commission. Any document the Company files with the Commission may be
read or copied at the Commission's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the Commission at
1-800-SEC-0330 for further information on the public reference room.
The Company's Commission filings are also available at the
Commission's Web site at http://www.sec.gov or the Company's Web site
at http://www.nui.com.
Item 2. Properties
The Company owns approximately 6,500 miles of steel, cast iron and
plastic gas mains, together with gate stations, meters and other gas
equipment. In addition, the Company owns peak shaving plants,
including a LNG storage facility in Elizabeth, New Jersey.
The Company also owns real property in Union, Middlesex, Warren,
Sussex and Hunterdon counties in New Jersey, and in Dade, Broward,
Brevard and St. Lucie counties in Florida, portions of which are under
lease to others. The Company's properties include office buildings in
Hialeah and Rockledge, Florida that serve as the principal operating
offices for the Florida operations; and office buildings in both
Reidsville, North Carolina and Sayre, Pennsylvania that serve as
operating offices for the North Carolina and the Pennsylvania and New
York operations, respectively. The Company also owns various service
centers in New Jersey, Florida, North Carolina, Maryland and
Pennsylvania from which the Company dispatches service crews and
conducts construction and maintenance activities.
The Company leases office space in Bedminster, New Jersey that serves
as its corporate headquarters, and leases certain other facilities in
New Jersey and Florida that are operated as customer business offices
or operating offices. The Company also leases approximately 200,000
square feet in an office building in Union, New Jersey.
Subject to minor exceptions and encumbrances, all other property
materially important to the Company and all principal plants are owned
in fee simple, except that most of the mains and pipes are installed
in public streets under franchise or statutory rights or are
constructed on rights of way acquired from the apparent owner of the
fee.
Item 3. Legal Proceedings
The Company is involved in various claims and litigation incidental to
its business. In the opinion of management, none of these claims and
litigation will have a material adverse effect on the Company's
results of operations or its financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was presented for submission to a vote of security holders
through the solicitation of proxies or otherwise during the last
quarter of fiscal 2000.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
NUI common stock is listed on the New York Stock Exchange and is
traded under the symbol "NUI". The quarterly cash dividends paid and
the reported price range per share of NUI common stock for the two
years ended September 30, 2000 were as follows:
Quarterly Price Range
Cash
Dividend High Low
Fiscal 2000:
First Quarter $0.245 $28.188 $23.438
Second Quarter 0.245 30.750 22.938
Third Quarter 0.245 28.188 25.250
Fourth Quarter 0.245 32.438 26.188
Fiscal 1999:
First Quarter $0.245 $27.000 $21.563
Second Quarter 0.245 27.063 20.375
Third Quarter 0.245 25.625 20.813
Fourth Quarter 0.245 28.063 24.625
There were 5,686 shareholders of record of NUI common stock at
November 30, 2000.
It is the Company's intent to continue to pay quarterly dividends in
the foreseeable future. NUI's dividend policy is reviewed on an
ongoing basis and is dependent upon the Company's expectation of
future earnings, cash flow, financial condition, capital requirements
and other factors.
The Company's long-term debt agreements include, among other things,
restrictions as to the payment of cash dividends. Under the most
restrictive of these provisions, the Company was permitted to pay
$66.2 million of cash dividends at September 30, 2000.
Item 6. Selected Financial Data
<TABLE>
Selected Consolidated Financial Data
(in thousands, except per share amounts)
<CAPTION>
Fiscal Years Ended September 30,
2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Operating Revenues $934,643 $826,194 $826,263 $606,285 $467,677
Net Income $ 26,747 $ 24,560 $ 12,314 $ 19,649 $ 14,896
Net Income Per Share $2.07 $1.93 $0.98 $1.75 $1.52
Dividends Paid Per Share $0.98 $0.98 $0.98 $0.94 $0.90
Total Assets $920,857 $844,226 $776,847 $803,666 $677,662
Capital Lease $ 4,396 $ 2,599 $ 8,566 $ 9,679 $ 10,503
Long-Term Debt $268,947 $268,911 $229,098 $229,069 $230,100
Common Shareholders'
Equity $256,969 $237,318 $222,292 $218,921 $179,107
Common Shares
Outstanding 12,929 12,750 12,680 12,429 11,086
</TABLE>
Notes to the Selected Consolidated Financial Data:
Net income for fiscal 2000 includes a gain on the sale of assets which
increased net income by $1.7 million (after tax), or $0.13 per share.
Net income for fiscal 1999 includes a pension settlement gain and
other non-recurring items. The effect of these items increased net
income by $2.3 million (after tax), or $0.18 per share.
Net income for fiscal 1998 includes restructuring and other non-
recurring charges amounting to $5.9 million (after tax), or $0.47 per
share.
<TABLE>
Summary Consolidated Operating Data
<CAPTION>
Fiscal Years Ended September 30,
2000 1999 1998 1997 1996
Operating Revenues
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Firm Sales:
Residential $208,461 $197,800 $197,955 $201,435 $194,094
Commercial 85,776 82,285 90,739 104,873 105,861
Industrial 8,950 8,694 19,684 23,263 25,321
Interruptible Sales 63,369 49,110 45,583 55,831 50,521
Unregulated Sales 502,430 432,414 421,381 177,565 55,479
Transportation Services 41,594 37,634 33,338 28,617 23,085
Customer Service,
Appliance
Leasing and Other 24,063 18,257 17,583 14,701 13,316
------ ------ ------ ------ ------
$934,643 $826,194 $826,263 $606,285 $467,677
======= ======= ======= ======= =======
Gas Sold or Transported
(MMcf)
Firm Sales:
Residential 23,167 22,064 21,771 22,956 24,810
Commercial 10,839 11,058 12,076 14,254 16,575
Industrial 1,430 1,584 4,463 4,819 5,407
Interruptible Sales 15,929 16,420 13,183 15,074 16,003
Unregulated Sales 145,642 168,748 163,418 62,819 17,804
Transportation Services 35,235 32,601 30,831 28,294 25,051
------ ------ ------ ------ ------
232,242 252,475 245,742 148,216 105,650
======= ======= ======= ======= =======
Average Utility
Customers Served
Firm Sales:
Residential 348,626 344,448 338,958 335,632 332,440
Commercial 23,474 23,320 23,407 24,312 24,484
Industrial 253 254 275 306 338
Interruptible Sales 45 56 111 121 120
Transportation Services 3,787 3,535 2,948 1,460 668
------ ------ ------ ------ ------
376,185 371,613 365,699 361,831 358,050
======= ======= ======= ======= =======
Degree Days in New Jersey 4,579 4,381 4,356 4,772 5,343
Employees (year end) 1,078 1,049 1,081 1,126 1,086
Ratio of Earnings to Fixed
Charges 2.70 2.64 1.85 2.11 2.00
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis refers to NUI Corporation and
all 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 Company (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), a wholesale energy trading and portfolio management
subsidiary; NUI Environmental Group, Inc., an environmental project
development subsidiary; Utility Business Services, Inc. (UBS), a
geospatial and customer information systems and services subsidiary;
and NUI Telecom, Inc. (NUI Telecom), a telecommunications services
subsidiary (see Note 2 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
Fiscal Years Ended September 30, 2000 and 1999
Net Income. Net income for fiscal 2000 was $26.7 million, or $2.07
per share, as compared with net income of $24.6 million, or $1.93 per
share, in fiscal 1999. Net income in both fiscal 2000 and 1999 include
non-recurring credits to income. Net income in fiscal 2000 includes
after-tax non-recurring credits of $1.7 million, or $0.13 per share,
related to the gain on the sale of assets. Net income in fiscal 1999
includes non-recurring items totaling $2.3 million, or $0.18 per
share, after tax, incurred mainly as a result of the Company's 1998
reorganization (see Note 4 of the Notes to the Consolidated Financial
Statements). Absent these non-recurring gains, net income would have
been $25.1 million, or $1.94 per share, in fiscal 2000 and $22.2
million, or $1.75 per share, in fiscal 1999. The increase in earnings
in fiscal 2000 was mainly attributed to improved results in the
Company's non-regulated businesses.
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 utilized by the Company's utility
operations. Such clauses enable the Company to pass through to its
utility customers, via periodic adjustments to customers' bills,
increased or decreased costs incurred by the Company for purchased gas
without affecting operating margins. Since the Company's utility
operations do not earn a profit on the sale of the gas commodity, the
Company's level of regulated operating revenues is not necessarily
indicative of financial performance.
The Company's operating revenues increased $108.4 million, or 13
percent, during fiscal 2000 as compared with fiscal 1999. Distribution
Services revenues increased approximately $30.2 million, mainly as a
result of slightly colder weather than the prior year (4.5 percent
colder) and customer growth. Energy Sales and Services revenue
increased by approximately $70.1 million, mainly due to increased
volatility in gas prices thereby creating more opportunity for
wholesale trading by NUI Energy Brokers, as well as a significant
increase in gas prices. Customer Services revenue increased $8.1
million, primarily due to the inclusion of NUI Telecom effective
November 12, 1999 (see Note 2 of the Notes to the Consolidated
Financial Statements), which contributed $5.2 million in revenues,
increases in the Company's appliance leasing business and increases in
revenues from UBS.
The Company's operating margins increased by $13.1 million, or 7
percent, in fiscal 2000 as compared with fiscal 1999. The increase was
primarily attributable to an increase of approximately $7 million, or
4 percent, in the Company's Distribution Services segment as a result
of weather that was 4.5 percent colder than fiscal 1999, but still 11
percent warmer-than-normal, and 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 $4.4 million and $5.4 million
higher in fiscal 2000 and 1999, respectively, than they would have
been without such clauses. These weather normalization clauses
mitigate much of the risk to which the Company is exposed. To further
reduce this risk, NUI Energy Brokers entered into a weather derivative
during fiscal 2000, which resulted in approximately $1.5 million of
margin. Operating margins increased in the Customer Services segment
by approximately $1.6 million, or 31 percent, due to the inclusion of
NUI Telecom, and increases in revenues for the appliance service
business and UBS. Operating margins from the Company's Energy Sales
and Services segment increased by approximately $4.4 million, or 33
percent, primarily due to an increase of almost 60 percent in
operating margins from NUI Energy Brokers due to increased volatility
in gas prices and the weather derivative, as noted previously. Partly
offsetting this increase was a decrease in margins from NUI Energy,
which had margins of $2.4 million in fiscal 2000 as compared with $4.1
million in fiscal 1999. Due to the surge in gas prices during fiscal
2000, NUI Energy's customers opted to enter into month-to-month
contracts rather than long-term contracts, thereby decreasing the
mark-to-market value of these contracts compared to last year. As a
result, even though volumes and customers both increased during the
current year, margins declined as compared to 1999.
Other Operating Expenses. Operations and maintenance expenses
increased by approximately $5.9 million, or 7 percent, in fiscal 2000
as compared with fiscal 1999. The increase was primarily the result of
the inclusion of NUI Telecom beginning November 12, 1999 (see Note 2
of the Notes to the Consolidated Financial Statements), continued
investment in the Company's non-regulated activities and higher
benefits expenses due to the rising cost of medical claims.
The Company recognized approximately $4.0 million of pre-tax, non-
recurring income in fiscal 1999. These items were mainly the result of
the Company's 1998 reorganization. (See Note 4 of the Notes to the
Consolidated Financial Statements for a further description of these
items.)
Depreciation and amortization increased approximately $2.6 million in
fiscal 2000 as compared to the prior year, primarily due to additional
plant in service and an increase in depreciation rates for the
Company's Florida utility division.
Interest Expense. Interest expense decreased by approximately $0.2
million in fiscal 2000 as compared to fiscal 1999. Interest expense
increased over the prior fiscal year due to higher average short term
borrowings and higher interest rates (see "Financing Activities and
Resources"). Offsetting this increase was the retroactive deferral of
carrying costs associated with the Company's regulatory asset relating
to investigation and remediation of manufactured gas plant sites in
New Jersey. The Company received approval during fiscal 2000 to treat
as a regulatory asset such carrying costs, which offset interest
expense (see "Regulatory Matters").
Other Income and (Expense), Net. Other income and expense, net,
increased by approximately $2.7 million in fiscal 2000 as compared to
fiscal 1999. The increase was primarily the result of a gain on the
sale of assets of $2.8 million, but also reflects improved results
from TIC of approximately $0.1 million during the year.
Fiscal Years Ended September 30, 1999 and 1998
The results for the 1999 and 1998 fiscal years reflect changes in the
New Jersey tax law, which resulted in variations in certain line items
on the consolidated statements of income. Effective January 1, 1998,
New Jersey Gross Receipts and Franchise Taxes (GRAFT) were replaced by
a combination of a New Jersey Sales and Use Tax (Sales Tax), a New
Jersey Corporate Business Tax (CBT) and a temporary Transitional
Energy Facilities Assessment (TEFA). In prior periods, GRAFT was
recorded as a single line item as a reduction of operating margins.
Effective January 1, 1998, TEFA is recorded in the energy taxes line
item and Sales Tax is recorded as a reduction of operating revenues.
The legislation was designed to be net income neutral over a 12-month
period, however, variations of certain line items on the consolidated
statement of income exist. For fiscal 1999 as compared to fiscal 1998,
the three new taxes had the effect of reducing operating revenues by
approximately $3.4 million, reducing energy taxes by approximately
$4.1 million and increasing income tax expense by approximately $1.2
million.
Net Income. Net income for fiscal 1999 was $24.6 million, or $1.93
per share, as compared with net income of $12.3 million, or $0.98 per
share in fiscal 1998. Net income in both fiscal periods includes non-
recurring items incurred mainly as a result of the Company's 1998
reorganization (see Note 4 of the Notes to the Consolidated Financial
Statements). The after-tax non-recurring items in fiscal 1999 resulted
in a net gain of approximately $2.3 million, or $0.18 per share, as
compared to after-tax charges of approximately $5.9 million, or $0.47
per share, incurred during fiscal 1998. Absent these non-recurring
items, net income would have been $22.2 million, or $1.75 per share in
fiscal 1999 as compared to $18.2 million, or $1.45 per share in fiscal
1998. The increase in recurring earnings was mainly attributed to
higher operating margins, other income and lower other taxes,
partially offset by higher operations and maintenance expenses,
depreciation and interest expense.
Operating Revenues and Operating Margins. The Company's operating
revenues remained relatively flat between fiscal 1999 and fiscal 1998,
despite fluctuations within the Company's operating segments. Energy
Sales and Services revenue increased by approximately $10.7 million,
mainly due to increased operations by NUI Energy Brokers, while
Customer Services revenue increased $0.2 million primarily due to
increases in the Company's appliance leasing business. These increases
were partially offset by a decrease of approximately $11.0 million in
the Company's Distribution Services revenue primarily resulting from
changes in the New Jersey tax law as well as a refund to New Jersey
customers of approximately $4.4 million in September 1999 (see
Regulatory Matters). Weather in New Jersey was approximately 16
percent warmer-than-normal in fiscal 1999 and relatively flat compared
to the 1998 period.
The Company's operating margins increased by $12.7 million, or 7
percent, in fiscal 1999 as compared with fiscal 1998. The increase was
primarily attributable to an increase of approximately $4.9 million in
the Company's Distribution Services segment as a result of customer
growth, the effects of changes in the New Jersey tax law and the
recovery of previously deferred post-retirement benefit expenses
through rates (see Regulatory Matters). As a result of weather
normalization clauses, operating margins were approximately $5.4
million and $5.6 million higher in fiscals 1999 and 1998,
respectively, than they would have been without such clauses.
Operating margins for the Customer Services segment were relatively
flat in fiscal 1999, as compared to fiscal 1998. Margins in fiscal
1998 included certain one-time conversion revenues for UBS that did
not occur in fiscal 1999. Operating margins from the Company's Energy
Sales and Services segment increased by approximately $7.9 million
primarily due to increases in the Company's wholesale trading and
retail energy operations.
Other Operating Expenses. Operations and maintenance expenses
increased by approximately $3.9 million, or 5 percent, in fiscal 1999
as compared with fiscal 1998. The increase was primarily the result of
previously deferred post-retirement benefit expenses which are being
expensed and recovered through rates, higher levels of accrued
incentives associated with the improved performance of the Company's
unregulated wholesale trading and retail energy businesses and a lower
pension credit in the current year. These increases were partially
offset by labor and benefit savings from the Company's reorganization
efforts over the prior year.
The Company recognized approximately $4.0 million of pre-tax, non-
recurring income in fiscal 1999, as compared to non-recurring expenses
of approximately $9.7 million recognized in fiscal 1998. These items
are mainly the result of the Company's 1998 reorganization. (See Note
4 of the Notes to the Consolidated Financial Statements for a further
description of these items.)
Depreciation and amortization increased approximately $2.0 million in
fiscal 1999 as compared to the prior year, primarily due to additional
plant in service.
Interest Expense. Interest expense increased by approximately $0.7
million in fiscal 1999 as compared to fiscal 1998. This increase was
primarily due to interest on the Company's $40 million bond issuance
in December 1998. These increases were partially offset by an increase
in interest income on funds held by trustee as a result of the $40
million issuance noted above being put into trust for use on qualified
expenditures (see Financing Activities and Resources - Long-Term Debt
and Funds for Construction Held by Trustee).
Other Income and (Expense), Net. Other income and expense, net,
increased by approximately $0.7 million in fiscal 1999 as compared to
fiscal 1998. The increase reflects improved results from TIC of
approximately $1.3 million as a result of higher revenues from TIC's
various sales programs as well as contributions from additional
product lines. This increase was partially offset by a gain of
approximately $0.7 million recognized in the prior year period due to
the sale of marketable securities.
Regulatory Matters
On October 10, 2000, the New Jersey Board of Public Utilities (NJBPU)
approved an increase in the New Jersey Purchased Gas Adjustment clause
(PGA) by 17.3 percent. The rate increase was effective immediately and
results in a revenue increase of approximately $47 million annually.
In addition, the Company can increase the PGA by an additional 2
percent each month between December 2000 and April 2001 if actual gas
costs warrant such increases. Each of these monthly rate increases
would add revenues of up to $6 million on an annual basis. The
increased PGA was granted to cover the higher costs the Company has
been paying for its natural gas purchases which have risen from about
$2.50 per dekatherm in July 1999 to more than $7.00 per dekatherm in
December 2000 (see "Financing Activities and Resources").
The Company's City Gas division was notified on October 17, 2000, that
it had received approval from the Florida Public Service Commission
(FPSC) to increase its annual base rates on an interim basis by $1.64
million. The increase represents a portion of the Company's request
for a total rate increase of $7.2 million to cover the cost of service
enhancements and reliability improvements since City Gas' last base
rate increase in 1996. The Company is expecting a decision from the
FPSC on the remaining $5.56 million by January 2001. If the full
increase is granted, the new rate level would provide for an allowed
return on equity of 11.7 percent and an overall allowed rate of return
of 7.88 percent. While the Company is optimistic that this increase
will be granted, there can be no assurance that the expected returns
will be fully realized.
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 a result of the "Electric Discount and
Energy Competition Act" legislation. The legislation 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 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 basis 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 30,
1999 filing.
On July 7, 1999, the NJBPU approved a final stipulation on the
Company's New Jersey Purchased Gas Adjustment Clause filing in which
the Company would continue to charge rates approved in an interim
stipulation and approved by the NJBPU on March 3, 1999. In addition,
the stipulation provided that the Company would refund to customers
$10 million of previously over-recovered gas costs. Of this amount,
$5.6 million was applied against a Weather Normalization Clause under-
recovery and the balance was credited to customer bills in late fiscal
1999.
On September 23, 1998, the NJBPU issued an order approving the
Company's petition to increase base rates in New Jersey by
approximately $2.4 million to recover post-retirement benefits
computed under Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Post-retirement Benefits Other than
Pensions" (SFAS 106). The rate increase was effective October 1,
1998 and allows for previously deferred costs, as well as future SFAS
106 costs, to be recovered over a rolling 15-year period.
Financing Activities and Resources
The Company's net cash provided by operating activities was $46.2
million in fiscal 2000, $59.0 million in fiscal 1999, and $20.9
million in fiscal 1998. The decrease in fiscal 2000 as compared with
fiscal 1999 was primarily due to significantly higher gas prices paid
during the current year. The increase in fiscal 1999 as compared with
fiscal 1998 was primarily due to additional collections of gas costs
through the Company's PGA clauses and the timing of payment to gas
suppliers.
Because the Company's primary business is highly seasonal, short-term
debt is used to meet seasonal working capital requirements. The
Company also borrows under its bank lines of credit to finance
portions of its capital expenditures, pending refinancing through the
issuance of equity or long-term indebtedness at a later date depending
upon prevailing market conditions.
Short-Term Debt. The weighted average daily amounts outstanding of
notes payable to banks and the weighted average interest rates on
those amounts were $75.3 million at 6.7 percent in fiscal 2000, $68.2
million at 5.3 percent in fiscal 1999, and $66.8 million at 5.7
percent in fiscal 1998.
At September 30, 2000, the Company had outstanding notes payable to
banks amounting to $96.7 million and available unused lines of credit
amounting to $49.3 million.
During the past several months, natural gas prices throughout the
United States have increased to unprecedented highs. These price
increases have resulted in the need for higher than anticipated levels
of short-term borrowings. There is a lag from the time of payment for
purchased gas by the Company to collection of such gas costs from
customers through PGA clauses. Accordingly, the results for fiscal
2000 reflect the impact of this lag (see "Interest Expense"). As noted
under Regulatory Matters, the Company has received a 17.3 percent
increase in its PGA rate effective in October 2000 and may receive up
to an additional 2 percent in each of the months December 2000 through
April 2001. Since the Company received its PGA rate increase, gas
prices have risen further. The Company is continuing to work with its
regulators in order to mitigate the impact that these increases may
have on its operations.
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 September 30, 2000, and September 30,
1999, the total unexpended portions of all of the Company's Gas
Facilities Revenue Bonds were $21.3 million and $32.0 million,
respectively, 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 and
stock purchase plan, and various employee benefit plans. The proceeds
from such issuances amounted to approximately $0.7 million in both
fiscals 2000 and 1999, and $4.0 million in fiscal 1998, that were used
primarily to reduce outstanding short-term debt. The decrease in
proceeds received in fiscal 1999 as compared to fiscal 1998 reflects
that the plans commenced purchasing shares directly in the open market
rather than from the Company.
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 $66.2 million of cash dividends at September 30, 2000.
Capital Expenditures and Commitments
Capital Expenditures. Capital expenditures, which consist primarily of
expenditures to expand and upgrade the Company's gas distribution
systems, were $52.7 million in fiscal 2000, $47.9 million in fiscal
1999 and $60.9 million in fiscal 1998. The increased spending in
fiscal 1998 was primarily due to special projects to expand operations
of two large industrial customers in New Jersey.
Capital expenditures are expected to be approximately $86 million in
fiscal 2001. Included in this amount is approximately $33 million to
be spent by Virginia Gas Company (VGC) (a merger agreement to acquire
VGC is pending- see below) in connection with their efforts to expand
their pipeline and storage facilities. The Company is expected to
close on the acquisition of VGC in early 2001. As more fully described
in Note 1- Notes Receivable- of the Notes to the Consolidated
Financial Statements, as part of the merger agreement to acquire VGC,
the Company may advance VGC up to $20 million prior to the completion
of the merger to be used for the above construction. As of September
30, 2000, $7 million is outstanding under this agreement. The
remaining capital expenditure budget of $53 million for fiscal 2001
will be used primarily for the continued expansion and upkeep of the
Company's natural gas distribution system, as well as certain
technology projects.
Environmental. 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 probable 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. 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 $2.5 million in environmental
costs incurred between July 1, 1998, and June 30, 2000, 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.
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 $68.6 million annually. The
Company currently recovers, and expects to continue to recover, such
fixed charges through its PGA 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 2.7 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.
Long-term Debt. The Company is scheduled to repay $20 million of
Medium-Term Notes in August 2002.
Acquisition of Virginia Gas. In June 2000, the Company entered into a
definitive merger agreement with Virginia Gas Company (VGC) providing
for a merger of VGC into a subsidiary of NUI. Upon obtaining all
necessary regulatory approvals, NUI will exchange $4.00 worth of NUI
common stock for each share of VGC common stock, which values the
acquisition of VGC at approximately $22 million.
VGC is a natural gas storage, pipeline, and propane and natural gas
distribution company which operates in a region of the nation that has
a rapidly growing demand for natural gas and power generation due to
significant development. It owns one natural gas facility with fast-
injection, fast withdrawal capabilities and has 50 percent ownership
of a second storage facility. VGC is also working to complete a 120-
mile natural gas pipeline that, with strategic links to interstate
suppliers, will play an important role in supplying natural gas and
power generation for the growing Mid-Atlantic region.
The merger will be accounted for as a purchase, and is expected to
close early in 2001. VGC had unaudited revenues of $8.8 million and
operating income of $1.1 million for the nine months ended September
30, 2000.
Sale of Valley Cities Gas and Waverly Gas. On October 5, 2000, the
Company agreed to sell the assets and customers of its Valley Cities
Gas and Waverly Gas utility divisions (VCW) to C&T Enterprises, Inc.
(C&T), of Pennsylvania for $15 million. C&T will pay an additional $3
million to the Company should certain revenue targets be achieved. The
transaction is expected to close during the latter portion of fiscal
2001 after all regulatory approvals have been obtained. For the year
ended September 30, 2000, VCW generated $8.0 million of operating
revenues, $3.8 million of operating margin and $0.6 million of
operating income.
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 September 30, 2000, NUI Energy Brokers' VaR was $39,000.
Effects of Inflation
The Company's tariffs associated with its utility operating divisions
provide PGA clauses through which rates charged to customers are
adjusted for changes in the cost of gas on a reasonably current basis.
Increases in other utility costs and expenses not otherwise offset by
increases in revenues or reductions in other expenses could have an
adverse effect on earnings due to the time lag associated with
obtaining regulatory approval to recover such increased costs and
expenses, and the uncertainty of whether regulatory commissions will
allow full recovery of such increased costs and expenses.
Forward-Looking Statements
This document contains forward-looking statements. These statements
are based on management's current expectations and information
currently available and are believed to be reasonable and are made in
good faith. However, the forward looking statements are subject to
risks and uncertainties that could cause actual results to differ
materially from those projected in the statements. Factors that may
make the actual results differ from anticipated results include, but
are not limited to, economic conditions; competition from other
providers of similar products; and other uncertainties, all of which
are difficult to predict and some of which are beyond our control. For
these reasons, you should not rely on these forward-looking statements
when making investment decisions. The words "expect," "believe,"
"project," "anticipate," "intend," "should," "could," and variations
of such words and similar expressions, are intended to identify
forward-looking statements. We do not undertake any obligation to
update publicly any forward-looking statement, either as a result of
new information, future events or otherwise.
Item 8. Financial Statements and Supplementary Data
Consolidated financial statements of the Company as of September 30,
2000 and 1999 and for each of the three years in the period ended
September 30, 2000, the auditors' report thereon, and the unaudited
quarterly financial data for the two-year period ended September 30,
2000, are included herewith as indicated on "Index to Financial
Statements and Schedule" on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors and officers of the Company is
included in the definitive Proxy Statement for the Company's Annual
Meeting of Stockholders, which is incorporated herein by reference.
Such Proxy Statement was filed with the Securities and Exchange
Commission on December 19, 2000.
Item 11. Executive Compensation
Information concerning executive compensation is included in the
definitive Proxy Statement for the Company's Annual Meeting of
Stockholders, which is incorporated herein by reference. Such Proxy
Statement was filed with the Securities and Exchange Commission on
December 19, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information concerning security ownership of certain beneficial owners
and management is included in the definitive Proxy Statement for the
Company's Annual Meeting of Stockholders, which is incorporated herein
by reference. Such Proxy Statement was filed with the Securities and
Exchange Commission on December 19, 2000.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and related transactions
is included in the definitive Proxy Statement for the Company's Annual
Meeting of Stockholders, which is incorporated herein by reference.
Such Proxy Statement was filed with the Securities and Exchange
Commission on
December 19, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
(a) (1) Consolidated financial statements of the Company as of
September 30, 2000 and 1999 and for each of the three years in the
period ended September 30, 2000, and the auditors' report thereon, and
the unaudited quarterly financial data for the two-year period ended
September 30, 2000, are included herewith as indicated on the "Index
to Financial Statements and Schedule" on page F-1.
(2) The applicable financial statement schedule for the fiscal
years 2000, 1999 and 1998 is included herewith as indicated on the
"Index to Financial Statements and Schedule" on page F-1.
(3) Exhibits:
Exhibit Description Reference
No.
2(i) Letter Agreement, dated June 29, Incorporated by
1993, by and between NUI reference to Exhibit
Corporation and Pennsylvania & 2(i) to Registration
Southern Gas Company Statement No. 33-50561
2(ii) Agreement and Plan of Merger, Incorporated by
dated as of July 27, 1993, by reference to Exhibit
and between NUI Corporation and 2(ii) to Registration
Pennsylvania & Southern Gas Statement No. 33-50561
Company
2(iii) Agreement and Plan of Merger, Incorporated by
dated as of June 13, 2000 by and reference to Annex A of
among NUI Corporation, VGC Registration Statement
Acquisition Co. and Virginia Gas 333-46036 dated
Co. September 18, 2000
3(i) Certificate of Incorporation, Incorporated by
amended and restated as of reference to Exhibit
December 1, 1995 3(i) of NUI's Form 10-K
Report for Fiscal 1995
3(ii) By-Laws, amended and restated as Incorporated by
of September 23, 1997 reference to Exhibit
3(ii) of NUI's Form 10-K
Report for Fiscal 1997
4(i) Rights Agreement between NUI Incorporated by
Corporation and Mellon reference to NUI's Form
Securities Trust Company dated 8-K dated December 1,
November 28, 1995 1995
10(i) Service Agreement by and between Incorporated by
Transcontinental Gas Pipe Line reference to Exhibit
Corporation and Elizabethtown 10(i) to Registration
Gas Company ("EGC"), dated Statement No. 33-
February 1, 1992 (#3686) 50561
10(ii) Service Agreement under Rate Incorporated by
Schedule GSS by and between reference to Exhibit
Transcontinental Gas Pipe Line 10(ii) of NUI's Form 10-
Corporation and EGC, dated July K Report for Fiscal 1997
1, 1996
10(iii) Service Agreement under Rate Incorporated by
Schedule LG-A by and between reference to Exhibit
Transcontinental Gas Pipe Line 10(iii) of NUI's Form
Corporation and EGC, dated 10-K Report for Fiscal
January 12, 1971, as amended 1999
5/15/96
10(iv) Service Agreement by and between Incorporated by
Transcontinental Gas Pipe Line reference to Exhibit
Corporation and EGC, dated 10(iv) of NUI's Form 10-
November 1, 1995 (Contract K Report for Fiscal 1996
#1.1997)
10(v) Service Agreement by and between Incorporated by
Transcontinental Gas Pipe Line reference to Exhibit
Corporation and EGC, dated 10(v) of NUI's Form 10-K
November 1, 1995 (Contract Report for Fiscal 1996
#1.1995)
10(vi) Firm Gas Transportation Incorporated by
Agreement by and among reference to Exhibit
Transcontinental Gas Pipe Line 10(vi) to Registration
Corporation, EGC and National Statement No. 33-50561
Fuel Gas Supply Corporation,
dated November 1, 1984
10(vii) Service Agreement by and among Incorporated by
Transcontinental Gas Pipe Line reference to Exhibit
Corporation and EGC, dated 10(vii) of NUI's Form
November 1, 1995 (Contract 10-K Report for Fiscal
#1.1998) 1996
10(viii) Service Agreement for Rate Incorporated by
Schedule CDS by and between reference to Exhibit
Texas Eastern Transmission 10(viii) to NUI's Form
Corporation and EGC, dated 10-K Report for Fiscal
December 1, 1993 (Contract 1994
#800361)
10(ix) Service Agreement under Rate Incorporated by
Schedule FTS-7 by and between reference to Exhibit
Texas Eastern Transmission 10(ix) to NUI's Form 10-
Corporation and EGC, dated K Report for Fiscal 1994
October 25, 1994 (Contract
#331720)
10(x) Service Agreement for Rate Incorporated by
Schedule FTS-5 by and between reference to Exhibit
Texas Eastern Transmission 10(x) of NUI's Form 10-K
Corporation and EGC, dated March Report for Fiscal 1997
18, 1996 (Contract #331501)
10(xi) Service Agreement under Rate Incorporated by
Schedule FTS-8 by and between reference to Exhibit
Texas Eastern Transmission 10(xi) to NUI's Form 10-
Corporation and EGC, dated June K Report for Fiscal 1994
28, 1994 (Contract #331013)
10(xii) Firm Transportation Service Incorporated by
Agreement under FTS-2 Rate reference to Exhibit
Schedule by and between City Gas 10(xii) of NUI's Form
and Florida Gas Transmission, 10-K Report for Fiscal
dated August 12, 1993 1997
10(xiii) Service Agreement for Rate Incorporated by
Schedule FTS-2 by and between reference to Exhibit
Texas Eastern Transmission 10(xiii) to Registration
Corporation and EGC, dated June Statement No. 33-50561
1, 1993 (Contract #330788)
10(xiv) Service Agreement under NTS Rate Incorporated by
Schedule by and between Columbia reference to Exhibit
Gas Transmission Corporation and 10(xiv) to NUI's Form
EGC, dated November 1, 1993 10-K Report for Fiscal
(Contract #39275) 1993
10(xv) Service Agreement under SST Rate Incorporated by
Schedule by and between Columbia reference to Exhibit
Gas Transmission Corporation and 10(xv) to NUI's Form
EGC, dated November 1, 1993 10-K Report for Fiscal
(Contract #38045) 1993
10(xvi) Service Agreement under FTS Rate Incorporated by
Schedule by and between Columbia reference to Exhibit
Gas Transmission Corporation and 10(xvi) to NUI's Form
EGC, dated November 1, 1993 10-K Report for Fiscal
(Contract #37882) 1993
10(xvii) Gas Transportation Agreement Incorporated by
under FT-G Rate Schedule by and reference to Exhibit
between Tennessee Gas Pipeline 10(xvii) to NUI's Form
Company and EGC (Contract #597), 10-K Report for Fiscal
dated September 1, 1993 1993
10(xviii) Gas Transportation Agreement Incorporated by
under FT-G Rate Schedule by and reference to Exhibit
between Tennessee Gas Pipeline 10(xviii) to NUI's Form
Company and EGC (Contract #603), 10-K Report for Fiscal
dated September 1, 1993 1993
10(xix) Service Agreement by and between Incorporated by
Transcontinental Gas Pipe Line reference to Exhibit
Company and EGC, dated November 10(xix) of NUI's Form
1, 1995 (Contract #3832) 10-K Report for Fiscal
1996
10(xx) Firm Transportation Service Filed herewith
Agreement under FTS-1 Rate
Schedule by and between City
Gas and Florida Gas
Transmission dated October 1,
1993 (Contract # 5034) as
amended July 26, 2000
10(xxi) Amended and Restated Lease File herewith
Agreement between NUI
Corporation and Liberty Hall
Joint Venture, dated April
28, 2000
10(xxii) 1988 Stock Plan Incorporated by
reference to Exhibit
10(viii) to Registration
Statement No. 33-21525
10(xxiii) First Amendment to 1988 Stock Incorporated by
Plan reference to Exhibit
10(xxxiii) to
Registration Statement
No. 33-46162
10(xxiv) Form of Termination of Incorporated by
Employment and Change in reference to Exhibit
Control Agreements 10(xxiii) of NUI's Form
10-K Report for Fiscal
1995
10(xxv) Firm Transportation Service Incorporated by
Agreement under FTS-2 Rate reference to Exhibit
Schedule by and between City 10(xxiv) of NUI's Form
Gas and Florida Gas 10-K Report for Fiscal
Transmission, dated December 1994
12, 1991 and Amendment dated
November 12, 1993 (Contract
#3608)
10(xxvi) Service Agreement under Rate Incorporated by
Schedule LG-A by and between reference to Exhibit
Transcontinental Gas Pipeline 10(xxv) of NUI's Form
and North Carolina Gas Service 10-K Report for Fiscal
Division of Pennsylvania & 1994
Southern Gas Company, dated
August 5, 1971
10(xxvii) Service Agreement under Rate Incorporated by
Schedule GSS by and between reference to Exhibit
Transcontinental Gas Pipeline 10(xxvi) of NUI's Form
and North Carolina Gas 10-K Report for Fiscal
Service, dated July 1, 1996 1997
10(xxviii) 1996 Employee Stock Purchase Incorporated by
Plan, as amended reference to Exhibit 4
of Registration
Statement No. 333-49349
10(xxix) Service Agreement under Rate Incorporated by
Schedule FT by and between reference to Exhibit
Transcontinental Gas Pipeline 10(xxviii) of NUI's Form
and North Carolina Gas Service 10-K Report for Fiscal
Division of Pennsylvania & 1994
Southern Gas Company, dated
February 1, 1992 (Contract #
0.3922)
10(xxx) 1996 Directors Stock Purchase Incorporated by
Plan reference to Exhibit
10(xxix) of NUI's Form
10-K Report for Fiscal
1996
10(xxxi) Gas Storage Contract under Incorporated by
Rate Schedule FS by and reference to Exhibit
between Tennessee Gas Pipeline 10(xxx) of NUI's Form
Company and Pennsylvania & 10-K Report for Fiscal
Southern Gas Company, dated 1994
September 1, 1993 (Contract
#2277)
10(xxxii) Gas Transportation Agreement Incorporated by
under Rate Schedule FT-A by reference to Exhibit
and between Tennessee Gas 10(xxxi) of NUI's Form
Pipeline Co. and Pennsylvania 10-K Report for Fiscal
& Southern Gas Company, dated 1994
September 1, 1993 (Contract
#935)
10(xxxiii) Gas Transportation Agreement Incorporated by
under Rate Schedule FT-A by reference to Exhibit
and between Tennessee Gas 10(xxxii) of NUI's Form
Pipeline Co. and Pennsylvania 10-K Report for Fiscal
& Southern Gas Company, dated 1994
September 1, 1993 (Contract
#936)
10(xxxiv) Gas Transportation Agreement Incorporated by
under Rate Schedule FT-A by reference to Exhibit
and between Tennessee Gas 10(xxxiii) of NUI's Form
Pipeline Co. and Pennsylvania 10-K Report for Fiscal
& Southern Gas Company, dated 1994
September 1, 1993 (Contract
#959)
10(xxxv) Gas Transportation Agreement Incorporated by
under Rate Schedule FT-A by reference to Exhibit
and between Tennessee Gas 10(xxxiv) of NUI's Form
Pipeline Co. and Pennsylvania 10-K Report for Fiscal
& Southern Gas Company, dated 1994
September 1, 1993 (Contract
#2157)
10(xxxvi) Service Agreement for Rate Filed herewith
Schedule CDS by and between
Texas Eastern Transmission
Corporation and EGC, dated
December 1, 1993 (Contract
#800217)
10(xxxvii) Service Agreement for Rate Incorporated by
Schedule FT by and reference to Exhibit
between Transcontinental Gas 10(xxxvi) of NUI's Form
Pipe Line Corporation and EGC 10-K Report for Fiscal
(Contract #1.0431) dated 1995
April 1, 1995
10(xxxviii) Service Agreement for Rate Incorporated by
Schedule FT by and reference to Exhibit
between Transcontinental Gas 10(xxxvii) of NUI's Form
Pipe Line Corporation and EGC 10-K Report for Fiscal
(Contract #1.0445) dated 1995
April 1, 1995
10(xxxix) Service Agreement for Rate Incorporated by
Schedule SS-1 by and between reference to Exhibit
Texas Eastern Transmission 10(xxxviii) of NUI's
Corporation and EGC (Contract Form 10-K Report for
(#400196) dated September 23, Fiscal 1995
1994
10(xl) Gas Storage Agreement under Incorporated by
Rate Schedule FS by and reference to Exhibit
between Tennessee Gas Pipeline 10(xxxix) of NUI's Form
Company and EGC (Contract 10-K Report for Fiscal
#8703) dated November 1, 1994 1995
10(xli) Consulting Agreement, dated as Incorporated by
of March 24, 1995, between NUI reference to Exhibit
Corporation and John Kean 10(xl) of NUI's Form 10-
K Report for Fiscal 1995
10(xlii) Form of Deferred Compensation Incorporated by
Agreement reference to Exhibit
10(xli) of NUI's Form
10-K Report for Fiscal
1999
10(xliii) 1996 Stock Option and Stock Incorporated by
Award Plan, as amended reference to Exhibit 4
of Registration
Statement No. 333-49337
10(xliv) Service Agreement under Rate Incorporated by
Schedule FT by and between reference to Exhibit
Elkton Gas and Eastern Shore 10(xliii) of NUI's Form
Natural Gas Company, dated as 10-K Report for Fiscal
of November 1, 1997 (Contract 1997
#010003)
10(xlv) Service Agreement under Rate Incorporated by
Schedule FT by and between reference to Exhibit
Elkton Gas and Eastern Shore 10(xliv) of NUI's Form
Natural Gas Company, dated as 10-K Report for Fiscal
of November 1, 1997 (Contract 1997
#010011)
10(xlvi) Service Agreement under Rate Incorporated by
Schedule FT by and between reference to Exhibit
Elkton Gas and Eastern Shore 10(xlv) of NUI's Form
Natural Gas Company, dated as 10-K Report for Fiscal
of November 1, 1997 (Contract 1997
#010012)
10(xlvii) Service Agreement under Rate Incorporated by
Schedule FT by and between reference to Exhibit
Elkton Gas and Eastern Shore 10(xlvi) of NUI's Form
Natural Gas Company, dated as 10-K Report for Fiscal
of November 1, 1997 (Contract 1997
#010013)
10(xlviii) Service Agreement under Rate Incorporated by
Schedule FT by and between reference to Exhibit
Elkton Gas and Eastern Shore 10(xlvii) of NUI's Form
Natural Gas Company, dated as 10-K Report for Fiscal
of November 1, 1997 (Contract 1997
#020003)
10(xlvix) Service Agreement under Rate Incorporated by
Schedule FT by and between reference to Exhibit
Elkton Gas and Eastern Shore 10(xlviii) of NUI's Form
Natural Gas Company, dated as 10-K Report for Fiscal
of November 1, 1997 (Contract 1997
#020005)
10(l) Service Agreement under Rate Incorporated by
Schedule FT by and between reference to Exhibit
Elkton Gas and Eastern Shore 10(xlix) of NUI's Form
Natural Gas Company, dated as 10-K Report for Fiscal
of November 1, 1998 (Contract 1997
#010032)
10(li) Agreement between T.I.C. Incorporated by
Enterprises, L.L.C and United reference to Exhibit
States Postal Service 10(i) of NUI's Form 8-K
filed 12/15/99.
10(lii) Service Agreement under Rate Filed herewith
Schedule LNG by and between
Transcontinental Gas Pipeline
Corporation and NUI
Corporation dated as of
October 25, 1999 (Contract
#2.3339)
10(liii) Gas Transportation Agreement Filed herewith
under Rate Schedule FT-A by
and between Tennessee Gas
Pipeline Company and NUI
Corporation dated as of
October 17, 1999 (Contract
#31117)
10(liv) Asset Sale Agreement between Filed herewith
NUI Corporation and C&T
Enterprises, Inc. dated as of
October 4, 2000
12 Consolidated Ratio of Earnings Filed herewith
to Fixed Charges
21 Subsidiaries of NUI Filed herewith
Corporation
23 Consent of Independent Public Filed herewith
Accountants
27 Financial Data Schedule Filed herewith
Exhibits listed above which have heretofore been filed with the
Securities and Exchange Commission pursuant to the Securities Act of
1933 or the Securities Exchange Act of 1934, and which were designated
as noted above and have not been amended, are hereby incorporated by
reference and made a part hereof with the same effect as if filed
herewith.
The Company is a party to various agreements with respect to long-term
indebtedness to which the total amount of indebtedness authorized
under each agreement, respectively, does not exceed 10% of the total
assets of the Company on a consolidated basis. The Company hereby
agrees to furnish to the Securities and Exchange Commission copies of
such agreements upon request.
(b) Reports on Form 8-K:
On September 27, 2000, the Company filed a Form 8-K, Item 2,
Acquisition or Disposition of Assets, reporting the sale of 22 acres
of vacant land in Woodbridge, New Jersey.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Consolidated Financial Statements of NUI Corporation and Subsidiaries:
Report of Independent Public Accountants F-2
Consolidated Financial Statements as of
September 30, 2000 and 1999 and for each
of the Three Years in the Period
Ended September 30, 2000 F-3
Unaudited Quarterly Financial Data for
the Two-Year Period Ended September 30, 2000
(Note 12 of the Notes to the Company's Consolidated
Financial Statements) F-21
Financial Statement Schedule of NUI Corporation and Subsidiaries:
Report of Independent Public Accountants F-2
Schedule II - Valuation and Qualifying Accounts
for each of the Three Years in the
Period Ended September 30, 2000 F-22
All other schedules are omitted because they are not required, are
inapplicable or the information is otherwise shown in the financial
statements or notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NUI Corporation:
We have audited the accompanying consolidated balance sheet and
consolidated statement of capitalization of NUI Corporation (a New
Jersey corporation) and Subsidiaries as of September 30, 2000 and
1999, and the related consolidated statements of income, cash flows
and shareholders' equity, for each of the three years in the period
ended September 30, 2000. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements based
on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require that
we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of NUI Corporation and Subsidiaries as of September 30, 2000 and 1999,
and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 2000, in conformity
with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in
Item 14(a)(2) is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a required part of the basic financial
statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, New York
November 9, 2000
NUI Corporation and Subsidiaries
Consolidated Statement of Income
(Dollars in thousands, except per share amounts)
Years Ended September 30,
2000 1999 1998
Operating Margins
Operating revenues $934,643 $826,194 $826,263
Less- Purchased gas and fuel 713,380 621,363 629,608
Cost of sales and 14,864 10,385 10,048
services
Energy taxes 11,571 12,702 17,550
------- ------- -------
194,828 181,744 169,057
------- ------- -------
Other Operating Expenses
Operations and maintenance 95,634 89,763 85,832
Depreciation and amortization 29,508 26,939 24,952
Restructuring and other non-
recurring items --- (3,954) 9,686
Taxes, other than income taxes 9,410 8,909 9,263
------- ------- -------
134,552 121,657 129,733
------- ------- -------
Operating Income 60,276 60,087 39,324
------- ------- -------
Other Income and Expense, Net
Equity in earnings (losses) of 1,309 1,223 (56)
TIC Enterprises, LLC, net
Gain on sales of assets 2,834 245 745
Other 177 115 224
------- ------- -------
4,320 1,583 913
------- ------- -------
Income before Interest and Taxes 64,596 61,670 40,237
Interest expense 19,703 19,952 19,213
------- ------- -------
Income before Income Taxes 44,893 41,718 21,024
Income taxes 18,146 17,158 8,710
------- ------- -------
Net Income $26,747 $24,560 $12,314
======== ======== ========
Net Income Per Share of Common $ 2.07 $ 1.93 $ 0 .98
======== ======== ========
Dividends Per Share of Common $ 0.98 $ 0.98 $ 0 .98
======== ======== ========
Weighted Average Number of Shares
of Common Stock Outstanding 12,928,528 12,715,300 12,584,335
========== ========== ==========
See the notes to the consolidated financial statements.
NUI Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in thousands)
September 30,
2000 1999
ASSETS
Current Assets
Cash and cash equivalents $3,515 $1,561
Accounts receivable (less allowance
for doubtful accounts of $1,544 in 2000
and $1,697 in 1999) 108,425 85,056
Notes receivable 7,000 ---
Fuel inventories, at average cost 37,177 28,573
Unrecovered purchased gas costs 3,500 901
Prepayments and other 63,360 50,108
-------- --------
222,977 166,199
-------- --------
Property, Plant and Equipment
Property, plant, and equipment, at
original cost 828,359 $779,131
Accumulated depreciation and
amortization (281,976) (256,898)
Unamortized plant acquisition
adjustments, net 29,460 30,242
-------- --------
575,843 552,475
-------- --------
Funds for Construction Held by Trustee 28,706 37,413
Investment in TIC Enterprises, LLC 26,225 24,905
Other Investments 1,191 1,385
Other Assets
Regulatory assets 50,615 51,615
Deferred assets 15,300 10,234
-------- --------
65,915 61,849
-------- --------
$920,857 $844,226
======= =======
CAPITALIZATION AND LIABILITIES
Current Liabilities
Notes payable to banks $96,700 $73,615
Current portion of capital lease 1,965 7,776
obligations
Accounts payable, customer deposits 132,207 108,023
and accrued liabilities
Federal income and other taxes 11,884 4,359
-------- --------
242,756 193,773
-------- --------
Other Liabilities
Capital lease obligations 4,396 2,599
Deferred Federal income taxes 75,248 69,951
Unamortized investment tax credits 4,825 5,251
Environmental remediation reserve 33,361 33,981
Regulatory and other liabilities 34,355 32,442
-------- --------
152,185 144,224
-------- --------
Capitalization (See accompanying
statements)
Common shareholders' equity 256,969 237,318
Preferred stock --- ---
Long-term debt 268,947 268,911
-------- --------
525,916 506,229
-------- --------
$920,857 $844,226
======== ========
See the notes to the consolidated financial statements.
NUI Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(Dollars in thousands)
Years Ended September 30
2000 1999 1998
Operating Activities
Net Income $26,747 $24,560 $12,314
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 31,155 28,914 26,050
Deferred Federal income taxes
Non-cash portion of restructuring
and other non-recurring items 5,297 7,454 357
Amortization of deferred investment
tax credits (426) (459) (461)
Other 4,508 3,237 1,743
Effects of changes in:
Accounts receivable, net (22,011) (22,383) 1,826
Fuel inventories (8,604) 6,364 (3,869)
Accounts payable, deposits and
accruals 22,008 22,865 (7,347)
Over (under) recovered purchased
gas costs (2,599) 7,160 1,541
Other (9,843) (12,030) (18,604)
------ ------ ------
Net cash provided by operating
activities 46,232 58,956 20,851
------ ------ ------
Financing Activities
Proceeds from sales of common stock, 703 340 3,658
net of treasury stock purchased
Dividends to shareholders (12,671) (12,443) (12,311)
Notes receivable from Virginia Gas (7,000) --- ---
Proceeds from issuance of long-term
debt --- 39,813 ---
Principal payments under capital
lease obligations --- --- (54,600)
Funds for construction held by
trustee, net 10,666 (24,871) 16,670
Principal payments under capital
lease obligations (8,144) (1,810) (1,792)
Net short-term (repayments)
borrowings 22,850 (14,015) 33,202
------ ------ ------
Net cash provided by (used for)
financing activities 6,404 (12,986) (15,173)
------ ------ -------
Investing Activities
Cash expenditures for utility plant (48,577) (47,213) (59,969)
Other (2,105) 1,875 (3,573)
------ ------ -------
Net cash used in investing
activities (50,682) (45,338) (63,542)
------ ------ -------
Net Increase (Decrease) in Cash and
Cash Equivalents $ 1,954 $ 632 $(57,864)
======== ======= =======
Cash and Cash Equivalents
At beginning of period $ 1,561 $ 929 $58,793
At end of period $ 3,515 $ 1,561 $ 929
Supplemental Disclosures of Cash
Flows
Income taxes paid, net $ 3,889 $ 7,695 $ 6,482
Interest paid $ 21,481 $20,732 $22,094
See the notes to the consolidated financial statements.
NUI Corporation and Subsidiaries
Consolidated Statement of Capitalization
(Dollars in thousands)
September 30,
2000 1999
Long-Term Debt
Gas facilities revenue bonds
6.35% due October 1, 2022 $46,500 $46,500
6.40% due October 1, 2024* 20,000 20,000
Variable rate due June 1, 2026* 39,000 39,000
5.70% due June 1, 2032 54,600 54,600
5.25% due November 1, 2033* 40,000 40,000
Medium-term notes
7.125% due August 1, 2002 20,000 20,000
8.35% due February 1, 2005 50,000 50,000
------- -------
270,100 270,100
Unamortized debt discount (1,153) (1,189)
------- -------
268,947 268,911
------- -------
Preferred Stock, 5,000,000 shares
authorized; none issued --- ---
Common Shareholders' Equity
Common Stock, no par value; shares
authorized: 30,000,000;
shares outstanding: 12,982,526 in
2000 and 12,750,270 in 1999 215,484 209,984
Shares held in treasury: 103,158 in 2000
and 122,219 in 1999 (2,246) (2,311)
Retained earnings 45,456 31,380
Unearned employee compensation (1,725) (1,735)
------- -------
256,969 237,318
------- -------
Total Capitalization $525,916 $506,229
======== ========
* The total unexpended portions of the net proceeds from these bonds,
amounting to $21.3 million and $32.0 million as of September 30, 2000,
and September 30, 1999, respectively, are carried on the Company's
consolidated balance sheet as funds for construction held by trustee,
including interest earned thereon, until drawn upon for eligible
construction expenditures.
See the notes to the consolidated financial statements.
<TABLE>
NUI Corporation and Subsidiaries
Consolidated Statement of Shareholders' Equity
(Dollars in thousands)
<CAPTION>
Common Stock Unrealized
Gain
(Loss)- Unearned
Shares Paid-in Held in Retained Marketable Employee
Outstanding Amount Treasury Earnings Securities Compensation Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
September 30,
1997 12,428,952 $201,549 $ (1,615) $ 19,260 $120 $(1,023) $218,291
Common stock
issued* 259,710 5,807 5,807
Treasury stock
transactions (8,264) (317) (317)
Net income 12,314 12,314
Cash dividends (12,311) (12,311)
Unrealized
(loss) (120) (120)
Unearned
compensation (672) (672)
---------- -------- -------- ------- ----- ------- ---------
Balance,
September 30,
1998 12,680,398 $207,356 $ (1,932) $19,263 $ - $(1,695) $222,992
Common stock 85,352 2,628 2,628
Treasury stock
transactions (15,480) (379) (379)
Net income 24,560 24,560
Cash dividends (12,443) (12,443)
Unearned
compensation (40) (40)
__________ ________ ________ _______ _____ _______ ________
Balance,
September 30,
1999 12,750,270 $209,984 $ (2,311) $31,380 $ - $(1,735) $237,318
Common stock
issued
-Purchase of
NUI Telecom 113,200 2,800 2,800
-Employee
benefit plans 99,995 2,700 2,700
Treasury stock
transactions 19,061 65 65
Net income 26,747 26,747
Cash dividends (12,671) (12,671)
Unearned
compensation 10 10
__________ ________ ________ _______ _____ _______ ________
Balance,
September 30,
2000 12,982,526 $215,484 $ (2,246) $45,456 $ - $ (1,725) $256,969
========== ======== ======== ======= ===== ======== ========
</TABLE>
* Represents common stock issued in connection with NUI Direct and
various employee benefit plans.
See the notes to the consolidated financial statements.
NUI Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements
include all operating divisions and subsidiaries of NUI Corporation
(collectively referred to as the Company). The Company is a multi-
state energy sales, services and distribution, and telecommunications
company. Its utility operations distribute natural gas and related
services in six states along the eastern seaboard and comprise
Elizabethtown Gas Company (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), a wholesale
energy trading and portfolio management subsidiary; NUI Environmental
Group, Inc., an environmental project development subsidiary; Utility
Business Services, Inc. (UBS), a geospatial and customer information
systems and services subsidiary; and NUI Telecom, Inc. (NUI Telecom),
a telecommunications services subsidiary (see Note 2). 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 preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Certain reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
Regulation. The Company is subject to regulation as an operating
utility by the public utility commissions of the states in which it
operates.
Property, Plant and Equipment. Property, plant and equipment includes
both utility plant and non-regulated assets. Utility plant is stated
at its original cost. Depreciation is provided on a straight-line
basis over the remaining estimated lives of depreciable property by
applying rates as approved by the state commissions. The composite
average annual depreciation rate was 3 percent in each of fiscal years
2000, 1999 and 1998. At the time properties are retired, the original
cost plus the cost of retirement, less salvage, is charged to
accumulated depreciation. Repairs of all utility plant and
replacements and renewals of minor items of property are charged to
maintenance expense as incurred. Non-regulated equipment consists
primarily of technology assets and furniture and fixtures. Assets are
recorded at original cost and are depreciated on a straight-line basis
over a period ranging from 3-10 years.
The net unamortized plant acquisition adjustments represent the
remaining portion of the excess of the purchase price over the book
value of utility net assets acquired. The excess is being amortized on
a straight-line basis over 30 years from the date of acquisition. The
results of operations of acquired entities have been included in the
accompanying consolidated financial statements for the periods
subsequent to their acquisition.
Operating Revenues and Purchased Gas and Fuel Costs. Operating
revenues include accrued unbilled revenues through the end of each
accounting period. Operating revenues also reflect adjustments
attributable to weather normalization clauses that are accrued during
the winter heating season and billed or credited to customers in the
following year.
Costs of purchased gas and fuel for the Company's regulated utilities
are recognized as expenses in accordance with the purchased gas
adjustment clause applicable in each state. Such clauses provide for
periodic reconciliations of actual recoverable gas costs and the
estimated amounts that have been billed to customers. Under- or over-
recoveries are deferred when they arise and are recovered from or
refunded to customers in subsequent periods.
The Company's subsidiaries, NUI Energy Brokers and NUI Energy, mark-
to-market through the income statement all trading positions,
including forward sales and purchase commitments. (See Note 8 for a
further description of the Company's use of derivative financial
instruments.)
Environmental Reserve. The Company, with the aid of environmental
consultants, regularly assesses the potential future costs associated
with conducting investigative activities at each of the Company's
sites and implementing appropriate remedial actions, as well as the
likelihood of whether such actions will be necessary. The Company
records a reserve if it is probable that a liability will be incurred
and the amount of the liability can be reasonably estimated.
Stock Compensation. The Company follows the accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and related interpretations in accounting for
its employee stock-based compensation. The Company has elected to
adopt the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock Based
Compensation" (SFAS 123), which requires proforma disclosure of the
effect of adopting the accounting under SFAS 123. If the Company had
adopted SFAS 123, there would not have been a material effect on the
results of operations or financial position.
Income Taxes. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes", which requires the liability method to be used to
account for deferred income taxes. Under this method, deferred income
taxes related to tax and accounting basis differences are recognized
at the statutory income tax rates in effect when the tax is expected
to be paid.
Investment tax credits, which were generated principally in connection
with additions to utility plant made prior to January 1, 1986, are
being amortized over the estimated service lives of the properties
that gave rise to the credits.
Regulatory Assets and Liabilities. The Company's utility operations
follow the accounting for regulated enterprises prescribed by
Statement of Financial Accounting Standards No. 71, "Accounting for
the Effects of Certain Types of Regulation" (SFAS 71). In general,
SFAS 71 requires deferral of certain costs and obligations, based upon
orders received from regulators, to be recovered from or refunded to
customers in future periods. The following represents the Company's
regulatory assets and liabilities deferred in the accompanying
consolidated balance sheet as of September 30, 2000 and 1999 (in
thousands):
2000 1999
Regulatory Assets
Environmental investigation and
remediation costs $35,617 $35,950
Unrecovered gas costs 839 1,082
Postretirement and other employee
benefits 8,756 8,877
Deferred piping allowances 1,334 1,692
Other 4,069 4,014
------- -------
$50,615 $51,615
------- -------
Regulatory Liabilities
Net overcollection of income taxes $ 5,118 $ 5,183
Refunds to customers 2,021 2,928
Other 228 426
------- -------
$ 7,367 $ 8,537
======= =======
In the event that the provisions of SFAS 71 were no longer applicable,
the Company would recognize a write-off of net regulatory assets
(regulatory assets less regulatory liabilities) that would result in a
charge to net income, which would be classified as an extraordinary
item. However, although the gas distribution industry is becoming
increasingly competitive, the Company's utility operations continue to
recover their costs through cost-based rates established by the public
utility commissions. As a result, the Company believes that the
accounting prescribed under SFAS 71 remains appropriate.
Cash Equivalents. Cash equivalents consist of a money market account
which invests in securities with original maturities of three months
or less.
Notes Receivable. Notes receivable represent amounts advanced in
conjunction with the June 13, 2000, merger agreement between Virginia
Gas Corporation (VGC) and the Company (see Note 3). The agreement
provides VGC with the ability to draw up to $20 million, which can be
used to repay amounts outstanding under existing finance agreements of
VGC, real property pursuant to an existing purchase agreement, and
pipeline and gas storage construction and other related expenses.
Interest is to be paid to the Company quarterly at the rate equal to
LIBOR plus 3%. The principal balance is to be paid at the earlier of
March 1, 2002, or the termination of the merger agreement. As of
September 30, 2000 VGC had drawn a total of $7 million under the
agreement.
Net Income Per Share of Common Stock. Net income per share of common
stock is based on the weighted average number of shares of NUI common
stock outstanding. The Company follows the provisions of Statement of
Financial Accounting Standards No. 128, _Earnings per Share_, which
requires computing and presenting basic and diluted earnings per
share. At September 30, 2000, the Company has approximately 29,000
shares of common stock equivalents related to the purchase of NUI
Telecom (see Note 2), which do not have a dilutive effect on earnings
per share.
New Accounting Standards. The Company is required to adopt Statement
of Financial Accounting Standards, No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133) in fiscal 2001. SFAS
133 was issued in June 1998 and establishes accounting and reporting
standards regarding derivative instruments. SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair
value as either an asset or liability, and that changes in the fair
value be recognized currently in earnings unless certain criteria are
met. The Company has reviewed all of its contracts in accordance with
the SFAS 133. Since both NUI Energy Brokers and NUI Energy currently
utilize mark-to-market accounting, the adoption of SFAS 133 will not
have a material impact on the Company's financial position or net
income.
2. 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 earnings targets no
later than December 31, 2003.
The acquisition was accounted for as a purchase. The excess of the
purchase price over the fair value of the net assets of NUI Telecom
was 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.
3. Purchase of Virginia Gas Company
In June 2000, the Company entered into a definitive merger agreement
with Virginia Gas Company (VGC) providing for the merger of VGC into a
subsidiary of NUI. Upon obtaining all necessary regulatory approvals,
NUI will exchange $4.00 of NUI common stock for each share of VGC
common stock, which values the acquisition of VGC at approximately $22
million.
VGC is a natural gas storage, pipeline, and propane and natural gas
distribution company which operates in a region of the nation that has
a rapidly growing demand for natural gas and power generation due to
significant development. It owns one natural gas facility with fast-
injection, fast withdrawal capabilities and has 50 percent ownership
of a second storage facility. VGC is also working to complete a 120-
mile natural gas pipeline that, with strategic links to interstate
suppliers, will play an important role in supplying natural gas and
power generation for the growing Mid-Atlantic region.
The merger will be accounted for as a purchase, and is expected to
close early in 2001. VGC had unaudited revenues of $8.8 million and
operating income of $1.1 million for the nine months ended September
30, 2000.
4. Restructuring and Other Non-Recurring Items
In 1998, the Company commenced a reorganization effort that included
early retirement programs for both non-bargaining and bargaining unit
employees, as well as other workforce reductions. The reorganization
efforts resulted in accounting charges and gains that were incurred in
both fiscal 1999 and 1998. In fiscal 1999, the Company recognized
approximately $4.0 million of pre-tax, non-recurring gains primarily
relating to these reorganization efforts. In fiscal 1998, the Company
incurred approximately $9.7 million of pre-tax, non-recurring charges
primarily related to the reorganization effort. Specific detail on
these non-recurring items follows.
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
of approximately $7.3 million 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.
In fiscal 1999, the Company also recorded approximately $1.8 million
of charges relating to the write-off of certain regulatory assets
which will not be recovered through rates, as well as $1.8 million of
charges relating to other items which were deemed to be separate from
recurring earnings.
In fiscal 1998, the Company also recorded approximately $1.5 million
of other benefit expenses associated with employees that accepted the
early retirement program and approximately $0.9 million of other
charges associated with the reorganization of the Company.
5. Capitalization
Long-Term Debt. 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 September 30, 2000, and September 30,
1999, the total unexpended portions of all of the Company's Gas
Facilities Revenue Bonds were $21.3 million and $32.0 million,
respectively, and are classified on the Company's consolidated balance
sheet, including interest earned thereon, as funds for construction
held by trustee.
The Company is scheduled to repay $20 million of Medium-Term Notes in
August 2002.
Preferred Stock. The Company has 5,000,000 shares of authorized but
unissued preferred stock. Shares of Series A Junior Participating
Preferred Stock have been reserved for possible future issuance in
connection with the Company's Shareholder Rights Plan, described
below.
Shareholder Rights Plan. In November 1995, the Company's Board of
Directors adopted a Shareholder Rights Plan under which shareholders
of NUI common stock were issued as a dividend one right to buy one
one-hundredth of a share of Series A Junior Participating Preferred
Stock at a purchase price of $50 (Right) for each share of common
stock held. The Rights initially attach to the shares of NUI common
stock and can be exercised or transferred only if a person or group
(an Acquirer), with certain exceptions, acquires, or commences a
tender offer to acquire beneficial ownership of 15 percent or more of
NUI common stock. Each Right, except those held by the Acquirer, may
be used by the non-acquiring shareholders to purchase, at the Right's
exercise price, shares of NUI common stock having a market value
equivalent to twice the Right's exercise price, thus substantially
reducing the Acquirer's ownership percentage.
The Company may redeem the Rights at $0.001 per Right at any time
prior to the occurrence of any such event. All Rights expire on
November 27, 2005.
Common Stock. The Company periodically issues shares of common stock
in connection with NUI Direct, the Company's dividend reinvestment and
stock purchase plan, and various employee benefit plans. Effective May
26, 1998, several of these plans commenced purchasing shares on the
open market to fulfill the their requirements. Under the terms of
these plans, the Company may periodically change the method of
purchasing shares from open market purchases to purchases directly
from the Company, or vice versa.
At September 30, 2000, shares reserved for issuance under the
Company's common stock plans were: NUI Direct, 53,149; Savings and
Investment Plan, 121,966; 1996 Stock Option and Stock Award Plan,
273,370; 1996 Employee Stock Purchase Plan, 113,355; and the 1996
Director Stock Purchase Plan, 46,918.
Stock Plans. The Company's Board of Directors believes that the
interests of both directors and management should be closely aligned
with those of shareholders. As a result, under the 1996 Stock Option
and Stock Award Plan, and the 1996 Director Stock Purchase Plan, the
Company has a long-term compensation program for directors, executive
officers and key employees involving shares of NUI common stock.
Restricted shares of stock granted as long-term compensation for
executive officers and key employees amounted to 82,750 in fiscal
2000, 75,900 in fiscal 1999 and 74,600 in fiscal 1998. As of September
30, 2000, a total of 195,575 shares of restricted stock that have been
granted as long-term compensation are subject to future vesting
requirements, and are restricted from resale.
Executive officers and key employees are eligible to be granted
options for the purchase of NUI common stock at prices equal to the
market price per share on the date of grant. The option must be
exercised within 10 years from the date of grant. As of September 30,
2000 there were no options outstanding and exercisable. During fiscal
2000, 5,000 options were exercised at a price of $17.625 per share,
and during fiscal 1998, 4,800 options were exercised at a price of
$15.77 per share. There were no other transactions during the last
three fiscal years.
Dividend Restrictions. The Company's long-term debt agreements
include, among other things, restrictions as to the payment of cash
dividends. Under the most restrictive of these provisions, the Company
was permitted to pay approximately $66.2 million of cash dividends at
September 30, 2000.
6. Notes Payable to Banks
At September 30, 2000, the Company's outstanding notes payable to
banks were $96.7 million with a combined weighted average interest
rate of 7.3 percent. Unused lines of credit at September 30, 2000,
were approximately $49.3 million.
The weighted average daily amounts outstanding of notes payable to
banks and the weighted average interest rates on those amounts were
$75.3 million at 6.7 percent in fiscal 2000, $68.2 million at 5.3
percent in fiscal 1999 and $66.8 million at 5.7 percent in fiscal
1998.
7. Leases
Property, plant and equipment held under capital leases amounted to
$26.8 million at September 30, 2000, and $24.3 million at September
30, 1999, with related accumulated amortization of $17.3 million and
$15.6 million, respectively. These properties consist principally of
leasehold improvements and office furniture and fixtures. A summary of
future minimum payments for properties held under capital leases
follows (in thousands):
2001 $2,428
2002 2,120
2003 1,746
2004 1,266
2005 480
-----
Total future minimum payments 8,040
Amount representing interest (1,679)
Current portion of capital
lease obligations (1,965)
------
Capital lease obligations $4,396
======
The Company has entered into non-cancelable operating leases which
principally relate to office space used in its operations. The future
minimum lease payments as of September 30, 2000 are as follows:
2001 $ 3,190
2002 3,190
2003 3,190
2004 3,190
2005 3,583
Thereafter 61,808
-------
Total $78,151
=======
Rents charged to operations expense were $6.9 million in fiscal 2000,
$5.7 million in fiscal 1999, and $5.8 million in fiscal 1998.
The Company has entered into subleases for a portion of the office
space noted above. Amounts received from subleases were $1.7 million
in fiscal 2000, $0.6 million in fiscal 1999, and $0.2 million in
fiscal 1998.
8. Financial Instruments
Derivatives. The Company's wholesale trading subsidiary, NUI Energy
Brokers, utilizes financial instruments to provide competitive energy
supplies and enhance the Company's profitability. These instruments
include: forwards, futures, and options contracts which commit the
Company to purchase or sell natural gas in the future, and swap
agreements which require counterparties to exchange fixed for floating
payments.
NUI Energy Brokers accounts for its risk management activities by
marking-to-market all trading positions and calculating its value-at-
risk on a daily basis. The values used for these calculations include
New York Mercantile Exchange (NYMEX) settlement prices, established
pricing models, and quoted market volatilities. The Company manages
their open positions within the guidelines of a Risk Management Policy
that limits its exposure to market risks and requires that among other
things, any breach of policy be reported to senior management.
Margin requirements for natural gas futures contracts are recorded in
other current assets. Profitable activity in NUI Energy Brokers'
NYMEX trading accounts during fiscal 2000 resulted in a net withdrawal
of $8.5 million from their broker accounts that was re-deposited with
NUI. Realized and unrealized gains and losses are recorded in the
consolidated statement of income under purchased gas and fuel. At
September 30, 2000, NUI Energy Brokers had purchased and sold futures
contracts totaling 31.8 Bcf of natural gas at prices ranging from
$2.197 to $5.650 per Mcf. None of these contracts extend beyond
December 2001. Their options positions consisted of 4,391 puts and
calls at varying strike prices, none of which extend beyond October
2001. During fiscal 2000, swap activity increased and at year-end the
mark-to-market value of all swaps was approximately $790,000. The
swap transactions have terms that extend through March 2001.
Additionally, NUI Energy Brokers had forward purchase and sale
commitments extending through Dec 2005. At September 30, 2000, these
transactions had an unrealized mark-to-market value of approximately
$4.3 million.
Net realized and unrealized gains on derivative trading for fiscal
2000 totaled $11.7 million, compared to $9.0 million in 1999, and has
been included in income.
The Company is exposed to credit risk in the event of default or non-
performance by one of its trading partners. The Company adheres to
credit policies that management believes minimize overall credit risk.
Other Financial Instruments. The fair value of the Company's cash
equivalents, funds for construction held by trustee and notes payable
to banks are approximately equivalent to their carrying value. The
carrying value of the Company's long-term debt exceeded its fair value
by approximately $4.1 million and $2 million as of September 30, 2000
and 1999, respectively. The fair value of long-term debt was estimated
based on quoted market prices for the same or similar issues.
9. Consolidated Taxes
The provision for Federal and State income taxes was comprised of the
following (in thousands):
2000 1999 1998
Currently payable -
Federal $ 8,865 $ 5,759 $ 6,747
State 3,465 4,265 2,166
Deferred -
Federal 5,297 7,454 357
State 945 139 (99)
Amortization of investment
tax credits (426) (459) (461)
-------- -------- --------
Total provision for income $18,146 $17,158 $ 8,710
======= ======= =======
The components of the Company's net deferred Federal tax liability
(asset) as of September 30, 2000 and 1999 are as follows (in
thousands):
2000 1999
Depreciation and other utility plant $60,482 $59,434
differences
Plant acquisition adjustments 9,130 9,627
Alternative minimum tax credit (1,494) (3,614)
Unamortized investment tax credit (1,972) (2,140)
Deferred charges and regulatory assets 4,249 3,948
Pension 9,012 4,723
Other (4,159) (2,027)
------- -------
$75,248 $69,951
======= =======
The alternative minimum tax credit can be carried forward indefinitely
to reduce the Company's future tax liability.
The Company's effective income tax rates differ from the statutory
Federal income tax rates due to the following (in thousands):
2000 1999 1998
Pre-tax income $44,893 $41,718 $21,024
------- ------- -------
Federal income taxes computed at
Federal statutory tax rate of 35
percent 15,713 14,601 7,358
Increase (reduction) resulting
from:
Excess of book over tax
depreciation 341 341 357
Amortization of investment
tax (426) (459) (461)
credits
Federal benefit of state tax
provision (1,544) (1,541) (723)
Other, net (348) (188) 112
------- ------- -------
Total provision for Federal 13,736 12,754 6,643
Provision for State income taxes 4,410 4,404 2,067
------- ------- -------
Total provision for income taxes $18,146 $17,158 $ 8,710
======= ======= =======
10. Retirement Benefits
Pension Benefits. The Company has non-contributory defined benefit
retirement plans which cover all of its employees other than the City
Gas of Florida union employees who participate in a union-sponsored
multi-employer plan. The Company funds its plans in accordance with
the requirements of the Employee Retirement Income Security Act of
1974 and makes contributions to the union sponsored plan in accordance
with its contractual obligations. Benefits paid under the Company's
plans are based on years of service and levels of compensation. The
Company's actuarial calculation of pension expense is based on the
projected unit cost method.
The changes in the pension benefit obligation for the Company's plans
were as follows (in thousands):
2000 1999
Benefit obligation at beginning of $80,845 $114,233
year
Service cost 1,991 2,446
Interest cost 6,029 6,281
Amendments --- 5,990
Actuarial (gain) loss (1,677) (9,603)
Benefits paid (5,885) (38,502)
------- --------
Benefit obligation at end of year $81,303 $80,845
======= ========
The change in the Company's plan assets were as follows (in
thousands):
2000 1999
Fair value of plan assets at
beginning of year $123,546 $140,975
Actual return on plan assets 13,611 21,073
Estimated expenses (16) ---
Benefits paid (5,885) (38,502)
-------- --------
Fair value of plan assets at
end of year $131,256 $123,546
======== =========
The reconciliation of the funded status of the Company's funded plans
as of September 30, 2000 and 1999 was as follows (in thousands):
2000 1999
Funded status $ 81,303 $ 80,845
Market value of plan assets 131,256 123,546
-------- --------
Plan assets in excess of
projected benefit obligation 49,953 42,701
Unrecognized net gain (28,711) (27,107)
Unrecognized prior service cost 3,018 3,361
Unrecognized net transition (488) (967)
asset
-------- --------
Pension prepayment $ 23,772 $ 17,988
======== ========
The projected benefit obligation was calculated using a discount rate
of 7.75 percent in fiscal 2000 and 7.50 percent in fiscal 1999, and an
assumed annual increase in compensation levels of 4 percent in fiscals
2000 and 1999. The expected long-term rate of return on assets was
calculated at 9.75 percent in both fiscal 2000 and fiscal 1999. The
assets of the Company's funded plans are invested primarily in
publicly traded fixed income and equity securities.
The components of pension expense for the Company's plans were as
follows (in thousands):
2000 1999 1998
Service cost $ 1,991 $ 2,446 $ 2,370
Interest cost 6,029 6,281 6,459
Estimated expenses 16 --- ---
Return on plan assets (12,351) (13,048) (13,111)
Net amortization and
deferral (1,469) (1,069) (2,407)
Special termination
benefits --- 1,799 7,301
Settlement gain --- (10,051) ---
-------- -------- --------
Pension (credit)
expense $(5,784) $(13,642) $ 612
======== ======== ========
Certain key employees also participate in an unfunded supplemental
retirement plan. The projected benefit obligation under this plan was
$4.9 million as of September 30, 2000, $6.5 million as of September
30, 1999, and $5.8 million as of September 30, 1998, and the expense
for this plan was approximately $0.6 million in fiscal 2000 and $0.7
million in fiscals 1999 and 1998.
Post-retirement Benefits Other Than Pensions. The Company provides
certain health care benefits to all retirees receiving benefits under
a Company pension plan other than the City Gas Company of Florida
plan, who reach retirement age while working for the Company.
The Company accounts for these plans under Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post-
retirement Benefits Other Than Pensions" (SFAS 106), which, among
other things, requires companies to accrue the expected cost of
providing other postretirement benefits to employees and their
beneficiaries during the years that eligible employees render the
necessary service. The Company currently funds these future benefits
through a Voluntary Employees Beneficiary Association.
Effective July 1, 2000, the Company no longer offers post-retirement
benefits other than pensions for any new hires. In addition, the
Company has capped its share of costs at $500 per participant, per
month for retirees under age 65, and at $150 per participant, per
month for retirees over age 65.
The changes in the post-retirement benefit obligation for the
Company's plans were as follows (in thousands):
2000 1999
Benefit obligation at beginning of year $29,247 $31,421
Service cost 770 1,243
Interest cost 2,062 2,087
Actuarial (gain) loss (395) (4,174)
Plan amendments (9,078) ---
Benefits paid (1,356) (1,345)
Other 15 15
------- -------
Benefit obligation at end of year $21,265 $29,247
======= =======
The change in the Company's plan assets were as follows (in
thousands):
2000 1999
Fair value of plan assets at beginning
of year $1,500 $ ---
Actual return on plan assets 119 ---
Employer contributions 1,341 2,830
Plan participants' contributions 15 15
Benefits paid (1,356) (1,345)
------ ------
Fair value of plan assets at end of
year $1,619 $1,500
====== ======
The reconciliation of the funded status of the Company's post-
retirement plans other than pensions as of September 30, 2000 and
1999, was as follows (in thousands):
2000 1999
Funded status $19,646 $27,747
Unrecognized transition obligation (23) (9,616)
Unrecognized net (loss) (3,125) (3,568)
------- -------
Accrued post-retirement benefit $16,498 $14,563
obligation
======= =======
The components of post-retirement benefit expense other than pensions
for the years ended September 30, 2000 and 1999, were as follows (in
thousands):
2000 1999 1998
Service cost $ 770 $1,242 $ 813
Interest cost 2,062 2,089 1,683
Amortization of 516 730 774
transition obligation
Other (72) 217 8
------ ------ ------
Net postretirement $3,276 $4,278 $3,278
expense
====== ====== ======
The health care trend rate assumption is 8.25 percent in 2001
gradually decreasing to 5 percent for the year 2005 and later. The
discount rate used to compute the accumulated post-retirement benefit
obligation was 7.75 percent in fiscal 2000 and 7.5 percent in fiscal
1999. An increase in the health care trend rate assumption by one
percentage point in all years would increase the accumulated post-
retirement benefit obligation by approximately $5.5 million and the
aggregate annual service and interest costs by approximately $0.9
million
On September 23, 1998, the New Jersey Board of Public Utilities
(NJBPU) issued an order approving the Company's petition to increase
its base rates in New Jersey by approximately $2.4 million annually to
recover post-retirement benefits computed under SFAS 106. The rate
increase was effective October 1, 1998 and allows for previously
deferred costs, as well as future SFAS 106 costs, to be recovered over
a rolling 15-year period. The Company has previously received an
order from the North Carolina Utilities Commission to include in rates
the amount of post-retirement benefit expense other than pensions
computed under SFAS 106.
The Company continually evaluates alternative ways to manage these
benefits and control their costs. Any changes in the plan or
revisions to assumptions that affect the amount of expected future
benefit may have a significant effect on the amount of the reported
obligation and expense.
11. 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 made by NUI
Energy Brokers on behalf of 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.
The following table provides information concerning the major segments
of the Company for each of the three fiscal years ended September 30,
2000, 1999 and 1998. Revenues and operating margins include
intersegment sales to affiliated entities, which are eliminated in
consolidation. Identifiable assets include only those attributable to
the operations of each segment. All of the Company's operations are
in the United States and therefore do not need separate disclosure by
geographic region. Certain reclassifications have been made to prior
year segment data to conform with the current year's presentation.
(Dollars in thousands) 2000 1999 1998
Revenues:
Distribution Services $409,840 $379,670 $390,657
Energy Sales & Services 554,031 462,415 427,300
Customer Services 29,565 15,925 15,354
Intersegment Revenues (58,793) (31,816) (7,048)
-------- -------- --------
Total Revenues $934,643 $826,194 $826,263
======== ======== ========
Operating Margins:
Distribution Services $170,285 $163,250 $158,357
Energy Sales & Services 17,767 13,319 5,441
Customer Services 6,776 5,175 5,259
------- -------- --------
Total Operating Margins $194,828 $181,744 $169,057
======== ======== ========
Pre-Tax Operating Income:
Distribution Services $ 52,355 $ 52,740 $ 53,048
Energy Sales & Services 8,963 6,585 (1,744)
Customer Services (241) (1,785) (1,618)
-------- -------- --------
Total Pre-Tax Operating
Income $ 61,077 $ 57,540 $ 49,686
======= ======= =======
Depreciation &
Amortization:
Distribution Services $ 24,106 $ 22,577 $ 20,904
Energy Sales & Services 246 238 243
Customer Services 2,325 2,140 2,221
-------- -------- --------
Total Depreciation &
Amortization $ 26,677 $ 24,955 $ 23,368
======= ======= =======
Identifiable Assets:
Distribution Services $750,196 $710,743 $678,776
Energy Sales & Services 76,718 70,220 39,849
Customer Services 25,341 14,976 14,866
------- ------- -------
Total Identifable Assets $852,255 $795,939 $733,491
Capitable Expenditures
Distribution Services $ 44,473 $ 39,471 $ 54,809
Energy Sales & Services 152 495 457
Customer Services 4,790 2,440 1,682
-------- -------- --------
Total Capital
Expenditures $ 49,415 $ 42,406 $ 56,948
======== ======== ========
A reconciliation of the Company's segment pre-tax operating income,
depreciation and amortization, identifiable assets and capital
expenditures to amounts reported on the consolidated financial
statements is as follows:
(Dollars in thousands) 2000 1999 1998
Segment Pre-Tax Operating
Income $ 61,077 $ 57,540 $ 49,686
Non-segment pre-tax operating
(loss) income (801) (1,407) (676)
Non-recurring items --- 3,954 (9,686)
-------- -------- --------
Operating income $ 60,276 $ 60,087 $ 39,324
======== ======== ========
Segment Depreciation &
Amortization $ 26,677 $ 24,955 $ 23,368
Non-segment depreciation &
amortization 2,831 1,984 1,584
-------- -------- --------
Depreciation & Amortization $ 29,508 $ 26,939 $ 24,952
======== ======== ========
Segment Identifiable Assets $852,255 $795,939 $733,491
Non-segment identifiable
assets 68,602 48,287 43,356
-------- -------- --------
Total Assets $920,857 $844,226 $776,847
======== ======== ========
Segment Capital Expenditures $ 49,415 $ 42,406 $ 56,948
Non-segment capital
expenditures 3,331 5,523 3,918
-------- -------- --------
Total Capital Expenditures $ 52,746 $ 47,929 $ 60,866
======== ======== ========
12. Commitments and Contingencies
Commitments. Capital expenditures are expected to be approximately $86
million in fiscal 2001. Included in this amount is approximately $33
million related to the expansion of pipeline and storage assets at
Virginia Gas Company (see Note 1-Notes Receivable).
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) and is currently 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. 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 probable
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.
The Company's prudently incurred remediation costs for the New Jersey
MGP sites have been authorized by the NJBPU to be recoverable in
rates. In New Jersey, the Company is currently recovering MGP-related
expenditures on an annual basis through base rates and 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 $2.5 million in environmental
costs incurred between July 1, 1998 and June 30, 2000 is currently
pending NJBPU approval. Accordingly, the Company has recorded a
regulatory asset of approximately $35 million as of September 30,
2000, reflecting the future recovery of both incurred costs and future
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 $68.6 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 2.7 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.
13. Unaudited Quarterly Financial Data
The quarterly financial data presented below reflects the seasonal
nature of the Company's operations which normally results in higher
earnings during the heating season, which is primarily in the first
two fiscal quarters. (in thousands, except per share amounts):
Fiscal Quarters
First Second Third Fourth
2000:
Operating Revenues $233,327 $279,411 $198,721 $223,184
Operating Income 18,329 35,159 6,932 (144)
Net Income (Loss) 7,637 17,717 1,464 (71)
Net Income (Loss) Per
Share 0.60 1.37 0.11 (0.01)
1999:
Operating Revenues $229,207 $254,051 $160,165 $182,771
Operating Income 17,339 34,887 8,335 (474)
Net Income (Loss) 6,918 17,762 2,424 (2,544)
Net Income (Loss) Per
Share 0.55 1.40 0.19 (0.20)
During the fourth quarter of fiscal 2000, the Company recorded an
after-tax non-recurring gain of $1.7 million ($2.8 million before
income taxes), or $0.13 per share.
During the second quarter of fiscal 1999, the Company recorded after-
tax non-recurring income and other non-recurring items totaling $1.3
million ($2.1 million before income taxes), or $0.10 per share (see
Note 3).
During the third quarter of fiscal 1999, the Company recorded after-
tax non-recurring income and other non-recurring items totaling $1.1
million ($1.9 million before income taxes), or $0.08 per share (see
Note 3).
Quarterly net income (loss) per share in fiscal 1999 does not total to
the annual amount due to rounding and to changes in the average common
shares outstanding.
<TABLE>
SCHEDULE II
NUI Corporation and Subsidiaries
Valuation and Qualifying Accounts
For each of the Three Years in the
Period Ended September 30, 2000
(Dollars in thousands)
<CAPTION>
Additions
Balance Charged to Balance
Beginning Costs and End of
Description of Period Expenses Other Deductions Period
<S> <C> <C> <C> <C> <C>
2000
Allowance for doubtful
accounts $ 1,697 $ 4,087 $1,622(a) $ 5,862(b) $ 1,544
Environmental
remediation reserve $33,981 --- --- 620 $33,361
1999
Allowance for doubtful
accounts $ 1,714 $ 1,832 $ 699(a) $ 2,514(b) $ 1,697
Environmental
remediation reserve $33,981 --- --- --- $33,981
Restructuring reserve $ 556 149 --- 705 $ 0
1998
Allowance for doubtful
accounts $ 2,318 $ 2,942 $ 224(a) $ 3,770(b) $ 1,714
Environmental
remediation reserve $33,981 --- --- --- $33,981
Restructuring reserve $ 0 1,008 --- 452 $ 556
(a) Recoveries
(b) Uncollectible amounts written off.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the Township of Bedminster, State of New Jersey, on the day of
December 22, 2000
NUI CORPORATION
By: JAMES R. VAN HORN
Chief Administrative Officer,
General Counsel and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
JOHN KEAN, JR. President, Chief December 22, 2000
Executive Officer and
Director (Principal
executive officer)
JOHN KEAN Chairman and Director December 22, 2000
A. MARK ABRAMOVIC Senior Vice President, December 22, 2000
Chief Operating Officer
and Chief Financial
Officer (Principal
financial and
accounting officer)
JAMES J. FORESE Director December 22, 2000
DR. VERA KING FARRIS Director December 22, 2000
J. RUSSELL HAWKINS Director December 22, 2000
BERNARD S. LEE Director December 22, 2000
R. V. WHISNAND Director December 22, 2000
JOHN WINTHROP Director December 22, 2000
</TABLE>
