SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended December 31, 1996 Commission File # 18353
NUI CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-1869941
(State of incorporation) (IRS employer identification no.)
550 Route 202-206, PO Box 760, Bedminster, New Jersey 07921-0760
(Address of principal executive offices, including zip code)
(908) 781-0500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
The number of shares outstanding of each of the registrant's
classes of common stock, as of January 31, 1996: Common Stock,
No Par Value: 11,217,112 shares outstanding.
NUI Corporation and Subsidiaries
Consolidated Statement of Income (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended Twelve Months
December 31, Ended
December 31,
1996 1995 1996 1995>
Operating Margins
Operating revenues $151,868 $124,767 $496,600 $395,550
Less - Purchased gas and fuel 94,501 68,304 294,320 203,608
franchise taxes 10,461 11,209 36,179 35,306
------- ------- ------- -------
46,906 45,254 166,101 156,636
------- ------- ------- -------
Other Operating Expenses
Operations and maintenance 25,011 22,828 96,533 90,010
Depreciation and amortization 5,780 5,613 21,457 20,367
Restructuring and other non- --- --- --- 7,134
recurring charges
Other taxes 2,197 1,869 8,456 7,762
Income taxes 3,151 3,535 7,423 4,431
------- ------- ------- -------
36,139 33,845 133,869 129,704
------- ------- ------- -------
Operating Income 10,767 11,409 32,232 26,932
Other Income and Expense, Net 534 82 1,012 429
Interest Expense 4,528 5,045 18,021 19,375
------- ------- ------- -------
Net Income $ 6,773 $6,446 $15,223 $ 7,986
======= ======= ======= =======
Net Income Per Share of Common $0.61 $0.70 $1.48 $0.87
Stock
======= ======= ======= =======
Dividends Per Share of Common $0.235 $0.225 $0.91 $0.90
Stock
======= ======= ======= =======
Weighted Average Number of
Shares of Common Stock
Outstanding 11,085,220 9,144,932 10,303,893 9,154,788
========== ========= ========== =========
See the notes to the consolidated financial statements.
NUI Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in thousands)
December 31, September 30,
1996 1996*)
(Unaudited)
ASSETS
Utility Plant
Utility plant, at original cost $641,152 $631,194
Accumulated depreciation and
amortization (206,066) (200,456)
Unamortized plant acquisition
adjustments 33,395 33,572
--------- ---------
468,481 464,310
--------- ---------
Funds for Construction Held by Trustee 41,255 44,652
--------- ---------
Investments in Marketable Securities 2,503 4,417
--------- ---------
Current Assets
Cash and cash equivalents 5,345 3,736
Accounts receivable (less allowance
for doubtful accounts of
$2,669 and $2,288, respectively) 83,717 43,589
Fuel inventories, at average cost 26,672 29,191
Unrecovered purchased gas costs 13,785 6,987
Prepayments and other 15,036 18,542
--------- --------
144,555 102,045
--------- --------
Other Assets
Regulatory assets 52,602 52,439
Deferred charges 9,771 9,799
-------- --------
62,373 62,238
--------- --------
$719,167 $677,662
======== =========
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $184,088 $179,107
Preferred stock --- ---
Long-term debt 230,100 230,100
--------- --------
414,188 409,207
--------- --------
Capital Lease Obligations 10,210 10,503
--------- --------
Current Liabilities
Current portion of long-term debt
and capital lease obligations 2,489 2,546
Notes payable to banks 76,325 54,895
Accounts payable, customer deposits
and accrued liabilities 78,408 66,372
Federal income and other taxes 5,574 2,947
--------- --------
162,796 126,760
--------- --------
Deferred Credits and Other Liabilities
Deferred Federal income taxes 59,658 59,328
Unamortized investment tax credits 6,519 6,635
Environmental remediation reserve 33,981 33,981
Regulatory and other liabilities 31,815 31,248
--------- --------
131,973 131,192
--------- --------
$ 719,167 $677,662
========= ========
*Derived from audited financial statements
See the notes to consolidated financial statements
NUI Corporation and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)
Three Months Ended Twelve Months
December 31, Ended
December 31,
1996 1995 1996 1995
Operating Activities
Net income $6,773 $ 6,446 $15,223 $ 7,986
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 6,671 5,821 23,165 21,480
Deferred Federal income taxes 471 1,135 6,905 2,601
Non-cash portion of
restructuring and other
non-recurring charges --- --- --- 4,285
Amortization of deferred
investment tax credits (116) (116) (467) (467)
Other 1,275 895 4,997 4,075
Effect of changes in:
Accounts receivable, net (40,129) (44,826) (8,674) (16,193)
Fuel inventories 2,519 7,412 (6,455) 2,771
Accounts payable, deposits
and accruals 12,036 5,156 15,190 4,577
Over (under) recovered
purchased gas costs (6,797) 625 (19,304) 607
Gross receipts and
franchise taxes 7,091 9,713 (1,079) (2,599)
Other (1,008) (1,220) (9,226) (147)
------ ------- ------ ------
Net cash (used in) provided
by operating activities (11,214) (8,959) 20,275 28,976
------ ------- ------ ------
Financing Activities
Proceeds from sales of common
stock, net of treasury
stock purchased 883 --- 32,254 (558)
Dividends to shareholders (2,620) (2,069) (9,251) (8,301)
Proceeds from issuance of long- --- --- 39,000 70,000
term debt
Funds for construction held by 4,076 178 (25,151) 5,490
trustee,net
Repayments of long-term debt --- (44) (30,094) (9,915)
Principal payments under capital (491) (581) (1,739) (1,905)
lease obligations
Net short-term borrowings 21,430 20,286 18,104 (52,129)
(repayments)
------ ------- ------ ------
Net cash provided by financing
activities 23,278 17,770 23,123 2,682
------ ------- ------ ------
Investing Activities
Cash expenditures for utility (10,277) (9,828) (37,502) (33,715)
plant
Proceeds from sales of marketable
securities 245 --- 1,513 1,199
Purchases of marketable securities --- --- (2,343) ---
Other (423) (385) (1,920) (1,721)
------ ------ ------ ------
Net cash used in investing
activities (10,455) (10,213) (40,252) (34,237)
------ ------ ------ ------
Net increase (decrease) in cash
and cash equivalents $1,609 $(1,402) $3,146 $(2,579)
====== ====== ====== ======
Cash and Cash Equivalents
At beginning of period $3,736 $3,601 $2,199 $4,778
At end of period 5,345 2,199 5,345 2,199
Supplemental Disclosures of Cash
Flows
Income taxes paid (refunds $ (547) --- $2,065 $1,968
received), net
Interest paid $5,518 $6,085 $18,087 $18,709
See the notes to the consolidated financial statements
NUI Corporation and Subsidiaries
Notes to the Consolidated Financial Statements
1.Basis of Presentation
The consolidated financial statements include all operating divisions
and subsidiaries of NUI Corporation (collectively referred to as the
"Company"). The Company distributes and sells natural gas and related
services in six states through its Northern and Southern utility
divisions. The Northern Division operates in New Jersey as
Elizabethtown Gas Company. The Southern Division operates in five
states as City Gas Company of Florida, North Carolina Gas Service,
Elkton Gas Service (Maryland), Valley Cities Gas Service
(Pennsylvania) and Waverly Gas Service (New York). In addition to gas
distribution operations, the Company provides retail gas sales and
related services through its NUI Energy Inc. subsidiary; wholesale
energy brokerage and related services through its NUI Energy Brokers,
Inc. subsidiary; and bill processing and related customer services for
utilities and municipalities through its Utility Business Services,
Inc. subsidiary.
The consolidated financial statements contained herein have been
prepared without audit in accordance with the rules and regulations of
the Securities and Exchange Commission and reflect all adjustments
which, in the opinion of management, are necessary for a fair
statement of the results for interim periods. All adjustments made
were of a normal recurring nature. The preparation of financial
statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. The consolidated financial statements should be read in
conjunction with the consolidated financial statements and the notes
thereto that are included in the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1996. Certain
reclassifications have been made to the prior year financial
statements to conform with the current year presentation.
The Company is subject to regulation as an operating utility by the
public utility commissions of the states in which it operates.
Because of the seasonal nature of gas utility operations, the results
for interim periods are not necessarily indicative of the results for
an entire year.
The Company utilizes natural gas futures contracts, none of which
extend beyond March 31, 1997, for the purpose of hedging the risks
associated with fluctuating prices on forward contracts for the
purchase and sale of natural gas. The Company's subsidiary, NUI Energy
Brokers, Inc., records unrealized gains and losses by marking to
market its various financial and forward commitments.
2.Common Shareholders' Equity
The components of common shareholders' equity were as follows (dollars
in thousands):
December 31, September 30,
1996 1996
Common stock, no par value $174,232 $171,968
Shares held in treasury (1,619) (1,564)
Retained earnings 14,271 10,117
Unrealized gain on marketable securities 79 389
Unearned employee compensation (2,875) (1,803)
-------- -------
Total common shareholders' equity $184,088 $179,107
======= =======
3. Contingencies
Environmental Matters. The Company is subject to federal and state
laws with respect to water, air quality, solid waste disposal and
employee health and safety matters, and to environmental regulations
issued by the United States Environmental Protection Agency (the
"EPA"), the New Jersey Department of Environmental Protection (the
"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. Coal tar residues are present on the six
MGP sites located in the Northern Division. The Company has reported
the presence of the six MGP sites to the EPA, the NJDEP and the New
Jersey Board of Public Utilities ("NJBPU"). In 1991, the NJDEP
issued an Administrative Consent Order for an MGP site located at
South Street in Elizabeth, New Jersey, wherein the Company agreed to
conduct a remedial investigation and to design and implement a
remediation plan. In 1992 and 1993, the Company entered into a
Memorandum of Agreement with the NJDEP for each of the other five
Northern Division MGP sites. Pursuant to the terms and conditions of
the Administrative Consent Order and the Memoranda of Agreement, the
Company is conducting remedial activities at all six sites with
oversight from the NJDEP.
The Southern Division owned ten former MGP facilities, only three of
which it currently owns. The former MGP sites are located in the
states of North Carolina, South Carolina, Pennsylvania, New York and
Maryland. The Company has joined with other North Carolina utilities
to form the North Carolina Manufactured Gas Plant Group (the "MGP
Group") The MGP Group has entered into a Memorandum of Understanding
with the North Carolina Department of Environment, Health and Natural
Resources ("NCDEHNR") to develop a uniform program and framework for
the investigation and remediation of MGP sites in North Carolina. The
Memorandum of Understanding contemplates that the actual investigation
and remediation of specific sites will be addressed pursuant to
Administrative Consent Orders between the NCDEHNR and the responsible
parties. The NCDEHNR has recently sought the investigation and
remediation of sites owned by members of the MGP Group and has entered
into Administrative Consent Orders with respect to four such sites.
None of these four sites are currently or were previously owned by the
Southern Division.
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 has been incurred and the
amount of the liability is reasonably estimable. Based on the
Company's most recent assessment, the Company has recorded a total
reserve for environmental investigation and remediation costs of
approximately $34 million, which the Company expects to expend during
the next twenty years. The reserve, which includes remediation costs
for seven of the Company's 16 MGP sites, is net of approximately $5
million which will be borne by a prior owner and operator of two of
the Northern Division sites in accordance with a cost sharing
agreement. Of this approximate $34 million reserve, approximately $30
million relates to Northern Division MGP sites and approximately $4
million relates to Southern Division MGP sites. The Company is not
able at this time to determine the requirement for remediation if
contamination is present at any of the other sites and, if present,
the costs associated with such remediation. The Company believes that
it is possible that costs associated with conducting investigative
activities and implementing remedial activities, if necessary, with
respect to all of its MGP sites may exceed the approximately $34
million reserve by an amount that could range up to $21 million and be
incurred during a future period of time that may range up to fifty
years. Of this $21 million in additional possible future
expenditures, approximately $10 million relates to the Northern
Division MGP sites and approximately $11 million relates to the
Southern Division MGP sites. As compared with the approximately $34
million reserve discussed above, the Company believes that it is less
likely that this additional $21 million will be incurred and therefore
has not recorded it on its books.
The Company believes that its remediation costs for the Northern
Division MGP sites will be recoverable in rates and that a portion of
such costs may be recoverable from the Company's insurance carriers.
The last base rate order for the Northern Division permits the Company
to utilize full deferred accounting for expenditures related to MGP
sites. The order also provides for the recovery of $130,000 annually
of MGP related expenditures incurred prior to the rate order.
Accordingly, the Company has recorded a regulatory asset of
approximately $33 million as of December 31, 1996, reflecting the
future recovery of environmental remediation liabilities related to
the Northern Division MGP sites. In July 1996, the NJBPU approved a
petition filed by the Northern Division to establish an MGP
Remediation Adjustment Clause ("RAC"). The RAC enables the Company
to recover actual MGP expenses over a rolling seven year period. On
September 3, 1996, the Company made its initial filing under the RAC
to begin recovery of $3.1 million of environmental costs incurred from
inception through June 30, 1996. A decision is expected shortly. With
respect to costs associated with the Southern Division MGP sites, 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.
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.
NUI Corporation and Subsidiaries
Summary Consolidated Operating Data
Three Months Twelve Months
Ended Ended
December 31, December 31,
1996 1995 1996 1995
Operating Revenues (Dollars
in thousands)
Firm Sales:
Residential $ 58,370 $ 56,609 $195,603 $179,382
Commercial 31,398 31,494 107,348 101,254
Industrial 5,945 5,656 25,610 19,898
Interruptible Sales 14,839 11,701 53,788 47,673
Unregulated Sales 30,850 9,958 75,737 15,750
Transportation Services 6,762 5,795 25,054 19,436
Customer Service, Appliance
Leasing and Other 3,704 3,554 14,460 12,157
------ ------- ------- -------
$151,868 $124,767 $496,600 $395,550
======= ======= ======= =======
Gas Sold or Transported (MMcf)
Firm Sales:
Residential 7,133 7,635 24,308 22,907
Commercial 4,433 5,128 15,880 16,216
Industrial 1,370 1,396 5,381 5,201
Interruptible Sales 3,708 3,755 14,585 17,636
Unregulated Sales 10,496 3,780 25,855 6,483
Transportation Services 6,501 7,316 24,236 24,522
------ ------- ------- -------
33,641 29,010 110,245 92,965
======= ======= ======== =======
Average Utility Customers
Served
Firm Sales:
Residential 334,437 331,411 333,143 329,485
Commercial 24,237 24,567 24,401 24,731
Industrial 314 351 328 386
Interruptible Sales 121 129 126 129
Transportation 1,174 454 849 263
------ -------- -------- -------
360,283 356,912 358,847 354,994
======= ======= ======== =======
Degree Days in New Jersey
Actual 1,746 1,886 5,203 4,867
Normal 1,725 1,725 4,978 4,978
Percentage variance from 1% 9% 5% 2%
normal colder colder colder warmer
Employees (period end) 1,109 1,071
Ratio of Earnings to Fixed
Charges (Twelve months only) 1.99 1.52
NUI Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis refers to all operating
divisions and subsidiaries of NUI Corporation (collectively referred
to as the "Company"). The Company distributes and sells natural gas
in six states through its Northern and Southern utility divisions. The
Northern Division operates in New Jersey as Elizabethtown Gas Company.
The Southern Division operates in five states as City Gas Company of
Florida, North Carolina Gas Service, Elkton Gas Service (Maryland),
Valley Cities Gas Service (Pennsylvania) and Waverly Gas Service (New
York). In addition to gas distribution operations, the Company
provides retail gas sales and related services through its NUI Energy
Inc. subsidiary; wholesale energy brokerage and related services
through its NUI Energy Brokers, Inc. subsidiary; and bill processing
and related customer services for utilities and municipalities through
its Utility Business Services, Inc. subsidiary. Because of the
seasonal nature of gas utility operations, the results for interim
periods are not necessarily indicative of the results for an entire
year.
Results of Operations
Three-Month Periods Ended December 31, 1996 and 1995
Net Income. Net income for the three-month period ended December 31,
1996 was $6.8 million, or $0.61 per share, as compared with net income
of $6.4 million, or $0.70 per share, for the three-month period ended
December 31, 1995. The increase in the current period was primarily
due to higher operating margins, higher other income and lower
interest expense, partially offset by higher operations and
maintenance expenses.
Net income per share in the current period was affected by the
increased number of outstanding shares of common stock over the prior
period, principally reflecting the Company's issuance of 1.8 million
additional shares in May 1996.
Operating Revenues and Operating Margins. The Company's operating
revenues include amounts billed for the cost of purchased gas pursuant
to purchased gas adjustment clauses. Such clauses enable the Company
to pass through to its customers, via periodic adjustments to
customers' bills, increased or decreased costs incurred by the Company
for purchased gas without affecting operating margins. Since the
Company's utility operations do not earn a profit on the sale of the
gas commodity, the Company's level of operating revenues is not
necessarily indicative of financial performance. The Company's
operating revenues increased by $27.1 million, or 22%, for the three-
month period ended December 31, 1996 as compared with the three-month
period ended December 31, 1995, principally due to an increase of
approximately $20.9 million in unregulated revenues due to greater
activity in these operations. Operating revenues also increased by the
effect of purchased gas adjustment clauses, increased revenues from
interruptible customers due to higher gas prices incurred, a base rate
increase in the Company's Florida service territory (see "Regulatory
Matters") and customer growth. These increases were partially offset
by the effect of weather in New Jersey that was 7% warmer than the
1995 period.
The Company's operating margins increased by $1.7 million, or 4%, for
the three-month period ended December 31, 1996 as compared with the
three-month period ended December 31, 1995. The increase principally
reflects higher margins on sales by the Company's unregulated
operations, including $0.8 million of net realized and unrealized
gains recognized on financial and forward commitments by NUI Energy
Brokers, Inc. (see Note 1 of the Notes to the Financial Statements).
Operating margins were also increased due to the effect of the rate
increase in Florida 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 these weather normalization
clauses, operating margins were approximately $0.2 million less in the
1996 period than they would have been without such clauses. In the
1995 period, operating margins were approximately $1.3 million less
than they otherwise would have been without such clauses.
Other Operating Expenses. The Company's other operating expenses,
excluding income taxes, increased by approximately $2.7 million, or
9%, for the three-month period ended December 31, 1996 as compared
with the three-month period ended December 31, 1995. The increase was
primarily the result of expenses incurred to consolidate two of the
Company's New Jersey service facilities and additional expenses
related to growth in the Company's unregulated operations. These
increases were partially offset by the reversal of certain reserves
which management determined to be no longer required.
Other Income and (Expense), Net. Other income and expense, net
increased approximately $0.5 million for the three-month period ended
December 31, 1996 as compared with the three-month period ended
December 31, 1995. The increase was principally due to a mark-to-
market gain on marketable securities of approximately $0.6 million
resulting from the transfer of certain investments in marketable
securities from available-for-sale to trading, as management expects
to sell such securities within the fiscal year.
Interest Expense. Interest expense decreased by approximately $0.5
million for the three-month period ended December 31, 1996 as compared
with the three-month period ended December 31, 1995. The decrease
principally reflects lower average long-term borrowings as a result of
the repayment of amounts outstanding under the Company's $30 million
credit agreement in May 1996. This decrease was partially offset by a
slight increase in short-term interest due primarily to higher levels
of outstanding borrowings.
Twelve-Month Periods Ended December 31, 1996 and 1995
Net Income. Net income for the twelve-month period ended December 31,
1996 was $15.2 million, or $1.48 per share, as compared with $8.0
million, or $0.87 per share, for the twelve-month period ended
December 31, 1995. The increase in the current period was primarily
due to higher operating margins, higher other income, lower interest
expense and approximately $4.6 million of after-tax non-recurring
charges incurred in the prior twelve-month period. These increases
were partially offset by higher operations and maintenance and
depreciation expenses.
Net income per share for the twelve-month period ended December 31,
1996 was also affected by the increased average number of outstanding
shares of NUI common stock as compared with the prior twelve-month
period, principally reflecting the Company's issuance of 1.8 million
additional shares in May 1996.
Operating Revenues and Operating Margins. The Company's operating
revenues for the twelve-month period ended December 31, 1996 increased
approximately $101.1 million, or 26%, as compared with the twelve-
month period ended December 31, 1995. The increase was principally due
to an increase in unregulated sales of approximately $60 million and
to the effect of weather in New Jersey that was 5% colder than normal
and 7% colder than the prior year period. Operating revenues also
increased due to refunds to Northern Division customers in the prior
year period totaling $16 million, the effects of purchased gas
adjustment clauses, increased customer service revenues, a base rate
increase in Florida and customer growth.
The Company's operating margins increased by approximately $9.5
million, or 6%, for the twelve-month period ended December 31, 1996 as
compared with the twelve-month period ended December 31, 1995. The
increase was principally the result of higher margins on sales by the
Company's unregulated operations, higher customer service revenues,
the base rate increase in Florida, increases in the number of
customers served and the effect of colder-than-normal weather not
fully returned to customers through the weather normalization clauses.
As a result of weather normalization clauses, operating margins were
approximately $1.0 million less than they would have been without such
clauses. For the twelve-month period ended December 31, 1995,
operating margins were $0.7 million higher than they would have been
without such clauses.
Other Operating Expenses. The Company's other operating expenses,
excluding income taxes, increased by approximately $1.2 million, or
1%, for the twelve-month period ended December 31, 1996 as compared
with the twelve-month period ended December 31, 1995. The increase was
primarily due to additional expenses related to the start-up and
growth of the Company's unregulated operations, higher costs incurred
as a result of colder weather in New Jersey and expenses incurred to
consolidate two of the Company's New Jersey service facilities. These
increases were partially offset by non-recurring pre-tax charges of
$7.1 million incurred in the prior year period related to an early
retirement program implemented in fiscal 1995 and the restructuring of
the Company's operations in Florida, and the reversal in the current
period of certain reserves which management determined to be no longer
required. Depreciation expense increased approximately $1.1 million in
the current period as compared to the prior period due to additional
plant in service.
Income taxes increased by $3.0 million for the twelve-month period
ended December 31, 1996 due to higher pre-tax income.
Other Income and Expense, Net. Other income and expense, net,
increased approximately $0.6 million for the twelve-month period ended
December 31, 1996 as compared with the 1995 period principally due to
a mark-to-market gain on marketable securities of approximately $0.6
million resulting from the transfer of certain investments in
marketable securities from available-for-sale to trading, as
management expects to sell such securities within the fiscal year.
Interest Expense. Interest expense decreased by $1.4 million, or 7%,
for the 1996 period as compared with the 1995 period primarily due to
lower levels of outstanding borrowings, and to approximately $0.6
million of interest recorded in the prior year period on the over-
collection of gas costs by the Northern Division.
Regulatory Matters
On December 4, 1996, the New Jersey Board of Public Utilities (the
"NJBPU") approved an interim order authorizing the Northern Division
to increase its annual purchased gas adjustment revenues by
approximately $22 million. The increase reflects the Company's
projection for higher gas prices in the coming year. On December 31,
1996, the Company filed for an additional increase in its purchased
gas adjustment revenues of approximately $14 million for the period
February 1997 through September 1997 reflecting a significant rise in
gas prices. The NJBPU is still reviewing the Company's request to
incorporate, in a two-year pilot program, a performance-based
mechanism whereby the Northern Division customers and the Company
would benefit from the Company's ability to secure gas at a cost more
favorable than a market index benchmark. The proposed performance
mechanism would provide a 50/50 sharing of risk and opportunity
between the Northern Division customers and the Company on the
difference between a monthly market benchmark and the actual cost of
purchased gas, up to $1 million annually. Action by the NJBPU on the
Company's request and final revenue increase is expected shortly.
On October 29, 1996, the Florida Public Service Commission (the
"FPSC") voted to authorize the Company to increase its base rates in
Florida by $3.75 million annually. The rate increase reflects a rate
base amounting to $91.9 million, reflecting the addition of
investments in system improvements and expansion projects. Under the
approval, the allowed return on equity is 11.3% with an overall after-
tax rate of return of 7.87%. The Company had been granted interim rate
relief of $2.2 million effective in September 1996. The permanent
increase, which was effective in December 1996, includes the interim
adjustment.
Financing Activities and Resources
The Company had a net use of cash from operating activities of $11.2
million for the three-month period ended December 31, 1996 as compared
with $9.0 million for the three-month period ended December 31, 1995.
The increase in net cash used in operating activities was primarily
due to an under-collection of gas costs through the Company's
purchased gas adjustment clauses and an increase in fuel inventory
both due to a significant rise in gas prices incurred. For the twelve-
month period ended December 31, 1996, the Company's net cash provided
by operating activities was $20.3 million as compared with $29.0
million in the prior year period. The decrease was mainly attributable
to the reasons discussed above for the three-month period.
Because the Company's business is highly seasonal, short-term debt is
used to meet seasonal working capital requirements. The Company also
borrows under its bank lines of credit to finance portions of its
capital expenditures, pending refinancing through the issuance of
equity or long-term indebtedness at a later date depending upon
prevailing market conditions.
Short-Term Debt. The weighted average daily amounts outstanding of
notes payable to banks and the weighted average interest rates on
those amounts were $65.2 million at 5.35% for the three-month period
ended December 31, 1996 and $51.8 million at 6.0% for the three-month
period ended December 31, 1995. The weighted average daily amounts of
notes payable to banks increased principally due to the under-
collection of gas costs through the Company's purchased gas adjustment
clauses as a result of significantly higher gas prices incurred and
due to additional borrowings to finance construction expenditures. At
December 31, 1996, the Company had outstanding notes payable to banks
amounting to $76.3 million and available unused lines of credit
amounting to $54.7 million. Notes payable to banks increased as of
December 31, 1996 as compared to the balance outstanding at September
30, 1996, due to seasonal borrowing requirements and to the under-
collection of gas costs as discussed above.
Long-Term Debt and Funds for Construction Held by Trustee. In November
1994, the Company filed a shelf registration statement with the
Securities and Exchange Commission for an aggregate of up to $100
million of debt and equity securities. As of December 31, 1996, the
Company has issued $70 million of Medium-Term Notes subject to the
shelf registration statement. While the Company has no present
intention to issue additional securities subject to the shelf
registration, such securities may be issued from time to time,
depending upon the Company's needs and prevailing market conditions.
The Company expects to refinance approximately $55 million of its Gas
Facilities Revenue Bonds in fiscal 1997.
The Company deposits in trust the unexpended portion of the net
proceeds from its Gas Facilities Revenue Bonds until drawn upon for
eligible expenditures. As of December 31, 1996, the total unexpended
portions of all of the Company's Gas Facilities Revenue Bonds were
$38.5 million and are classified on the Company's consolidated balance
sheet, including interest earned thereon, as funds for construction
held by trustee.
Common Stock. The Company periodically issues shares of common stock
in connection with NUI Direct, the Company's dividend reinvestment and
stock purchase plan, and various employee benefit plans. The proceeds
from such issuances amounted to approximately $0.9 million during the
three-month period ended December 31, 1996, and were used primarily to
reduce outstanding short-term debt. There were no proceeds during the
three-month period ended December 31, 1995 as the Company purchased
shares on the open market to fulfill the plans' requirements at that
time. 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.
Dividends. On October 29, 1996, the Company increased its quarterly
dividend to $0.235 per share of common stock. The previous quarterly
rate was $0.225 per share of common stock.
Capital Expenditures and Commitments
Capital expenditures, which consist primarily of expenditures to
expand and upgrade the Company's gas distribution systems, were $10.3
million for the three-month period ended December 31, 1996 as compared
with $9.2 million for the three-month period ended December 31, 1995.
Capital expenditures are expected to be approximately $57 million for
all of fiscal 1997, as compared with a total of $37.1 million in
fiscal 1996. The increase over fiscal 1996 is primarily the result of
planned capital investment related to providing gas or transportation
service to new customers, which is mainly expected to occur in the
Company's Southern Division.
The Company owns or previously owned six former manufactured gas plant
("MGP") sites in the Northern Division and ten MGP sites in the
Southern Division. The Company, with the aid of environmental
consultants, regularly assesses the potential future costs associated
with conducting 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 has been incurred and the amount of
the liability is reasonably estimable. Based on the Company's most
recent assessment, the Company has recorded a total reserve for
environmental investigation and remediation costs of approximately $34
million, which the Company expects it will expend in the next twenty
years to remediate seven of the Company's 16 MGP sites. Of this
reserve, approximately $30 million relates to Northern Division MGP
sites and approximately $4 million relates to Southern Division MGP
sites. In addition to these costs, the Company believes that it is
possible that costs associated with conducting investigative
activities and implementing remedial actions, if necessary, with
respect to all of its MGP sites may exceed the approximately $34
million reserve by an amount that could range up to $21 million and be
incurred during a future period of time that may range up to fifty
years. Of this $21 million in possible future expenditures,
approximately $10 million relates to the Northern Division MGP sites
and approximately $11 million relates to the Southern Division MGP
sites. As compared with the approximately $34 million reserve
discussed above, the Company believes that it is less likely that this
additional $21 million will be incurred and therefore has not recorded
it on its books. The Company believes that all costs associated with
the Northern Division MGP sites will be recoverable in rates or from
insurance carriers. In July 1996, the NJBPU approved a petition filed
by the Northern Division to establish an MGP Remediation Adjustment
Clause ("RAC"). The RAC enables the Company to recover actual MGP
expenses over a rolling seven year period. On September 3, 1996, the
Company made its initial filing under the RAC to begin recovery of
$3.1 million of environmental costs incurred from inception through
June 30, 1996. A decision is expected shortly. With respect to costs
which may be associated with the Southern Division MGP sites, 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 related to the Southern Division MGP
sites will ultimately be successful. For a further discussion of
environmental matters, see Note 3 of the Notes to the Consolidated
Financial Statements.
Certain of the Company's long-term contracts for the supply, storage
and delivery of natural gas include fixed charges that amount to
approximately $75 million annually. The Company currently recovers,
and expects to continue to recover, such fixed charges through its
purchased gas adjustment clauses. The Company also is committed to
purchase, at market-related prices, minimum quantities of gas that, in
the aggregate, are approximately 10 billion cubic feet per year or to
pay certain costs in the event the minimum quantities are not taken.
The Company expects that minimum demand on its systems for the
duration of these contracts will continue to exceed these minimum
purchase obligations.
The implementation of the Federal Energy Regulatory Commission's
("FERC") Order No. 636 required the restructuring of the Company's
contracts with certain pipeline companies that together supply less
than one-third of the Company's total firm gas supply. Under Order No.
636 the pipeline companies are passing through to their customers
transition costs associated with mandated restructuring, such as costs
resulting from buying out unmarketable gas purchase contracts. The
Company has been charged approximately $11 million of such costs
through December 31, 1996. All of such costs, except for costs
incurred by the Company's Pennsylvania operation, have been authorized
for recovery through the Company's purchased gas adjustment clauses.
The Company has filed for and expects full recovery of such costs in
Pennsylvania, as well. A settlement is expected soon. The Company
currently estimates that its remaining Order No. 636 transition
obligation will be approximately $7 million, which it expects also to
recover through its purchased gas adjustment clauses as these costs
are incurred. This transition obligation is subject to possible
future FERC actions based upon filings by the Company's pipeline
suppliers.
The Company prepaid approximately $1 million of long-term debt,
without penalty, associated with its Employee Stock Ownership Plan in
January 1997. No other long-term debt is scheduled to be repaid over
the next five years.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit
No. Description of Exhibit Reference
27 Financial Data Schedule Filed herewith
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NUI CORPORATION
JOHN KEAN, JR.
February 14, 1997 President and Chief
Executive Officer
STEPHEN M. LIASKOS
February 14, 1997 Vice President and
Controller (Principal
Financial and Accounting
Officer)