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, 1997
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 11,049,105 shares of common stock held
by non-affiliates of the registrant calculated using the $24.625 per
share closing price on November 28, 1997 was $272,084,211.
The number of shares outstanding for each of the registrant's classes
of common stock, as of November 28, 1997:
Common Stock, No Par Value: 12,455,176 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 23,
1997.
NUI Corporation
Annual Report on Form 10-K For The
Fiscal Year Ended September 30, 1997
TABLE OF CONTENTS
PART I
Page
Item 1. Business................................................1
Item 2. Properties..............................................9
Item 3. Legal Proceedings.......................................9
Item 4. Submission of Matters to a Vote of Security Holders.....9
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters...........................10
Item 6. Selected Financial Data................................11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................13
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, 1997
PART I
Item 1. Business
NUI Corporation ("NUI" or the "Company") was incorporated in New
Jersey in 1969. NUI is a multi-state energy sales, services and
distribution company. The Company's natural gas utility distribution
operations serve approximately 362,000 customers in six states through
its Northern and Southern operating divisions. These operating
divisions are regulated by the public utility commissions of the
states in which it operates. 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, Elkton
Gas (Maryland), Valley Cities Gas (Pennsylvania) and Waverly Gas (New
York). The Company also provides retail gas sales and related services
through it's NUI Energy, Inc. subsidiary; wholesale energy brokerage
and related services through its NUI Energy Brokers, Inc. subsidiary;
customer information systems and services through its Utility Business
Services, Inc. subsidiary; environmental project development
operations through its NUI Environmental Group, Inc. subsidiary; and
sales and marketing outsourcing through its 49% equity interest in TIC
Enterprises, LLC (see Note 2 of the Notes to the Consolidated
Financial Statements).
The principal executive offices of the Company are located at
550 Route 202-206, Box 760, Bedminster, NJ 07921-0760; telephone:
(908) 781-0500.
Territory and Customers Served
See 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
utility customers served. The Company's primary business is its
utility operations which serve approximately 362,000 customers, of
which approximately 67% are in New Jersey and 33% are in the Southern
Division states. Most of the Company's utility customers are
residential and commercial customers that purchase gas primarily for
space heating. The Company's operating revenues for fiscal 1997
amounted to approximately $609 million, of which approximately 52% was
generated by utility operations in the Northern Division, 18% was
generated by utility operations in the Southern Division states and
30% by the Company's unregulated activities. Gas volumes sold or
transported in fiscal 1997 amounted to 148.2 million Mcf, of which
approximately 46% was sold or transported in New Jersey, 12% was sold
or transported in the Southern Division states and 42% represented
unregulated sales. An Mcf is a basic unit of measurement for natural
gas comprising 1,000 cubic feet of gas.
Natural Gas Utility Operations
Northern Division The Company, through its Northern Division, provides
gas service to approximately 241,000 customers in franchised
territories within seven counties in central and northwestern New
Jersey. The Northern Division's 1,300 square-mile service territory
has a total population of approximately 950,000. Most of the Northern
Division'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.
The Northern Division's gas volumes sold or transported and customers
served for the past three fiscal years were as follows:
Gas Volumes Sold or Transported
(in thousands of Mcf)
1997 1996 1995
Firm Sales:
Residential 19,485 20,862 17,855
Commercial 9,333 11,337 10,275
Industrial 4,085 4,709 4,595
Interruptible Sales 12,886 11,885 15,440
Unregulated Sales 14,753 7,062 1,044
Transportation Sales 22,510 19,793 17,202
------ ------ ------
Total 83,052 75,648 66,411
====== ====== ======
Utility Customers Served (twelve-month average)
1997 1996 1995
Firm Sales:
Residential - Heating 165,305 162,156 159,164
Residential - Non-heating 57,380 58,558 59,586
Commercial 16,922 17,232 17,359
Industrial 262 291 387
Interruptible Sales 72 72 75
Transportation Services 1,373 600 130
------- ------- -------
Total 241,314 238,909 236,701
======= ======= =======
Gas volumes sold to the Company's firm customers are sensitive to the
weather in New Jersey. In fiscal 1997, the weather in New Jersey, as
reported by the National Oceanic and Atmospheric Administration
(NOAA), was very close to normal and 7% warmer than the prior year
thereby decreasing gas sales as compared to 1996. However, these
comparisons were distorted by new temperature measurement equipment
installed by NOAA in late 1996. Data indicates that this new equipment
records colder temperatures then the equipment it replaced. Hence, it
is likely that weather in fiscal 1997 was actually warmer than normal
and more than 7% warmer than 1996. Weather in fiscal 1996 contributed
to higher gas sales as compared with fiscal 1995, as the weather was
7% colder than normal and 23% colder than fiscal 1995.
The Northern Division'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 a stipulation approved by the New Jersey Board
of Public Utilities (NJBPU) on October 22, 1997, the company increased
the amount collectible under this clause by $1.3 in fiscal 1997 to
consider the distortion caused by the change in temperature
measurement equipment. An adjustment factor was also established for
fiscal 1998. For a further discussion on variations in revenues, see
Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
The growth in the number of residential heating customers principally
reflects the Company's marketing emphasis to convert residential non-
heating customers to full gas heating service. Approximately 70% of
the residential heating customers added in New Jersey since 1991
represented homes that were converted to gas heating from other forms
of space heating and the remainder consisted of new homes.
Effective January 1, 1995, the NJBPU authorized new tariffs designed
to provide for the unbundling of natural gas transportation and sales
service to commercial and industrial customers. As of September 30,
1997, 1,840 commercial sales customers had switched to transportation-
only service under the new tariff. Despite the transfer to
transportation service, the commercial sales market continues to grow.
In fiscal 1997, 39 schools and 887 businesses converted to gas heating
systems with the Company or switched from interruptible service to
commercial firm service. The Company also has an economic development
program to help spur economic growth and jobs creation which provides
grants and reduced rates for qualifying businesses that start up,
relocate or expand within designated areas.
The Company's industrial customers also have the ability to switch to
transportation service and purchase their gas from other suppliers.
The rate charged to transportation customers is less than the rate
charged to firm industrial and commercial sales customers because the
transportation customer rate does not include any cost of gas
component. However, the operating margins from both rates are
substantially the same.
The Northern Division'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. This percentage was changed, effective May 12, 1997
from 90% of sales margins and 95% of transportation margins.
The Company provides gas sales and transportation services comprising
twenty percent of the primary fuel requirements of a 614 megawatt
cogeneration facility that began commercial operation in New Jersey in
July 1992 to supply electric power to New York City. In fiscal 1997,
sales and transportation of gas to this customer accounted for
approximately 8% of the Company's operating revenues and approximately
9% of total gas sold or transported. The Company was authorized by the
NJBPU to retain a total of approximately $2.3 million of the operating
margins realized from these sales. The Company reached this maximum
during fiscal 1995 and, therefore, all margins realized from the sale
of gas to this customer in fiscal 1997 and 1996 were used to reduce
gas costs charged to firm customers.
In order to maximize the value of the Company's gas supply portfolio,
in fiscal 1995 the Company began selling available gas supply and
excess interstate pipeline capacity to other gas service companies and
to customers located outside of the Company's service territories. The
price of gas sold to these customers is not regulated by the NJBPU,
however the NJBPU has authorized the Company to retain 20% of the
margins realized from these sales. The remaining 80% of these margins
is used to reduce gas costs charged to firm customers.
Southern Division
City Gas Company of Florida ("CGF"). CGF is the second largest
natural gas utility in Florida, supplying gas to over 97,000 customers
in Dade and Broward Counties in south Florida, and in Brevard, Indian
River and St. Lucie Counties in central Florida. CGF's service areas
cover approximately 3,000 square miles and have a population of
approximately 1.7 million.
CGF's gas volumes sold or transported and customers served for the
past three fiscal years were as follows:
Gas Volumes Sold or Transported
(in thousands of Mcf)
1997 1996 1995
Firm Sales:
Residential 1,850 2,130 1,982
Commercial 3,944 4,096 4,198
Interruptible Sales 1,162 1,259 1,533
Unregulated Sales 4,124 1,779 --
Transportation Sales 2,277 908 1,313
------ ------ -----
Total 13,357 10,172 9,026
====== ====== =====
Utility Customers Served (twelve-month average)
1997 1996 1995
Firm Sales:
Residential 92,724 92,179 90,960
Commercial 4,706 4,629 4,615
Interruptible Sales 16 19 20
Transportation
Services 51 36 24
------ ------ ------
Total 97,497 96,863 95,619
====== ====== ======
CGF's 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.
The rate of residential market growth was lower in fiscal 1997 as
compared with fiscal 1996, as build-out commitments from prior year
expansions in the south Florida service areas were concluded. Through
the application of selective investment feasibility standards, CGF is
focusing its principal new residential growth efforts in its central
Florida markets. The volume from the residential market in fiscal 1996
benefited from cooler weather than experienced in fiscal 1997 and in
fiscal 1995. Effective in April 1997, CGF increased the rates it
charges residential customers under its appliance leasing programs,
generating approximately $150,000 per month in additional unregulated
margins.
CGF's 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.
CGF's industrial customers and certain commercial customers, are
served under tariffs applicable to "interruptible" customers. Unlike
the Company's Northern Division, CGF's interruptible customers do not
generally have alternative energy sources, although their service is
on an "as available" basis. The Company retains all of the operating
margins from sales to these customers.
Certain commercial and industrial customers have converted their
natural gas service from a sales basis to a transportation basis.
CGF's 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 CGF's 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.
During fiscal 1996, the Company began selling available gas supply and
excess interstate pipeline capacity to other gas service companies and
to customers located outside of the Company's service territories. The
price of gas sold to these customers is not regulated by the FPSC;
however, the FPSC has ordered that 50% of the margins realized from
these sales be used to reduce gas costs charged to firm customers.
North Carolina Gas Service ("NCGS"). The Company, through NCGS,
provides gas service to approximately 13,400 customers in Rockingham
and Stokes Counties in North Carolina, which territories comprise
approximately 560 square miles. During fiscal 1997, NCGS sold or
transported approximately 4.3 million Mcf of gas as follows: 20% sold
to residential customers, 11% sold to commercial customers, 30% sold
to industrial customers on system, 16% sold to industrial customers
through unregulated off-system sales, and 23% transported to
commercial and industrial customers. The North Carolina Public
Utilities Commission has ordered that 75% of margins realized from
off-system sales be used to reduce gas costs charged to firm
customers.
Elkton Gas Service ("Elkton"). The Company, through Elkton, provides
gas service to approximately 3,500 customers in franchised territories
comprising approximately 14 square miles within Cecil County,
Maryland. During fiscal 1997, Elkton sold approximately 660,000 Mcf of
gas as follows: 30% sold to residential customers, 28% sold to
commercial customers and 42% sold to industrial customers.
Valley Cities Gas Service ("VCGS") and Waverly Gas Service ("WGS").
VCGS and WGS provide gas service to approximately 6,100 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 1997, VCGS and WGS sold
or transported approximately 3.9 million Mcf of gas as follows: 15%
sold to residential customers, 8% sold to commercial customers, 5%
sold to industrial customers on system, 8% sold to industrial
customers through unregulated sales off-system, and 64% transported
to commercial and industrial customers.
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 during fiscal 1997 came from the following
sources: approximately 18% from purchases under contracts with primary
pipeline suppliers and additional purchases under their filed tariffs;
approximately 82% from purchases from various producers and gas
marketers, and purchases under long-term contracts with independent
producers and less than 1% from propane and liquefied natural gas
("LNG"). 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 1997, the Company's largest single supplier
accounted for 11% 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
delivery, on a firm year-round basis, of up to 92.2 million Mcf of
natural gas annually with a maximum of approximately 273,000 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 eight suppliers, including two
interstate pipeline companies, three gas marketers and three
independent producers. The Company also has a long-term supply and
delivery contract with an interstate pipeline. Under these contracts,
the Company has a right to purchase, on a firm year-round basis, up to
36.9 million Mcf of natural gas annually with a maximum of
approximately 101,170 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 both spot market
gas and shorter-term, seasonal firm supply, thus reducing the average
term of its long-term 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 15.4 million Mcf of natural gas storage capacity and provide the
Company with the right to receive a maximum daily quantity of 176,100
Mcf. The contracts with cogeneration customers provide 35,800 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's peak load facilities in New Jersey include a propane-air
plant with a daily production capacity of 27,400 Mcf, fixed propane
storage totaling 674,000 gallons and rail car sidings capable of
storing an additional 300,000 gallons. The Company has an LNG storage
and vaporization facility with a daily delivery capacity of 24,300 Mcf
and storage capacity of 131,000 Mcf.
The Company's maximum daily sendout in fiscal 1997 was approximately
368,371 Mcf in its Northern Division and 87,717 Mcf in the Southern
Division states combined. The Company maintains sufficient gas supply
and delivery capacity for a maximum daily sendout capacity for the
Northern Division of approximately 398,643 Mcf and approximately
119,800 Mcf for the Southern Division states 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 $71 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. In certain of these contracts, the Company has
recently negotiated terms with its suppliers which will allow the
Company to reduce its commitment to its suppliers in connection with
changes in the Company's markets that may result from further
unbundling initiatives.
The Company distributes gas through approximately 6,000 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 the Northern Division. 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 its Northern Division
reflect a rate case that was settled in October 1991, under which the
Company obtained a weather normalization clause - see "Northern
Division". In December 1994, the NJBPU authorized new tariffs which
are designed to provide for unbundling of natural gas transportation
and sales services for Northern Division 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.
The current rates and tariffs for the Florida operations were
authorized on October 29, 1996. The FPSC voted to authorize the
Company to increase its base rates in Florida by $3.75 million
annually. The rate increase reflected a rate base amounting to $91.9
million, which includes 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 increase became effective on November 28, 1996. The FPSC
order also gives the Company the flexibility to negotiate rates with
certain business customers that have access to other energy sources.
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.
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.
Unregulated Operations
NUI Energy, Inc. (Energy) was formed by the Company in fiscal 1995 to
market gas service to unbundled retail commercial and industrial
customers. Energy's operating margins have increased to $2.4 million
in fiscal 1997 as compared with $1.1 million in fiscal 1996 and $0.3
million in fiscal 1995, reflecting the Company's growth efforts.
However, expenses related to this start-up operation has resulted in
net losses in all three fiscal years. It is expected that Energy will
be profitable in fiscal 1998, as the Company will continue to take
advantage of opportunities that exist in the deregulated market.
NUI Energy Brokers, Inc. (Energy Brokers) was formed by the Company in
fiscal 1996 to provide wholesale energy trading and related services,
primarily to other utilities and energy marketing companies. Energy
Brokers generated margins of $3.6 million in fiscal 1997 as compared
with $1.6 million in fiscal 1996. Energy Brokers minimizes its risks
in this business by limiting its financial and physical positions at
any one time. 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 Energy
Brokers are likely to be more volatile than the Company's utility
distribution business.
Utility Business Services, Inc. (UBS) provides billing and customer
information systems and services to investor-owned and municipal
utilities as well as third-party energy providers. WINS, the premiere
account management product developed and maintained by UBS, is
presently serving almost 20 clients with state-of-the-art computing
capabilities in support of almost 600,000 customers. In addition to
generating over 3 million bills each year, UBS assists clients in
allied areas, such as automatic meter reading, payment processing, and
account recovery.
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. To this end, NUI Environmental plans to
jointly develop a permanent sediment processing facility to
decontaminate and process the dredged sediment, thereby providing
environmentally safe disposal or beneficial reuse of the material.
Towards this effort, NUI Environmental has signed a Memorandum of
Understanding with the Department of Energy/Brookhaven National
Laboratories, which leading the decontamination effort on behalf of a
Federal consortium of the Environmental Protection Agency, Army Corps.
of Engineers and Department of Energy which are working towards a
solution to the dredging problem. It is expected that NUI
Environmental will receive public financing to design, construct and
operate the facility in partnership with governmental or public
entities. It is anticipated that phase one operations could begin in
late fiscal 1998.
On May 18, 1997, the Company closed on its acquisition of a 49%
interest in TIC Enterprises, LLC (TIC), a newly formed 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, including
the Company's subsidiary, Energy (see Note 2 of the Notes to the
Consolidated Financial Statements).
Persons Employed
As of September 30, 1997, the Company employed 1,126 persons, of which
291 employees in the Northern Division were represented by the Utility
Workers Union of America (Local 424), 73 employees in Florida and 17
employees in Pennsylvania were represented by The Teamsters Union,
and 44 employees in North Carolina were represented by the
International Brotherhood of Electrical Workers. The current
collective bargaining agreement with the Northern Division's union was
negotiated effective November 20, 1994 and expires on November 20,
1998. The North Carolina union collective bargaining agreement was
negotiated on August 20, 1995, and expires on August 20, 1998. The
collective bargaining agreement in Pennsylvania was negotiated on
November 30, 1997 and expires on September 30, 1999. The collective
bargaining agreement in Florida expires on March 31, 1998.
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", New Jersey has 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.
The Company believes that in order to compete effectively, it must
offer a greater variety of services at competitive prices. See Item 7
- "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Competition and Outlook" for a discussion of
the Company's preparation for the impact of increased competition.
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.
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.
Year 2000
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not
corrected, many computer applications could fail or create erroneous
results by or at the Year 2000. The Company has undertaken a systems
readiness program which is designed to mitigate the risks associated
with the Year 2000 issue. This program involves an analysis of
systems to determine those that are not presently Year 2000 compliant,
the establishment of a plan to either modify or replace those systems
and the modification and procurement of systems to make them Year 2000
compliant. Although the Company is endeavoring to ensure that the
Year 2000 readiness program is comprehensive, it can make no assurance
that the program will address all Year 2000 compliance issues in a timely
manner. The Company identified, replaced and modified many of these
systems during fiscal year 1997 and currently estimates that the
its remaining cost of the Year 2000 systems readiness program will be
approximately 2 million, of which approximately $0.7 million
is anticipated to be spent in fiscal 1998.
Item 2. Properties
The Company owns approximately 6,000 mile 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 an 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 owned properties include a general
office building in Hialeah, Florida, that serves as the Southern
Division's headquarters; another office facility in Rockledge,
Florida; and office buildings in both Reidsville, North Carolina and
Sayre, Pennsylvania, which 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 160,000
square feet in an office building in Union, New Jersey, which serves
as the Northern Division's headquarters.
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 1997
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 high and low closing prices per share of NUI common stock
for the two years ended September 30, 1997 were as follows:
Quarterly
Cash Price Range
Dividend High Low
Fiscal 1997:
First Quarter $0.235 $23.500 $18.875
Second Quarter 0.235 23.625 19.250
Third Quarter 0.235 22.500 19.000
Fourth Quarter 0.235 24.813 19.750
Fiscal 1996:
First Quarter $0.225 $17.750 $15.750
Second Quarter 0.225 19.250 17.125
Third Quarter 0.225 20.000 16.750
Fourth Quarter 0.225 20.000 16.500
There were 6,768 shareholders of record of NUI common stock at
November 28, 1997.
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. On November 6, 1997, the Company increased its
quarterly dividend to $0.245 per share of common stock. The previous
quarterly rate was $0.235 per share of common stock.
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 $37
million of cash dividends at September 30, 1997.
Item 6. Selected Financial Data
Selected Consolidated Financial Data
(in thousands, except per share amounts)
Fiscal Years Ended September 30,
1997 1996 1995 1994 1993
Operating Revenues $608,596 $469,596 $376,884 $405,240 $367,456
Net Income $ 19,649 $ 14,896 $ 5,517 $ 10,789 $ 13,810
Net Income Per Share $1.75 $1.52 $0.60 $1.25 $1.70
Dividends Paid Per Share $0.94 $0.90 $0.90 $1.60 $1.59
Total Assets $803,665 $677,662 $610,165 $601,648 $483,911
Capital Lease
Obligations $ 9,679 $ 10,503 $ 11,114 $ 11,932 $ 12,290
Long-Term Debt $229,069 $230,100 $222,060 $160,928 $142,090
Common Shareholders'
Equity $218,291 $179,107 $140,912 $142,768 $122,384
Common Shares
Outstanding 12,429 11,086 9,201 9,157 8,201
_________________________
Notes to the Selected Consolidated Financial Data:
Net Income for fiscal 1995 includes restructuring and other non-
recurring charges amounting to $5.6 million (after tax), or $0.61 per
share.
Net income for fiscal 1994 includes the reversal of $1.8 million of
income tax reserves and restructuring and other non-recurring charges
amounting to $0.6 million (after tax). The effect of these items
increased net income by $1.2 million, or $0.14 per share.
Summary Consolidated Operating Data
Fiscal Years Ended September 30,
1997 1996 1995 1994 1993
Operating Revenues
(Dollars in thousands)
Firm Sales:
Residential $201,757 $194,332 $173,395 $191,297 $172,749
Commercial 106,234 107,067 98,541 110,574 97,966
Industrial 23,263 25,321 20,083 25,809 23,066
Interruptible Sales 55,844 50,539 48,282 53,077 48,254
Unregulated Sales 177,881 55,678 7,498 1,426 1,757
Transportation Services 28,617 23,085 17,696 13,273 12,154
Customer Service,
Appliance
Leasing and Other 15,000 13,477 11,389 9,784 11,510
------ ------ ------ ----- ------
$608,596 $469,499 $376,884 $405,240 $367,456
======= ======= ======= ======= =======
Gas Sold or Transported
(MMcf)
Firm Sales:
Residential 22,956 24,810 21,276 22,558 21,019
Commercial 14,254 16,575 15,455 16,175 14,918
Industrial 4,819 5,407 5,217 5,323 4,781
Interruptible Sales 15,074 16,003 18,365 16,024 13,627
Unregulated Sales 62,819 17,804 3,398 689 904
Transportation Services 28,294 25,051 22,154 17,290 16,439
------ ------ ------ ------ ------
148,216 105,650 85,865 78,059 71,688
======= ======= ====== ====== ======
Average Utility Customers
Served
Firm Sales:
Residential 335,632 332,440 328,644 312,515 297,384
Commercial 24,312 24,484 24,519 22,638 20,995
Industrial 306 338 430 382 377
Interruptible Sales 121 120 118 101 105
Transportation Services 1,460 668 184 137 87
------- ------- ------- ------- -------
361,831 358,050 353,895 335,773 318,948
======= ======= ======= ======= =======
Degree Days in New Jersey
(normal: 4978) 4,772 5,343 4,333 4,944 4,703
Employees (year end) 1,126 1,086 1,079 1,186 1,011
Ratio of Earnings to
Fixed Charges 2.15 2.00 1.37 1.66 2.15
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 of its operating divisions and subsidiaries (collectively referred
to as the "Company"). The Company is a multi-state energy sales,
services and distribution company. Its natural gas utility operations
distribute natural gas and provide related customer 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, Elkton Gas (Maryland), Valley Cities Gas
(Pennsylvania) and Waverly Gas (New York). The Company also provides
retail gas sales and related services through its NUI Energy, Inc.
subsidiary ("Energy"); wholesale energy brokerage and related services
through its NUI Energy Brokers, Inc. subsidiary ("Energy Brokers");
customer information systems and services through its Utility Business
Services, Inc. subsidiary; and sales and marketing outsourcing through
its 49% equity interest in TIC Enterprises, LLC ("TIC") (see Note 2 of
the Notes to the Consolidated Financial Statements).
Results of Operations
Fiscal Years Ended September 30, 1997 and 1996
Net Income. Net income for fiscal 1997 was $19.6 million, or $1.75
per share, as compared with net income of $14.9 million, or $1.52 per
share in fiscal 1996. The increase in the current year was primarily
due to higher operating margins and other income, partially offset by
higher operations and maintenance, depreciation, general taxes and
interest expenses.
Net income per share in the current year was also affected by the
increased average number of outstanding shares of common stock over
the prior year, principally reflecting the full effect of the
Company's issuance of 1.8 million additional shares in May 1996 (see
"Financing Activities and Resources-Common Stock").
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 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 operating revenues is not
necessarily indicative of financial performance. The Company's
operating revenues increased by $139.1 million, or 30%, in fiscal 1997
as compared with fiscal 1996. The increase was principally due to
approximately $122 million of additional revenues generated by the
Company's unregulated operations, the effect of purchased gas
adjustment clauses, a base rate increase in the Company's Florida
service territory, increased customer service and appliance leasing
revenues, and customer growth (see "Regulatory Matters"). These
increases were partially offset by the effect of warmer weather,
mainly in New Jersey where it was 11% warmer than the prior year and
4% warmer than normal.
The Company has taken advantage of the opportunities brought on by
deregulation of the natural gas industry and realized substantial
growth in these unregulated activities in fiscal 1997. The Company's
unregulated operations include its Energy and Energy Brokers
subsidiaries, as well as sales of natural gas by the Company's utility
operations to customers outside of its franchise service territories.
While the prices charged for these utility off-system sales are not
regulated, margins realized are shared with customers of the utility
operations as follows: New Jersey- 80%, Florida- 50% and North
Carolina- 75%. The Company's other utility operations do not currently
have margin sharing arrangements and therefore any off-system sales
are returned 100% to customers.
The Company's operating margins increased by $8.3 million, or 5%, in
fiscal 1997 as compared with fiscal 1996. The increase reflects
approximately $3.6 million of additional margins generated by the
Company's utility distribution operations, approximately $3.1 million
of additional margins on sales by the Company's unregulated operations
and approximately $1.6 million of additional customer service and
appliance leasing revenues. The increase in utility distribution
margins was mainly due to the effect of the rate case in Florida and
customer growth, partially offset by the effect of warmer weather in
the fiscal 1997 period in all of the Company's service territories,
part of which was not fully recovered from customers under weather
normalization clauses, and lower amounts billed to certain of the
Company's Florida customers for its energy conservation program. The
Company is allowed to pass through to its customers costs incurred for
various energy conservation programs. The Company does not earn a
profit on these billings as operations expense is charged or credited
for any difference between amounts billed to customers and amounts
actually incurred. The Company has weather normalization clauses in
its New Jersey and North Carolina tariffs, which are designed to help
stabilize the Company's results by increasing amounts charged to
customers when weather has been warmer than normal and by decreasing
amounts charged when weather has been colder than normal. As a result
of weather normalization clauses, operating margins were approximately
$2.0 million higher in fiscal 1997 than they would have been without
such clauses. In fiscal 1996, operating margins were $2.2 million less
than they would have been without such clauses.
Other Operating Expenses. Operations and maintenance expenses
increased by approximately $0.9 million, or 1%, in fiscal 1997 as
compared with fiscal 1996. The increase was primarily the result of
additional expenses related to the growth in the Company's unregulated
operations and expenses resulting from the consolidation of two of the
Company's New Jersey service facilities. These increases were
partially offset by the capitalization of costs associated with the
development and implementation of new information technology, lower
pension and insurance expenses, lower expenses charged for the
Company's energy conservation programs in Florida and the reversal of
certain reserves which management determined to be no longer required.
Depreciation and amortization increased approximately $1.7 million
over the prior year primarily due to additional plant in service.
The increase in other taxes of approximately $0.8 million in fiscal
1997 was mainly due to higher real estate, sales and payroll-related
taxes.
The increase in income taxes of approximately $1.5 million in fiscal
1997 was the result of higher pre-tax income.
Other Income and (Expense), Net. Pre-tax other income and expense,
net, increased approximately $2.6 million in fiscal 1997 as compared
with fiscal 1996. The increase was primarily due to approximately $1.3
million of net equity earnings in TIC for the period January 1, 1997
through September 30, 1997 (see Note 2 of the Notes to the
Consolidated Financial Statements), the sale of certain marketable
securities resulting in a realized gain of $0.7 million, and the sale
of property in the Southern Division, which resulted in a gain of
approximately $0.7 million.
Interest Expense. Interest expense increased by approximately $0.4
million in fiscal 1997 as compared with fiscal 1996. The increase was
primarily due to an increase in short-term interest expense due to
higher average borrowings, partially offset by 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.
Fiscal Years Ended September 30, 1996 and 1995
Net Income. Net income for fiscal 1996 was $14.9 million, or $1.52 per
share, as compared with net income of $5.5 million, or $0.60 per share
in fiscal 1995. The increase in fiscal 1996 was primarily due to
higher operating margins and approximately $5.6 million of after-tax
non-recurring charges incurred in fiscal 1995. These increases were
partially offset by higher operations and maintenance and depreciation
expenses.
Net income per share in fiscal 1996 was also affected by the increased
average number of outstanding shares of common stock over the prior
year, principally reflecting the Company's issuance of 1.8 million
additional shares in May 1996 (see "Financing Activities and
Resources-Common Stock").
Operating Revenues and Operating Margins. The Company's operating
revenues increased by $92.6 million, or 25%, in fiscal 1996 as
compared with fiscal 1995. The increase principally reflects
approximately $48 million of additional unregulated sales, the effect
of weather in New Jersey that was 7% colder than normal and 23% colder
than the prior year, and additional refunds to Northern Division
customers in fiscal 1995 totaling $11.2 million as a result of lower
than projected gas prices. Operating revenues also increased as a
result of increased revenues from interruptible and industrial
customers primarily as a result of higher gas prices incurred,
increased customer service revenues and customer growth.
The Company's operating margins increased by $11.0 million, or 7%, in
fiscal 1996 as compared with fiscal 1995. The increase principally
reflects approximately $6.1 million of additional margins generated by
the Company's utility distribution operations, approximately $3.2
million of additional margins on sales by the Companies unregulated
operations and approximately $1.7 million of additional customer
service and appliance leasing revenues. The increase in utility
distribution margins was mainly due to an increase in rates for
Florida's energy conservation program, customer growth and the effect
of colder-than-normal weather not fully returned to customers through
the weather normalization clauses. As a result of these weather
normalization clauses, operating margins were approximately $2.2
million less in fiscal 1996 than they would have been without such
clauses. In fiscal 1995, operating margins were approximately $4.5
million higher than they otherwise would have been without such
clauses.
Other Operating Expenses. Operations and maintenance expenses
increased approximately $3.4 million, or 4%, in fiscal 1996 as
compared with fiscal 1995. The increase was primarily due to costs
incurred as a result of the colder weather in New Jersey during the
fiscal 1996 heating season, higher expenses related to the start-up
and growth of the Company's unregulated operations, and higher pension
costs. Fiscal 1995 results included non-recurring pre-tax charges of
$8.6 million (see Note 3 of the Notes to the Consolidated Financial
Statements).
Depreciation and amortization expenses increased by approximately $1.5
million primarily due to additional plant in service.
Income tax expense increased by approximately $4.9 million in fiscal
1996 as compared with fiscal 1995, primarily due to higher pre-tax
income.
Interest Expense. Interest expense decreased by approximately $0.2
million, or 1%, in fiscal 1996 as compared with fiscal 1995. The
decrease was primarily due to lower average short-term debt
outstanding and short-term interest rates, and to approximately $0.6
million of interest recorded in the prior year on the over-collection
of gas costs by the Northern Division. This decrease was partially
offset by higher average long-term interest rates due to the effect of
a full year's inclusion of $70 million of Medium-Term Notes that were
issued in fiscal 1995.
Regulatory Matters
Northern Division
On October 22, 1997, the New Jersey Board of Public Utilities (NJBPU)
approved a petition filed by the Northern Division to revise its
weather normalization clause to reflect an increase in the level of
degree days used to determine margin revenue differences associated
with variations between the actual degree days experienced in the
months of October through April and the degree days that underlie the
Company's base rates. The actual degree days are intended to adjust
for a bias in weather data created by the National Oceanic and
Atmospheric Administration's installation of a device to measure
temperature known as the automatic surface observing system. As a
result of the NJBPU approval, the Company recognized an increase in
its weather normalization margins of approximately $1.3 million in the
fourth quarter of fiscal 1997 to adjust for the effect of the bias in
the new weather measuring device on margins recorded earlier in the
fiscal year.
In July 1997, the State of New Jersey enacted legislation that will
eliminate the current gross receipts and franchise taxes effective
January 1, 1998. These taxes will be replaced with a 6% sales tax on
sales of electricity and natural gas, a corporate business tax
currently paid by all non-utility corporations in the State, and a
third tax called the Transitional Energy Facilities Assessment tax
(TEFA). The legislation was intended, in part, to provide
comparability between utilities that pay gross receipts and franchise
taxes and non-utility energy companies that do not. A key objective of
this legislation was to maintain energy tax revenue neutrality in
1998, seeking to collect approximately the same amount in new taxes as
collected with gross receipts and franchise taxes in 1997. The TEFA
tax is scheduled to be phased out at a rate of approximately 20% per
year starting in 1999. These tax changes are designed to have no
effect on the Company's net income or on overall rates charged to
customers, until the TEFA reductions occur, and will not have a
material effect on working capital. The Company paid approximately $25
million of gross receipts and franchise taxes to the State in 1997.
On November 20, 1997, the Northern Division amended its July 31, 1997
proposal filed with the NJBPU to increase its annual purchased gas
adjustment revenues by approximately $14.7 million and change the way
it recovers gas supply costs from its different classes of customers.
The filing proposes to collect separately the commodity component of
purchased gas and the fixed costs the Company incurs on behalf of its
customers to supply gas service. The filing also includes a request to
incorporate a performance based mechanism whereby Northern Division
customers and the Company would benefit from the Company's ability to
secure gas at rates more favorable than a market index benchmark. The
proposed mechanism would provide an 80/20 sharing, with Northern
Division customers receiving the greater percentage of risk and
opportunity on the difference between a monthly market benchmark and
the actual cost of purchased gas. Action by the NJBPU on the Company's
proposal is expected in 1998.
On May 13, 1997, the NJBPU approved an order (replacing an interim
order dated December 4, 1996) authorizing the Northern Division to
increase its annual purchased gas adjustment revenues by approximately
$22 million. The increase was effective in December 1996 and reflects
higher gas prices incurred in the current year. The increase in
revenues does not affect the operating margins of the Company.
Southern Division
On October 29, 1996, the Florida Public Service Commission (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 7.9%. The Company had been granted interim rate relief of
$2.2 million effective in September 1996. The permanent rate increase,
which was effective in December 1996, includes the interim adjustment.
Financing Activities and Resources
The Company's net cash provided by operating activities was $40.5
million in fiscal 1997, $22.5 million in fiscal 1996, and $47.9
million in fiscal 1995. The increase in fiscal 1997 as compared with
fiscal 1996 was primarily due to additional collections of gas costs
through the Company's purchased gas adjustment clauses and the timing
of payments to gas suppliers. The decrease in net cash provided by
operating activities in fiscal 1996 as compared with fiscal 1995
principally reflects a higher level of accounts receivable primarily
due to the colder weather and increased activity by the Company's
unregulated businesses, and an under collection of gas costs through
the Company's purchased gas adjustment clauses.
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 $66.0 million at 5.5% in fiscal 1997, $39.9 million
at 5.6% in fiscal 1996 and $58.0 million at 5.9% in fiscal 1995. The
weighted average daily amounts of notes payable to banks increased in
fiscal 1997 principally due to borrowings to initially finance the
Company's acquisition of a 49% interest in TIC (see "Common Stock"),
and additional borrowings to finance portions of the Company's
construction expenditures. The weighted average daily amounts of notes
payable to banks decreased in fiscal 1996 as compared with fiscal 1995
primarily due to the full effect of the issuance of $70 million of
Medium-Term Notes issued in fiscal 1995, which were used to repay
short-term debt, and the issuance of an additional 1.8 million shares
of common stock in fiscal 1996, of which part of the proceeds were
used to repay short-term debt. These decreases were partially offset
by borrowings to finance portions of the Company's construction
expenditures.
At September 30, 1997, the Company had outstanding notes payable to
banks amounting to $54.4 million and available unused lines of credit
amounting to $91.6 million.
Long-Term Debt and Funds for Construction Held by Trustee. On July 9,
1997, the Company issued $54.6 million of tax exempt Gas Facilities
Revenue Refunding Bonds at an interest rate of 5.7%. The bonds mature
on June 1, 2032 and were used to refinance previously issued Gas
Facilities Revenue Bonds in the aggregate principal amounts and rates
of $46.2 million at 6.75% and $8.4 million at 6.625% on October 1,
1997. The proceeds from the refunding bonds were invested in temporary
cash investments and were held in trust until the old bonds were
called.
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 September 30, 1997,
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 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, 1997 and 1996, the total
unexpended portions of all of the Company's Gas Facilities Revenue
Bonds were $23.8 million and $42.6 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. On September 25, 1997, the Company issued an additional
1,011,400 shares of NUI common stock. The net proceeds from the
offering totaled $22.6 million and were used to reduce outstanding
short-term debt incurred to finance the Company's acquisition of a 49%
interest in TIC and for other general corporate purposes.
On May 20, 1996, the Company issued an additional 1.8 million shares
of NUI common stock. The net proceeds from the offering totaled $31.1
million and were used to reduce outstanding debt.
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 $5.7 million, $0.3 million
and $1.0 million in fiscal 1997, 1996 and 1995, respectively, and were
used primarily to reduce outstanding short-term debt. The increase in
proceeds received in fiscal 1997 reflects that the plans commenced
purchasing shares directly from the Company in October 1996. Effective
in December 1994, these plans commenced purchasing shares on the open
market to fulfill the plans' requirements. Under the terms of these
plans, the Company may periodically change the method of purchasing
shares from open market purchases to purchases directly from the
Company, or vice versa.
Dividends. On November 6, 1997, the Company increased its quarterly
dividend to $0.245 per share of common stock. The previous quarterly
rate was $0.235 per share of common stock.
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 $37 million of cash dividends at September 30, 1997.
Capital Expenditures and Commitments
Capital expenditures, which consist primarily of expenditures to
expand and upgrade the Company's gas distribution systems, were $52.3
million in fiscal 1997, $37.1 million in fiscal 1996 and $37.9 million
in fiscal 1995. The increase in fiscal 1997 was primarily the result
of planned capital investment related to providing gas or
transportation service to new customers, which is mainly occurring in
the Company's Southern Division, and to the Company's investment in
new information technology designed to enhance productivity in the
long term. The Company's capital expenditures are expected to be
approximately $60 million in fiscal 1998.
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 will be 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 the Company's MGP sites. Of this reserve, approximately $30
million relates to Northern Division MGP sites and approximately $4
million relates to Southern Division MGP sites. However, the Company
believes that it is possible that costs associated with conducting
investigative activities and implementing remedial actions, if
necessary, with respect to all of its MGP sites may exceed the
approximately $34 million reserve by an amount that could range up to
$24 million and be incurred during a future period of time that may
range up to fifty years. Of this $24 million in possible future
expenditures, approximately $12 million relates to the Northern
Division MGP sites and approximately $12 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 $24 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. The Company is able to recover
actual MGP expenses over a rolling seven-year period through its MGP
Remediation Adjustment Clause (RAC). The NJBPU approved the Company's
initial RAC rate filing on April 2, 1997 at which time the Company
began recovery of approximately $3.1 million, which represents
environmental costs incurred from inception through June 30, 1996. On
August 5, 1997, the Company submitted a second RAC rate filing to the
NJBPU to recover an additional $0.5 million in environmental costs
incurred from July 1, 1996 through June 30, 1997. Approval by the
NJBPU on this second RAC rate filing is expected in early 1998. 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 11 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 $71 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 Company prepaid $54.6 million of its Gas Facilities Revenue Bonds
in October 1997 with proceeds received from a new bond issuance (see
"Financing Activities and Resources- Long-Term Debt and Funds for
Construction Held by Trustee"). No other long-term debt is scheduled
to be repaid over the next five years.
Purchase of Interest in TIC Enterprises, LLC
On May 18, 1997, the Company closed on its acquisition of a 49%
interest in TIC Enterprises, LLC, a newly formed 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. Under the terms of an LLC Interest Purchase Agreement
(the "Agreement"), the limited liability company will continue the
business previously conducted by TIC Enterprises, Inc. The Agreement
also includes a provision for an additional incentive payment up to a
maximum of $5.2 million if TIC's calendar 1997 earnings, before
interest and taxes, exceed $5 million. As of September 30, 1997, the
Company has recorded a reserve of approximately $2.2 million for the
additional incentive payment. In addition, NUI has the option, during
the period beginning April 1, 2001 (subject to a one-year extension by
the seller), to purchase the remaining 51% interest in TIC.
TIC engages in the business of recruiting, training and managing sales
professionals and serving as sales and marketing representatives for
various businesses, including the Company's subsidiary, NUI Energy,
Inc. The excess of the purchase price over the Company's share of the
underlying equity in net assets of TIC is estimated on a preliminary
basis to be approximately $22 million, including the reserve for the
additional incentive payment, and is being amortized on a straight
line basis over a 15-year period.
Competition and Outlook
The Company believes that in order to successfully compete in the
deregulated energy markets, it must be able to provide customers with
a broad array of energy and other products and services. In addition
to the transportation and sale of gas, such energy products and
services may include sales and management of electricity and other
energy commodities, energy efficiency and information services, and
new energy technology. The Company may also offer additional non-
energy products and services if such offerings are consistent with the
Company's business plan.
Not all of the products and services described above are currently
provided by the Company. Therefore, the Company intends to acquire the
skills and capabilities to provide some or all of them through various
means, including acquisitions of companies, hiring of experienced
employees, and alliances, partnerships and joint ventures. All of
such products and services would likely be offered through the
coordinated marketing efforts of the Company.
One vehicle the Company will use to offer products and services is the
sales force of TIC Enterprises, LLC (see "Purchase of Interest in TIC
Enterprises, LLC"). TIC's sales force of more than 400 sales
representatives gives NUI access to business customers across 40
states. Also, TIC has existing sales partnerships with several major
companies, allowing NUI to offer a wide range of telecommunications
services and office equipment in addition to energy. TIC will also be
an asset to NUI in the formation of partnerships with other energy
companies trying to find ways to gain access to customers and new
products in the newly deregulated energy markets.
The Company's operations are organized under three primary lines of
business: Distribution Services, Energy Sales and Services, and
Customer Services. The outlook for each is discussed below.
Distribution Services
Distribution Services is the core business of the Company, defined as
the distribution, or transportation, of energy to retail customers.
Such distribution service is regulated as to price, safety and return
by the regulatory commissions of the states in which the Company
operates.
The Company has substantial growth opportunities in its distribution
business. Capital investments for the entire Company are expected to
increase to an estimated $60 million in fiscal 1998 from $52 million
in fiscal 1997, in large part to take advantage of these growth
opportunities. Almost half of the planned capital investment in fiscal
1997 is related to providing gas or transportation service to new
customers. While the Company is confident that these fiscal 1997
investments will earn a return in excess of its cost of capital, there
can be no assurance that the expected margins from each capital
investment will be fully realized.
The natural gas distribution industry is undergoing significant
changes. The sale of gas by utility companies to commercial and
industrial customers has been "unbundled", or separated from the
transportation service component, by several state regulatory
commissions, including the NJBPU. In these states, while the sale of
the gas commodity to commercial and industrial customers is now fully
competitive, the transportation service remains regulated as to price
and returns and subject to various restrictions and franchise
protections. It is anticipated that additional states will unbundle
these services for commercial and industrial customers and that, in
the near term, some states will begin to unbundle these services for
residential customers as well.
The FPSC has approved the Company's proposal to unbundle gas service
to certain small commercial customers, in a manner similar to that
currently in place in the Company's New Jersey service territory.
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. Unbundling provides the Company with an
opportunity to make additional margins through its unregulated
marketing subsidiary, NUI Energy, Inc., by competing with other
unregulated marketers and brokers for sales of gas.
The Company also faces the risk of loss of transportation service for
large industrial customers who may have the ability to build
connections to interstate gas pipelines and thereby 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.
Customer Services
The Customer Services unit provides repair and maintenance for
customer-owned gas facilities and appliances, and collects energy
usage data for billing purposes. The Company's strategy for its
Customer Services unit is to provide additional services that
customers value, to charge prices that fully reflect the quality of
those services to its customers, and improve the quality and
timeliness of service.
The Company intends to implement several measures, including the use
of new metering and communications technology, to improve the response
time to customer service requests and to improve the accuracy and
timeliness of billing information.
The Company has reviewed its rate schedules and has imposed new or
increased fees where appropriate for certain customer-initiated
services. NUI may request state regulatory agencies to approve other
service fee increases, thereby providing income to offset the cost of
providing gas service to its general customer base.
Energy Sales and Services
The Company's primary operations in Energy Sales and Services are
composed of three business lines. First, in fiscal 1995 the Company
formed NUI Energy, Inc. (Energy) to market gas service to unbundled
retail commercial and industrial customers. The margins from Energy in
fiscal 1997 were approximately $2.4 million, up from $1.1 million in
fiscal 1996, but the expenses related to this start-up operation
resulted in a slight loss for the year. Energy is expected to be
profitable in fiscal 1998.
The second business line of Energy Sales and Services is wholesale
sales and brokering of energy, primarily to utilities and energy
marketing companies. The Company formed NUI Energy Brokers, Inc.
(Energy Brokers) in fiscal 1996 to perform such activities. Energy
Brokers also is the provider of energy to the Company's retail
marketing subsidiary, Energy. Energy Brokers generated margins of
approximately $3.5 million in fiscal 1997, compared with $1.6 million
in fiscal 1996. The Company minimizes its risks in this business by
limiting its financial and physical positions at any one time. 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 Energy Brokers are likely to
be more volatile than the Company's distribution business.
The third business line within Energy Sales and Services is in "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. The
Company's share of margins from off-system sales were approximately
$0.8 million in fiscal 1997, unchanged from fiscal 1996.
Effects of Inflation
The Company's tariffs provide purchased gas adjustment 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.
Item 8. Financial Statements and Supplementary Data
Consolidated financial statements of the Company as of September 30,
1997 and 1996 and for each of the three years in the period ended
September 30, 1997, the auditors' report thereon, and the unaudited
quarterly financial data for the two-year period ended September 30,
1997, 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 23, 1997.
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 23, 1997.
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 23, 1997.
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 23, 1997.
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, 1997 and 1996 and for each of the three years in the
period ended September 30, 1997 and the auditors' report thereon, and
the unaudited quarterly financial data for the two-year period ended
September 30, 1997 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 1997, 1996 and 1995 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 Incorporated by
29, 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 Incorporated by
Merger, dated as of July 27, reference to Exhibit
1993, by and between NUI 2(ii) to
Corporation and Pennsylvania Registration
& Southern Gas Company Statement No. 33-
50561
3(i) Certificate of Incorporated by
Incorporation, amended and reference to Exhibit
restated as of December 1, 3(i) of NUI's Form
1995 10-K Report for
Fiscal 1995
3(ii) By-Laws, amended and Filed herewith.
restated as of
September 23, 1997
4(i) Rights Agreement between NUI Incorporated by
Corporation and Mellon reference to NUI's
Securities Trust Company Form 8-K dated
dated November 28, 1995 December 1, 1995
10(i) Service Agreement by and Incorporated by
between Transcontinental Gas reference to Exhibit
Pipe Line Corporation and 10(i) to
Elizabethtown Gas Company Registration
("EGC"), dated February 1, Statement No.33-
1992 (#3686) 50561
10(ii) Service Agreement under Rate Filed herewith.
Schedule GSS by and between
Transcontinental Gas Pipe
Line Corporation and EGC,
dated July 1, 1996
10(iii) Service Agreement under Rate Incorporated by
Schedule LG-A by and between reference to Exhibit
Transcontinental Gas Pipe 10(iii) to
Line Corporation and EGC, Registration
dated January 12, 1971 Statement No. 33-
50561
10(iv) Service Agreement by and Incorporated by
between Transcontinental Gas reference to Exhibit
Pipe Line Corporation and 10(iv) of NUI's Form
EGC, dated November 1, 1995 10-K Report for
(Contract #1.1997) Fiscal 1996
10(v) Service Agreement by and Incorporated by
between Transcontinental Gas reference to Exhibit
Pipe Line Corporation and 10(v) of NUI's Form
EGC, dated November 1, 1995 10-K Report for
(Contract #1.1995) Fiscal 1996
10(vi) Firm Gas Transportation Incorporated by
Agreement by and among reference to Exhibit
Transcontinental Gas Pipe 10(vi) to
Line Corporation, EGC and Registration
National Fuel Gas Supply Statement No. 33-
Corporation, dated 50561
November 1, 1984
10(vii) Service Agreement by and Incorporated by
among Transcontinental Gas reference to Exhibit
Pipe Line Corporation and 10(vii) of NUI's
EGC, dated November 1, 1995 Form 10-K Report for
(Contract #1.1998) Fiscal 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
Corporation and EGC, dated Form 10-K Report for
December 1, 1993 (Contract Fiscal 1994
#800361)
10(ix) Service Agreement under Rate Incorporated by
Schedule FTS-7 by and reference to Exhibit
between Texas Eastern 10(ix) to NUI's Form
Transmission Corporation and 10-K Report for
EGC, dated October 25, 1994 Fiscal 1994
(Contract #331720)
10(x) Service Agreement for Rate Filed herewith.
Schedule FTS-5 by and
between Texas Eastern
Transmission Corporation and
EGC, dated March 18, 1996
(Contract #331501)
10(xi) Service Agreement under Rate Incorporated by
Schedule FTS-8 by and reference to Exhibit
between Texas Eastern 10(xi) to NUI's Form
Transmission Corporation and 10-K Report for
EGC, dated June 28, 1994 Fiscal 1994
(Contract #331013)
10(xii) Firm Transportation Service Filed herewith.
Agreement under FTS-2 Rate
Schedule by and between City
Gas and Florida Gas
Transmission, dated August
12, 1993
10(xiii) Service Agreement for Rate Incorporated by
Schedule FTS-2 by and reference to Exhibit
between Texas Eastern 10(xiii) to
Transmission Corporation and Registration
EGC, dated June 1, 1993 Statement No. 33-
(Contract #330788) 50561
10(xiv) Service Agreement under NTS Incorporated by
Rate Schedule by and between reference to Exhibit
Columbia Gas Transmission 10(xiv) to NUI's
Corporation and EGC, dated Form 10-K Report for
November 1, 1993 (Contract Fiscal 1993
#39275)
10(xv) Service Agreement under SST Incorporated by
Rate Schedule by and between reference to Exhibit
Columbia Gas Transmission 10(xv) to NUI's Form
Corporation and EGC, dated 10-K Report for
November 1, 1993 (Contract Fiscal 1993
#38045)
10(xvi) Service Agreement under FTS Incorporated by
Rate Schedule by and between reference to Exhibit
Columbia Gas Transmission 10(xvi) to NUI's
Corporation and EGC, dated Form 10-K Report for
November 1, 1993 (Contract Fiscal 1993
#37882)
10(xvii) Gas Transportation Agreement Incorporated by
under FT-G Rate Schedule by reference to Exhibit
and between Tennessee Gas 10(xvii) to NUI's
Pipeline Company and EGC Form 10-K Report for
(Contract #597), dated Fiscal 1993
September 1, 1993
10(xviii) Gas Transportation Agreement Incorporated by
under FT-G Rate Schedule by reference to Exhibit
and between Tennessee Gas 10(xviii) to NUI's
Pipeline Company and EGC Form 10-K Report for
(Contract #603), dated Fiscal 1993
September 1, 1993
10(xix) Service Agreement by and Incorporated by
between Transcontinental Gas reference to Exhibit
Pipe Line Company and EGC, 10(xix) of NUI's
dated November 1, 1995 Form 10-K Report for
(Contract #3832) Fiscal 1996
10(xx) Firm Transportation Service Incorporated by
Agreement under FTS-1 Rate reference to Exhibit
Schedule by and between City 10(xx) of NUI's Form
Gas and Florida Gas 10-K Report for
Transmission dated October Fiscal 1993
1, 1993 (Contract # 5034)
10(xxi) Lease Agreement between EGC Incorporated by
and Liberty Hall Joint reference to Exhibit
Venture, dated August 17, 10(vi) of EGC's Form
1987 10-K Report for
Fiscal 1987
10(xxii) 1988 Stock Plan Incorporated by
reference to Exhibit
10(viii) to
Registration
Statement No. 33-
21525
10(xxii) First Amendment to 1988 Incorporated by
Stock Plan reference to Exhibit
10(xxxiii) to
Registration
Statement No. 33-
46162
10(xxiii) 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(xxiv) Firm Transportation Service Incorporated by
Agreement under FTS-2 Rate reference to Exhibit
Schedule by and between City 10(xxiv) of NUI's
Gas and Florida Gas Form 10-K Report for
Transmission, dated December Fiscal 1994
12, 1991 and Amendment dated
November 12, 1993 (Contract
#3608)
10(xxv) Service Agreement under Rate Incorporated by
Schedule LG-A by and between reference to Exhibit
Transcontinental Gas 10(xxv) of NUI's
Pipeline and North Carolina Form 10-K Report for
Gas Service Division of Fiscal 1994
Pennsylvania & Southern Gas
Company, dated August 5,
1971
10(xxvi) Service Agreement under Rate Filed herewith.
Schedule GSS by and between
Transcontinental Gas
Pipeline and North Carolina
Gas Service, dated July 1,
1996
10(xxvii) 1996 Employee Stock Purchase Incorporated by
Plan reference to Exhibit
10(xxvii) of NUI's
Form 10-K Report for
Fiscal 1996
10(xxviii) Service Agreement under Rate Incorporated by
Schedule FT by and between reference to Exhibit
Transcontinental Gas 10(xxviii) of NUI's
Pipeline and North Carolina Form 10-K Report for
Gas Service Division of Fiscal 1994
Pennsylvania & Southern Gas
Company, dated February 1,
1992 (Contract # 0.3922)
10(xxix) 1996 Directors Stock Incorporated by
Purchase Plan reference to Exhibit
10(xxix) of NUI's
Form 10-K Report for
Fiscal 1996
10(xxx) Gas Storage Contract under Incorporated by
Rate Schedule FS by and reference to Exhibit
between Tennessee Gas 10(xxx) of NUI's
Pipeline Company and Form 10-K Report for
Pennsylvania & Southern Gas Fiscal 1994
Company, dated September 1,
1993 (Contract #2277)
10(xxxi) Gas Transportation Agreement Incorporated by
under Rate Schedule FT-A by reference to Exhibit
and between Tennessee Gas 10(xxxi) of NUI's
Pipeline Co. and Form 10-K Report for
Pennsylvania & Southern Gas Fiscal 1994
Company, dated September 1,
1993 (Contract #935)
10(xxxii) Gas Transportation Agreement Incorporated by
under Rate Schedule FT-A by reference to Exhibit
and between Tennessee Gas 10(xxxii) of NUI's
Pipeline Co. and Form 10-K Report for
Pennsylvania & Southern Gas Fiscal 1994
Company, dated September 1,
1993 (Contract #936)
10(xxxiii) Gas Transportation Agreement Incorporated by
under Rate Schedule FT-A by reference to Exhibit
and between Tennessee Gas 10(xxxiii) of NUI's
Pipeline Co. and Form 10-K Report for
Pennsylvania & Southern Gas Fiscal 1994
Company, dated September 1,
1993 (Contract #959)
10(xxxiv) Gas Transportation Agreement Incorporated by
under Rate Schedule FT-A by reference to Exhibit
and between Tennessee Gas 10(xxxiv) of NUI's
Pipeline Co. and Form 10-K Report for
Pennsylvania & Southern Gas Fiscal 1994
Company, dated September 1,
1993 (Contract #2157)
10(xxxv) Employment Agreement, dated Incorporated by
as of July 29, 1988, between reference to Exhibit
NUI Corporation and Jack 10(xxxv) of NUI's
Langer Form
10-K Report for
Fiscal 1994
10(xxxvi) Service Agreement for Rate Incorporated by
Schedule FT by and reference to Exhibit
between Transcontinental Gas 10(xxxvi) of NUI's
Pipe Line Corporation and Form 10-K Report for
EGC (Contract #1.0431) dated Fiscal 1995
April 1, 1995
10(xxxvii) Service Agreement for Rate Incorporated by
Schedule FT by and reference to Exhibit
between Transcontinental Gas 10(xxxvii) of NUI's
Pipe Line Corporation and Form 10-K Report for
EGC (Contract #1.0445) dated Fiscal 1995
April 1, 1995
10(xxxviii) 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 Form 10-K Report for
(Contract (#400196) dated Fiscal 1995
September 23, 1994
10(xxxix) Gas Storage Agreement under Incorporated by
Rate Schedule FS by and reference to Exhibit
between Tennessee Gas 10(xxxix) of NUI's
Pipeline Company and EGC Form 10-K Report for
(Contract #8703) dated Fiscal 1995
November 1, 1994
10(xl) Consulting Agreement, dated Incorporated by
as of March 24, 1995, reference to Exhibit
between NUI Corporation and 10(xl) of NUI's Form
John Kean 10-K Report for
Fiscal 1995
10(xli) Form of Deferred Incorporated by
Compensation Agreement reference to Exhibit
10(xli) ) of NUI's
Form 10-K Report for
Fiscal 1995
10(xlii) 1996 Stock Option and Stock Incorporated by
Award Plan reference to Exhibit
10(xlii) of NUI's
Form 10-K Report for
Fiscal 1996
10(xliii) Service Agreement under Rate Filed herewith
Schedule FT by and between
Elkton Gas and Eastern Shore
Natural Gas Company, dated
as of November 1, 1997
(Contract #010003)
10(xliv) Service Agreement under Rate Filed herewith
Schedule FT by and between
Elkton Gas and Eastern Shore
Natural Gas Company, dated
as of November 1, 1997
(Contract #010011)
10(xlv) Service Agreement under Rate Filed herewith
Schedule FT by and between
Elkton Gas and Eastern Shore
Natural Gas Company, dated
as of November 1, 1997
(Contract #010012)
10(xlvi) Service Agreement under Rate Filed herewith
Schedule FT by and between
Elkton Gas and Eastern Shore
Natural Gas Company, dated
as of November 1, 1997
(Contract #010013)
10(xlvii) Service Agreement under Rate Filed herewith
Schedule FT by and between
Elkton Gas and Eastern Shore
Natural Gas Company, dated
as of November 1, 1997
(Contract #020003)
10(xlviii) Service Agreement under Rate Filed herewith
Schedule FT by and between
Elkton Gas and Eastern Shore
Natural Gas Company, dated
as of November 1, 1997
(Contract #020005)
12 Consolidated Ratio of Filed herewith
Earnings to Fixed Charges
21 Subsidiaries of NUI Filed herewith
Corporation
23 Consent of Independent Filed herewith
Public 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 longterm
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:
None
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, 1997 and 1996 and for each
of the Three Years in the Period
Ended September 30, 1997.............................F-3
Unaudited Quarterly Financial Data for
the Two-Year Period Ended September 30, 1997
(Note 12 of the Notes to the Company's Consolidated
Financial Statements)...............................F-18
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, 1997.....................F-20
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.
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To NUI Corporation:
We have audited the accompanying consolidated balance sheet and
statement of consolidated capitalization of NUI Corporation (a New
Jersey corporation) and Subsidiaries as of September 30, 1997 and
1996, and the related consolidated statements of income, cash flows
and shareholders' equity, for each of the three years in the period
ended September 30, 1997. 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 generally accepted auditing
standards. 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, 1997 and 1996,
and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 1997, in conformity
with generally accepted accounting principles.
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 6, 1997
F-2
NUI Corporation and Subsidiaries
Consolidated Statement of Income
(Dollars in thousands, except per share amounts)
Years Ended September 30,
1997 1996 1995
Operating Margins
Operating revenues $608,596 $469,499 $376,884
Less- Purchased gas and fuel 401,923 268,123 189,510
Gross receipts and
franchise taxes 33,598 36,624 33,669
------- ------- -------
173,075 164,752 153,705
------- ------- -------
Other Operating Expenses
Operations and maintenance 95,276 94,350 90,962
Depreciation and amortization 23,032 21,289 19,750
Restructuring and other non-
recurring charges -- -- 8,591
Other taxes 9,189 8,433 7,657
Income taxes 9,293 7,807 2,886
------- ------- -------
136,790 131,879 129,846
------- ------- -------
Operating Income 36,285 32,873 23,859
------- ------- -------
Other Income and Expense, Net
Equity in Earnings of TIC
Enterprises, LLC, net 1,334 -- --
Other 2,180 897 679
Income taxes (1,230) (337) (240)
------- ------- -------
2,284 560 439
------- ------- -------
Interest Expense 18,920 18,537 18,781
------- ------- -------
Net Income $19,649 $14,896 $ 5,517
======= ======= =======
Net Income Per Share of Common
Stock $ 1.75 $ 1.52 $ .60
======= ======= =======
Dividends Per Share of Common
Stock $ .94 $ .90 $ .90
======= ======= =======
Weighted Average Number of Shares
of Common Stock Outstanding 11,253,513 9,819,431 9,152,837
========== ========= =========
See the notes to the consolidated financial statements.
F-3
NUI Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in thousands)
September 30,
1997 1996
ASSETS
Utility Plant
Utility plant, at original cost $680,391 $631,194
Accumulated depreciation and (218,895) (200,456)
amortization
Unamortized plant acquisition 32,327 33,572
adjustments, net
------- -------
493,823 464,310
------- -------
Funds for Construction Held by Trustee 27,648 44,652
------- -------
Investment in TIC Enterprises, LLC 26,069 --
------- -------
Investments in Marketable Securities, at 2,570 4,417
market
------- -------
Current Assets
Cash and cash equivalents 58,793 3,736
Accounts receivable (less allowance for
doubtful 64,499 43,589
accounts of $2,318 in 1997 and $2,288
in 1996)
Fuel inventories, at average cost 31,068 29,191
Unrecovered purchased gas costs 9,602 6,987
Prepayments and other 24,787 18,542
------- -------
188,749 102,045
Other Assets ------- -------
Regulatory assets 54,607 52,439
Deferred assets 10,199 9,799
------- -------
64,806 62,238
------- -------
$803,665 $677,662
======= =======
CAPITALIZATION AND LIABILITIES
Capitalization (See accompanying
statements)
Common shareholders' equity $218,291 $179,107
Preferred stock -- --
Long-term debt 229,069 230,100
------- -------
447,360 409,207
------- -------
Capital Lease Obligations 9,679 10,503
------- -------
Current Liabilities
Notes payable to banks 54,428 54,895
Current portion of long-term debt 54,600 950
Current portion of capital lease
obligations 1,587 1,596
Accounts payable, customer deposits and
accrued liabilities 96,655 66,372
Federal income and other taxes 4,049 2,947
------- -------
211,319 126,760
------- -------
Other Liabilities
Deferred Federal income taxes 62,391 59,328
Unamortized investment tax credits 6,171 6,635
Environmental remediation reserve 33,981 33,981
Regulatory and other liabilities 32,764 31,248
------- -------
135,307 131,192
------- -------
$803,665 $677,662
======= =======
See the notes to the consolidated financial statements
F-4
NUI Corporation and Subsidiaries
Consolidated Statement of Cash Flows
(Dollars in thousands)
Years Ended September 30,
1997 1996 1995
Operating Activities
Net Income $19,649 $14,896 $5,517
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 24,040 22,315 20,932
Deferred Federal income taxes 3,246 7,569 2,005
Non-cash portion of restructuring
and other non-recurring charges -- -- 4,913
Amortization of deferred
investment tax credits (464) (467) (468)
Other 1,020 4,617 4,626
Effects of changes in:
Accounts receivable, net (20,911) (13,371) 7,923
Fuel inventories (1,877) (1,562) 987
Accounts payable, deposits
and accruals 28,133 8,310 7,775
Over (under) recovered
purchased gas costs (2,614) (11,882) 2,949
Other (9,707) (7,895) (9,240)
------ ------ ------
Net cash provided by operating
activities 40,515 22,530 47,919
------ ------ ------
Financing Activities
Proceeds from sales of common stock,
net of treasury stock purchased 28,204 31,371 577
Dividends to shareholders (10,575) (8,700) (8,296)
Proceeds from issuance of long-term
debt 53,569 39,000 70,000
Funds for construction held by
trustee, net 18,784 (29,049) 10,125
Repayments of long-term debt (950) (30,138) (9,902)
Principal payments under capital
lease obligations (1,730) (1,829) (1,844)
Net short-term borrowings (repayments) (467) 16,960 (72,190)
------ ------ ------
Net cash provided by (used for)
financing activities 86,835 17,615 (11,530)
------ ------ ------
Investing Activities
Cash expenditures for utility plant (51,366) (37,053) (37,976)
Investment in TIC Enterprises, LLC (22,584) -- --
Other 1,657 (2,957) (449)
------ ------ ------
Net cash (used for) investing
activities (72,293) (40,010) (38,425)
------ ------ ------
Net Increase (Decrease) in Cash
and Cash Equivalents $55,057 $ 135 $(2,036)
====== ====== ======
Cash and Cash Equivalents
At beginning of period $ 3,736 $ 3,601 $ 5,637
At end of period $58,793 $ 3,736 $ 3,601
Supplemental Disclosures of
Cash Flows
Income taxes paid (refunds
received), net $ 5,008 $ 2,612 $(1,129)
Interest paid $19,760 $18,654 $17,436
See the notes to the consolidated financial statements
F-5
NUI Corporation and Subsidiaries
Consolidated Statement of Capitalization
(Dollars in thousands)
September 30,
1997 1996
Long-Term Debt
Gas facilities revenue bonds
6.625% due October 1, 2021 $ 8,400 $ 8,400
6.75% due October 1, 2021 46,200 46,200
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 --
Medium-term notes
7.125% due August 1, 2002 20,000 20,000
8.35% due February 1, 2005 50,000 50,000
ESOP indebtedness, 6% due May 31, 2002 -- 950
------- -------
284,700 231,050
Current portion of long-term debt (54,600) (950)
Unamortized debt discount (1,031) --
------- -------
229,069 230,100
------- -------
Preferred Stock, 5,000,000 shares
authorized; none issued -- --
Common Shareholders' Equity
Common Stock, no par value; shares
authorized: 30,000,000;shares
outstanding: 12,428,952 in 1997
and 11,085,876 in 1996 201,549 171,968
Shares held in treasury: 98,475
shares in 1997 and 92,731 shares
in 1996 (1,615) (1,564)
Retained earnings 19,260 10,117
Valuation of marketable securities 120 389
Unearned employee compensation (1,023) (1,803)
------- -------
218,291 179,107
------- -------
Total Capitalization $447,360 $409,207
======= =======
* The total unexpended portions of the net proceeds from these bonds,
amounting to $23.8 million and $42.6 million as of September 30, 1997
and September 30, 1996, 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
F-6
NUI Corporation and Subsidiaries
Consolidated Statement of Shareholders' Equity
(Dollars in thousands)
Common Stock
------------------------------ Unrealized
Gain(Loss)- Unearned
Shares Paid-in Held in Retained Marketale Employee
Outstanding Amount Treasury Earnings Securities Compensation Total
Balance,
September 30, 1994 9,157,095 $138,082 $ (797) $ 6,700 $ -- $ (1,217) $142,768
Common stock
issued* 74,499 1,045 1,045
Treasury stock
purchased (30,357) (468) (468)
Net income 5,517 5,517
Cash dividends (8,296) (8,296)
Unrealized gain 232 232
ESOPtransactions (34) 148 114
--------- ------ ------ ------ ------- ------ ------
Balance,
September 30, 1995 9,201,237 $139,093 $(1,265) $ 3,921 $ 232 $ (1,069) $140,912
Common stock
issued:
Public offering 1,800,000 31,067 31,067
Other* 86,973 1,548 1,548
Treasury stock
transactions (2,334) 260 (299) (39)
Net income 14,896 14,896
Cash dividends (8,700) (8,700)
Unrealized gain 157 157
Unearned
compensation (734) (734)
-------- ------- ------- ------ ------- -------- -------
Balance,
September 30, 1996 11,085,876 $171,968 $(1,564) $10,117 $ 389 $(1,803) $179,107
Common stock
issued:
Public offering 1,011,400 22,610 22,610
Other* 337,420 6,971 6,971
Treasury stock
transactions (5,744) (51) (51)
Net income 19,649 19,649
Cash dividends (10,575) (10,575)
Unrealized (loss) (269) (269)
Unearned
compensation (288) (288)
ESOP transactions 69 1,068 1,137
--------- ------- ------ ------- ----- ------ -------
Balance,
September 30, 1997 12,428,952 $201,549 $(1,615) $ 19,260 $ 120 $(1,023) $218,291
========== ======= ====== ====== ===== ====== =======
* Represents common stock issued in connection with NUI Direct and
various employee benefit plans.
See the notes to the consolidated financial statements
F-7
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 company. Its natural gas
utility operations distribute natural gas and provide related customer
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 ("CGF"), North Carolina Gas,
Elkton Gas (Maryland), Valley Cities Gas (Pennsylvania) and Waverly
Gas (New York). The Company also provides retail gas sales and related
services through its NUI Energy, Inc. subsidiary ("Energy"); wholesale
energy brokerage and related services through its NUI Energy Brokers,
Inc. subsidiary ("Energy Brokers"); customer information systems and
services through its Utility Business Services, Inc. subsidiary; and
sales and marketing outsourcing through its 49% equity interest in TIC
Enterprises, LLC ("TIC") (see Note 2). 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.
Utility Plant. 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 composite average
annual rates as approved by the state commissions. The composite
average annual depreciation rate was 3% in both fiscal 1997 and fiscal
1996 and 3.2% in fiscal 1995. 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.
The net unamortized plant acquisition adjustments represent the
remaining portion of the excess of the purchase price over the book
value of net assets acquired. The excess is being amortized on a
straight-line basis over thirty 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.
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, 1997 and 1996 (in
thousands):
1997 1996
Regulatory Assets
Environmental investigation and $34,217 $33,679
remediation costs
Unrecovered gas costs 7,091 6,730
Postretirement and other employee 10,041 8,339
benefits
Deferred piping allowances 2,512 3,010
Other 746 681
------ -----
$54,607 $52,439
====== ======
Regulatory Liabilities
Net overcollection of income taxes $5,250 $5,207
Refunds to customers 2,442 850
Other 272 88
------ ------
$7,964 $6,145
====== =====
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.
Impairment of Long-Lived Assets. During the current year, the Company
adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" (SFAS 121). SFAS 121 requires the Company to
review such assets for possible impairment whenever circumstances
indicate that the carrying amount of an asset may not be recoverable.
The adoption of SFAS 121 did not have an impact on the results of
operations, financial condition or cash flows of the Company.
Cash Equivalents. Cash equivalents consist of a money market account
which invests in securities with original maturities of three months
or less.
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 assumed exercise of outstanding employee stock
options would not have a dilutive effect on net income per share of
common stock.
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128, "Earnings
per Share" (SFAS 128). This statement supersedes APB Opinion No. 15,
"Earnings per Share" and simplifies the computation of earnings per
share. SFAS 128 will be effective for financial statements for both
interim and annual periods ending after December 15, 1997. The Company
does not expect the effect of adopting SFAS No. 128 to have a material
effect on its calculation of earnings per share.
New Accounting Standards In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of
an Enterprise and Related Information" (SFAS 131). SFAS 131 requires
disclosures for each business segment that are similar to current
requirements, with the addition of quarterly disclosures and more
detailed geographic disclosures. The Company is not required to adopt
SFAS 131 until fiscal 1999. SFAS 131 relates solely to disclosure
provisions, and therefore will not have any effect on the results of
operations, financial position and cash flows of the Company.
2. Purchase of Interest in TIC Enterprises, LLC
On May 18, 1997, the Company closed on its acquisition of a 49%
interest in TIC Enterprises, LLC, a newly formed limited liability
company (LLC), 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. Under the terms of an LLC Interest Purchase
Agreement (the "Agreement"), the limited liability company will
continue the business previously conducted by TIC Enterprises, Inc.
The Agreement also includes a provision for an additional incentive
payment up to a maximum of $5.2 million if TIC's calendar 1997
earnings before interest and taxes, exceed $5 million. As of September
30, 1997, the Company has recorded a reserve of approximately $2.2
million for the additional incentive payment. In addition, NUI has the
option, during the period beginning April 1, 2001 (subject to a one-
year extension by the seller), to purchase the remaining 51% interest
in TIC.
TIC engages in the business of recruiting, training and managing sales
professionals and serving as sales and marketing representatives for
various businesses, including the Company's subsidiary, NUI Energy,
Inc. The excess of the purchase price over the Company's share of the
underlying equity in net assets of TIC is estimated on a preliminary
basis to be approximately $22 million, including the reserve for the
additional incentive payment, and is being amortized on a straight
line basis over a fifteen year period.
3. Restructuring and Other Non-Recurring Charges
In fiscal 1995, the Company incurred approximately $8.6 million of
pre-tax non-recurring charges for, among other things, the
implementation of an early retirement program and the consolidation of
its Florida and Pennsylvania & Southern Gas Service (PSGS) operations.
In November 1994, the Company offered an early retirement program to
certain employees. The program, which became effective on April 1,
1995, was accepted by 95 of the eligible 112 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", the Company recorded a special
termination charge of approximately $4.1 million. In addition, the
Company recorded approximately $0.8 million of other benefit expenses
associated with these employees. The Company also deferred, pending
regulatory recovery, a charge of approximately $0.6 million for
special termination benefits.
Effective April 1, 1995, the Company consolidated its Florida and PSGS
divisions to form a new NUI Southern Division. The Southern Division
is headquartered in Hialeah, Florida. As a result, PSGS headquarters
in Sayre, Pennsylvania were closed effective December 31, 1995. The
Company incurred a charge of approximately $2.6 million for severance
and other expenses associated with the consolidation of the two
divisions.
In addition, during fiscal 1995, the Company incurred a charge of
approximately $0.8 million to write down certain regulatory assets as
a result of a November 1994 settlement of the Company's Florida rate
case.
4.Capitalization
Long-Term Debt. On July 9, 1997, the Company issued $54.6 million of
tax exempt Gas Facilities Revenue Refunding Bonds at an interest rate
of 5.7%. The bonds mature on June 1, 2032 and were used to refinance
previously issued Gas Facilities Revenue Bonds in the aggregate
principal amounts and rates of $46.2 million at 6.75% and $8.4 million
at 6.625%. The proceeds from the refunding bonds were held in trust
until the old bonds were called on October 1, 1997.
The Company prepaid approximately $1 million of long-term debt,
without penalty, associated with its Employee Stock Ownership Plan in
January 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 September 30, 1997 and 1996, the total
unexpended portions of all of the Company's Gas Facilities Revenue
Bonds were $23.8 million and $42.6 million, respectively, and are
classified on the Company's consolidated balance sheet, including
interest earned thereon, as funds for construction held by trustee.
As of September 30, 1997, the Company is scheduled to repay
approximately $54.6 million of long-term debt in fiscal 1998 as noted
above. No other long-term debt is scheduled to be repaid over the next
five years.
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% 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. On September 25, 1997, the Company issued an additional
1,011,400 million shares of NUI common stock. The net proceeds from
the offering totaled $22.6 million and were used to reduce outstanding
short-term debt incurred to finance the Company's acquisition of a 49%
interest in TIC (see Note 2) and other general corporate purposes.
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 in
December 1994, these plans commenced purchasing shares on the open
market to fulfill the plans' requirements rather than purchasing the
shares directly from the Company. Under the terms of these plans, the
Company may change the method of purchasing shares from open market
purchases to purchases directly from the Company, or vice versa.
Effective in October 1996, these plans began purchasing shares
directly from the Company to fulfill the plans' requirements.
At September 30, 1997, shares reserved for issuance under the
Company's common stock plans were: NUI Direct, 103,389; Savings and
Investment Plan, 195,756; 1996 Stock Option and Stock Award Plan,
137,891; 1996 Employee Stock Purchase Plan, 91,022; and the 1996
Director Stock Purchase Plan, 58,542.
Stock Plans. The Company's Board of Directors believes that both
directors' and management's interest should be closely aligned with
that of shareholders. As a result, under the 1996 Stock Option and
Stock Award Plan, the 1996 Director Stock Purchase Plan and the 1988
Stock Plan, the Company has a long-term compensation program for
directors, executive officers and key employees involving shares of
NUI common stock.
Each non-employee director of the Company earns an annual retainer fee
that consists of a grant of shares of NUI common stock which are
deferred until their retirement from the Board. During 1997, such
retainer fee granted was equivalent to a fair market value of $15,000
on the date of grant. In addition, non-employee directors who also
chair committees of the Board receive additional deferred grants with
a fair market value of $2,500 on the date of grant. Deferred stock
grants are increased on each common stock dividend payment date by an
amount equal to the number of shares of NUI common stock which would
have been purchased had all deferred stock grants been issued and the
dividends reinvested in additional shares.
Shares granted as long-term compensation for executive officers and
key employees amounted to 69,800 in fiscal 1997, 65,113 shares in
fiscal 1996 and 17,620 shares in fiscal 1995. As of September 30,
1997, a total of 132,678 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 ten years from the date of grant. Transactions during
the last three fiscal years involving stock options were as follows:
Number Option Price per
of Share
Shares
Options outstanding and
exercisable at
September 30, 1994 13,000 $15.77-$17.625
Fiscal 1995
Options canceled (3,200) $15.77
-----
Options outstanding and
exercisable at
September 30, 1997 9,800 $15.77-$17.625
=====
During fiscal 1997, the Company was required to adopt Statement of
Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 establishes financial accounting
and reporting standards for stock based compensation plans and
includes all arrangements by which employees receive shares of stock
or other equity instruments of the employer, or by which the employer
incurs liabilities to employees in amounts based on the price of the
employer's stock. Under SFAS 123, the reporting entity is given the
option to either adopt the accounting standards of SFAS 123, or
continue to measure compensation cost in accordance with previous
guidance and provide proforma disclosure of the effect of adopting
SFAS 123. The Company has elected to continue its current accounting
treatment in this area. If the Company had adopted provisions of SFAS
123, there would not have been a material effect on the results of
operations or financial position.
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
is permitted to pay approximately $37 million of cash dividends at
September 30, 1997.
5. Notes Payable to Banks
At September 30, 1997, the Company's outstanding notes payable to
banks were $54.4 million with a combined weighted average interest
rate of 6.3%. Unused lines of credit at September 30, 1997 were
approximately $92 million.
The weighted average daily amounts outstanding of notes payable to
banks and the weighted average interest rates on those amounts were
$66.0 million at 5.5% in fiscal 1997, $39.9 million at 5.6% in fiscal
1996 and $58.0 million at 5.9% in fiscal 1995.
6. Leases
Utility plant held under capital leases amounted to $22.9 million at
September 30, 1997 and $23.5 million at September 30, 1996, with
related accumulated amortization of $12.5 million and $11.5 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):
1998 $ 2,437
1999 2,433
2000 7,267
2001 485
2002 346
2003 and thereafter 172
------
Total future minimum payments 13,140
Amount representing interest (1,874)
Current portion of capital (1,587)
lease obligations
------
Capital lease obligations $9,679
======
Minimum payments under noncancelable operating leases, which relate
principally to office space, are approximately $4.1 million in fiscal
1998, $3.8 million in fiscal 1999, $3.7 million in fiscal 2000, $3.8
million in fiscal 2001 and $3.9 million in fiscal 2002.
Rents charged to operations expense were $5.7 million in fiscal 1997
and $5.3 million in both fiscal 1996 and fiscal 1995.
7. Financial Instruments
Derivatives. The Company engages in risk management activities to
minimize the risk associated with fluctuating natural gas prices. The
Company's unregulated subsidiaries utilize the following financial
instruments to provide competitive energy supplies and hedge its
retail sales: forward contracts, which commit the Company to purchase
or sell natural gas in the future; swap agreements, which require
payments to (or receipt of payments from) counterparties based on the
differential between a fixed price and an index price of natural gas;
natural gas options, which provide the right, but not the requirement,
to buy or sell natural gas at a fixed price; and futures contracts,
bought on the New York Mercantile Exchange (NYMEX), to buy or sell
natural gas at a fixed price.
Energy Brokers accounts for its trading and price risk management
activities by marking to market its various physical transactions and
financial instruments. The values assigned to these transactions
reflect quotes from the NYMEX, established pricing models and price
volatility factors. The Company manages open positions with strict
policies which limit its exposure to market risk and require reporting
potential financial exposure to management on a daily basis.
Margin requirements for natural gas futures contracts are recorded in
other current assets. Realized and unrealized gains and losses are
recorded in the consolidated statement of income under purchased gas
and fuel. At September 30, 1997, Energy Brokers' futures positions
consisted of 565 long contracts and 619 short contracts at prices
ranging from $2.15 to $3.40 per Mcf, none of which extend beyond
August 1998, representing 11,840 MMcf of natural gas. Energy Brokers'
options positions consisted of 30 long contracts and 275 short
contracts with varying strike prices, none of which extend beyond July
1998. Margin deposits with brokers were approximately $1.2 million at
September 30, 1997. In addition, Energy Brokers has forward sales and
purchase commitments associated with contracts totaling approximately
50,000 MMcf of natural gas, with terms extending through October 1998.
Net realized and unrealized gains on derivative trading for fiscal
1997 was $2.4 million, which has been included in income. During
fiscal 1996, Energy Brokers' use of financial instruments was not
significant.
Energy utilizes financial instruments to ensure adequate margins on
its retail and industrial sales. Margin requirements for natural gas
futures contracts are recorded as other current assets. Unrealized
gains and losses on all futures and options contracts are deferred in
the consolidated balance sheet as either a current asset or liability.
Realized gains and losses on futures, forwards and options contracts
are included in the consolidated statement of income under purchased
gas and fuel when the underlying gas commodity hedged is purchased and
sold to its customers. At September 30, 1997, Energy's futures
positions consisted of 362 long contracts and 47 short contracts at
prices ranging from $1.98 to $3.18 per Mcf, none of which extend
beyond July 1999, representing 4,090 MMcf of natural gas. Energy's
options positions consisted of 91 short contracts with varying strike
prices, none of which extend beyond September 1998. During fiscal
1996, Energy's use of financial instruments was not significant.
The Company is exposed to credit risk in the event of default or non-
performance by one of its trading partners. The Company maintains
credit policies that management believes significantly minimize
overall credit risk.
Other Financial Instruments. As of September 30, 1997 and 1996, the
market value of the Company's investments in marketable securities
exceeded their cost by approximately $196,000 and $623,000,
respectively, which unrealized gain is reflected net of deferred
income taxes in the accompanying consolidated balance sheet as a
component of shareholders' equity.
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 fair value of
the Company's long-term debt exceeded its carrying value by
approximately $11 million as of September 30, 1997 and 1996. The fair
value of long-term debt was estimated based on quoted market prices
for the same or similar issues.
8. Consolidated Taxes
The provision for Federal and State income taxes was comprised of the
following (in thousands):
1997 1996 1995
Currently payable -
Federal $7,205 $ 647 $ 833
State 595 244 356
Deferred -
Federal 3,246 7,569 2,005
State (59) 151 400
Amortization of investment ( 464) (467) (468)
tax credits
----- ----- -----
Total provision for income $10,523 $8,144 $3,126
====== ===== =====
The components of the Company's net deferred Federal tax liability
(asset) as of September 30, 1997 and 1996 are as follows (in
thousands):
1997 1996
Depreciation and other utility $50,620 $47,700
plant differences
Plant acquisition adjustments 10,544 11,254
Alternative minimum tax credit (3,670) (2,984)
Unamortized investment tax credit (2,144) (2,306)
Deferred charges and regulatory
assets 8,357 8,864
Gross receipts and franchise
taxes 2,375 2,559
Other (3,691) (5,759)
------ ------
$62,391 $59,328
====== ======
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):
1997 1996 1995
Pre-tax income $30,172 $23,040 $ 8,643
Federal income taxes computed
at Federal statutory tax rate
(35% in both fiscal 1997 and
1996 and 34% in fiscal 1995) 10,560 8,064 3,025
Increase (reduction) resulting
from:
Excess of book over tax 354 360 367
depreciation
Amortization of investment tax (464) (467) (468)
credits
Federal benefit of state tax (188) (138) (257)
provision
Other, net (275) (70) (297)
------ ------ ------
Total provision for Federal income 9,987 7,749 2,370
Provision for State income taxes 536 395 756
------ ------ -----
Total provision for income taxes 10,523 8,144 3,126
(Less) provision included in other
income and expenses (1,230) (337) (240)
------ ------ ------
Provision for income taxes included
in operating expenses $9,293 $7,807 $2,886
===== ===== =====
9. Retirement Benefits
Pension Benefits. The Company has non-contributory defined benefit
retirement plans which cover all of its employees other than the CGF
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 components of pension expense for the Company's plans were as
follows (in thousands):
1997 1996 1995
Service cost $ 1,849 $ 1,973 $ 2,044
Interest cost 6,480 6,103 5,290
Actual return on plan
assets (36,984) (15,076) (20,072)
Net amortization and
deferral 26,089 6,653 11,949
Special termination
benefits 1,150 -- 4,083
----- ----- -----
Pension (credit)
$(1,416) $ (347) $3,294
===== ===== =====
The status of the Company's funded plans as of September 30 was as
follows (in thousands):
1997 1996
Actuarial present value of
benefit obligations:
Vested benefits $73,154 $67,142
Non-vested benefits 2,791 2,531
------ ------
Accumulated benefit obligations 75,945 69,673
Projected increases in
compensation levels
11,457 11,725
------ ------
Projected benefit obligation 87,402 81,398
Market value of plan assets 137,290 109,952
------ ------
Plan assets in excess of
projected benefit obligation 49,888 28,554
Unrecognized net gain (42,969) (22,756)
Unrecognized prior service cost 658 775
Unrecognized net transition (2,619) (3,272)
asset
------ ------
Pension prepayment $ 4,958 $ 3,301
====== ======
The projected benefit obligation was calculated using a discount rate
of 7.5% in fiscal 1997 and 8% in fiscal 1996 and an assumed annual
increase in compensation levels of 4% in both fiscal 1997 and fiscal
1996. The expected long-term rate of return on assets is 9%. The
assets of the Company's funded plans are invested primarily in
publicly-traded fixed income and equity securities.
Certain key employees also participate in an unfunded supplemental
retirement plan. The projected benefit obligation under this plan was
$4.3 million as of September 30, 1997 and $2.6 million as of
September 30, 1996, and the expense for this plan was approximately
$0.6 million in fiscal 1997 and $0.4 million in both fiscal 1996 and
fiscal 1995.
Postretirement Benefits Other Than Pensions. The Company provides
certain health care benefits to all retirees receiving benefits under
a Company pension plan other than the CGF 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
Postretirement 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 does not currently fund these future
benefits.
The components of postretirement benefit expense other than pensions
for the years ended September 30, 1997 and 1996 were as follows (in
thousands):
1997 1996
Service cost $564 $ 600
Interest cost 2,123 2,096
Amortization of transition obligation 1,028 1,028
Other 26 115
----- -----
Net postretirement expense $3,741 $3,839
===== =====
The status of the Company's postretirement plans other than pensions
as of September 30, 1997 and 1996 was as follows (in thousands):
1997 1996
Accumulated postretirement benefit
obligation:
Retirees $14,790 $19,905
Fully eligible active plan participants 2,019 3,095
Other active plan participants 6,264 6,721
------ ------
Total accumulated postretirement benefit
obligations 23,073 29,721
Unrecognized transition obligation (11,270) (17,475)
Unrecognized net (loss) (1,572) (4,113)
Unrecognized prior service cost -- (426)
------ ------
Accrued postretirement benefit $10,231 $ 7,707
obligation
====== ======
The health care trend rate assumption is 10% in 1998 gradually
decreasing to 5.5% for the year 2006 and later. The discount rate used
to compute the accumulated postretirement benefit obligation was 7.5%
in fiscal 1997 and 8% in fiscal 1996. An increase in the health care
trend rate assumption by one percentage point in all years would
increase the accumulated postretirement benefit obligation by
approximately $4.1 million and the aggregate annual service and
interest costs by approximately $0.5 million.
The Company has received an order from the North Carolina Utilities
Commission to include in rates the amount of postretirement benefit
expense other than pensions computed under SFAS 106. The Company has
also received an order from the New Jersey Board of Public Utilities
(NJBPU) permitting the Northern Division to defer the difference
between the amount of postretirement benefits expense other than
pensions computed as claims are incurred and the amount computed on
the accrual method in accordance with SFAS 106, pending ratemaking
treatment that would be considered in a base rate proceeding. The
consensus issued in 1993 by the Emerging Issues Task Force of the
Financial Accounting Standards Board (EITF) permits rate regulated
companies to defer such expenses for as long as five years when the
ratemaking treatment provides for full recovery within the succeeding
fifteen years.
On January 8, 1997, the NJBPU issued a generic order approving a
stipulation that sets forth mechanisms under which New Jersey
utilities may recover postretirement benefits expenses other than
pensions in accordance with SFAS 106 and the EITF consensus, without
being required to file a base rate case. In accordance with that
order, the Company filed a request with the NJBPU on August 4, 1997
seeking recovery of these costs by means of a discreet adjustment of
base rates. The Company expects NJBPU action on its request in early
1998. The Company will also seek ratemaking treatment consistent with
the EITF consensus from the commissions in the other states in which
it operates.
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 the annual deferral and expense.
10. Business Segment Information
The Company's operations are organized under three primary lines of
business: Distribution, Energy Sales and Services and Customer
Services. The Distribution 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
Energy and Energy Brokers subsidiaries, as well as utility off-system
sales. The Customer ServiceS segment provides repair and maintenance
of customer-owned gas facilities and appliances and collects energy
usage data for billing purposes.
The following table provides information concerning the major segments
of the Company for each of the three years ended September 30, 1997.
Revenues include intersegment sales to affiliated entities, which are
eliminated in consolidation. Identifiable assets include only those
attributable to the operations of each segment.
(dollars in 1997 1996 1995
thousands)
Revenues:
Distribution $418,426 $403,100 $360,361
Energy Sales & 180,111 60,379 8,710
Services
Customer Services 12,290 10,722 9,025
Intersegment
Revenues (2,231) (4,702) (1,212)
------ ------ ------
Total Revenues $608,596 $469,499 $376,884
======= ======= =======
Operating Margins:
Distribution $154,119 $150,477 $144,377
Energy Sales &
Services 6,666 3,553 303
Customer Services 12,290 10,722 9,025
------- ------- -------
Total $173,075 $164,752 $153,705
======= ======= =======
Pre-Tax Operating
Income:
Distribution $42,579 $39,313 $ 27,580
Energy Sales &
Services 2,592 1,313 103
Customer Services 2,840 2,005 975
Other (2,433) (1,951) (1,913)
------ ------ ------
Total 45,578 40,680 26,745
Income Taxes 9,293 7,807 2,886
------ ------ ------
Total Operating
Income $36,285 $32,873 $ 23,859
====== ====== ======
Depreciation &
Amortization:
Distribution $18,518 $17,287 $ 16,342
Energy Sales &
Services 50 23 6
Customer Services 2,031 2,028 2,030
Other 2,433 1,951 1,372
------ ------ ------
Total Depreciation &
Amortization $23,032 $21,289 $ 19,750
====== ====== ======
Capital
Expenditures:
Distribution $47,378 $35,437 $ 36,491
Energy Sales &
Services 502 315 45
Customer Services 1,403 1,008 1,100
Other 2,996 299 282
------ ------ ------
Total Capital
Expenditures $52,279 $37,059 $ 37,918
====== ====== ======
Identifiable Assets:
Distribution $697,889 $645,247 $586,627
Energy Sales &
Services 28,638 7,415 517
Customer Services 15,458 14,958 13,122
Other 61,680 10,042 9,899
------ ------ ------
Total Identifiable
Assets $803,665 $677,662 $610,165
======= ======= =======
11. Commitments and Contingencies
Commitments. Capital expenditures are expected to be approximately $60
million in fiscal 1998.
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. 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 Company 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 "Southern Division MGP sites"). 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 Company.
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 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 is net of approximately $4 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. However, the Company believes
that it is possible that costs associated with conducting
investigative activities and implementing remedial activities, if
necessary, with respect to all of its MGP sites may exceed the
approximately $34 million reserve by an amount that could range up to
$24 million and be incurred during a future period of time that may
range up to fifty years. Of this $24 million in additional possible
future expenditures, approximately $12 million relates to the Northern
Division MGP sites and approximately $12 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 $24 million will be incurred and therefore
has not recorded it on its books.
The Company's prudently incurred remediation costs for the Northern
Division MGP sites have been authorized by the NJBPU to be recoverable
in rates. The Company also believes that a portion of such costs may
be recoverable from the Company's insurance carriers. The most recent
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 $34 million as of September 30, 1997, reflecting the
future recovery of environmental remediation liabilities related to
the Northern Division MGP sites. The Company is able to recover actual
MGP expenses over a rolling seven year period through its MGP
Remediation Adjustment Clause (RAC). The NJBPU approved the Company's
initial RAC rate filing on April 2, 1997 at which time the Company
began recovery of approximately $3.1 million, which represents
environmental costs incurred from inception through June 30, 1996. On
August 5, 1997, the Company submitted a second RAC rate filing to the
NJBPU to recover an additional $0.5 million in environmental costs
incurred from July 1, 1996 through June 30, 1997. Approval by the
NJBPU on this second RAC rate filing is expected in early 1998. 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.
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 $71 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.
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.
12. 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
1997:
Operating Revenues $151,868 $204,077 $125,175 $127,477
Operating Income 10,767 19,668 5,074 120
Net Income (Loss) 6,773 15,313 1,365 (3,802)
Net Income (Loss) Per
Share 0.61 1.37 0.12 (0.33)
1996:
Operating Revenues $124,767 $170,963 $ 95,517 $ 78,252
Operating Income (Loss) 11,409 19,170 3,340 (1,045)
Net Income (Loss) 6,446 14,456 (1,003) (5,002)
Net Income (Loss) Per
Share 0.70 1.58 (0.10) (0.45)
Quarterly net income (loss) per share in both fiscal 1997 and fiscal
1996 does not total to the annual amounts due to rounding and to
changes in the average common shares outstanding.
SCHEDULE II
NUI Corporation and Subsidiaries
Valuation and Qualifying Accounts
For each of the Three Years in the
Period Ended September 30, 1997
(Dollars in thousands)
Additions
---------------------
Balance, Charged to Balance,
Beginning Costs and End of
Description of Period Expenses Other Deductions Period
1997
Allowance for doubtful
accounts $2,288 $2,305 $1,088(a) $3,363(b) $ 2,318
Environmental
remediation
reserve(c) $33,981 -- -- -- $ 33,981
1996
Allowance for doubtful
accounts $ 1,689 $3,369 $ 863(a) $3,633(b) $ 2,288
Environmental
remediation
reserve(c) $33,981 -- -- -- $ 33,981
1995
Allowance for doubtful
accounts $ 1,368 $2,449 $1,127(a) $3,255(b) $ 1,689
Environmental
remediation
reserve(c) $32,181 -- $1,800 -- $ 33,981
(a) Recoveries
(b)Uncollectible amounts written off.
(c)The related cost of the reserve established in fiscal 1991, as well
as $5.6 million of fiscal 1994 additions, was recorded as a regulatory
asset. The remaining fiscal 1994 additions of $1.9 million and all of
fiscal 1995 additions was recorded as an additional utility plant
acquisition adjustment. See "Commitments and Contingencies-
Environmental Matters", Note 11 of the Notes to the Consolidated
Financial Statements.
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
NUI CORPORATION
By: JAMES R. VAN HORN
Vice President, 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, 1997
Executive Officer and
Director (Principal
executive officer)
JOHN KEAN Chairman and Director December 22, 1997
A. MARK ABRAMOVIC Senior Vice President December 22, 1997
and Chief Financial
Officer (Principal
financial and accounting
officer)
C. R. CARVER Director December 22, 1997
DR. VERA KING FARRIS Director December 22, 1997
JAMES J. FORESE Director December 22, 1997
BERNARD S. LEE Director December 22, 1997
R. V. WHISNAND Director December 22, 1997
JOHN WINTHROP Director December 22, 1997
INDEX TO EXHIBITS
Exhibit Description
No.
3(ii) By-Laws, amended and restated as of
September 23, 1997
10(ii) Service Agreement under Rate Schedule GSS by and
between Transcontinental Gas Pipe Line
Corporation and EGC, dated July 1, 1996
10(x) Service Agreement for Rate Schedule FTS-5 by and
between Texas Eastern Transmission Corporation
and EGC, dated March 18, 1996 (Contract #331501)
10(xii) Firm Transportation Service Agreement under FTS-2
Rate Schedule by and between City Gas and Florida
Gas Transmission, dated August 12, 1993
10(xxvi) Service Agreement under Rate Schedule GSS by and
between Transcontinental Gas Pipeline and North
Carolina Gas Service, dated July 1, 1996
10(xliii) Service Agreement under Rate Schedule FT by and
between Elkton Gas and Eastern Shore Natural Gas
Company, dated as of November 1, 1997 (Contract
#010003)
10(xliv) Service Agreement under Rate Schedule FT by and
between Elkton Gas and Eastern Shore Natural Gas
Company, dated as of November 1, 1997 (Contract
#010011)
10(xlv) Service Agreement under Rate Schedule FT by and
between Elkton Gas and Eastern Shore Natural Gas
Company, dated as of November 1, 1997 (Contract
#010012)
10(xlvi) Service Agreement under Rate Schedule FT by and
between Elkton Gas and Eastern Shore Natural Gas
Company, dated as of November 1, 1997 (Contract
#010013)
10(xlvii) Service Agreement under Rate Schedule FT by and
between Elkton Gas and Eastern Shore Natural Gas
Company, dated as of November 1, 1997 (Contract
#020003)
10(xlviii) Service Agreement under Rate Schedule FT by and
between Elkton Gas and Eastern Shore Natural Gas
Company, dated as of November 1, 1997 (Contract
#020005)
12 Consolidated Ratio of Earnings to Fixed Charges
21 Subsidiaries of NUI Corporation
23 Consent of Independent Public Accountants
27 Financial Data Schedule