10-Q 1 juneq.htm SECURITIES AND EXCHANGE COMMISSION

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q

(Mark One)

         X           QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                        EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2001

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     001-16385

 

NUI CORPORATION
(Exact name of registrant as specified in its charter)

New Jersey
(State of incorporation)

22-3708029
(IRS employer identification no.)

550 Route 202-206, PO Box 760, Bedminster, New Jersey 07921-0760
(Address of principal executive offices, including zip code)

(908) 781-0500
(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.        Yes        X        No

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of each of the registrant's classes of common stock, as of July 31, 2001: Common Stock, No Par Value: 13,751,703 shares outstanding.


NUI Corporation and Subsidiaries
Consolidated Statement of Income (Unaudited)
(Dollars in thousands, except per share amounts)

 

Three Months 

  Nine Months 
 

Ended 

  Ended 
 

June 30, 

  June 30, 
  2001 2000   2001 2000
           
Operating Margins          
  Revenues $ 231,929 $ 198,739   $ 976,194 $ 711,535
  Less- Purchased gas and fuel 170,149 154,927   769,079 531,359
     Cost of sales and services 5,322 3,624   16,165 12,118
     Energy taxes      3,509      1,994      12,273 9,886
     52,949     38,194    178,677 158,172
           
Other Operating Expenses          
  Operations and maintenance 36,580 22,078   85,665 68,552
  Depreciation and amortization 8,391 6,982   23,461 21,912
  Taxes, other than income taxes     1,194     2,201       6,092     7,288
    46,165   31,261   115,218   97,752
           
Operating Income 6,784 6,933   63,459 60,420
           
Other Income and Expense, Net          
  Equity in earnings (losses) of TIC Enterprises, LLC, net (762) (245)   (5,954) 369
  Equity in earnings (losses) of Virginia Gas Storage Company 42 -   42 -
  Other      394        48      1,181       65
     (326)    (197)    (4,731)     434
           
Income before Interest and Taxes 6,458 6,736   58,728 60,854
           
Interest expense    5,754    4,114      17,990    15,125
           
Income before Income Taxes 704 2,622   40,738 45,729
           
Income tax expense      43    1,158     16,911   18,911
           
Net Income $ 661 $ 1,464   $ 23,827 $ 26,818
  ====  =====    ====== ======
Net Income Per Share of Common Stock $ 0.05 $ 0.11   $ 1.80 $ 2.08
  ====  =====    ====== ======
Dividends Per Share of Common Stock $ 0.245 $ 0.245   $ 0.735 $ 0.735
  ====  =====    ====== ======
Weighted Average Number of Shares          
of Common Stock Outstanding 13,739,237 12,956,647   13,221,829 12,912,975
  ======== ========   ======== ========


See the notes to the consolidated financial statements.

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NUI Corporation and Subsidiaries
Consolidated Balance Sheet
(Dollars in thousands)

  June 30, September 30,
  2001 2000
  (Unaudited) *
ASSETS    
Current Assets    
Cash and cash equivalents $ 6,971 $ 3,515
Accounts receivable (less allowance for doubtful accounts of    
$2,468 and $1,544, respectively) 105,650 108,425
Notes Receivable - 7,000
Fuel inventories, at average cost 35,372 37,177
Unrecovered purchased gas costs 45,785 3,500
Prepayments and other    105,494      63,360
   Total Current Assets    299,272    222,977
     
Property, Plant and Equipment    
Property, plant and equipment at original cost 928,323 828,359
Accumulated depreciation and amortization (308,375) (281,976)
Unamortized plant acquisition adjustments, net       28,355      29,460
      648,303    575,843
     
Funds for Construction Held by Trustee 15,501 28,706
     
Investments in TIC Enterprises, LLC - 26,225
     
Other Investments 5,688 1,191
     
Assets Held for Sale 3,744 -
     
Other Assets    
Regulatory Assets 49,986 50,615
Deferred Assets        68,692     15,300
   Total Other Assets      118,678     65,915
     
Total Assets $ 1,091,186 $ 920,857
  ========  =======
CAPITALIZATION AND LIABILITIES    
Current Liabilities    
Notes payable to banks $ 215,832 $ 96,700
Notes payable 3,000 -
Current portion of capital lease obligations 2,123 1,965
Accounts payable, customer deposits and accrued liabilities 129,270 132,207
Federal income and other taxes     13,977     11,884
    364,202 242,756
     
Other Liabilities    
Capital lease obligations 3,714 4,396
Deferred federal income taxes 85,511 75,248
Unamortized investment tax credits 4,497 4,825
Environmental Remediation Reserve 32,669 33,361
Regulatory and other liabilities     37,689      34,355
     164,080    152,185
     
Capitalization    
Common shareholder's equity 293,931 256,969
Preferred stock - -
Long-term debt    268,973    268,947
Total Capitalization    562,904    525,916
     
  $ 1,091,186 $ 920,857
  ======== =======

 

 

*Derived from audited financial statements.

See the notes to the consolidated financial statements.

2


NUI Corporation and Subsidiaries
Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands)


  Nine Months Ended 
  June 30, 
  2001 2000
Operating Activities    
Net Income $ 23,827 $ 26,818
Adjustments to reconcile net income to net cash    
 provided by operating activities    
   Depreciation and amortization 25,069 23,185
   Deferred Federal income taxes 7,014 3,817
   Amortization of deferred investment tax credits (328) (345)
   Other 14,030 1,393
   Effects of changes in:    
     Accounts receivable, net 9,450 (15,601)
     Fuel inventories 1,805 8,559
     Accounts payable, deposits, accruals (15,436) (2,157)
     Over (under) recovered purchase gas costs (42,285) 9,130
     Other   (41,918)    (3,672)
   Net cash (used in) provided by operating activities   (18,772)    51,127
     
Financing Activities    
Proceeds from sales of common stock, net of treasury purchased 417 642
Dividends to shareholders (9,777) (9,502)
Funds for construction held by trustee, net 14,122 9,202
Notes receivable from Virginia Gas (13,000) -
Notes payable for TIC acquisition 3,000 -
Principal repayments under capital lease obligations (1,524) (7,660)
Net short-term borrowings (repayments)    73,705    (11,610)
  Net cash provided by (used for) financing activities    66,943    (18,928)
     
Investing Activities    
Cash expenditures for property, plant and equipment (30,856) (30,356)
Other   (13,859)    (1,959)
   Net cash used in investing activities   (44,715)   (32,315)
     
Net increase (decrease) in cash and cash equivalents $    3,456 $     (116)
  ======= =======
Cash and cash equivalents    
At beginning of period $  3,515 $  1,561
At end of period $  6,971 $  1,445
     
Supplemental Disclosures of Cash Flows    
Income taxes paid, net $   3,865 $   1,277
Interest paid $ 20,832 $ 17,056

 

 

See the notes to the consolidated financial statements.

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NUI Corporation and Subsidiaries
Notes to the Consolidated Financial Statements


1.     Basis of Presentation

The consolidated financial statements include all operating divisions and subsidiaries of NUI Corporation (collectively referred to as NUI or the Company). NUI is a multi-state company engaged in the sale and distribution of natural gas, energy commodity trading and marketing, sales outsourcing and telecommunications. The Company's utility divisions serve approximately 380,000 customers in seven states along the eastern seaboard of the United States and comprise Elizabethtown Gas Company (New Jersey), City Gas Company of Florida, North Carolina Gas, Elkton Gas (Maryland), Valley Cities Gas (Pennsylvania), Waverly Gas (New York) and Virginia Gas (see Note 4). Virginia Gas is also engaged in other activities, such as pipeline operation; natural gas storage; gathering, marketing and distribution services; natural gas exploration, production and well operation; and propane distribution. The Company's non-regulated businesses include NUI Energy, Inc. (NUI Energy), an energy retailer; NUI Energy Brokers (NUI Energy Brokers), an energy wholesaler; NUI Energy Solutions, Inc., an energy project development and consulting entity; NUI Environmental Group, Inc., an environmental project development subsidiary; Utility Business Services, Inc., (UBS), a geospatial and customer information systems and services subsidiary; NUI Telecom, Inc. (NUI Telecom), a telecommunications services subsidiary (see Note 3); and TIC Enterprises, L.L.C  (TIC), a sales outsourcing subsidiary (see Note 5). All intercompany accounts and transactions have been eliminated in consolidation.

On May 15, 2001, the Company acquired the remaining 51 percent interest of TIC that it did not previously own (see Note 5). NUI originally acquired a 49 percent interest in TIC on May 18, 1997, for $22 million.

The consolidated financial statements contained herein have been prepared without audit in accordance with the rules and regulations of the Securities and Exchange Commission and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for interim periods. All adjustments made were of a normal recurring nature. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto that are included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2000.

NUI is a Holding Company and is exempt from registration under the Public Utility Holding Company Act of 1935. NUI's wholly owned subsidiary, NUI Utilities, Inc. is subject to regulation as an operating utility by the public utility commissions of the states in which it operates. Certain subsidiaries of NUI Virginia Gas are regulated by the Virginia State Corporation Commission. Because of the seasonal nature of gas utility operations, the results for interim periods are not necessarily indicative of the Company's results for an entire year.

2.     Common Shareholders' Equity

The components of common shareholders' equity were as follows (dollars in thousands):

  June 30, September 30,
  2001 2000
     
Common stock, no par value $ 240,571 $ 215,484
Shares held in treasury (2,246) (2,246)
Retained earnings 59,506 45,456
Unearned employee compensation    (3,900)    (1,725)
Total common shareholders' equity $ 293,931 $ 256,969
  ======= =======

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3.     Purchase of NUI Telecom

On November 12, 1999, the Company closed on its acquisition of International Telephone Group, Inc. (ITG). The acquisition was treated as a merger whereby ITG merged with and into a subsidiary of the Company. ITG subsequently changed its name to NUI Telecom, Inc. The purchase price totaled $5.8 million and included the issuance of 113,200 shares of NUI common stock, with the remainder paid in cash. NUI Telecom is a full service telephone company that provides its customers with a single service solution for all their telecommunication requirements including local, long distance, cellular, internet, and data communications services. The Agreement and Plan of Merger contains a provision whereby the previous shareholders of NUI Telecom will receive an additional $1.0 million in NUI common stock if NUI Telecom achieves certain revenue targets no later than December 31, 2003.

The acquisition was accounted for as a purchase. The excess of the purchase price over the net assets of NUI Telecom is approximately $5.5 million, which includes the additional earnings contingency noted above, and is being amortized on a straight-line basis over a 20-year period.

4.     Purchase of Virginia Gas Company

On March 28, 2001, the Company completed its acquisition of Virginia Gas Company (VGC). The acquisition was treated as a merger whereby VGC became a wholly-owned subsidiary of NUI. The purchase price totaled $29 million and included the issuance of 792,600 shares of NUI common stock, with the remainder paid in cash. VGC is a natural gas storage, pipeline, and propane and natural gas distribution company, which operates in a region of the nation that has a rapidly growing demand for natural gas and power generation due to significant development. It owns one natural gas facility with fast-injection, fast-withdrawal capabilities and has 50 percent ownership of a second storage facility. During June 2001, the Company reached an agreement to acquire the remaining interest in this storage facility (see "Capital Expenditures and Commitments").

The acquisition is being accounted for as a purchase. The excess of the purchase price over the fair value of the net assets of VGC is estimated to be approximately $4.6 million and will be amortized on a straight-line basis over a 30-year period. In conjunction with the acquisition, the Company has identified two operations of Virginia Gas that will be held for sale. Accordingly, the net assets of Virginia Gas' Propane and Marketing operations as well as VGC's 50 percent equity interest in a distribution company have been segregated and classified as "Assets Held for Sale" on the Consolidated Balance Sheet at June 30, 2001.

5.     Purchase of TIC Enterprises, LLC

On May 15, 2001, the Company acquired the remaining 51 percent interest of TIC Enterprises, LLC (TIC) it did not previously own. The amount paid to the majority owner totaled $8 million, which was paid in cash and a note payable. TIC is a sales outsourcing firm located in Roswell, GA. TIC has exclusive contracts with the United States Postal Service (USPS), and various telecommunications equipment and service providers that enable TIC to provide a broad range of telephony and data products and services to its customers.

The acquisition is being accounted for as a purchase. The excess of the purchase price over the fair value of the net assets of TIC is estimated to be approximately $35.7 million and will be amortized on a straight-line basis over a 25-year period.

The Company recorded losses of $5.3 million through May 15, 2001, for 49 percent of the operating losses TIC incurred prior to completing the acquisition of the remaining 51 percent interest it did not previously own. TIC has experienced longer and more costly delays in transitioning from selling the products of one telecommunications equipment provider to those of another. The demand for telecommunications equipment has also weakened nationwide, adversely affecting TIC's results. As a result of these difficulties, TIC has aggressively taken steps toward cost reductions and restructuring of compensation plans in order to improve its financial performance. The Company expects TIC to achieve break-even status by September 2001 and be well positioned for further growth. While there can be no assurance that the current economic climate for telecommunications equipment will improve in the near-term or that TIC will return to profitability, management believes that the current carrying value of its investment has not been impaired.

 

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6.     Goodwill

The excess of the cost over the net assets of acquired businesses is recorded as goodwill, which is included in deferred charges on the balance sheet. Goodwill is amortized on a straight-line basis over its estimated useful life, ranging from 20 to 30 years. The Company has goodwill of $45.3 million, net of accumulated amortization, at June 30, 2001. Goodwill is reviewed for recoverability periodically or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company has recorded amortization of goodwill of $420,000 and $971,000 for the three-month and nine-month period ended June 30, 2001, respectively.

7.     Contingencies

Environmental Matters. The Company is subject to federal and state laws with respect to water, air quality, solid waste disposal and employee health and safety matters, and to environmental regulations issued by the United States Environmental Protection Agency (EPA), the New Jersey Department of Environmental Protection (NJDEP) and other federal and state agencies.

The Company owns, or previously owned, certain properties on which manufactured gas plants (MGP) were operated by the Company or by other parties in the past. In New Jersey, the Company has reported the presence of the six MGP sites to the EPA, the NJDEP and the New Jersey Board of Public Utilities (NJBPU) and is currently conducting remedial activities at all six sites with oversight from the NJDEP. The Company also owns, or previously owned, 10 former MGP facilities located in the states of North Carolina, South Carolina, Pennsylvania, New York and Maryland. Based on the most recent assessment, the Company has recorded a total reserve for environmental investigation and remediation costs of approximately $33 million, which is the probable minimum amount that the Company expects to expend during the next 20 years. Of this reserve, approximately $29 million relates to the six New Jersey MGP sites and approximately $4 million relates to the 10 sites located outside New Jersey.

The Company's prudently incurred remediation costs for the New Jersey MGP sites have been authorized by the NJBPU to be recoverable in rates. In New Jersey, the Company is currently recovering MGP-related expenditures on an annual basis through base rates and over a rolling seven-year period through its NJBPU approved MGP Remediation Adjustment Clause. As a result, the Company has begun rate recovery of approximately $8.3 million of environmental costs incurred through June 30, 2000. Accordingly, the Company has recorded a regulatory asset of approximately $35.3 million as of June 30, 2001, reflecting the future recovery of both incurred costs and future environmental remediation liabilities related to New Jersey MGP sites. The Company has also been successful in recovering a portion of MGP remediation costs incurred for the New Jersey sites from the Company's insurance carriers and continues to pursue additional recovery. With respect to costs associated with the remaining MGP sites located outside New Jersey, the Company intends to pursue recovery from ratepayers, former owners and operators, and insurance carriers, although the Company is not able to express a belief as to whether any or all of these recovery efforts will be successful. The Company is working with the regulatory agencies to prudently manage its MGP costs so as to mitigate the impact of such costs on both ratepayers and shareholders.

Gas Procurement Contracts. Certain of the Company's long-term contracts for the supply, storage and delivery of natural gas include fixed charges that amount to approximately $60.5 million annually. The Company currently recovers, and expects to continue to recover, such fixed charges through its purchased gas adjustment clauses. As a result of the forthcoming unbundling of natural gas services in New Jersey, these contracts may result in the realization of stranded costs by the Company. Management believes the outcome of these actions will not have a material adverse effect on the Company's results. The Company also is committed to purchase, at market-related prices, minimum quantities of gas that, in the aggregate, are approximately 2.6 billion cubic feet (Bcf) per year or to pay certain costs in the event the minimum quantities are not taken. The Company expects that minimum demand on its systems for the duration of these contracts will continue to exceed these minimum purchase obligations.

Other. The Company is involved in various claims and litigation incidental to its business. In the opinion of management, none of these claims and litigation will have a material adverse effect on the Company's results of operations or its financial condition.

 

 

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8.     New Accounting Standards

The Company will adopt Statement of Financial Accounting Standards No. 141, "Business Combinations" (SFAS 141) and Statement of Financial Accounting Standards No. 142, "Goodwill and Intangible Assets" (SFAS 142) in fiscal 2002. These statements were issued in July 2001 and, when implemented, no longer require that companies amortize goodwill; however an annual assessment is required to determine if the carrying value of goodwill has been impaired. In general, under SFAS 142, acquired intangible assets are to be separately recognized if the intangible asset arises from contractual or other legal rights, or if the intangible asset can be sold, transferred, licensed, rented, or exchanged, regardless of the company's intent do to so. The value of these intangibles will continue to be amortized over their estimated useful lives. As noted, the Company expects to implement these statements at the beginning of its next fiscal year, October 1, 2001, and will review goodwill recorded for its recent acquisitions to identify the existence of intangibles requiring amortization and support the carrying value of its goodwill.

9.     Business Segment Information

The Company's operations are organized and managed by three primary segments: Distribution Services, Energy Sales and Services and Customer Services. The Distribution Services segment distributes natural gas in six states through the Company's regulated utility divisions. The Energy Sales and Services segment reflects the operations of the Company's NUI Energy, NUI Energy Brokers and NUI Virginia Gas subsidiaries, as well as off-system sales made by NUI Energy Brokers on behalf of the utility divisions. The Customer Services segment reflects the operations of the Company's UBS, NUI Telecom and TIC subsidiaries, as well as appliance leasing, repair and maintenance operations. The Company also has corporate operations that do not generate any revenues.

The following table provides information concerning the major segments of the Company for the three and nine month periods ended June 30, 2001 and 2000. Revenues include intersegment sales to affiliated entities, which are eliminated in consolidation. All of the Company's operations are in the United States and therefore do not need separate disclosure by geographic region.

  Three Months Ended    Nine Months Ended 
  June 30,    June 30, 
(Dollars in thousands) 2001 2000   2001 2000
           
Revenues:          
Distribution Services $   99,768 $   79,183   $ 459,543 $ 341,775
Energy Sales and Services 157,318 128,190   614,132 391,264
Customer Services 16,486 6,324   36,059 21,495
Intersegment Revenues   (41,643)   (14,958)    (133,540)   (42,999)
Total Revenues $ 231,929 $ 198,739   $ 976,194 $ 711,535
  =======  =======   ======= =======
Pre-tax Operating Income (Loss):          
Distribution Services $     2,077 $     5,444   $   54,128 $   56,062
Energy Sales and Services 7,052 1,364   12,219 5,025
Customer Services    (1,407)          101       (1,095)          (93)
Total Pre-tax Operating Income (Loss) $    7,722 $     6,909   $   65,252 $   60,994
  ======= =======   ======= =======

A reconciliation of the Company's segment pre-tax operating income to amounts reported on the consolidated financial statements is as follows:

  Three Months Ended    Nine Months Ended 
  June 30,    June 30, 
(Dollars in thousands) 2001 2000   2001 2000
           
Segment Pre-tax Operating Income $ 7,722 $ 6,909   $ 65,252 $ 60,994
Non-segment pre-tax operating income    (938)         24     (1,793)      (574)
Pre-tax Operating Income $ 6,784 $ 6,933   $ 63,459 $ 60,420
  ===== =====   ====== ======

7


NUI Corporation and Subsidiaries
Summary Consolidated Operating Data

 
  Three Months Ended    Nine Months Ended 
  June 30,    June 30, 
  2001 2000   2001 2000
Operating Revenues (Dollars in thousands)          
Firm sales:          
     Residential $ 50,131 $ 36,583   $ 242,352 $ 182,188
     Commercial 19,236 14,428   104,109 74,959
     Industrial 1,870 1,686   10,817 7,227
Interruptible Sales 18,836 15,850   68,539 42,468
Unregulated Sales 113,207 114,987   478,051 353,802
Transportation Services 9,035 9,925   32,135 33,322
Customer Service, Appliance Leasing, and Other     19,614       5,280       40,191      17,569
  $ 231,929 $ 198,739   $ 976,194 $ 711,535
   ======= =======   ======= =======
Gas Sold or Transported (MMcf)          
Firm sales:          
     Residential 3,891 3,407   23,056 20,959
     Commerctial 1,841 1,613   10,627 9,708
     Industrial 78 241   1,072 1,056
Interruptible Sales 3,207 3,765   9,866 11,129
Unregulated Sales 22,836 31,454   74,687 111,811
Transportation Services       8,282       8,766      27,520    29,072
      40,135     49,246     146,828 183,735
  ====== ======   ====== ======
Average Utility Customers Served          
Firm sales:          
     Residential 354,129 348,122   353,916 348,461
     Commerctial 23,891 23,426   23,885 23,581
     Industrial 250 238   260 240
Interruptible Sales 38 44   44 45
Transportation Services     3,457     3,828       3,681     3,736
  381,765 375,658   381,786 376,063
  ====== ======   ====== ======
Degree Days in New Jersey          
Actual 485 566   4,971 4,494
Normal 568 554   5,101 5,131
Percentage variance from normal 15% 2%   3% 12%
  warmer colder   warmer warmer
           
Employees (period end)       1,750 1,076

 

8


NUI Corporation and Subsidiaries
Management's Discussion and Analysis of Financial Condition
and Results of Operations

The following discussion and analysis refers to NUI Corporation and all of its operating divisions and subsidiaries (collectively referred to as the Company). NUI is a multi-state company engaged in the sale and distribution of natural gas, energy commodity trading and marketing, sales outsourcing and telecommunications. The Company's utility divisions serve approximately 380,000 customers in seven states along the eastern seaboard of the United States and comprise Elizabethtown Gas Company (New Jersey), City Gas Company of Florida, North Carolina Gas, Elkton Gas (Maryland), Valley Cities Gas (Pennsylvania) and Waverly Gas (New York) and Virginia Gas. Virginia Gas is also engaged in other activities, such as pipeline operation; natural gas storage; gathering, marketing and distribution services; natural gas exploration, production and well operation; and propane distribution. The Company's non-regulated subsidiaries include NUI Energy, Inc. (NUI Energy), an energy retailer; NUI Energy Brokers, Inc. (NUI Energy Brokers), an energy wholesaler; NUI Energy Solutions, Inc., an energy project development and consulting entity; NUI Environmental Group, Inc., an environmental project development subsidiary; Utility Business Services, Inc. (UBS), a geospatial and customer information systems and services subsidiary; NUI Telecom, Inc. (NUI Telecom), a telecommunications services subsidiary; and TIC Enterprises, L.L.C.  (TIC), a sales outsourcing subsidiary.

On March 28, 2001, the Company completed its acquisition of Virginia Gas Company (VGC) of Abingdon, Virginia. On May 15, 2001, the Company acquired the remaining 51 percent interest of TIC that it did not previously own. NUI originally acquired a 49 percent interest in TIC on May 18, 1997, for $22 million.

Results of Operations

Three-Month Periods Ended June 30, 2001 and 2000

Net Income. Net income for the three-month period ended June 30, 2001, was $0.7 million, or $0.05 per share, as compared with net income of $1.5 million, or $0.11 per share, for the three-month period ended June 30, 2000. Net income for the current period includes losses of $1.0 million, or $0.07 per share, for the operations of TIC Enterprises, since it became a wholly-owned subsidiary of the Company on May 15, 2001.

Operating Revenues and Operating Margins. The Company's operating revenues include amounts billed for the cost of purchased gas pursuant to purchased gas adjustment clauses. Such clauses enable the Company to pass through to its customers, via periodic adjustments to customers' bills, increased or decreased costs incurred by the Company for purchased gas without affecting operating margins. Since the Company's utility operations do not earn a profit on the sale of the gas commodity, the Company's level of regulated operating revenues is not necessarily indicative of financial performance.

The Company's operating revenues increased by $33.2 million, or 17 percent, for the three-month period ended June 30, 2001, as compared with the three-month period ended June 30, 2000. The Company's Distribution Services' revenue increased by approximately $20.6 million, mainly due to higher gas prices charged through the Company's purchased gas adjustment clauses, an increase in base rates in Florida (see Regulatory Matters), and customer growth. These increases were partially offset by the effect of weather that was 14 percent warmer compared to the three-month period ended June 30, 2000. Customer Services' revenue increased by approximately $9.0 million, net of intercompany transactions, due to higher sales volumes by NUI Telecom and the recent acquisition of TIC Enterprises (see Note 5 of the Notes to the Consolidated Financial Statements). Energy Sales and Services' revenue increased by approximately $3.6 million, net of intercompany transactions, primarily due to higher gas prices, an increase in unregulated off-system sales and the acquisition of NUI Virginia Gas.

The Company's operating margins increased by $14.8 million, or 39 percent, for the three-month period ended June 30, 2001, as compared with the three-month period ended June 30, 2000. The increase was primarily attributable to an increase of approximately $8.3 million in the Company's Energy Sales and Services segment due to fees earned as part of a customer's future electricity purchases, the continuing volatility 

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of gas prices experienced throughout the nation, and the recent acquisition of NUI Virginia Gas. NUI's wholesale business, NUI Energy Brokers, increased operating margins $4.5 million, or 199 percent, and NUI's retail subsidiary, NUI Energy, increased margins $2.4 million, or 214 percent, as gas costs decreased from the unprecedented levels experienced this past winter. As the price of gas declined, NUI Energy customers began moving away from the month-to-month arrangements to long-term contracts as protection against future seasonal increases. Operating margins increased in the Customer Services segment by approximately $7.2 million, net of intercompany transactions, due to increased sales by NUI Telecom and UBS, as well as the inclusion of results from TIC Enterprises (see Note 5 of the Notes to the Consolidated Financial Statements). These increases were offset by a decrease of approximately $0.7 million in the Company's Distribution Services segment as a result of weather that was 14 percent warmer as compared with the three-month period ended June 30, 2000.

Other Operating Expenses. Operations and maintenance expenses increased approximately $14.5 million, or 66 percent, for the three-month period ended June 30, 2001, as compared with the three-month period ended June 30, 2000. The increase was the result of operating expenses for the recent acquisitions of NUI Virginia Gas and TIC Enterprises, higher provisions for bad debts, increased labor and employee benefit costs, higher commissions for Energy Brokers as a result of increased margins, and costs associated with the Company's new technology lease. The Company previously owned the technology assets it replaced during the year.

Other Income and Expense, Net. Equity in the losses of TIC decreased approximately $0.4 million due to operating losses TIC incurred prior to NUI's acquisition of the remaining equity interest in company. The decrease was primarily the result of the continuing slowdown in the demand for telecommunications equipment. Now under NUI's ownership, TIC has continued to work toward improving its cost structure to enable TIC to return to profitability in the near-term.

Interest Expense. Interest expense increased by approximately $1.6 million for the three-month period ended June 30, 2001, as compared to the same period in the prior year. During the three-month period ended June 30, 2000, in accordance with a Stipulation approved by the New Jersey Board of Public Utilities, the Company was able to recover the carrying costs computed on previously deferred expenses incurred for the investigation and remediation of manufactured gas plant sites in New Jersey. The current year increase is a result of the effect of the prior year recovery, coupled with higher average debt outstanding during 2001 (see Financing Activities and Resources). Partially offsetting this increase was $0.6 million of interest recorded as a regulatory asset in accordance with a recently approved Stipulation by the New Jersey Board of Public Utilities, which allows the Company to recover carrying costs computed on under-recovered gas costs (see Regulatory Matters).

Nine-Month Periods Ended June 30, 2001 and 2000

Net Income. Net income for the nine-month period ended June 30, 2001, was $23.8 million, or $1.80 per share, as compared with net income of $26.8 million, or $2.08 per share, for the period ended June 30, 2000. The decrease in the current period was primarily due to losses incurred by TIC which totaled $6.3 million, or $0.48 per share, that was offset by improved results of the Company's core businesses.

Operating Revenues and Operating Margins. The Company's operating revenues increased by $264.7 million, or 37 percent, for the nine-month period ended June 30, 2001, as compared with the nine-month period ended June 30, 2000. The Company's Distribution Services' revenue increased by approximately $117.8 million, mainly due to the higher cost of gas and customer growth. Weather in New Jersey was 3 percent warmer than normal, but 11 percent colder than the prior year period. Energy Sales and Services' revenue increased by approximately $134.9 million, net of intercompany transactions, due to higher gas prices and an increase in unregulated off-system sales. Customer Services' revenue increased by approximately $12.0 million, net of intercompany transactions, due to increased volumes by NUI Telecom, higher sales by UBS and the appliance services operations, and the recent acquisition of TIC (see Note 5 of the Notes to the Consolidated Financial Statements).

The Company's operating margins increased by $20.5 million, or 13 percent, for the nine-month period ended June 30, 2001, as compared with the nine-month period ended June 30, 2000. The increase was primarily attributable to an increase of $10.4 million in the Company's Energy Sales and Services segment as a result of the acquisition of NUI Virginia Gas, fees earned as part of a customer's future electricity purchases, and the continued volatility in the price of natural gas. Operating margins increased approximately $2.2 million in the Company's Distribution Services segment as a result of customer growth and increased sales due to colder weather in the current period. 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 

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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 $0.6 million and $4.9 million higher in the fiscal 2001 and 2000 periods, respectively, than they otherwise would have been without such clauses. Operating margins increased in the Customer Services segment by approximately $7.9 million, net of intercompany transactions, due to higher sales by NUI Telecom, UBS and the appliance services operations, as well as the recent acquisition of TIC (see Note 5 of the Notes to the Consolidated Financial Statements).

Other Operating Expenses. Operations and maintenance expenses increased approximately $17.1 million, or 25 percent, for the nine-month period ended June 30, 2001, as compared with the nine-month period ended June 30, 2000. The increase was primarily the result of the addition of operating expenses of NUI Virginia Gas and TIC since their acquisition dates (see Notes 4 and 5 of the Notes to the Consolidated Financial Statements), higher bad debt expense due to the increase in operating revenues, , increased labor and employee benefit costs, higher costs incurred related to the Company's growth businesses, higher commissions for Energy Brokers as a result of increased margins and costs associated with the Company's new technology lease. The Company previously owned the technology assets it replaced during the year.

Depreciation and amortization increased approximately $1.5 million in the current period, due to additional plant in service and the acquisitions of NUI Virginia Gas and TIC.

Interest Expense. Interest expense increased approximately $2.9 million, or 19 percent, due to higher levels of short-term debt necessary to finance the Company's purchases of natural gas. The high cost of gas resulted in an average short-term debt balance of $154.1 million for the nine-month period ended June 30, 2001, compared to $72.1 million in the previous year (see Financing Activities and Resources). Also contributing to the increase in the current year was the previously noted effect of the prior year recovery of the carrying costs computed on deferred expenses incurred for the investigation and remediation of manufactured gas plant sites in New Jersey in fiscal 2000. Partially offsetting this increase was higher capitalized interest and amounts capitalized as regulatory assets to recover the carrying costs associated with the under-recovery of gas costs.

Regulatory Matters

The Company's City Gas division received approval from the Florida Public Service Commission (FPSC) on January 16, 2001, to increase its annual base rates by $5.13 million. The new rate level provides for an allowed return on equity of 11.5 percent and an overall allowed rate of return of 7.88 percent.

On November 1, 2000, the New Jersey Board of Public Utilities (NJBPU) issued an order approving an increase in the New Jersey purchased gas adjustment clause (PGA) of 17.3 percent. The rate increase was effective immediately and results in a revenue increase of approximately $47 million annually. In addition, the Company was allowed to increase the PGA rate by an additional 2 percent each month between December 2000 and April 2001. Each of these monthly rate increases added revenues of up to $6 million on an annual basis. The increased PGA rate was granted to cover the higher costs the Company has been paying for its natural gas purchases, which had risen from about $2.50 per dekatherm in July 1999 to as high as $10.00 per dekatherm in January 2001 (see "Financing Activities and Resources"). In a December 1, 2000 filing, the Company proposed the extension of the monthly 2 percent rate adjustments for an additional three months and authorization to record interest on its under-recovered gas balance. On March 20, 2001, the NJBPU issued an order approving the Company's request to extend the monthly 2 percent increases through July 2001 if actual gas costs warrant such increases. The Company has implemented these increases. In addition, the order allows the Company to begin recording interest on its under-recovered gas cost balance, and established a new rate adjustment to recover the gas cost under-recovery balance as of October 31, 2001 with associated interest over a three-year period.

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Financing Activities and Resources

The Company had net cash used in operating activities of $18.8 for the nine-month period ended June 30, 2001, compared to net cash provided by operating activities of $51.1 million for the same period in the prior year. The decrease was primarily due to substantial increases in cash required to fund under-recovered gas costs and the timing of payments to gas suppliers. These increases were partially offset by amounts collected from customers.

The Company expects to raise $60 million from the issuance of intermediate debt during August 2001. The proceeds would be used to repay the short-term debt used, in part, to acquired NUI Virginia Gas. Additionally, the Company plans an equity offering of approximately $25 million of common stock in the fall of 2001. The proceeds of the equity offering would be used to further reduce its short-term indebtedness and other general corporate purposes.

Because the Company's business is highly seasonal, short-term debt is used to meet seasonal working capital requirements. The Company also borrows under its bank lines of credit to finance portions of its capital expenditures, pending refinancing through the issuance of equity or long-term indebtedness at a later date, depending upon prevailing market conditions.

Short-Term Debt. The weighted average daily amounts outstanding of notes payable to banks and the weighted average interest rates on those amounts were $154.1 million at 5.9 percent for the nine-month period ended June 30, 2001, and $72.1 million at 6.6 percent for the nine-month period ended June 30, 2000. At June 30, 2001, the Company had outstanding notes payable to banks amounting to $215.8 million and available unused lines of credit amounting to $15.7 million. Notes payable to banks increased as of June 30, 2001, as compared to the balance outstanding at September 30, 2000, due to reasons discussed above.

Long-Term Debt and Funds for Construction Held by Trustee. 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 June 30, 2001, the total unexpended portions of all of the Company's Gas Facilities Revenue Bonds were $7.2 million and are classified on the Company's consolidated balance sheet, including interest earned thereon, as funds for construction held by trustee.

Common Stock. On November 12, 1999, the Company issued 113,200 shares of NUI common stock that was used for the purchase of NUI Telecom (see Note 3 of the Notes to the Consolidated Financial Statements). On March 28, 2001, the Company issued 792,600 shares of NUI common stock that was used for the purchase of Virginia Gas (see Note 4 of the Consolidated Financial Statements).

Dividends. The Company's long-term debt agreements include, among other things, restrictions as to the payment of cash dividends. Under the most restrictive of these provisions, the Company is permitted to pay approximately $80.9 million of cash dividends at June 30, 2001.

Assets Held for Sale. Upon completing the acquisition of Virginia Gas, the Company now seeks to focus on the development of the Virginia Gas operations that complement and augment existing NUI businesses and have opportunities for growth. Accordingly, the Company intends to sell the net assets of NUI Virginia Gas' Propane and Marketing operations, as well as its 50 percent equity investment in a distribution company. The proceeds are expected to be reinvested in additional pipeline and storage capacity to facilitate the growth of NUI Virginia Gas.

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Capital Expenditures and Commitments

Capital expenditures, which consist primarily of expenditures to expand and upgrade the Company's gas distribution systems, were $30.9 million for the nine-month period ended June 30, 2001, as compared to $30.4 million for the nine-month period ended June 30, 2000. Capital expenditures are expected to be approximately $64 million for all of fiscal 2001, as compared with a total of $52.7 million in fiscal 2000. Included in the spending for fiscal 2001 is approximately $14 million related to Phase I construction of a distribution pipeline to bring natural gas service to Florida Crystals Corporation and the nearby towns of South Bay and Belle Glade, Florida. The remaining capital expenditure budget for fiscal 2001 will be used primarily for the continued expansion and upkeep of the Company's natural gas distribution system, as well as certain technology projects.

Environmental. The Company owns or previously owned six former manufactured gas plant (MGP) sites in the state of New Jersey and ten former MGP sites in the states of North Carolina, South Carolina, Pennsylvania, New York and Maryland. Based on the Company's most recent assessment, the Company has recorded a total reserve for environmental investigation and remediation costs of approximately $33 million, which is the probable minimum amount that the Company expects it will expend in the next 20 years to remediate the Company's MGP sites. Of this reserve, approximately $29 million relates to New Jersey MGP sites and approximately $4 million relates to the MGP sites located outside New Jersey. The Company believes that all costs associated with the New Jersey MGP sites will be recoverable in rates or from insurance carriers. In New Jersey, the Company is currently recovering environmental costs on an annual basis through base rates and over a rolling seven-year period through its MGP Remediation Adjustment Clause. As a result, the Company has begun rate recovery of approximately $8.3 million of environmental costs incurred through June 30, 2000. With respect to costs that may be associated with the MGP sites located outside the state of New Jersey, the Company intends to pursue recovery from ratepayers, former owners and operators of the sites and from insurance carriers. However, the Company is not able, at this time, to express a belief as to whether any or all of these recovery efforts will ultimately be successful.

Gas Procurement Contracts. Certain of the Company's long-term contracts for the supply, storage and delivery of natural gas include fixed charges that amount to approximately $60.5 million annually. The Company currently recovers, and expects to continue to recover, such fixed charges through its purchased gas adjustment clauses. As a result of the forthcoming unbundling of natural gas services in New Jersey, these contracts may result in the realization of stranded costs by the Company. Management believes the outcome of these actions will not have a material adverse effect on the Company's results. The Company also is committed to purchase, at market-related prices, minimum quantities of gas that, in the aggregate, are approximately 2.6 billion cubic feet (Bcf) per year or to pay certain costs in the event the minimum quantities are not taken. The Company expects that minimum demand on its systems for the duration of these contracts will continue to exceed these minimum purchase obligations.

Long-Term Debt. The Company is scheduled to repay $20 million of Medium-Term Notes in August 2002.

Joint Venture with Duke Energy. On April 30, 2001, the Company announced an agreement with a unit of Duke Energy to develop a natural gas storage facility in Saltville, Virginia. NUI's Virginia Gas subsidiary and Duke Energy Gas Transmission (DEGT) have agreed to basic business terms and will create a limited liability company, Saltville Gas Storage Company LLC. The transaction is subject to execution of definitive agreements.

The agreement will allow for the expansion of the present Saltville storage facility from its current capacity of 1.1 billion cubic feet (Bcf) to 10 Bcf and connect it to DEGT's East Tennessee Natural Gas (ETNG) mainline system. At full capacity, the Saltville storage field will be able to deliver up to 500 million cubic feet of natural gas to area markets. The Saltville facility features fast-injection and fast-withdrawal capabilities offered by salt cavern storage.

Development of the Saltville facility creates a strategically located energy-trading hub for NUI's wholesale trading arm, NUI Energy Brokers. This will enable the Company to capitalize on the energy supply, wholesale trading and portfolio management opportunities in the rapidly developing Mid-Atlantic region. The additional storage capacity will allow the Company to meet the significant demand from local distribution companies as well as power plant development that is underway in the region.

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Sale of Valley Cities Gas and Waverly Gas. On October 4, 2000, the Company agreed to sell the assets of its Valley Cities Gas and Waverly Gas utility divisions (VCW) to C&T Enterprises, Inc. (C&T), of Pennsylvania for $15 million. C&T will pay an additional $3 million to the Company should certain revenue targets be achieved. The transaction is expected to close during the latter portion of fiscal 2001 after all regulatory approvals have been obtained. For the nine months ended June 30, 2001, VCW generated $10.5 million of operating revenues, $3.0 million of operating margin and $0.8 million of operating income.

Acquisition of Virginia Gas Storage Company and Virginia Gas Distribution Company
. During June 2001, the Company completed an agreement with the individuals that own of the remaining 50 percent interests in Virginia Gas Storage Company (VGSC) and Virginia Gas Distribution Company (VGDC). Two individuals each own 25 percent of the stock of both VGSC and VGDC. Under terms of the agreement, the Company would pay each owner $750,000 and issue 72,324 shares of NUI Common Stock in exchange for their stock in both VGSC and VGDC. The transaction is expected to close in the fall of 2001 after regulatory approval has been obtained. As noted in "Financing Activities and Resources- Assets Held for Sale", the Company intends to sell the assets of VGDC within the next twelve months.

Market Risk Exposure

The Company's wholesale trading subsidiary, NUI Energy Brokers, uses derivatives for multiple purposes: i) to hedge price commitments and minimize the risk of fluctuating gas prices, ii) to take advantage of market information and opportunities in the marketplace, and iii) to fulfill its trading strategies and, therefore, ensure favorable prices and margins. These derivative instruments include forwards, futures, options and swaps.

The risk associated with uncovered derivative positions is closely monitored on a daily basis, and controlled in accordance with NUI Energy Brokers' Risk Management Policy. This policy has been approved by the Company's Board of Directors and dictates policies and procedures for all trading activities. The policy defines both value-at-risk (VaR) and loss limits, and all traders are required to read and follow this policy. At the end of each day, all trading positions are marked-to-market and a VaR is calculated. This information, as well as the status of all limits, is disseminated to senior management daily.

NUI Energy Brokers utilizes the variance/covariance VaR methodology. Using a 95 percent confidence interval and a one-day time horizon, as of June 30, 2001, NUI Energy Brokers' VaR was $250,000.

Forward-Looking Statements

This document contains forward-looking statements. These statements are based on management's current expectations and information currently available and are believed to be reasonable and are made in good faith. However, the forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the statements. Factors that may make the actual results differ from anticipated results include, but are not limited to, economic conditions; competition from other providers of similar products; and other uncertainties, all of which are difficult to predict and some of which are beyond our control. For these reasons, you should not rely on these forward-looking statements when making investment decisions. The words "expect," "believe," "project," "anticipate," "intend," "should," "could," and variations of such words and similar expressions, are intended to identify forward-looking statements. We do not undertake any obligation to update publicly any forward-looking statement, either as a result of new information, future events or otherwise.

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PART II - OTHER INFORMATION

Item 6.     Exhibits and Reports on Form 8-K

(a)     Exhibits.

        None

(b)     Reports on Form 8-K

On May 15, 2001, the Company filed a Form 8-K, Item 5, Other Events, reporting the NUI had reached a definitive agreement with the majority owner of TIC Enterprises, LLC to acquire the outstanding 51 percent equity interest in TIC it did not own.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

NUI CORPORATION

August 13, 2001

JOHN KEAN, JR.
President and Chief Executive Officer

August 13, 2001

A. MARK ABRAMOVIC
Sr. Vice President, Chief Operating Officer & Chief Financial Officer