10-Q 1 0001.txt 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, 2000 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to_________ Commission File Number 1-8353 NUI CORPORATION (Exact name of registrant as specified in its charter) New Jersey 22-1869941 (State of incorporation) (IRS employer identification no.) 550 Route 202-206, 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, 2000: Common Stock, No Par Value: 12,987,368 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 2000 1999 2000 1999 Operating Margins Operating revenues $199,124 $160,678 $712,724 $644,838 Less - Purchased gas and fuel 154,927 117,118 531,359 472,047 Energy taxes 2,392 2,664 11,616 12,187 ------- ------- ------- ------- 41,805 40,896 169,749 160,604 ------- ------- ------- ------- Other Operating Expenses Operations and maintenance 25,583 25,271 80,281 76,397 Depreciation and amortization 6,892 6,919 21,912 20,703 Restructuring and other non-recurring items - (1,840) - (3,954) Other taxes 2,307 2,211 7,136 6,897 Income taxes 1,227 1,760 18,759 19,014 ------- ------- ------- ------- 36,099 34,321 128,088 119,057 ------- ------- ------- ------- Operating Income 5,706 6,575 41,661 41,547 Other Income and Expense, Net Equity in earnings of TIC Enterprises, LLC, net (245) 460 369 716 Other 48 12 65 121 Income taxes 69 (165) (152) (293) ------- ------- ------- ------- (128) 307 282 544 ------- ------- ------- -------- Interest Expense 4,114 4,458 15,125 14,987 ------- ------- ------- ------- Net Income $1,464 $2,424 $26,818 $27,104 ===== ===== ====== ====== Net Income Per Share of Common Stock $0.11 $0.19 $2.08 $2.13 ===== ===== ===== ===== Dividends Per Share of Common Stock $0.245 $0.245 $0.735 $0.735 ===== ====== ===== ===== Weighted Average Number of Shares of Common Stock Outstanding 12,956,647 12,733,055 12,912,975 12,708,265 ========== ========== ========== ========== See the notes to the consolidated financial statements. NUI Corporation and Subsidiaries Consolidated Balance Sheet (Dollars in thousands) June 30, September 30, 2000 1999 (Unaudited) (*) ASSETS Utility Plant Utility plant, at original cost $808,619 $779,131 Accumulated depreciation and amortization (276,060) (256,898) Unamortized plant acquisition adjustments 29,824 30,242 ---------- --------- 562,383 552,475 ---------- --------- Funds for Construction Held by Trustee 29,758 37,413 ---------- --------- Investment in TIC Enterprises, LLC, net 25,285 24,905 ---------- --------- Other Investments 1,246 1,385 ---------- ---------- Current Assets Cash and cash equivalents 1,445 1,561 Accounts receivable (less allowance for doubtful accounts of $1,987 and $1,697, respectively) 102,015 85,056 Fuel inventories, at average cost 20,014 28,573 Unrecovered purchased gas costs - 901 Prepayments and other 66,866 50,108 ---------- --------- 190,340 166,199 ---------- --------- Other Assets Regulatory assets 50,143 51,615 Deferred charges 15,609 10,234 ---------- --------- 65,752 61,849 ---------- --------- $874,764 $844,226 ======= ======= CAPITALIZATION AND LIABILITIES Capitalization Common shareholders' equity $258,880 $237,318 Preferred stock - - Long-term debt 268,938 268,911 ---------- --------- 527,818 506,229 ---------- --------- Capital Lease Obligations 2,639 2,599 ---------- --------- Current Liabilities Notes payable to banks 62,240 73,615 Current portion of capital lease 1,286 7,776 obligations Accounts payable, customer deposits 108,042 108,023 and accrued liabilities Overrecovered purchased gas costs 8,229 - Federal income and other taxes 19,969 4,359 ---------- --------- 199,766 193,773 ---------- --------- Deferred Credits and Other Liabilities Deferred Federal income taxes 73,768 69,951 Unamortized investment tax credits 4,906 5,251 Environmental remediation reserve 33,560 33,981 Regulatory and other liabilities 32,307 32,442 ---------- --------- 144,541 141,625 ---------- --------- $874,764 $844,226 ======= ======= *Derived from audited financial statements See the notes to the consolidated financial statements. NUI Corporation and Subsidiaries Consolidated Statement of Cash Flows (Unaudited) (Dollars in thousands) Nine Months Ended June 30, 2000 1999 Operating Activities Net income $26,818 $27,104 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 23,185 21,298 Deferred Federal income taxes 3,817 3,817 Non-cash portion of restructuring and other non-recurring items - (4,726) Amortization of deferred investment tax credits (345) (345) Other 1,393 1,282 Effect of changes in: Accounts receivable, net (15,601) (14,227) Fuel inventories 8,559 19,466 Accounts payable, deposits and accruals (2,157) 876 Overrecovered purchased gas costs 9,130 25,856 Other (3,672) (4,285) ------- ------- Net cash provided by operating activities 51,127 76,116 ------- ------- Financing Activities Proceeds from sales of common stock, net of treasury stock purchased 642 332 Dividends to shareholders (9,502) (9,330) Proceeds from issuance of long-term debt - 39,804 Funds for construction held by trustee, net 9,202 (29,515) Principal payments under capital lease obligations (7,660) (1,238) Net repayments of short-term borrowings (11,610) (45,575) -------- -------- Net cash used in financing activities (18,928) (45,522) -------- -------- Investing Activities Cash expenditures for utility plant (30,356) (25,831) Other (1,959) (3,336) -------- -------- Net cash used in investing activities (32,315) (29,167) -------- -------- Net (decrease) increase in cash and cash equivalents ($116) $1,427 ====== ===== Cash and Cash Equivalents At beginning of period $1,561 $929 At end of period $1,445 $2,356 Supplemental Disclosures of Cash Flows Income taxes paid, net $1,277 $4,109 Interest paid $17,056 $16,356 See the notes to the consolidated financial statements NUI Corporation and Subsidiaries Notes to the Consolidated Financial Statements 1.Basis of Presentation The consolidated financial statements include all operating divisions and subsidiaries of NUI Corporation (collectively referred to as the Company). The Company is a multi-state company engaged in the sale and distribution of natural gas, energy commodity trading and marketing, and telecommunications. The Company's utility divisions serve more than 375,000 customers in six states along the eastern seaboard of the United States and comprise Elizabethtown Gas (NJ), City Gas Company of Florida, North Carolina Gas, Valley Cities Gas (PA), Elkton Gas (MD) and Waverly Gas (NY). The Company's non- regulated businesses include NUI Energy Brokers (Energy Brokers), an energy wholesaler; NUI Energy, Inc. (NUI Energy), an energy retailer; NUI Energy Solutions, Inc., an energy project development and consulting entity; NUI Environmental Group, Inc., an environmental project development subsidiary; Utility Business Services, Inc., (UBS), a customer and geographic information systems and services subsidiary; and NUI Telecom, Inc., (NUI Telecom), a full-service telecommunications company (see Note 3). The Company also provides sales outsourcing through its 49 percent equity interest in TIC Enterprises, LLC. All intercompany accounts and transactions have been eliminated in consolidation. The consolidated financial statements contained herein have been prepared without audit in accordance with the rules and regulations of the Securities and Exchange Commission and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results for interim periods. All adjustments made were of a normal recurring nature. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto that are included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1999. The Company is subject to regulation as an operating utility by the public utility commissions of the states in which it operates. Because of the seasonal nature of gas utility operations, the results for interim periods are not necessarily indicative of the results for an entire year. 2.Common Shareholders' Equity The components of common shareholders' equity were as follows (dollars in thousands): June 30, September 30, 2000 1999 Common stock, no par value $215,423 $209,984 Shares held in treasury (2,246) (2,311) Retained earnings 48,697 31,380 Unearned employee compensation (2,994) (1,735) ------ ------ Total common shareholders' equity $258,880 $237,318 ======= ======= 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 $3.8 million and included the issuance of 113,200 shares of NUI common stock, with the remainder paid in cash. NUI Telecom is a full service telephone company that provides its customers with a single service solution for all their telecommunication requirements including local, long distance, cellular, internet, and data communications services. The Agreement and Plan of Merger contains a provision whereby the previous shareholders of NUI Telecom will receive an additional $1.0 million in NUI common stock if NUI Telecom achieves certain revenue targets no later than December 31, 2003. The acquisition is being accounted for as a purchase. The excess of the purchase price over the fair value of the net assets of NUI Telecom is estimated to be approximately $4.5 million, which includes the additional earnings contingency noted above, and is being amortized on a straight-line basis over a 20-year period. 4. Purchase of Virginia Gas Company On June 14, 2000, the Company entered into a definitive merger agreement with Virginia Gas Company (VGC) providing for a merger of either the subsidiary into VGC or VGC into the subsidiary depending upon certain circumstances. Under the terms of the agreement, NUI will acquire all of the common stock of VGC for $4.00 per share in NUI common stock, with the exchange ratio to be established near the time of closing. The transaction value is estimated to be $22 million. VGC is engaged in activities including: pipeline operation; natural gas storage, gathering, marketing and distribution services; natural gas exploration, production and well operation; and propane distribution. The company conducts its operations primarily in the Commonwealth of Virginia. The merger will be accounted for as a purchase, and is expected to close early in fiscal year 2001. 5.Restructuring and Other Non-Recurring Items During fiscal 1999, the Company recognized approximately $4.0 million of pre-tax, non-recurring items (approximately $1.8 million during the third quarter of fiscal 1999) relating primarily to the recognition of pension settlement gains as a result of the Company's restructuring efforts over the past year. These gains were partially offset by a special termination charge related to the New Jersey bargaining unit early retirement program, the write-off of certain non-recoverable regulatory assets, and other charges deemed to be separate from recurring operations. In June 1998, the Company offered an early retirement program to its non-bargaining unit personnel. The program was accepted by 74 of the eligible 77 employees. In accordance with Statement of Financial Accounting Standards No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits" (SFAS 88), the Company recorded a special termination charge during fiscal 1998 when the cost was recognizable. In March 1999, the Company recorded a settlement gain of approximately $6.8 million as a result of satisfaction of all future liabilities associated with these employees. In January 1999, the Company offered an early retirement program to its bargaining unit employees in New Jersey. The program was accepted by 32 of the eligible 35 employees. In accordance with SFAS 88, the Company recorded a special termination charge of approximately $1.8 million in the second quarter of fiscal 1999 associated with these retirements. In June 1999, the Company recorded a settlement gain of approximately $3.2 million as the result of satisfaction of all future liabilities associated with these employees. Also in June 1999, the Company recorded an additional $0.6 million of other benefit expenses associated with these employees. The Company recorded approximately $1.8 million of charges relating to the write-off of certain regulatory assets which will not be recovered through rates. The Company also recorded $l.8 million of charges relating to other items which were deemed to be separate from recurring earnings. 6.Contingencies Environmental Matters. The Company is subject to federal and state laws with respect to water, air quality, solid waste disposal and employee health and safety matters, and to environmental regulations issued by the United States Environmental Protection Agency (EPA), the New Jersey Department of Environmental Protection (NJDEP) and other federal and state agencies. The Company owns, or previously owned, certain properties on which manufactured gas plants (MGP) were operated by the Company or by other parties in the past. In New Jersey, the Company has reported the presence of the six MGP sites to the EPA, the NJDEP and the New Jersey Board of Public Utilities (NJBPU). In 1991, the NJDEP issued an Administrative Consent Order for the MGP site located at South Street in Elizabeth, New Jersey, wherein the Company agreed to conduct a remedial investigation and to design and implement a remediation plan. In 1992 and 1993, the Company entered into a Memorandum of Agreement with the NJDEP for each of the other five New Jersey MGP sites. Pursuant to the terms and conditions of the Administrative Consent Order and the Memoranda of Agreement, the Company is conducting remedial activities at all six sites with oversight from the NJDEP. The Company also owns, or previously owned, 10 former MGP facilities located in the states of North Carolina, South Carolina, Pennsylvania, New York and Maryland. The Company has joined with other North Carolina utilities to form the North Carolina Manufactured Gas Plant Group (the MGP Group). The MGP Group has entered into a Memorandum of Understanding with the North Carolina Department of Environment, Health and Natural Resources (NCDEHNR) to develop a uniform program and framework for the investigation and remediation of MGP sites in North Carolina. The Memorandum of Understanding contemplates that the actual investigation and remediation of specific sites will be addressed pursuant to Administrative Consent Orders between the NCDEHNR and the responsible parties. The NCDEHNR has sought the investigation and remediation of sites owned by members of the MGP Group and has entered into Administrative Consent Orders with respect to four such sites. None of these four sites are currently or were previously owned by the Company. Based on the most recent assessment, the Company has recorded a total reserve for environmental investigation and remediation costs of approximately $34 million, which is the minimum amount that the Company expects to expend during the next 20 years. Of this reserve, approximately $30 million relates to the six New Jersey MGP sites and approximately $4 million relates to the 10 sites located outside New Jersey. However, the Company believes that it is possible that costs associated with conducting investigative activities and implementing remedial activities, if necessary, with respect to all of its MGP sites may exceed this reserve by an amount that could range up to an additional $24 million and be incurred during a future period of time that may range up to 50 years. Of this additional $24 million in possible future expenditures, approximately $12 million relates to the New Jersey MGP sites and approximately $12 million relates to the sites located outside New Jersey. As compared with the $34 million reserve currently recorded on the Company's books as discussed above, the Company believes that it is less likely that this additional $24 million will be incurred and therefore has not recorded it on its books. The Company's prudently incurred remediation costs for the New Jersey MGP sites have been authorized by the NJBPU to be recoverable in rates. The most recent NJBPU base rate order permits the Company to utilize full deferred accounting for expenditures related to its New Jersey sites and provides for the recovery of $130,000 annually. The Company is also able to recover MGP expenditures over a rolling seven- year period through its NJBPU approved MGP Remediation Adjustment Clause. As a result, the Company has begun rate recovery of approximately $5.5 million of environmental costs incurred through June 30, 1998. Recovery of an additional $2.0 million in environmental costs incurred between July 1, 1998 and June 30, 1999 is currently pending NJBPU approval. Accordingly, the Company has recorded regulatory assets of approximately $35 million as of June 30, 2000, reflecting the future recovery of environmental remediation costs 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 $67 million annually. The Company currently recovers, and expects to continue to recover, such fixed charges through its purchased gas adjustment clauses. As a result of the forthcoming unbundling of natural gas services in New Jersey and Pennsylvania, these contracts may result in the realization of stranded costs by the Company. Management believes the outcome of these actions will not have a material adverse effect on the Company's results. The Company also is committed to purchase, at market-related prices, minimum quantities of gas that, in the aggregate, are approximately 2.6 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. 7. Business Segment Information The Company's operations are organized and managed by three primary segments: Distribution Services, Energy Sales and Services and Customer Services. The Distribution Services segment distributes natural gas in six states through the Company's regulated utility divisions. The Energy Sales and Services segment reflects the operations of the Company's NUI Energy, NUI Energy Brokers and NUI Energy Solutions subsidiaries, as well as off-system sales by the utility divisions. The Customer Services segment reflects the operations of the Company's UBS and NUI Telecom subsidiaries, as well as appliance leasing, repair and maintenance operations. The Company also has corporate operations that do not generate any revenues or operating margins. The following table provides information concerning the major segments of the Company for the three and nine-month periods ended June 30, 2000 and 1999. 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) 2000 1999 2000 1999 Revenues: Distribution Services $ 79,280 $ 72,576 $342,676 $325,485 Energy Sales and Services 128,190 92,920 391,264 330,230 Customer Services 6,612 4,163 21,783 12,139 Intersegment Revenues (14,958) (8,981) (42,999) (23,016) ------- ------- ------- ------- Total Revenues $199,124 $160,678 $712,724 $644,838 ======= ======= ======= ======= Pre-Tax Operating Income (Loss): Distribution Services $ 4,721 $ 3,830 $ 54,860 $ 53,400 Energy Sales and Services 1,365 2,148 5,026 5,887 Customer Services 822 311 1,107 (413) ------- ------- ------- ------- Total Pre-Tax Operating Income (Loss) $ 6,908 $ 6,289 $ 60,993 $ 58,874 ======= ======= ======= ======= 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) 2000 1999 2000 1999 Segment Pre-Tax Operating Income $6,908 $6,289 $60,993 $58,874 Non-segment pre-tax operating loss 25 2,046 (574) 1,688 ----- ----- ------ ------ Pre-Tax Operating Income $6,933 $8,335 $60,419 $60,562 ===== ===== ====== ====== NUI Corporation and Subsidiaries Summary Consolidated Operating Data Three Months Ended Nine Months Ended June 30, June 30, 2000 1999 2000 1999 Operating Revenues (Dollars in thousands) Firm Sales: Residential $36,777 $35,843 $182,818 $177,298 Commercial 14,619 13,794 75,518 73,980 Industrial 1,686 1,578 7,227 7,401 Interruptible Sales 15,850 11,644 42,468 34,153 Unregulated Sales 114,987 84,420 353,802 308,668 Transportation Services 9,925 8,665 33,322 29,504 Customer Service, Appliance Leasing and Other 5,280 4,734 17,569 13,834 ------- ------- ------- ------- $199,124 $160,678 $712,724 $644,838 ======= ======= ======= ======= Gas Sold or Transported (MMcf) Firm Sales: Residential 3,407 3,359 20,959 19,859 Commercial 1,613 1,668 9,708 9,636 Industrial 241 144 1,056 1,197 Interruptible Sales 3,765 3,929 11,129 11,694 Unregulated Sales 31,454 43,179 111,811 150,123 Transportation Services 8,766 7,331 29,072 23,760 ------- ------- ------- ------- 49,246 59,610 183,735 216,269 ======= ======= ======= ======= Average Utility Customers Served Firm Sales: Residential 348,122 345,556 348,461 344,384 Commercial 23,426 23,461 23,581 23,393 Industrial 238 222 240 256 Interruptible Sales 44 50 45 58 Transportation 3,828 3,565 3,736 3,507 ------- ------- ------- ------- 375,658 372,854 376,063 371,598 ======= ======= ======= ======= Degree Days in New Jersey Actual 566 464 4,494 4,347 Normal 554 574 5,131 5,151 Percentage variance from 2% 19% 12% 16% normal colder warmer warmer warmer Employees (period end) 1,076 995 NUI Corporation and Subsidiaries Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis refers to NUI Corporation and all of its operating divisions and subsidiaries (collectively referred to as the Company). The Company is a multi-state company engaged in the sale and distribution of natural gas, energy commodity trading and marketing, and telecommunications. The Company's utility divisions serve more than 375,000 customers in six states along the eastern seaboard of the United States and comprise Elizabethtown Gas (NJ), City Gas Company of Florida, North Carolina Gas, Valley Cities Gas (PA), Elkton Gas (MD) and Waverly Gas (NY). The Company's non- regulated businesses include NUI Energy Brokers (Energy Brokers), an energy wholesaler; NUI Energy, Inc. (NUI Energy), an energy retailer; NUI Energy Solutions, Inc., an energy project development and consulting entity; NUI Environmental Group, Inc., an environmental project development subsidiary; Utility Business Services, Inc., (UBS), a customer and geographic information systems and services subsidiary; and NUI Telecom, Inc., (NUI Telecom), a full-service telecommunications company (see Note 3 of the Notes to the Consolidated Financial Statements). The Company also provides sales outsourcing through its 49 percent equity interest in TIC Enterprises, LLC (TIC). Results of Operations Three-Month Periods Ended June 30, 2000 and 1999 Net Income. Net income for the three-month period ended June 30, 2000 was $1.5 million, or $0.11 per share, as compared with net income of $2.4 million, or $0.19 per share, for the three-month period ended June 30, 1999. Net income in the prior period included non-recurring items, which contributed $1.1 million, or $0.08 per share, which were primarily associated with the Company's early retirement programs (see Note 5 of the Notes to the Consolidated Financial Statements). Absent these non-recurring items, net income would have been $1.4 million, or $0.11 per share. Net income per share in the current period was also affected by the increased number of outstanding shares of common stock over the prior year period, primarily related to the purchase of NUI Telecom (see Note 3 of the Notes to the Consolidated Financial Statements). 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 $38.4 million, or 24 percent, for the three-month period ended June 30, 2000 as compared with the three-month period ended June 30, 1999. The Company's Distribution Services' revenue increased by approximately $6.7 million, mainly due to customer growth. Customer Services' revenue increased by approximately $1.1 million, net of intercompany transactions, due to the recent acquisition of NUI Telecom (see Note 3 of the Notes to the Consolidated Financial Statements). Energy Sales and Services' revenue increased by approximately $30.7 million, net of intercompany transactions, primarily due to higher gas prices and an increase in unregulated off-system sales. The Company's operating margins increased by $0.9 million, or two percent, for the three-month period ended June 30, 2000 as compared with the three-month period ended June 30, 1999. The increase was primarily attributable to an increase of approximately $1.3 million in the Company's Distribution Services segment as a result of customer growth. Operating margins from the Company's Energy Sales and Services segment decreased by approximately $1.1 million primarily due to the impact of unprecedented higher gas prices experienced throughout the nation this summer. While NUI's wholesale business, NUI Energy Brokers, increased operating margins more than 26 percent in the quarter, NUI's retail subsidiary, NUI Energy, was adversely impacted by the rising gas costs. NUI Energy customers continue to sign up for retail gas service, however they are opting to enter month-to-month agreements rather than long-term contracts. This decreases the mark- to-market value of these contracts as compared to last year. Operating margins increased in the Customer Services segment by approximately $0.7 million, net of intercompany transactions, due to the inclusion of results from NUI Telecom (see Note 3 of the Notes to the Consolidated Financial Statements). Other Operating Expenses. Operations and maintenance expenses increased approximately $0.3 million, or one percent, for the three- month period ended June 30, 2000 as compared with the three-month period ended June 30, 1999. The increase was primarily the result of operating expenses of NUI Telecom in fiscal 2000 (see Note 3 of the Notes to the Consolidated Financial Statements). Absent the addition of expenses from NUI Telecom, operations and maintenance expenses would have decreased by approximately $0.7 million as compared to the prior period, due primarily to overall cost controls and a decrease in certain benefit costs. Fiscal 1999 results also include non-recurring gains of approximately $1.8 million incurred as a result of the Company's early retirement programs (see Note 5 of the Notes to the Consolidated Financial Statements). Other Income (Expense). Other income and expense decreased approximately $0.4 million due to lower equity earnings in TIC. The decrease was primarily the result of additional costs of establishing a sales force to represent the United States Postal Service under the terms of TIC's exclusive nationwide contract signed last December. Interest Expense. Interest expense decreased by approximately $0.3 million for the three-month period ended June 30, 2000 as compared to the three-month period ended June 30, 1999. In accordance with a recently approved Stipulation by the New Jersey Board of Public Utilities (see Regulatory Matters), the Company was allowed to recover carrying costs computed on previously deferred expenses incurred for the investigation and remediation of manufactured gas plant sites in New Jersey. Partially offsetting this decrease was an increase in short-term interest expense due to higher interest rates and higher average debt outstanding (see Financing Activities and Resources). Nine-Month Periods Ended June 30, 2000 and 1999 Net Income. Net income for the nine-month period ended June 30, 2000 was $26.8 million, or $2.08 per share, as compared with net income of $27.1 million, or $2.13 per share, for the period ended June 30, 1999. Net income in the prior period included non-recurring items, which contributed $2.3 million, or $0.18 per share, which were primarily associated with the Company's early retirement programs (see Note 5 of the Notes to the Consolidated Financial Statements). Absent these non-recurring items, net income would have been $24.8 million, or $1.95 per share. Net income per share in the current period was also affected by the increased number of outstanding shares of common stock over the prior year period, primarily related to the purchase of NUI Telecom (see Note 3 of the Notes to the Consolidated Financial Statements). Operating Revenues and Operating Margins. The Company's operating revenues increased by $67.9 million, or 11 percent, for the nine-month period ended June 30, 2000 as compared with the nine-month period ended June 30, 1999. The Company's Distribution Services' revenue increased by approximately $17.2 million, mainly due to customer growth and the impact of slightly colder weather in the current period. Weather in New Jersey was 12% warmer than normal, but 3% colder than the prior year period. Customer Services' revenue increased by approximately $5.3 million, net of intercompany transactions, due to the recent acquisition of NUI Telecom (see Note 3 of the Notes to the Consolidated Financial Statements) and higher sales by UBS and the appliance services operations. Energy Sales and Services' revenue increased by approximately $45.4 million, net of intercompany transactions, due to higher gas prices and an increase in unregulated off-system sales. The Company's operating margins increased by $9.1 million, or 6 percent, for the nine-month period ended June 30, 2000 as compared with the nine-month period ended June 30, 1999. The increase was primarily attributable to an increase of approximately $5.5 million in the Company's Distribution Services segment as a result of customer growth and increased sales due to slightly colder weather in the current period. As a result of weather normalization clauses, operating margins were approximately $4.9 million and $5.4 million higher in the fiscal 2000 and 1999 periods, respectively, than they otherwise would have been without such clauses. Operating margins from the Company's Energy Sales and Services segment decreased by approximately $0.3 million due primarily to lower results from NUI Energy which were adversely impacted from the unprecedented high gas prices this past quarter. Operating margins increased in the Customer Services segment by approximately $3.9 million, net of intercompany transactions, due to higher sales by UBS and the appliance services operations, as well as the recent acquisition of NUI Telecom (see Note 3 of the Notes to the Consolidated Financial Statements). Other Operating Expenses. Operations and maintenance expenses increased approximately $3.9 million, or five percent, for the nine- month period ended June 30, 2000 as compared with the nine-month period ended June 30, 1999. The increase was primarily the result of operating expenses of NUI Telecom since its acquisition date (see Note 3 of the Notes to the Consolidated Financial Statements), higher bad debt expense due to the increase in operating revenues, and higher materials and supplies expenses associated with the increased activity in the appliance service business. These increases were partially offset by decreases in telephone and certain benefits costs. Fiscal 1999 results also include non-recurring gains of approximately $4.0 million incurred as a result of the Company's early retirement programs (see Note 5 of the Notes to the Consolidated Financial Statements). Depreciation and amortization increased approximately $1.2 million in the current period primarily due to additional plant in service. Regulatory Matters On July 21, 2000, the Company filed a petition with the New Jersey Board of Public Utilities (NJBPU) to increase its purchased gas adjustment rate effective October 1, 2000. The rate increase is equivalent to a revenue requirement of approximately $47 million and is required as a result of unprecedented high gas prices that have occurred throughout the country (see Financial Activities and Resources). A decision by the NJBPU is expected by the end of the fiscal year. On April 30, 1999, the Company made a filing with the NJBPU which will enable all customers in New Jersey to choose an alternative supplier of natural gas. This filing was in accordance with the "Electric Discount and Energy Competition Act" legislation, which was signed into law in New Jersey on February 9, 1999. The legislation has several provisions that affect gas utilities. It provides all gas customers with the ability to choose an alternate natural gas supplier. At the same time, the utility will continue to offer basic gas supply service through December 2002 when the NJBPU will decide if the gas supply function should be removed from the utility and made competitive. In accordance with the legislation and with a NJBPU order dated March 2, 2000, the Company filed testimony on March 17, 2000 in a proceeding to determine whether customers should be afforded the option of contracting with an alternative provider of billing, meter reading and other customer account services that may be deemed competitive by December 31, 2000. In January 2000, the NJBPU approved a Phase I stipulation that enables all customers to choose an alternative supplier of natural gas while the utility continues to offer basic gas supply services. Included in the stipulation was the approval by the NJBPU for the retroactive recovery of carrying costs on deferred expenditures incurred for the investigation and remediation of New Jersey manufactured gas plant sites. In addition, as part of the settlement, the Company has agreed to make a filing to address additional issues raised in the April 1999 filing. Financing Activities and Resources The Company's net cash provided by operating activities was $51.1 million and $76.1 million for the nine-month periods ended June 30, 2000 and 1999, respectively. The decrease was primarily due to an increase in prices paid for purchased gas and the timing of amounts collected from customers through purchased gas adjustment clauses. 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 $72.1 million at 6.6 percent for the nine-month period ended June 30, 2000 and $70.9 million at 5.4 percent for the nine-month period ended June 30, 1999. At June 30, 2000, the Company had outstanding notes payable to banks amounting to $62.2 million and available unused lines of credit amounting to $93.8 million. During the past several months, natural gas prices throughout the United States have increased to unprecedented highs for this time of year. These price increases have resulted in the need for higher levels of short-term borrowings than anticipated. There is a lag from the time of payment for purchased gas by the Company to collection of such gas costs from customers through purchased gas adjustment clauses. Accordingly, the third quarter results for fiscal 2000 reflect the impact of this lag, which is expected to continue into the fourth quarter of fiscal 2000. As noted under Regulatory Matters, the Company has filed for an increase in its purchased gas adjustment rate and is seeking to receive a resolution on this filing by the NJBPU in the first quarter of fiscal 2001. Long-Term Debt and Funds for Construction Held by Trustee. On December 8, 1998, the Company issued $40 million of tax-exempt Gas Facilities Revenue Bonds at an interest rate of 5.25 percent. These bonds will mature in November 2033 and the proceeds will be used to finance a portion of the Company's capital expenditure program in New Jersey. The Company deposits in trust the unexpended portion of the net proceeds from its Gas Facilities Revenue Bonds until drawn upon for eligible expenditures. As of June 30, 2000, the total unexpended portions of all of the Company's Gas Facilities Revenue Bonds were $25.7 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). 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 $69.2 million of cash dividends at June 30, 2000. Capital Expenditures and Commitments Capital expenditures, which consist primarily of expenditures to expand and upgrade the Company's gas distribution systems, were $30.4 million for the nine-month period ended June 30, 2000 as compared to $25.8 million for the nine-month period ended June 30, 1999. Capital expenditures are expected to be approximately $49 million for all of fiscal 2000, as compared with a total of $48 million in fiscal 1999. The Company owns or previously owned six former manufactured gas plant (MGP) sites in the state of New Jersey and ten former MGP sites in the states of North Carolina, South Carolina, Pennsylvania, New York and Maryland. Based on the Company's most recent assessment, the Company has recorded a total reserve for environmental investigation and remediation costs of approximately $34 million, which is the minimum amount that the Company expects it will expend in the next 20 years to remediate the Company's MGP sites. Of this reserve, approximately $30 million relates to New Jersey MGP sites and approximately $4 million relates to the MGP sites located outside New Jersey. However, the Company believes that it is possible that costs associated with conducting investigative activities and implementing remedial actions, if necessary, with respect to all of its MGP sites may exceed this reserve by an amount that could range up to an additional $24 million and be incurred during a future period of time that may range up to 50 years. Of this $24 million in possible additional expenditures, approximately $12 million relates to the New Jersey MGP sites and approximately $12 million relates to the remaining MGP sites. As compared with the $34 million reserve currently recorded on the Company's books as discussed above, the Company believes that it is less likely that this additional $24 million will be incurred and therefore has not recorded it on its books. The Company believes that all costs associated with the New Jersey MGP sites will be recoverable in rates or from insurance carriers. In New Jersey, the Company is currently recovering environmental costs on an annual basis through base rates and over a rolling seven-year period through its MGP Remediation Adjustment Clause. As a result, the Company has begun rate recovery of approximately $5.5 million of environmental costs incurred through June 30, 1998. Recovery of an additional $2.0 million in environmental costs incurred between July 1, 1998 and June 30, 1999 is currently pending NJBPU approval. With respect to costs that may be associated with the MGP sites located outside the state of New Jersey, the Company intends to pursue recovery from ratepayers, former owners and operators of the sites and from insurance carriers. However, the Company is not able, at this time, to express a belief as to whether any or all of these recovery efforts will ultimately be successful. Certain of the Company's long-term contracts for the supply, storage and delivery of natural gas include fixed charges that amount to approximately $67 million annually. The Company currently recovers, and expects to continue to recover, such fixed charges through its purchased gas adjustment clauses. As a result of the forthcoming unbundling of natural gas services in New Jersey and Pennsylvania, these contracts may result in the realization of stranded costs by the Company. Management believes the outcome of these actions will not have a material adverse effect on the Company's results. The Company also is committed to purchase, at market-related prices, minimum quantities of gas that, in the aggregate, are approximately 2.6 billion cubic feet (Bcf) per year or to pay certain costs in the event the minimum quantities are not taken. The Company expects that minimum demand on its systems for the duration of these contracts will continue to exceed these minimum purchase obligations. The Company is scheduled to repay $20 million of Medium-Term Notes in August 2002. Market Risk Exposure The Company's wholesale trading subsidiary, NUI Energy Brokers, uses derivatives for multiple purposes: i) to hedge price commitments and minimize the risk of fluctuating gas prices, ii) to take advantage of market information and opportunities in the marketplace, and iii) to fulfill its trading strategies and, therefore, ensure favorable prices and margins. These derivative instruments include forwards, futures, options and swaps. The risk associated with uncovered derivative positions is closely monitored on a daily basis, and controlled in accordance with NUI Energy Brokers' Risk Management Policy. This policy has been approved by the Company's Board of Directors and dictates policies and procedures for all trading activities. The policy defines both value- at-risk (VaR) and loss limits, and all traders are required to read and follow this policy. At the end of each day, all trading positions are marked-to-market and a VaR is calculated. This information, as well as the status of all limits, is disseminated to senior management daily. NUI Energy Brokers utilizes the variance/covariance VaR methodology. Using a 95 percent confidence interval and a one day time horizon, as of June 30, 2000, NUI Energy Brokers' VaR was $428,000. Forward-Looking Statements This document contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. The Company cautions that, while it believes such statements to be reasonable and are made in good faith, such forward-looking statements almost always vary from actual results, and the differences between assumptions made in making such statements and actual results can be material, depending upon the circumstances. Factors, which may make the actual results differ from anticipated results include, but are not limited to, economic conditions; unforeseen competition; weather conditions; fluctuations in the price of natural gas and other forms of energy; the outcome of certain assumptions made in regard to Year 2000 issues; and other uncertainties, all of which are difficult to predict and many of which are beyond the control of the Company. Accordingly, investors should not rely upon these forward-looking statements in making investment decisions. PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. Exhibit No. Description of Exhibit Reference 27 Financial Data Schedule Filed herewith (b) Reports on Form 8-K None SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NUI CORPORATION JOHN KEAN, JR. August 14, 2000 President and Chief Executive Officer A. MARK ABRAMOVIC August 14, 2000 Sr. Vice President, Chief Operating Officer & Chief Financial Officer