**UNITED STATES SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, DC 20549**

 

# FORM 10-Q

(Mark One)      

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

**For the quarterly period ended December 31, 2002**

OR

 

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

For the transition period from _________________to______________________

Commission FileNumber     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 zipcode)

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

Indicate by check mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90days.        

Yes  X   No 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act):

Yes  X    No 

The number of shares outstanding of each of theregistrant's classes of common stock, as of December 31, 2002: CommonStock, No Par Value: 16,071,069 shares outstanding. 

** **

----

**NUI Corporation and SubsidiariesConsolidated Statement of Income(Unaudited)(Dollars in thousands, except per shareamounts)**

**                                                                                                               **
| **                                                                                                  ** | **Three  Months EndedDecember  31,**     |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | **2002**                                 | **2001** |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                          | **(Restated-  see Note 2)** |
| **Operating Margins**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                          |  |
|    Operating revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $184,418                                 | $161,219 |
|    Less - Purchased gas and fuel                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 107,889                                  | 93,184 |
|               Cost of sales and services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 11,140                                   | 6,201 |
|               Energy taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |    3,494                       |    3,053 |
|     Total operating margins                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  61,895                             |  58,781 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                     |   |
| **Other Operating Expenses**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |                                     |   |
|    Operations and maintenance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 33,506                                   | 28,432 |
|    Restructuring costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | ---                                      | 1,203 |
|    Depreciation and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | 8,594                                    | 8,036 |
|    Taxes, other than income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   2,179                             |   1,967 |
|     Total other income and expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 44,279                                   | 39,638 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                     |   |
| **Operating Income**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 17,616                                   | 19,143 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                          |  |  |
| **Other Income and Expense, net**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |      415             |   300 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                          |  |
| **Income from Continuing Operations before Interest  and Taxes**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 18,031                                   | 19,443 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                     |   |
| ** **Interest expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   5,308                             |  5,541 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                     |   |
| **Income from Continuing Operations Before Income Taxes**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 12,723                                   | 13,902 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                     |   |
|   **Income  taxes**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   5,107                             |   5,910 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                     |   |
| **Income from Continuing Operations Before Effect of Change in Accounting**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   7,616                             |   7,992 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                     |   |
| **Discontinued Operations**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                     |   |
|    (Loss) Income from discontinued operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |     (773)                 | 374 |
|    Income tax (benefit) expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |    (312)                       | 118 |
| **Loss from Discontinued Operations**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |    (461)                       | 256 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                     |   |
| **Income before Effect of Change in Accounting**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 7,155                                    | 8,248 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                     |   |
|   Effect of change in accounting (net of tax benefit of $9,500)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |        --- |  (17,642) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                     |   |
| **Net Income (Loss)**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | $7,155                                   | $(9,394) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                     |   |
| **Income from Continuing Operations Per Share of  Common Stock**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | $  0.48                             | $     0.57 |
| **Net Income (Loss) Per Share of Common Stock**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | $  0.45                             | $  (0.68) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                     |   |
| **Dividends Per Share of Common Stock**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | $0.245                                   | $  0.245 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                     |   |
| ** Weighted Average Number of Shares of Common Stock          Outstanding**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 16,025,353                               | 13,924,192 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                          |  |  |  |

** *See the notes to the consolidatedfinancial statements.***

** **

----

**NUI Corporationand SubsidiariesConsolidated Balance Sheet(Dollars in thousands)**

** **
|                                                                                                               | **December 31,  2002(Unaudited)**                                                                                                                                                                  | **September 30,  2002**     **(*)** |
|---------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------|
| **ASSETS**                                                                                                    |                                                                                                                                                                                                    |                                                    |
| **Current  Assets**                                                                                           |                                                                                                                                                                                                    |                                                         |
|    Cash and  cash equivalents                                                                       | $13,273                                                                                                                                                                                            | $4,247                                                  |
|    Accounts  receivable (less allowance for doubtful accounts of $5,163  and $5,192, respectively)  |                                 166,079 | 83,611                                                  |
|    Fuel  inventories, at average cost                                                               | 37,067                                                                                                                                                                                             | 37,390                                                  |
|    Unrecovered  purchased gas costs                                                                 | 34,775                                                                                                                                                                                             | 26,756                                                  |
|    Derivative assets                                                                                | 23,412                                                                                                                                                                                             | 22,540                                                  |
|    Federal income tax  receivable                                                                   | 520                                                                                                                                                                                                | 7,819                                                   |
|    Prepayments  and other                                                                           |       24,559                                                                                                                                                              |       33,738                   |
|                                                                                                          |     299,685                                                                                                                                                                         |     216,101                              |
| **Property,  Plant and Equipment**                                                                            |                                                                                                                                                                                                    |                                                         |
|     Property, plant and equipment, at original cost                                                 | 958,477                                                                                                                                                                                            | 945,901                                                 |
|     Accumulated depreciation and amortization                                                       | (309,851)                                                                                                                                                                                          | (304,055)                                               |
|     Unamortized plant acquisition adjustments, net                                                  |       14,217                                                                                                                                                              |        14,484             |
|                                                                                                               |     662,843                                                                                                                                                                         |      656,330                        |
|                                                                                                               |                                                                                                                                                                                                    |                                                         |
| **Funds for  Construction Held by Trustee**                                                                   |   3,882                                                                                                                                                                                       | 3,884                                                   |
| **Other  Investments**                                                                                        |     106                                                                                                                                                                             | 117                                                     |
| **Assets  Held For Sale**                                                                                     | ---                                                                                                                                                                                                | 15,879                                                  |
|                                                                                                               |                                                                                                                                                                                                    |                                                         |
| **Other Assets**                                                                                              |                                                                                                                                                                                                    |                                                         |
|     Regulatory assets                                                                               | 73,630                                                                                                                                                                                             | 75,845                                                  |
|    Long-term portion of  derivative assets                                                          | 8,145                                                                                                                                                                                              | 7,901                                                   |
|    Goodwill                                                                                         | 19,056                                                                                                                                                                                             | 19,126                                                  |
|    Other  assets                                                                                    |        45,663                                                                                                                                                        |        46,109             |
|                                                                                                               |      146,494                                                                                                                                                                   |      148,981                        |
|                                                                                                               | $1,113,010                                                                                                                                                                                         | $1,041,292                                              |
|                                                                                                               |                                                                                                                                                                                                    |                                                         |
| **CAPITALIZATION  AND LIABILITIES**                                                                           |                                                                                                                                                                                                    |                                                         |
| **Current  Liabilities**                                                                                      |                                                                                                                                                                                                    |                                                         |
|    Notes  payable to banks                                                                          | $145,000                                                                                                                                                                                           | $128,690                                                |
|    Notes  payable                                                                                   | 3,000                                                                                                                                                                                              | 3,000                                                   |
|    Current  portion of long term debt and capital lease        obligations | 2,493                                                                                                                                                                                              | 2,351                                                   |
|    Accounts  payable, customer deposits and accrued        liabilities     | 173,540                                                                                                                                                                                            | 125,484                                                 |
|    Derivative liabilities                                                                           | 363                                                                                                                                                                                                | 852                                                     |
|    Federal  income and other taxes                                                                  | 7,905                                                                                                                                                                                              | 7,913                                                   |
|    Current  portion of deferred Federal income taxes                                                |        15,236                                                                                                                                                        |         18,738       |
|                                                                                                               |      347,537                                                                                                                                                                   |     287,028                              |
| **Other Liabilities**                                                                                         |                                                                                                                                                                                                    |                                                         |
|    Capital  lease obligations                                                                       | 10,667                                                                                                                                                                                             | 10,743                                                  |
|    Deferred  federal income taxes                                                                   | 63,179                                                                                                                                                                                             | 63,150                                                  |
|     Liabilities held for sale                                                                       | ---                                                                                                                                                                                                | 951                                                     |
|     Unamortized investment tax credits                                                              | 3,760                                                                                                                                                                                              | 3,948                                                   |
|     Environmental remediation reserve                                                               | 33,676                                                                                                                                                                                             | 33,852                                                  |
|    Regulatory  and other liabilities                                                                |       51,961                                                                                                                                                              |        44,351             |
|                                                                                                               |     163,243                                                                                                                                                                         |      156,995                        |
| **Capitalization**                                                                                            |                                                                                                                                                                                                    |                                                         |
|    Common  shareholders' equity                                                                     | 293,157                                                                                                                                                                                            | 288,252                                                 |
|     Preferred stock                                                                                 | ---                                                                                                                                                                                                | ---                                                     |
|     Long-term debt                                                                                  |      309,073                                                                                                                                                                   |      309,017                        |
|                                                                                                               |      602,230                                                                                                                                                                   |      597,269                        |
|                                                                                                               | $1,113,010                                                                                                                                                                                         | $1,041,292                                              |

**Derived from audited financial statements.See the notes to the consolidated financial statements.*
**NUI Corporation and SubsidiariesConsolidated Statement of Cash Flows (Unaudited)(Dollars in thousands)**

** **

**Three Months EndedDecember 31,**

**2002**

**2001**

**(****Restated- see Note 2)**

**Operating Activities**

Net income (loss)

$7,155
$(9,394)
Adjustments to reconcile net  income to net cash used in 

    operating activities:

          Depreciation and amortization
8,862
8,945

          Deferred Federal income taxes

(3,473)

(8,776)

          Amortization of deferred investment tax credits

(188)

(110)

          Non-cash adjustment to implement new accounting               standard
---
  27,142

          Derivative assets and liabilities

3,457

(13,979)

          Regulatory assets and liabilities

7,638

3,296

          Other

5,057

300

          Effect of changes in:

             Accounts receivable, net

(82,468)

(62,546)

             Fuel inventories

323

14,367

             Accounts  payable, deposits and accruals

48,056

(12,702)

             Under-recovered  purchased gas costs

(6,793)

(8,099)

             Prepaids and other

9,179

24,580

             Regulatory  assets and liabilities

(5,745)

(9,671)

             Federal and state income taxes
7,291
6,072

             Other

  (1,306)

     (246)

     Net cash used in operating activities

  (2,955)

(40,821)

**Financing Activities**

Proceeds from sales of common  stock, net of treasury stock purchased 

  (1,696)

  (1,076)

Dividends to shareholders

(3,937)

(3,430)

Funds for construction held by  trustee, net

---

3,223

Principal payments under capital  lease obligations

(670)

(529)

Net short-term borrowings

 16,310 

 52,585

   Net cash provided by financing activities

 10,007

 50,773

**Investing Activities**

Cash expenditures for property, plant  and equipment

(13,299)

(14,118)

Changes in assets and liabilities  held for sale

14,928  

6,985  

Acquisitions, net of cash  acquired

---

(666)

Other

      345

     (398)

   Net cash provided by (used in) investing activities

   1,974

  (8,197)

Net increase in cash and cash  equivalents

$  9,026

$ 1,755

**Cash and Cash Equivalents**

At beginning of period

$  4,247

$ 2,601

At end of period

$13,273

$ 4,356

**Supplemental Disclosures of Cash Flows**

Income taxes paid (refunds  received), net

$       ---

$(2,001)

Interest paid

$  5,549

$ 5,623  

***See the notes to the consolidated financial statements.***
**NUICorporation and Subsidiarie**

**Notesto the Consolidated Financial Statements**

**1.     Basisof Presentation**

The consolidated financial statements include alloperating divisions and subsidiaries of NUI Corporation (collectively referredto as "NUI," the "company," "we," "our," or "us").  NUI is a diversified energy company that is primarily engaged inthe sale and distribution of natural gas, energy commodity trading andportfolio management, retail energy sales and telecommunications.  NUI's local utility operations serve morethan 366,000 customers in four states along the eastern seaboard of the UnitedStates and comprise Elizabethtown Gas Company (New Jersey), City Gas Company ofFlorida, Elkton Gas (Maryland), and Virginia Gas Company (VGC).  The company sold its North Carolina Gas (NC)utility operation during September 2002, and sold its Valley Cities Gas andWaverly Gas (VCW) utility operations during November 2002. VGC is also engagedin other activities, such as pipeline operation and natural gas storage. Thecompany's non-regulated businesses include NUI Energy, Inc. (NUI Energy), anenergy retailer; NUI Energy Brokers, Inc. (NUI Energy Brokers), a wholesaleenergy trading and portfolio management subsidiary; NUI Environmental Group,Inc. (NUI Environmental), an environmental project development subsidiary;Utility Business Services, Inc., (UBS), a geospatial and customer informationsystems and services subsidiary; NUI Telecom, Inc. (NUI Telecom), a telecommunicationsservices subsidiary and TIC Enterprises, LLC (TIC), a sales outsourcingsubsidiary. All intercompany accounts and transactions have been eliminated inconsolidation. 

Asdiscussed in Note 8, for all periods presented, the company has classified theresults of NC, VCW, NUI Environmental, and certain product lines of TIC asDiscontinued Operations in the Consolidated Statement of Income. The assets andliabilities of these entities have been classified as Assets Held for Sale andLiabilities Held for Sale in the Consolidated Balance Sheet.

Theconsolidated financial statements contained herein have been prepared withoutaudit in accordance with the rules and regulations of the Securities andExchange Commission and reflect all adjustments which, in the opinion ofmanagement, are necessary for a fair statement of the results for interimperiods. With the exception of the adjustment to record the effect of a changein accounting discussed in Note 12, all adjustments made were of a normal recurringnature. The results of the quarter ended December 31, 2001 have been restated(see Note 2). The preparation of financial statements in accordance withgenerally accepted accounting principles requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities, thedisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates. Theconsolidated financial statements should be read in conjunction with theconsolidated financial statements and the notes thereto that are included inthe company's Annual Report on Form 10-K for the fiscal year ended September30, 2002. 

NUI is aholding company and is exempt from registration under the Public UtilityHolding Company Act of 1935. NUI's wholly owned subsidiary, NUI Utilities,Inc., is subject to regulation as an operating utility by the public utilitycommissions of the states in which it operates. Certain subsidiaries of VGC areregulated by the Virginia State Corporation Commission. Because of the seasonalnature of gas utility operations, the results for interim periods are notnecessarily indicative of the company's results for an entire year.

**2.     Restatementof Prior Year Results**

NUI has restated its fiscal 2000 and 2001 consolidatedfinancial statements, as well as quarterly results for the first three quartersof fiscal 2002. The consolidated financial statements as of and for the periodended December 31, 2001 contained herein have been updated to reflect theserestatements, as well as certain reclassifications described below. Therestatement adjustments were required either to reflect the use of appropriateaccounting methods or to reflect the correct recording of account balances. Thefollowing tables summarize the impact of these adjustments on the company'sconsolidated financial statements, as restated. Amounts contained in the"Results As Reclassified for EITF 02-03 and SFAS 144" include the amounts asoriginally reported and the required reclassifications due to the adoption ofSFAS 144 (see Note 8) and the netting provision of EITF 02-03 (see Note 12).

NUI Corporationand Subsidiaries
**Consolidated Statement of Income(Dollars in thousands, except per share amounts)**
**Three  months ended December 31,  2001 Results****as Reclassified  for EITF 02-03****and SFAS 144**

** **

** **

**        **

** Adjustments**

** **

**                   **

**                 **

**Legend**

**Three  months ended December 31, 2001   AsRestated**

**Operating Margins**

  Operating revenues

$161,238

$(19)

a

$161,219

  Less- Purchased gas and fuel

 93,248

(64)

b

   93,184

            Cost of sales and services

              6,201

---

 

             6,201

            Energy taxes

   3,053

     ---

 

  3,053

      

 58,736

    45

 

58,781

 

 

 

 
Other Operating  Expenses
 

 

 

 

  Operations and maintenance

27,990

442

c, d, e

28,432

  Restructuring charges

1,203

 

 

1,203

  Depreciation and amortization

8,036

---

 

8,036

  Taxes, other than income taxes

  1,967

       ---

 

    1,967

     Total operating expenses

39,196

     442

 

39,638

 

 

 

 

**Operating Income**

 19,540

(397)

 

  19,143

 

 

 

 

 Other Income and Expense, net

     300

        --

 

    300

 

 

 

 

**Income  from Continuing Operations before Interest and Taxes**

  19,840

  (397)

 

  19,443

 

 

 

 

  Interest expense

  5,541

       ---

 

 5,541

 

 

 

 

**Income from Continuing Operations before Income  Taxes**

                     14,299

        (397)

 

          13,902

 

 

 

  Income taxes

  5,786

    124

j

5,910

 

 

 

 

**Income from Continuing Operations before Effect of Change in  Accounting**

        8,513

 

(521)

 

7,992

 

 

 

 

**Discontinued Operations**

 

 

 

 

**  **Loss from discontinued  operations

(386)

760

 f, g, i

374

   Income tax benefit

    (152)

     270

j

 118

**Loss from Discontinued Operations**

    (234)

     490

 

256

 

 

 

 

**Income before Effect of  Change in Accounting**

  8,279

  (31)

 

  8,248

 

 

 

 

**Effect of Change in  Accounting**

(21,359)

  3,717

h

(17,642)

 

 

 

 

**Net Income (Loss)**

$(13,080)

$3,686

 

$(9,394)

**Net Income (Loss) Per Share of Common Stock**

           $(0.94)

        $  0.26

             $(0.68)

See Legend descriptions below.

** **RestatementAdjustment Legend for fiscal 2002 first quarter (dollars in thousands):

a.     Recorded anadjustment to revenues of $19 in fiscal 2002 in order to adjust the unrecordedgas costs balance to equal the underlying gas costs detail.

b.     Recorded an adjustment to purchased gascosts of $64 in fiscal 2002 to record changes to mark-to-market transactionsrecorded by NUI Energy Solutions.

c.     Recordedan adjustment of $118 in fiscal 2002 to record rental expense for an operatinglease on a straight-line basis. Previously, the company had recognized rentexpense as paid on an operating lease.

d.     Recordedadjustments to the pension credit of $349 in fiscal 2002 to adjust the pensioncredit as determined by the company's actuaries.

e.     Recordedan adjustment to expense certain previously deferred start-up costs related tovarious business projects of  $(25) infiscal 2002.

f.      Recordedan adjustment to expense certain costs that had previously been deferredrelated to pending utility asset sales of $(191) in fiscal 2002.

g.     Recordedan adjustment to revenue of $686 in fiscal 2002 to appropriately recognizerevenue on certain TIC equipment sales, which were previously recognized priorto the completion of required installation obligations.

h.     Recordedan adjustment to the cumulative effect of a change in accounting for goodwillof $5,718 (net of taxes of $2,001) in fiscal 2002 as a result of changes toTIC's goodwill recorded in fiscal 2001.

i.      Recordedan adjustment to expense previously deferred development costs related to NUIEnvironmental projects of $117 in fiscal 2002.

j.      Representsthe income tax effects of all adjustments
 **3.     Common Shareholders' Equity**
Thecomponents of common shareholders' equity were as follows (dollars inthousands):

** **

**December 31,  2002**

**September 30,  2002**

Common  stock, no par value

$293,054

$289,936

Shares  held in treasury

(9,668)

(7,537)

Retained  earnings

15,143

11,925

Unearned  employee compensation

(4,249)

(4,949)

Accumulated  other comprehensive loss

(1,123)

(1,123)

Total common shareholders'  equity

$293,157

$288,252

**4.      ****Acquisitionof Norcom, Inc.**

On March 22, 2002, the companyentered into an agreement to acquire certain assets of Norcom, Inc. (Norcom),including approximately 4,000 customer accounts.  The agreement provided for NUI Telecom to assume managementcontrol of Norcom as of March 1, 2002. Norcom had operating revenues of $3.7million and $0.6 million of operating income for the three months endedDecember 31, 2002. Norcom is a provider of telecommunications services in theNortheast and Southeast regions of the United States and its customer accountshave been combined with the company's NUI Telecom subsidiary. 

On August 28, 2002, the company completed itsacquisition of Norcom, subject to post-closing adjustments. The purchase pricetotaled approximately $4.1 million and included the issuance of 216,039 sharesof NUI common stock.

The following table summarizes the estimated fair valuesof the assets acquired and liabilities assumed at the date of acquisition(amounts in thousands). 

Cash

$   653

Accounts receivable

1,166

Equipment

7

Intangible assets

2,160

Goodwill

 2,172
  Total assets acquired
6,158

Current liabilities

 2,048

  Total liabilities assumed

 2,048

  Net assets acquired

$4,110

The acquired intangible assets relate to customerrelationships, which will be amortized over a 7-year period (see Note 7).

** 5.     Acquisitionof Telcorp, Ltd.              **

** **On May 31, 2002, the company entered into an agreementto acquire certain assets of Telcorp, Ltd. (Telcorp).  In addition, the company entered into a letter agreement withTelcorp, which provides that NUI Telecomassumed management control of the business effective April 1, 2002.  Telcorp had operating revenues of $1.7million and $0.5 million of operating income for the three months endedDecember 31, 2002. Telcorp is a non-facilities-based reseller thatprovides a suite of advanced voice and data services to large and smallbusinesses and its customer accounts have been combined with the company's NUITelecom subsidiary.

On September 1, 2002, the company completed itsacquisition of Telcorp, subject to post-closing adjustments. The initialpayment totaled approximately $3.4 million, and the purchase price whenfinalized is expected to range between $5 million and $9 million. 

The following table summarizesthe estimated fair values of the assets acquired and liabilities assumed at thedate of acquisition (amounts in thousands). 

Accounts Receivable

$    832

Equipment

     10

Intangible assets

3,060

Goodwill

    361

  Total assets acquired

4,263
Current liabilities
    832

  Total liabilities assumed

    832

  Net assets acquired

$3,431

The acquired intangible assets relate to customerrelationships, which will be amortized over a 10-year period (see Note 7).

**6.     Goodwill**

** **The excess of the cost over the fair value of net assetsof acquired businesses is recorded as goodwill. On October 1, 2001, the companyadopted Statement of FinancialAccounting Standards No. 142, "Goodwill and Intangible Assets" (SFAS 142). Thecarrying value of goodwill for each of the company's subsidiaries is no longersubject to amortization, but must be tested for impairment annually or earlierunder certain circumstances.  Implementation of this accounting pronouncementduring the first quarter of fiscal 2002 required the company to perform a fairvalue assessment to determine if the fair value of its subsidiaries withgoodwill exceeded their carrying amounts. Using the present value of expectedfuture cash flows to determine the fair value of TIC, the company recognized atransitional goodwill impairment loss of approximately $27.1 million related tothe carrying value of the goodwill for its TIC subsidiary in the first quarterof fiscal 2002.  A goodwill impairmentadjustment for the fair market valuations of NUI Telecom and VGC was notnecessary.

In conjunction with the adoption of SFAS 142, thecompany identified $2.2 million of intangible assets from its acquisition ofVGC, which had been originally recorded as goodwill. These intangible assetsrelate to the development rights of the property acquired in March 2001, andwill be amortized over a 30-year period (see Note 7).

As a result of the discontinuance of the telephoneequipment and USPS product lines of TIC on July 16, 2002, on that date thecompany wrote-off approximately $3.5 million of goodwill associated with theseproduct lines. The remaining goodwill of TIC relates to the network andwireless services product lines, which are under the management of NUI Telecom.

Thechanges in the carrying amount of goodwill (net of amortization) for the threemonths ended December 31, 2002, are as follows (in thousands):

**NUI Telecom**

**NUIVirginia Gas**

**TIC Enterprises**

**Total**

Balance as of September 30,  2002

$7,585

$8,056

$3,485

$19,126

Adjustments to goodwill during  the period 

     (70)

      ---

      ---

       (70)

Balance as of December 31, 2002

$7,515

*   *$8,056

    $3,485

    $19,056 

The following table sets forththe effect of SFAS 142 for thethree-month periods ended December 31 (in thousands, except per share amounts):

**       2002**

**       2001***

Reported net income (loss)

$7,155

$(9,394)

Add back: Transitional  impairment loss (net of tax)

       ---

 17,642

Adjusted net income

$7,155

    $8,248

**Basic Earnings per Share:**

Reported net income (loss)

       $0.45

      $(0.68)

Transitional impairment loss

     ---

  1.27

Adjusted net income

       $0.45

       $0.59

** ***- As restated (seeNote 2)

**7.     Acquired Intangible Assets**

** **As discussed in Notes 4, 5 and6, the company has acquired intangible assets, which are included in OtherAssets on the Consolidated Balance Sheet at December 31, 2002 (in thousands):

                                                                                                                        

**Gross  Carrying Amount**

**Accumulated  Amortization**

Development rights

$2,200

$  (92)

Customer relationships

  5,220

  (153)

  Total

$7,420

$(245)

** **The aggregate amortizationfor the three months ended December 31, 2002, was approximately $172,000.Estimated annual amortization is expected to be approximately $688,000 for eachfiscal year through September 30, 2007.

** 8.     Discontinued Operations**

The companyhas adopted the provisions of Statement of Financial Accounting Standards No. 144, "Accounting forthe Impairment or Disposal of Long-Lived Assets" (SFAS 144). This statementexcludes from the definition of long-lived assets goodwill and otherintangibles that are not amortized in accordance with SFAS 142. SFAS 144requires that long-lived assets to be disposed of by sale be measured at thelower of their carrying amount or fair value less cost to sell, whetherreported in continuing operations or in discontinued operations. SFAS 144 alsoexpands the reporting of discontinued operations to include components of anentity that have been or will be disposed of rather than limiting suchdiscontinuance to a segment of a business. Accordingly, the revenues, costs andexpenses, assets, liabilities, and cash flows of the entities NUI is holdingfor sale have been segregated and reported as discontinued operations for allperiods presented.

On October 5, 2000, the company agreed to sell theassets of its VCW utility operations to C&T Enterprises, Inc. (C&T), ofPennsylvania for $15 million. The transaction closed on November 7, 2002, afterall regulatory approvals were obtained. VCW generated operating revenues of$0.6 million and had operating income of $0.1 million for the three monthsended December 31, 2002. VCW had operating revenues of $2.1 million, operatingmargins of $1.0 million, and operating income of $0.9 million that have beenincluded in discontinued operations for the three months ended December 31, 2001.

On May 15, 2002, the company agreed to sell the assetsof its NC utility operation to Piedmont Natural Gas of North Carolina forapproximately $24 million after post-closing adjustments. The transactionclosed on September 30, 2002, after all regulatory approvals had been obtained.NC had operating revenues of $3.6 million, operating margins of $1.8 million,and operating income of $0.4 million that have been included in discontinuedoperations for the three months ended December 31, 2001.

On July 16, 2002, thecompany ceased the operations of its telephone equipment and USPS product linesof TIC. These product lines had operatingrevenues of $5.7 million, operating margins of $3.3 million, and operatinglosses of $0.4 million that have been included in discontinued operations forthe three months ended December 31, 2001.

During September 2002, the company approved a plan to sell its NUI Environmental subsidiary, atwhich time the company began to actively seek a buyer. NUI Environmentalhas not generated operating revenues as of yet, and incurred operating lossesof $0.2 million that have been included in discontinued operations for thethree months ended December 31, 2002 and 2001.

**9.     Earnings per Share**

The following table summarizesthe company's basic and diluted earnings per share calculations for thethree-month periods ended December 31 (amounts are in thousands, except pershare amounts): **  **                                                                                                                 **                                                  **

**2002**

**2001*******

Income  from continuing operations

$7,616

$7,992

Income  (loss) from discontinued operations

      (461)

256

Effect of  change in accounting

       ---

(17,642)

Net  income (loss)

$7,155

$(9,394)

 

 

Weighted Average Shares Outstanding

16,025

13,924

 

 

**Earnings (loss) per Share:**

 

 

Income  (loss) from continuing operations

        $0.48

      $0.57

Loss from  discontinued operations

        (0.03)

         0.02

Effect of  change in accounting

    ---

       (1.27)

Net  income (loss)

$0.45

     $(0.68)
 The company does not have dilutive shares as of December 31 for the periods presented.
*-As restated (see Note 2)

**10.   ****Notes Payable to Banks**

At December 31, 2002, the company's totaloutstanding borrowings under its credit agreements were $145.0 million with acombined weighted average interest rate of 2.6 percent. Unused amounts underthe credit agreements at December 31, 2002, were approximately $50.0million.  The company's creditagreements, under which the company had the ability to borrow up to anaggregate of $225 million, expired on December 18, 2002. The lenders in thecompany's bank group agreed to extend the maturity of $195 million of thecredit agreements through February 12, 2003. On February 12, 2003, the companyextended an aggregate of $180 million of the credit agreements from that datethrough February 11, 2004. 

InOctober 2002, NUI and NUI Utilities amended their existing credit agreementswith their bank lenders. The amendments to both credit agreements removed therequirement to maintain a minimum credit rating, and added provisions providingfor increases in the interest rates and facility fees payable corresponding tocredit ratings at and below the credit ratings that were previously requiredunder the credit agreements. In addition, the minimum fixed charge coverageratio required pursuant to the NUI Corporation credit agreement was amendedfrom 1.75x to 1.50x for quarters ended on or after September 30, 2002. Inaddition, both credit agreements were amended to allow the borrowers to enterinto up to $50 million aggregate of financing transactions to permit NUIUtilities' Elizabethtown Gas subsidiary to consummate a contemplated financingof certain gas meters and related equipment up to $33 million, upon approval ofthe NJBPU. The company is in compliance with the new terms of the financialcovenants during fiscal 2003.  

Theweighted average daily amounts outstanding of borrowings under the creditagreements and the weighted average interest rates on those amounts were $135.8million at 2.6 percent for the three-month period ended December 31, 2002, and$208.8 million at 3.7 percent for the three-month period ended December 31,2001.

** 11.   Contingencies**

*Joint Venture with Duke Energy*. On April 30, 2001, the companyannounced an agreement with a unit of Duke Energy to develop a natural gasstorage facility in Saltville, Virginia. A subsidiary of VGC and Duke EnergyGas Transmission (DEGT) have created a limited liability company, Saltville GasStorage Company LLC (LLC).  VGC, whichreceived final regulatory approvals during January 2003, will contributecertain storage assets valued at approximately $16 million to the LLC. DEGTwill contribute $16 million of capital required to expand the facility for itsintended purpose. 

The company and DEGT will fund the costs of developingthe storage assets equally over the next five years. The company currentlyestimates its share of future funding needs to be $18.3 million in fiscal 2003,$7.3 million in fiscal 2004, $0.8 million in fiscal 2005, $0.7 million infiscal 2006, and $0.8 million in fiscal 2007. The company expects that all, orsubstantially all, of its funding requirements for the joint venture duringfiscal 2003 will be provided through the execution of a long-term (12 to 15year) capital lease with a bank on a compressor station.

*Guarantees*. The company has guarantees of approximately $339million to 82 counterparties as of December 31, 2002, in support of NUI EnergyBrokers' trading activities. These guarantees are necessary to facilitatetrading with a broad group of potential counterparties, although typically NUIEnergy Brokers uses only a fraction of the issued guarantees at any given time.Further, since NUI Energy Brokers has netting agreements in place with most ofits counterparties, the guarantees would apply only to any net balances owed toits respective counterparties with which it has such agreements. As of December31, 2002, outstanding guarantees were approximately $30.5 million.

* Environmental Matters.* The company is subject to federal and state laws withrespect to water, air quality, solid waste disposal and employee health andsafety matters, and to environmental regulations issued by the United StatesEnvironmental Protection Agency (EPA), the New Jersey Department ofEnvironmental Protection (NJDEP) and other federal and state agencies.

The company owns, or previously owned, certainproperties on which manufactured gas plants (MGP) were operated by the companyor by other parties in the past. In New Jersey, the company has reported thepresence of the six MGP sites to the EPA, the NJDEP and the New Jersey Board ofPublic Utilities (NJBPU), and is currently conducting remedial activities atsuch properties with oversight from the NJDEP. The company anticipates theinitiation of such activities in the state of North Carolina within the nextfive years.  Although the actual cost offuture environmental investigation and remediation efforts cannot be reasonablyestimated, the company has recorded atotal reserve for environmental investigation and remediation costs ofapproximately $33.7 million, which the company believes is the probable minimumamount that the company may expend over the next 30 years.  Of this reserve, approximately $30.1 millionrelates to remediation of the New Jersey MGP properties and approximately $3.6million relates to MGP properties located outside the state of New Jersey. 

Thecompany's prudently incurred remediation costs for the New Jersey MGPproperties have been authorized by the NJBPU to be recoverable in rates throughits MGP Remediation Adjustment Clause. As a result, the company has begun raterecovery of approximately $8.2 million of environmental costs incurred throughJune 30, 2000. Recovery of an additional $1.7 million in environmental costsincurred between July 1, 2000, and June 30, 2002, is currently pending NJBPU approval.Accordingly, the company has recorded a regulatory asset of approximately $36.3million as of December 31, 2002,reflecting the future recovery of both incurred costs and future environmentalremediation liabilities in the state of New Jersey.  The company has also been successful in recovering a portion ofMGP remediation costs incurred in New Jersey from the company's insurancecarriers and continues to pursue additional recovery.  With respect to costs associated with the MGP properties located outsideNew Jersey, the company intends to pursue recovery from ratepayers, formerowners and operators, and/or insurance carriers, although the company is notable to express a belief as to whether any or all of these recovery effortswill be successful. The company is working with the regulatory agencies toprudently manage its MGP costs so as to mitigate the impact of such costs onboth ratepayers and shareholders.

*Amendment of Note Purchase Agreement. * In January2003, the company became aware of issues of technical default under the Note Purchase Agreementdated as of August 20, 2001, and the companyobtained a waiver of certain covenants contained in theNote Purchase Agreement from the holders of the notes issued under the agrement.  The covenantsconsisted of the minimum fixed charge coverage ratio, restrictions on theability to enter into sale and leaseback transactions, restrictions onsubsidiaries' ability to pay dividends to the company and make advances to andinvestments in the company, and the requirement that the company delivercertain financial information and statements of cash flows to the noteholders.Prior to obtaining the waiver, the company was in technical default under theNote Purchase Agreement during fiscal 2002. On February 14, 2003, the companyentered into an agreement with the noteholders to amend the Note PurchaseAgreement on or prior to February 18, 2003.  The amendment will addresseach of the items covered in the waiver, noted above as well as provide amongother things for an increase in the interest rate under each of the outstandingnotes of 50 basis points or 0.50 percent, effective April 1, 2003 and for theestablishment of a covenant requiring the company to maintain a level ofconsolidated debt to consolidated assets of no greater than fifty percent. The amendment will also require the issuance of guarantees by certain of thecompany's subsidiaries and the execution by the noteholders and the lenders inthe credit facilities of the company and NUI Utilities of an inter-creditoragreement.  The amendment is required to be approved by the lendersrepresenting a majority of the outstanding indebtedness in each of the company'sand NUI Utilities credit facilities.  Management believes that it isprobable that the amendment will be approved by the lenders.  

*Agreementto Acquire Assets of Norcom Agency Sales, Inc**.*** On March 22, 2002, the company entered into anagreement to acquire certain assets of Norcom Agency Sales, Inc. (NAS). Theagreement provides for the company to pay the seller, Norcom, a multiple oftotal sales to new customers obtained by NAS as agent for NUI Telecom duringthe period April 1, 2002, through October 31, 2003. The multiple to be paidwill be determined based on the actual new customer revenues generated by NASfor the month of October 2003, and is subject to post-closing adjustments. 

The purchase price will be paid in NUI common stock. The number of shares of NUI common stock to beissued will be determined by dividing the total purchase price by the averageclosing price of NUI's common stock for the first 20 of the 25 consecutivetrading days immediately preceding October 31, 2003. The company expectsto close on this transaction in or around February 2004.

*Gas Procurement Contracts.* Certain ofthe company's long-term contracts for the supply, storage and delivery ofnatural gas include fixed charges that amount to approximately $53.1 millionannually.  The company currentlyrecovers, and expects to continue to recover, such fixed charges through itspurchased gas adjustment clauses. As a result of the unbundling of natural gas services inNew Jersey, these contracts may result in the realization of stranded costs bythe company.  Management believes theoutcome of these actions will not have a material adverse effect on thecompany's results.  The company also is committed to purchase frommultiple suppliers, at market-related prices, minimum quantities of gas that,in the aggregate, are approximately 2.1 billion cubic feet (Bcf) per year or topay certain costs in the event the minimum quantities are not taken. Thecompany expects that minimum demand on its systems for the duration of thesecontracts will continue to exceed these minimum purchase obligations. 

*Other.*Between October 28,2002 and December 20, 2002, five substantially similar civil actions werecommenced in the United States District Court for the District of New Jersey,in which plaintiffs allege that the company and its president and chiefexecutive officer violated federal securities laws by issuing false statementsand failing to disclose information regarding the company's financial conditionand current and future financial prospects in its earnings statements, pressreleases, and in statements to analysts and others.  By orders dated December 19, 2002, January 22, 2003 and February3, 2003, the five actions were consolidated into one action captioned In reNUI Securities Litigation.  The fiveconsolidated lawsuits include: (1) an action captioned Jack Klebanow, onbehalf of himself and all others similarly situated v. NUI Corporation and JohnKean, Jr., filed in the United States District Court for the District ofNew Jersey on October 28, 2002;  (2) anaction captioned Gisela Friedman, on behalf of herself and all otherssimilarly situated v. NUI Corporation and John Kean, Jr., filed in theUnited States District Court for the District of New Jersey on October 31,2002;  (3) an action captioned ThomasDavis, on behalf of himself and all others similarly situated v. NUICorporation and John Kean, Jr., filed in the United States District Courtfor the District of New Jersey on November 6, 2002; (4) an action captioned MarvinE. Russell, on behalf of himself and all others similarly situated v. NUICorporation and John Kean, Jr., filed in the United States District Courtfor the District of New Jersey on December 10, 2002; and (5) an actioncaptioned Phyllis Waltzer, on behalf of herself and all others similarlysituated v. NUI Corporation and John Kean, Jr., filed in the United StatesDistrict Court for the District of New Jersey on December 20, 2002.  The Company has learned of the Waltzercomplaint through its investigation and has not been served in suchaction.  The plaintiffs are shareholderswho assert claims on behalf of a putative class of purchasers of NUI's commonstock between November 8, 2001 and October 17, 2002, except for the Friedmanand the Waltzer complaints, which assert a class period of July 26, 2001 toOctober 17, 2002.  Specifically, the plaintiffsallege that the company failed to disclose that it was experiencing problemswith regard to increased costs in its telecommunications business; increasedcosts of insuring its medical benefits; a rise in bad debt from its customers;and a decline in the value of its pension plan assets.  The plaintiffs allege that thesenon-disclosed costs put a strain on the company's operating margins, and onOctober 18, 2002, caused the company to announce that it would sustain greatlyreduced earnings for fiscal years 2002 and 2003.  Based upon these allegations, the plaintiffs allege claims underSection 10(b), including Rule 10b-5 promulgated thereunder, and Section 20(a)of the Securities Exchange Act of 1934 (the Exchange Act), and seek unspecifiedmonetary damages, pre- and post-judgment interest, attorneys' fees and experts'fees, costs, and any other available relief.  The parties have adjourned by stipulation the time for responsivepleadings to be filed to until thirty days after plaintiffs file and serve aconsolidated amended complaint.  No discoveryhas yet occurred.  By order datedFebruary 3, 2003, a Lead Plaintiff, Lead Counsel and Liaison Counsel wereappointed in the consolidated action and an Amended Consolidated Class ActionComplaint is to be filed within 60 days of entry of the order.  Furthermore, on December 23, 2002, a lawfirm made a public announcement with respect to a lawsuit purportedly filed inthe Southern District of New York on behalf of a putative class of purchasersof NUI's common stock between November 8, 2001 and October 17, 2002 against NUICorporation and John Kean, Jr., alleging violations under Section 10(b),including Rule 10b-5 promulgated thereunder, and Section 20(a) of the ExchangeAct.  Specifically, the announcement allegesthat the company knowingly or recklessly failed to properly record fixed costexpenses, accrue necessary pension expenses and reserve adequate amounts forits self-insured medical benefits in its quarterly financial statements.  At this time, the company has not beenserved with the purported complaint. Although the company intends to vigorouslydefend these lawsuits, it is not possible at this time to determine a likelyoutcome.

The company is involved in othervarious 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 thecompany's results of operations or its financial condition.

**12. NewAccounting Standards**

During fiscal 2002, the company adopted Statement ofFinancial Accounting Standards No. 144, "Accounting for Impairment and Disposalof Long-lived Assets" (SFAS 144). SFAS 144 supersedes SFAS 121 and theprovisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, andExtraordinary, Unusual and Infrequently Occurring Events and Transactions" withregard to reporting the effects of a disposal of a segment of a business. SFAS144 establishes a single accounting model for assets to be disposed of by saleand addresses several SFAS 121 implementation issues. As a result of theadoption of this standard, the company has classified the operating results ofsubsidiaries to be disposed of as "Discontinued Operations" in the ConsolidatedStatements of Income; assets and liabilities of these subsidiaries as "Held forSale" in the Consolidated Balance Sheets; and "Changes in Assets andLiabilities Held for Sale" in the Consolidated Statement of Cash Flows. Seefurther discussion of the subsidiaries being disposed of in Note 8.

In August 2001, the Financial Accounting StandardsBoard (FASB) issued Statement of Financial Accounting Standards No. 143,"Accounting for Asset Retirement Obligations" (SFAS 143). This statementestablishes accounting standards for recognition and measurement of liabilitiesfor asset retirement obligations and the associated asset retirement costs. Thecompany adopted this statement on October 1, 2002, and recorded an assetretirement obligation of approximately $5.6 million with offsetting amounts toproperty, plant and equipment and regulatory assets. 

InJune 2002, the Emerging Issues Task Force (EITF) issued EITF 02-03, "Issues Involved in Accounting for Contracts Under Issue 98-10," (EITF 02-03). The purpose of EITF 02-03is to address certain issues related to energy trading activities, including(a) gross versus net presentation in the income statement, (b) whether theinitial fair value of an energy trading contract can be other than the price atwhich it was exchanged (i.e., whether there is any profit at inception), and(c) additional disclosure requirements for energy trading activities. OnOctober 25, 2002, the EITF reached a consensus on EITF 02-03 that changes theaccounting for certain energy contracts. The main provisions of Issue 02-03 areas follows:

-       The EITFrescinded EITF Issue 98-10, "Accounting for Contracts Involved in Energy Trading and RiskManagement Activities" (EITF 98-10),which was the authoritative accounting followed by NUI Energy Brokers and NUIEnergy. Pursuant to EITF 98-10, an entity accounted for energy contracts atfair value with changes in fair value recognized in earnings if the energycontract was determined to be part of an entity's trading activities. As aresult, this new consensus prohibits mark-to-market accounting forenergy-related contracts that do not meet the definition of a derivative underSFAS 133. Any contracts subject to the consensus must be accounted for on theaccrual basis upon application of the consensus. 

-       Theconsensus applies immediately to non-derivative energy-related contractsexecuted after      October 25, 2002.

-       Theconsensus applies to existing non-derivative energy-related contracts forfiscal periods beginning after December 15, 2002 (January 1, 2003 for NUI) andthe cumulative effect of a change in accounting principle must be reported uponinitial application.

-       The EITFminutes on Issue 02-03 indicate that an entity should not record unrealizedgains or losses at the inception of derivative contracts unless the fair valueof each contract in its entirety is evidenced by quoted market prices or othercurrent market transactions for contracts with similar terms andcounterparties.

-       The EITFreaffirmed its June consensus requiring gains and losses on derivative energytrading contracts (whether realized or unrealized) to be reported as revenue ona net basis in the income statement.

 TheEITF deliberations and consensus on EITF 02-03 will not affect the company'scash flows. Additionally, the company must continue to mark all existingenergy-related contracts to market based on EITF 98-10 during the first quarterof fiscal 2003 prior to applying the new consensus. However, the consensusrequires NUI to record a cumulative effect adjustment to convert any contractsthat do not meet the definition of a derivative under SFAS 133 to accrualaccounting effective January 1, 2003.
Theprimary contracts that will be affected as a result of applying the newconsensus are the full requirements natural gas sales contracts associated withNUI Energy and a large natural gas storage contract within NUI Energy Brokers.However, it is expected that the majority of NUI Energy Brokers' contracts willbe considered derivatives under SFAS 133 and continue to be marked-to-marketthrough earnings. The cumulative effect adjustment to convert any contractsthat do not meet the definition of a derivative under SFAS 133 to accrualaccounting effective on January 1, 2003, is estimated to range between $12million to $14 million.
Additionally,in accordance with one of the provisions of EITF 02-03, the company hasrecorded the margins earned under theaccounting guidance of EITF 98-10 by both NUI Energy Brokers and NUI Energy ona net basis. In previous periods, both NUI Energy Brokers and NUI Energyincluded both the cost of the purchased gas and the operating margin earned forall physical transactions within operating revenues on the ConsolidatedStatement of Income. For financial trades such as futures, options and swaptransactions, NUI Energy Brokers and NUI Energy had historically recorded onlythe operating margin component, but within the purchased gas and fuel line itemon the Consolidated Income Statement. The adoption to net-basis reporting hasno effect on these transactions or cash flows other than to reclassify andpresent total margins earned within the operating revenues line item on theConsolidated Statement of Income. In accordance with the EITF, all priorperiods have been reclassified to conform to this presentation. As a result ofnet-basis reporting, NUI reduced operating revenues and purchased gas and fuelline items by $63.7 million for the three months ended December 31, 2001, withno changes to total operating margins.

In June 2002, the FASB issued Statement of FinancialAccounting Standards No. 146, "Accounting for Costs Associated with Exit orDisposal Activities" (SFAS 146). This statement is effective for exit ordisposal activities initiated after December 31, 2002. The company does notexpect the adoption of this statement to have an impact on net income.

In November 2002, the FASB issued FASBInterpretation No. 45, "Guarantor's Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN45).  FIN 45 elaborates on the disclosuresto be made by a guarantor in its interim and annual financial statements aboutits obligations under certain guarantees that it has issued. It also requires aguarantor to recognize, at the inception of a guarantee, a liability for thefair value of the obligation undertaken in issuing the guarantee. The initialrecognition and measurement provisions of FIN 45 apply to guarantees issued ormodified after December 31, 2002. Accordingly, the company is currentlydetermining what impact these provisions will have on its financial statements.

InDecember 2002, the FASB issued Statement of Financial Accounting Standards No.148, "Accounting for Stock-Based Compensation- Transition and Disclosure" (SFAS148). This statement amends Statement of Financial Accounting Standards No.123, ("Accounting for Stock-Based Compensation," to provide alternative methodsof transition for an entity that voluntarily changes to a fair value basedmethod of accounting for stock-based employee compensation and amends disclosureprovisions of that Statement to require prominent disclosure about the effectson reported net income of an entity's accounting policy decisions with respectto such compensation. The company expects to continue to account forstock-based compensation in accordance with Accounting Principles Board OpinionNo. 25 and will provide the prominent disclosures required in its annual andfuture interim financial statements.
InJanuary 2003, the FASB issued FASB Interpretation No. 46, "Consolidation ofVariable Interest Entities" (FIN 46). The objective of FIN 46 is to improvefinancial reporting by companies involved with variable interest entities.  A variable interest entity is a corporation,partnership, trust or any other legal structure used for business purposes thateither (a) does not have equity investors with voting rights, or (b) has equityinvestors that do not provide sufficient financial resources for the entity tosupport its activities. Historically, entities generally were not consolidatedunless the entity was controlled through voting interests. FIN 46 changes thatby requiring a variable interest entity to be consolidated by a company if thatcompany is subject to a majority of the risk of loss from the variable interestentity's activities or entitled to receive a majority of the entity's residualreturns or both. A company that consolidates a variable interest entity iscalled the "primary beneficiary" of that entity. FIN 46 also requiresdisclosures about variable interest entities that a company is not required toconsolidate but in which it has a significant variable interest. Theconsolidation requirements of FIN 46 apply immediately to variable interestentities created after January 31, 2003. The consolidation requirements of FIN46 apply to existing entities in the first fiscal year or interim periodbeginning after June 15, 2003. Also, certain disclosure requirements apply toall financial statements issued after January 31, 2003, regardless of when thevariable interest entity was established. The company is currently evaluatingthe consolidation requirements with respect to its joint venture with DukeEnergy (see Note 11).
**13.    Business SegmentInformation**

** **Thecompany's operations are organized and managed as three primary segments:Distribution Services, Energy Asset Management (formerly Wholesale EnergyMarketing and Trading), and Retail and Business Services. The DistributionServices segment distributes natural gas in four states through the company'sregulated utility operations. The Energy Asset Management segment reflects theoperations of the company's NUI Energy Brokers and VGC subsidiaries (exceptVGDC), as well as off-system sales made by NUI Energy Brokers on behalf of theutility operations. The Retail and Business Services segment reflects theoperations of the company's NUI Energy, UBS, and NUI Telecom subsidiaries, thenetwork and wireless product lines of TIC which are being managed by NUITelecom, as well as appliance leasing, repair and maintenance operations.  The company also has corporate operationsthat do not generate any revenues.

The following table provides information concerningthe major segments of the company for the three-month periods ended December31, 2002 and 2001. Revenues include intersegment sales to affiliated entities,which are eliminated in consolidation. All of the company's operations are in the United States and thereforedo not need separate disclosure by geographic region. Certain reclassificationshave been made to prior year segment data to conform with the current year'spresentation.

**                                                                           ****Three Months Ended                                                                                   December 31,**

**(Dollars in thousands)**

**2002**

**2001*******

**Revenues:**

** **Distribution Services

$138,148

$121,083

** **Energy Asset Management

27,625

29,532

** **Retail and Business Services

20,628

13,242

  Intersegment Revenues

    (1,983)

    (2,638)

Total Revenues

$184,418

$161,219

**Operating Margins:**
  Distribution Services
$50,166

$44,134

  Energy Asset Management
3,985
9,853

  Retail and Business Services

8,308

6,203

  Intersegment Operating Margins

     (564)

  (1,409)

Total Operating Margins

$61,895

$58,781

**Pre-Tax Operating Income:**

** **Distribution Services

$17,705

$15,401

** **Energy Asset Management

993

6,113

  Retail and Business Services

     (524)

     (399)

Total Pre-Tax Operating  Income

$18,174

$21,115

*- As restated (see Note 2)

A reconciliation of the company's segment pre-taxoperating income to amounts reported on the consolidated financial statementsis as follows:

                                                                         **Three Months Ended                                                                                 December 31,**

**(Dollars in thousands)**

**2002**

**2001*******
 Segment Pre-Tax Operating Income
$18,174

$21,115

Non-segment pre-tax  operating income (loss)

     (558)

   (1,972)

 Pre-Tax Operating Income

$17,616

$19,143
 *- As restated (see Note 2)
 
**NUI Corporation and Subsidiaries   Summary  Consolidated Operating Data**

 

 

**Three Months Ended  December 31,**

 
 

**2002**

**2001*******

 
**Operating Revenues (Dollars in thousands)**

 

 

 
Firm  Sales:

 

 

 
Residential

$77,830

$74,095

 
Commercial

30,837

29,486

 
Industrial

2,769

2,553

 
Interruptible  Sales

14,738

8,779

 
Unregulated  Sales 

25,747

27,591

 
Transportation  Services

12,228

11,368

 
Customer  Service, Appliance Leasing and Other

   20,822

   18,798

 
Total  Revenues

184,971

 172,670

 Revenues by Discontinued Operations
      (553)

  (11,451)

 
Operating  Revenues from Continuing Operations

$184,418

$161,219

 
 

 

 
**Gas Sold or Transported (MMcf)**

 

 

 
Firm  Sales:

 

 

 
Residential

7,707

6,395

 
Commercial

3,305

2,854

 
Industrial

233

305

 
Interruptible  Sales

2,835

2,536

 
Unregulated  Sales 

32,731

26,551

 
Transportation  Services

  9,984

  9,508

 
Total Gas  Sold or Transported

56,794

 48,149

 
Gas Sold  or Transported by Discontinued Operations

   (239)

 (1,633)

 
Gas Sold  or Transported by Continuing Operations

56,556

46,516

 
 

 

 
**Average Utility Customers Served**

 

 

 
Firm  Sales:

 

 

 
Residential

345,931

355,296

 
Commercial

22,604

23,958

 
Industrial

123

264

 
Interruptible  Sales

30

40

 
Transportation

     4,161

     3,977

 
Total  Average Utility Customers Served

372,849

383,535

 
Average  Utility Customers Served by Discontinued Operations

 

  (6,548)

 

 (20,439)

 
Average  Utility Customers Served by Continuing Operations

  366,301

  363,096

 
 

 

 
**Degree Days in New Jersey**

 

 

 
Actual

1,828

1,307

 
Normal

1,812

1,812

 
Percentage  variance from normal

           1% colder

           28% warmer

 
 

 

 
**Employees (period end)**

1,222

1,501

 
*- As restated (see Note 2 of the Notes to the Consolidated Financial Statements)

**Item 2. Management's Discussion and Analysis of Financial Condition and Resultsof Operations**

** **Thefollowing discussion and analysis should be read in conjunction with theunaudited condensed consolidated financial statements of NUI Corporationincluded elsewhere herein and with the company's Form 10-K for the fiscal yearended September 30, 2002.

**Overview**

Thefollowing discussion and analysis refers to NUI Corporation and itssubsidiaries (collectively referred to as "NUI," the "company," "we," or"our"). The company is a diversified energy company that is primarily engagedin the sale and distribution of natural gas, energy commodity trading andportfolio management, retail energy sales and telecommunications. Its localdistribution operations provide natural gas and related services during fiscal2003 to more than 366,000 customers in four statesalong the eastern seaboard of the United States and comprise Elizabethtown GasCompany (New Jersey), City Gas Company of Florida, Elkton Gas (Maryland), andVirginia Gas (VGC). The company sold its North Carolina Gas (NC) utilityoperation during September 2002, and sold its Valley Cities Gas and Waverly Gas(VCW) utility operations during November 2002.VGC is also engaged in otheractivities, such as pipeline operation and natural gas storage. The company'snon-regulated subsidiaries include NUI Energy, Inc. (NUI Energy), an energyretailer; NUI Energy Brokers, Inc. (NUI Energy Brokers), a wholesale energytrading and portfolio management subsidiary; NUI Environmental Group, Inc. (NUIEnvironmental), an environmental project development subsidiary; UtilityBusiness Services, Inc. (UBS), a geospatial and customer information systemsand services subsidiary; NUI Telecom, Inc. (NUI Telecom), a full-servicetelecommunications services subsidiary; and TIC Enterprises, LLC (TIC), a salesoutsourcing subsidiary. 

Asof December 31, 2002, the company has classified NC, VCW, NUI Environmental,and certain product lines of TIC as discontinued operations (see Note 8 of theNotes to the Consolidated Financial Statements).

**Resultsof Operations**

***Consolidated Reviewof Results of Operations***

The following discussion isintended to provide an overview of consolidated results for the three-monthperiods ended December 31, 2002 and 2001. The results of operations for fiscal 2001 and 2000, aswell as the first three quarters of fiscal 2002 have been restated (see Note 2of the Notes to the Consolidated Financial Statements). Following this discussion is a more detailed overview of the results forNUI's three business segments.

**Net Income (Loss).**  NUI had net income of $7.2 million, or $0.45per share, for the three months ended December 31, 2002, as compared with a netloss for the three months ended December 31, 2001 of $9.4 million, or $0.68 pershare. The increase in income during the current three-month period wasprimarily due to the company's adoption of Statement of Financial AccountingStandards No. 142, "Goodwill and Intangible Assets," during the first quarterof the prior fiscal year, which resulted in a one-time, transitional impairmentcharge during the three months ended December 31, 2001 of $17.6 million(after-tax), or $1.27 per share (see Note 6 to the Notes to the ConsolidatedFinancial Statements).  

**Income fromContinuing Operations.** Income from continuing operations was $7.6 million, or $0.48 per share,for the three-month period ended December 31, 2002, compared with $8.0 million,or $0.57 per share, for the same period in fiscal 2002. The current three-monthperiod decrease is due to reduced operating margins by the company's EnergyAsset Management segment (formerly Wholesale Energy Marketing and Trading) as aresult of reduced portfolio optimization opportunities in the current yearcaused by fewer counterparties and a significant reduction in themark-to-market valuation of a large storage contract; the effects of adoptingthe provisions of EITF 02-03 on October 25, 2002, which requires companies toaccount for non-derivative energy contracts not falling under the provisions ofSFAS 133 on an accrual basis and precludes mark-to-market accounting on ago-forward basis (see Note 12 of the Notes to the Consolidated FinancialStatements); and increases in pension, insurance, medical and other operatingexpenses. These decreases were partially offset by increased margins due toweather that was 40 percent colder than the three-month period ended December31, 2001, and a base rate increase by the company's natural gas distributioncompany in New Jersey that went into effect on November 22, 2002.  

The decrease in earnings per share for the three monthsended December 31, 2002, as compared with the same period during the priorfiscal year, reflects the effect of dilution as a result of increased sharesoutstanding. During March 2002, NUI issued 1.725 million shares of its commonstock for net proceeds of approximately $37.0 million, and also issuedapproximately 0.5 million shares of common stock related to certainacquisitions and benefit plans during fiscal 2002.

**Discontinued Operations.**  After-tax losses fromdiscontinued operations for the three-months ended December 31, 2002, were $0.5million, or $0.03 per share, compared to income of $0.3 million, or $0.02 pershare during the prior fiscal year. The higher losses during fiscal 2003 weredue to the sale of NC before the start of the current fiscal year and the saleof VCW on November 7, 2002. These three distribution companies contributed $0.6million of after tax income during the three months ended December 31, 2001,compared to after-tax losses of $0.3 million for the three months endedDecember 31, 2002.

*Business Segment Review ofResults of Operations*

The following is a discussion of the company'sbusiness segment results of operations and is presented based on Income fromContinuing Operations before Interest and Taxes. Included in operations and maintenanceexpenses for each of NUI's business segments are allocations of corporate costsrelated to shared service functions such as human resources, accounting andinformation technology, which are allocated based on the company's costallocation policy. In addition, the company has corporate operations thatincurred operations and maintenance expenses of $0.3 million and $0.5 millionfor the three-month periods ended December 31, 2002 and 2001, respectively,principally related to the company's investment in various business ventures,which have not yet earned revenues. These costs are not allocated to ourbusiness segment results.

**Distribution Services Segment**

The company's DistributionServices segment distributes natural gas in four states through the company'sregulated natural gas utility operations. These operations are Elizabethtown Gas Company (New Jersey), City GasCompany of Florida, Elkton Gas (Maryland) and Virginia Gas Distribution Company(VGDC). The company recently sold three of its natural gas utility operations:NC was sold in September 2002, and VCW was sold in November 2002 (see Note 8 ofthe Notes to the Consolidated Financial Statements). The results for theseoperations are reflected in Discontinued Operations in the ConsolidatedFinancial Statements for the three months ended December 31, 2002 and 2001. TheIncome from Continuing Operations before Interest and Taxes results for theremaining four utility operations are as follows:

*(Dollars in thousands)*

**Fiscal 2003**

**Fiscal 2002***

Operating Revenues

$138,148

$121,083

Purchased Gas and Fuel

84,488

73,896

Energy Taxes

3,494

3,053

Operating Margins

50,166

44,134

**Operating Expenses:**

 

 

Operations & Maintenance  Expenses

24,031

20,817

Depreciation &  Amortization

6,888

6,447

Taxes Other than Income

1,542

1,469

Total Operating Expenses

32,461

28,733

Other Income & Expense

147

(10)

Income from Continuing Operations before  Interest and  Taxes 

  $17,852

  $15,391

 

 

*** ****- As Restated (see Note 2 of the Notes to the ConsolidatedFinancial Statements)

***Operating Revenues****.* Operating revenues include amounts billed for the cost of purchased gaspursuant to purchased gas adjustment clauses utilized by the company's utilityoperations.  Such clauses enable thecompany to pass through to its utility customers, via periodic adjustments tocustomers' bills, changes in costs incurred by the company for purchased gaswithout affecting operating margins. These purchased gas adjustments areauthorized by regulatory authorities in the states in which the companyoperates. Since the company's utility operations do not earn a profit on thesale of the gas commodity, the company's level of regulated operating revenuesis not necessarily indicative of financial performance. 

Distribution Services operating revenues increased by$17.0 million, or 14 percent, to $138.1 million during the three months endedDecember 31, 2002, as compared to $121.1 million in the same period in fiscal2002. The increase in revenues was primarily attributable to the result ofweather in New Jersey that was 1 percent colder than normal and 40 percentcolder than the fiscal 2002 period, the effect of a rate increase in New Jersey(see Regulatory Matters), and customer growth. 

***OperatingMargins****.* Operating margins increased by $6.0 million, or 14percent, to $50.1 million for the three months ended December 31, 2002, ascompared to $44.1 million in the same period in fiscal 2002. Of the factorsdiscussed above in operating revenues, the operating margin impact of thecolder weather contributed approximately $3.2 million, the rate increasecontributed approximately $1.7 million, and new customers contributedapproximately $1.1 million. The company has a weather normalization clause inits New Jersey tariff, which is designed to help stabilize the company'sresults by increasing amounts charged to customers when weather has been warmerthan normal and by decreasing amounts charged when weather has been colder thannormal. As a result of weather normalization clauses, operating margins wereapproximately $0.8 million lower and $8.5 million higher in the fiscal 2003 and2002 periods, respectively, than they otherwise would have been without suchclauses. Historically, the company's weather normalization clause in New Jerseywas based on a 30-year weather average and did not fully protect the companyfrom the adverse impacts of warm weather. As a result of a new base rateincrease, which went into effect on November 22, 2002, the weathernormalization clause was adjusted to a 20-year weather average to betterreflect current weather trends and should provide more stability of operatingresults and improved cash flows for NUI's New Jersey utility (see RegulatoryMatters) throughout fiscal 2003. With the exception of demand caused by changesin weather, the company does not anticipate any significant improvement in theeconomic outlook for natural gas sales in this segment for the remainder offiscal 2003.

***OperatingExpenses.***Operations and maintenance expenses increased by $3.2 million, or 15 percent,to $24.0 million for the three months ended December 31, 2002, as compared with$20.8 million in the same period in fiscal 2002. The expense increase wasmostly due to rate case related expenses (approximately $1.2 million), as wellas increases in pension expenses due to lower discount rate and asset returnassumptions (approximately $1.3 million) and insurance costs for generalliability (approximately $0.4 million). Because of the increase in operatingrevenues due to the colder than normal weather discussed earlier, the companymay have increased exposure to bad debts during fiscal 2003. If such anincrease were to occur, this would have an adverse effect on operating results.

Depreciation and amortizationexpense increased to $6.9 million for the three months ended December 31, 2002,as compared to $6.4 million in the same period in fiscal 2002, mainly as aresult of additional plant-in-service and additional technology assets placedinto service. 

**Energy AssetManagement Segment**

The Energy Asset Management segment (formerly WholesaleEnergy Marketing and Trading) contains the operations of the company's NUIEnergy Brokers subsidiary, and the storage and pipeline operations of VGC, aswell as off-system sales made by NUI Energy Brokers on behalf of the utilityoperations. 

*(Dollars in thousands)*

**Fiscal 2003**

**Fiscal 2002***

Operating Revenues

$27,231

$29,142

Purchased Gas and Fuel

23,401

19,289

Operating Margins

3,830

9,853

**Operating Expenses:**

 

 

Operations & Maintenance  Expenses

2,118

2,933

Depreciation &  Amortization

529

686

Taxes Other than Income

190

121

Total Operating Expenses

2,837

3,740

Other Income & Expense

142

300

Income from Continuing Operations before  Interest and  Taxes 

  $1,135

  $6,413

 

 

*- As Restated (see Note 2 ofthe Notes to the Consolidated Financial Statements)

*** Operating Revenues***. As further discussed in Note 12 of the Notes tothe Consolidated Financial Statements, operating revenues for NUI EnergyBrokers and NUI Energy (see below) have been restated for fiscal years2000-2002 as a result of adopting a provision in the Emerging Issues Task Force(EITF) Opinion 02-03, "Issues Involved in Accounting for Contracts Under Issue 98-10," which requires that all energycompanies that follow the accounting under EITF 98-10 reflect their operatingrevenues on a net basis. In previous periods, NUI Energy Brokers included both the cost ofpurchased gas and the operating margin earned on all of its physical energytransactions (physical volumes of gas bought and sold to third parties) inoperating revenues and classified the cost of that gas as a component ofpurchased gas and fuel on the Consolidated Statement of Income. Historically,NUI Energy Brokers had recorded only the operating margin component for all ofits financial trades (futures, options, swaps) and had classified these amountsas a component of purchased gas costs on the Consolidated Income Statement.Adopting the netting provision of EITF 02-03 had no net effect on thesetransactions other than to reclassify them to operating revenues rather thanpurchased gas costs. As a result of net-basis reporting, NUI reduced operatingrevenues and purchased gas and fuel line items by $63.7 million for the threemonths ended December 31, 2001, with no change to total operating margins.

Energy Asset Managementoperating revenues decreased approximately $1.9 million, or 7 percent, to $27.2million for the three months ended December 31, 2002, as compared to $29.1million in the same period in fiscal 2002. The decrease was primarily due to alack of asset management opportunities as compared to a year ago (approximately$1.3 million), and a significant reduction in the mark-to-market valuation of alarge storage contract in the NUI Energy Brokers portfolio (approximately $3.8million).  Also contributing to thedecrease in the current period is the effect of adopting the provisions of EITF02-03 on October 25, 2002 (approximately $0.4 million), which requires thecompany to account for non-derivative energy contracts not falling under theprovisions of SFAS 133 on an accrual basis and precludes mark-to-marketaccounting on a go-forward basis (see Note 12 of the Notes to the ConsolidatedFinancial Statements).  Partiallyoffsetting these decreases are increased revenues of $3.7 million from utilityoff-system sales. The operating revenues from VGC were comparable to the sameperiod a year ago. 

***OperatingMargins.***Operating margins decreased approximately $6.0 million, or 61 percent, to $3.8million for the three months ended December 31, 2002, as compared to $9.8million in the same period in fiscal 2002. This decrease was primarilyattributable to effects of the factors discussed above. In addition, whileoperating revenues from utility off-system sales increased, operating marginson those sales decreased by approximately $0.1 million for the three monthsended December 31, 2002, as compared to the same period in fiscal 2002. Whilenatural gas prices have begun to increase and volatility has increased, marketconditions in the energy trading industry have been dampened due to fewercreditworthy trading partners. The company anticipates credit issues in theindustry will continue throughout fiscal 2003, which may decrease or limit thegrowth in margins for NUI Energy Brokers. In addition, as further discussed inNote 12 of the Notes to the Consolidated Financial Statements, the company willadopt the full provisions of EITF 02-03 on January 1, 2003. The effect of thisstandard on the accounting for NUI Energy Brokers' operating margins for thefiscal year is estimated to be a decrease of approximately $1.0 million. Thecumulative effect adjustment on the second quarter margins related to certainenergy contracts and gas inventories that were marked-to-market throughDecember 31, 2002 is estimated to be a decrease ranging between $8.0 millionand $9.3 million.  

***Operating Expenses.*** Operating and maintenanceexpenses decreased by approximately $0.8 million during the three months endedDecember 31, 2002, as compared to the same period in fiscal 2002 due to reducedlabor and commissions for NUI Energy Brokers (approximately $0.5 million),general cost reductions undertaken by VGC (approximately $0.5 million), andreduced bank fees (approximately $0.2 million).  These reductions were partially offset by increases in pensioncosts (approximately $0.2 million) and employee benefit expenses (approximately$0.1 million).

**Retail andBusiness Services Segment**

The Retail and BusinessServices segment includes the operations of the company's NUI Telecom, UBS andNUI Energy subsidiaries, as well as the operations of the network services andwireless divisions of TIC and the appliance service business. 

*(Dollars in thousands)*

**Fiscal 2003**

**Fiscal 2002***

Operating Revenues

$19,039

$10,994

Cost of Sales and Services

11,140

6,201

Operating Margins

7,899

4,793

**Operating Expenses:**

 

 

Operations & Maintenance  Expenses

7,035

4,152

Depreciation &  Amortization

1,175

902

Taxes Other than Income

213

138

Total Operating Expenses

8,423

5,192

Other Income & Expense

33

---

Income from Continuing Operations before  Interest and  Taxes 

  $(491)

  $(399)

 

 

*- As Restated (see Note 2 ofthe Notes to the Consolidated Financial Statements)

*** OperatingRevenues****.*Retail and Business Services operating revenuesincreased by approximately $8.0 million, or 73 percent, to $19.0 million forthe three months ended December 31, 2002 from $11.0 million in the same periodin fiscal 2002. This increase was primarily due to increased revenues by NUITelecom of approximately $7.2 million due to the acquisitions of Norcom inMarch 2002 (see Note 4 of the Notes to the Consolidated Financial Statements)and Telcorp in April 2002 (see Note 5 of the Notes to the ConsolidatedFinancial Statements), and customer growth. Norcom and Telcorp contributed $3.7million and $1.7 million of operating revenues, respectively, during thethree-months ended December 31, 2002. Operating revenues for UBS increased byapproximately $0.5 million as a result of increased conversion revenues and thebenefit of additional billings related to customer accounts, which wereconverted during the latter portion of fiscal 2002. The operating revenues ofthe appliance service business and NUI Energy for the three months endedDecember 31, 2002 were comparable with the same period in the prior fiscalyear, however, NUI Energy's operating revenues were impacted during the threemonths ended December 31, 2002, as a result of adopting the provisions of EITF02-03 on October 25, 2002.   During thethree months ended December 31, 2001, NUI Energy followed the accountingprescribed under EITF 98-10, which required all energy contracts bemarked-to-market through the income statement. During the three months endedDecember 31, 2002, as a result of EITF 02-03, NUI Energy changed its accountingfor energy contracts entered into after October 25, 2002, which resulted in nomark-to-market recognition for these new contracts. Accordingly, operatingrevenues and margins during the current year period were lower by approximately$1.4 million due to the change in accounting methods. This was partially offsetby lower natural gas costs as a result of improved risk management proceduresin balancing NUI Energy's portfolio. As noted above, as a result of conversionincome to be recognized during the fiscal year and the ability to providebilling services to a larger population of customers as compared to the prioryear, the results of UBS are anticipated to provide favorable growth andimprovement in fiscal 2003 and beyond. Also, as noted above, NUI Energy'srevenues have been reflected on a net basis for the three-month period endedDecember 31, 2002 due to the adoption of the netting provisions of EITF 02-03.

***Operating Margins***. Retail and Business Servicesoperating margins increased by approximately $3.1 million, or 65 percent,during the three months ended December 31, 2002, to $7.9 million as comparedwith $4.8 million in the same period in fiscal 2002 due primarily to anincrease in margins from NUI Telecom of $2.7 million. This increase reflectsthe continued growth in customers and product offerings for NUI Telecom as aresult of the acquisitions during the prior fiscal year discussed above.  Operating margins for UBS increased $0.2million due to the additional operating revenues discussed above, and NUIEnergy and the appliance service business both increased operating margins by$0.1 million, however, as noted above NUI Energy's operating margins wereapproximately $1.4 million lower as a result of adopting the provisions of EITF02-03 on October 25, 2002. NUI Energy has begun a number of initiatives tomitigate both price and volume risk associated with its business, and isimplementing a re-engineering effort intended to streamline its back officefunctions. This is expected to decrease the volatility of their results, aswell as improve their overall financial performance in fiscal 2003. As furtherdiscussed in Note 12 of the Notes to the Consolidated Financial Statements, thecompany will adopt the full provisions of EITF 02-03 on January 1, 2003. Theeffect of this standard on the accounting for NUI Energy's margins for thefiscal year is estimated to be a decrease ranging between $1.5 million and $2.0million. The cumulative effect adjustment on the second quarter margins relatedto certain energy contracts and gas inventories that were marked-to-marketthrough December 31, 2002 is estimated to be a decrease ranging between $4.0million and $4.7 million.  

* ****Operating Expenses****.*  Operations and maintenance expenses, depreciation andamortization, and taxes other than income for the Retail and Business Servicessegment increased in total by $3.2 million, or 62 percent, to $8.4 millionduring the three months ended December 31, 2002, as compared with $5.2 millionin the same period in fiscal 2002. The increase was a result of higher laborcosts from additional personnel and temporary employees ($2.5 million),increased pension costs (approximately $0.4 million), and higher bad debtprovisions (approximately $0.2 million). These increases were mainly due tosignificant customer growth experienced by NUI Telecom over the past severalyears. NUI Telecom's recent acquisitions of new businesses have increasedexpenses associated with back office functions such as customer service,provisioning and finance that have been required to support these customeradditions. During the second half of fiscal 2002 and into fiscal 2003, NUITelecom has continued to implement various information systems improvements andto integrate its new businesses to streamline functions in order to improve itsoperating performance. In January 2003, the company recorded a reserve for baddebts of $0.7 million for a large customer of NUI Energy. NUI Energy isexploring legal remedies to reduce its exposure to uncollected amounts fromthis customer.

**Regulatory Matters  **

OnNovember 22, 2002, Elizabethtown Gas Company received approval from the New Jersey Board of Public Utilities(NJBPU) to increase its base rates by an annual amount of $14.2 million, orapproximately 5 percent.  The increaseis effective immediately and covers a portion of the costs of plant investmentsand higher operating expenses incurred since the company's last base rateincrease twelve years ago.  The newrates are based on a return on equity of 10.0 percent and an overall rate ofreturn on rate base of 7.95 percent. The rate order also revised the normal weather pattern upon which baserates and Elizabethtown's Weather Normalization Clause were reset from a30-year to a 20-year weather average to better reflect current weathertrends.  In addition, the company wasallowed to increase service charges to various rate classes of customers tobetter reflect the cost of providing service to these customers. 

OnMarch 30, 2001 the NJPBU issued an order allowing the company to establish anew Gas Cost Under-recovery Adjustment (GCUA) to recover the gas costunder-recovery balance as of October, 31, 2001, with associated interest at afixed rate of 5.5 percent per annum over a three-year period from December 1,2001 through November 30, 2004. In addition, pursuant to the order, the companywas required to make a filing on November 15, 2001, to establish a new PGA ratedesigned to recover purchased gas costs for the period November 1, 2001,through September 30, 2002. In that filing, the company requested approval todecrease its PGA rate and implement its GCUA rate, with a net effectrepresenting a decrease of 12.7 percent in residential customer bills.  The NJBPU approved the company's request onan interim basis and these changes became effective on December 1, 2001.

In response to the Electric Discount and EnergyCompetition Act which was signed into law in February 1999, on March 30, 2001,the NJBPU approved a stipulation which enabled all retail customers in NewJersey to choose a natural gas supplier, provided an incentive for thesecustomers to choose an alternate natural gas supplier and allowed the companyto continue offering basic gas supply service through December 2002. On January17, 2002, the NJBPU issued an order that continued the obligation of all NewJersey gas utilities to provide basic gas supply service until it has had anopportunity to fully investigate major policy issues relating to pricingstructure and gas supply reliability. No timetable has been established for completion of such a review.  As of December 31, 2002, no residentialcustomers in the company's New Jersey service territory have switched to analternative gas supplier.

**Liquidity and Capital Resources**

The company's net use of cashin operating activities was $3.0 million and $40.8 million for the three-monthperiods ended December 31, 2002 and 2001, respectively.  The improvement of $37.8 million inoperating cash flows for the current period was due in part to the timing ofpayments to the company's gas suppliers and collections of a portion ofunder-recovered gas costs as a result of the company's ability to collect thelarge under-recovered gas balance that existed at September 30, 2001 over aperiod of three years. As noted in Regulatory Matters, these under-recoveredgas costs are now a component of regulatory assets and will be recovered withassociated interest over a three-year period. This increase in operating cashflows was partially offset by higher accounts receivable at December 31, 2002than during the same period a year ago due primarily to higher natural gasprices in the current three-month period than the same period in fiscal 2002.

Because thecompany's business is highly seasonal, short-term debt is used to meet seasonalworking capital requirements. The company also borrows under its bank lines ofcredit to finance portions of its capital expenditures, pending refinancingthrough the issuance of equity or long-term indebtedness at a later date,depending upon prevailing market conditions. While short-term borrowings haveincreased $16.3 million from September 30, 2002 to December 31, 2002, in orderto meet its higher winter working capital needs, the company will continue tofocus on reducing short-term indebtedness during fiscal 2003 through thecollection of under-recovered gas costs discussed above, additional assetsales, and consideration of opportunistic longer-term debt or equity financing.

The companysold 1.725 million shares of common stock for net proceeds of approximately$37.0 million during March 2002 under the shelf registration statement. Theproceeds from the sale were used to pay down short-term debt. 

The companycompleted the sale of its VCW subsidiaries on November 7, 2002, forapproximately $15 million (see Note 8 of the Notes to the ConsolidatedFinancial Statements). The proceeds of these transactions were used to furtherreduce short-term debt.

The company does not have any off-balance sheetfinancing; however, the company is a 50 percent member of a joint venture thatis developing natural gas storage assets and is required to provide fundingtoward the development of these assets for their intended purpose (see Capital Expenditures andCommitments- Joint Venture with Duke Energy for further discussion).

Thecompany is considering issuance of additional equity during the latter portionof fiscal 2003 or in fiscal 2004 pending favorable market conditions in orderto further reduce debt and move toward a desired capital structure of 50percent debt and 50 percent equity. 

On February 3, 2003, Moody's downgraded the company'sdebt rating from Baa-2 to Baa-3. Moody's also downgraded the debt rating of NUIUtilities from Baa-1 to Baa-2. NUI Utilities is a wholly-owned subsidiary ofNUI that owns three of the company's four utility operations. Moody's cited theimpact of unfavorable results from most of the company's unregulated businessesduring fiscal 2002 and their concerns regarding these operations' potentialadverse impact on the company's future performance as factors influencing theirrating action. As a result of these downgrades, the company's cost of borrowingunder its short-term facilities increased 37.5 basis points or 0.375 percentand the cost of borrowing for NUI Utilities increased 25 basis points or 0.25percent. Moody's also indicated that the company and NUI Utilities would remainunder review for further possible downgrade. Moody's cited that, in itscontinuing review, it will assess the progress being made by management to 1)either demonstrate unequivocal turn-around in the under-performing unregulatedbusinesses (i.e. those in the company's Retail and Business Services segment),accomplish substantial cost reductions or exit them altogether; and 2) renewits committed bank credit facilities that expire in the near term in sufficientamounts to cover its projected cash needs as well as to provide a contingentcash reserve for potential unforeseen events. Should the company's or NUIUtilities' current debt ratings be downgraded, this would adversely affect thecompany's and/or NUI Utilities' cost of borrowing under the company'sshort-term credit facilities and potentially increase the collateralrequirements of the company's energy trading business. 

The company believes it has made significant progressin addressing the factors cited by Moody's, including increasing operatingmargins with its Retail and Business Services segment and entering into the newcredit agreements discussed below. However, there can be no assurance thatadditional downgrades can be avoided. 

On February 4, 2003, Standard & Poor's RatingServices (S&P) reaffirmed its BBB investment grade rating, and reiteratedtheir stable outlook for NUI Utilities. 

***Outlook for Fiscal 2003***. As a result of the factors discussed above, thecompany believes that the cash provided by operations during fiscal 2003,combined with the cash provided from the already completed sale of VCW, theexpected proceeds from the meter lease during the second quarter of the 2003fiscal year, and the new credit and bridge loan agreements discussed belowand/or its ability to raise capital under its current shelf registrationstatement will enable the company to meet its obligations for the currentfiscal year. Additional discussion of certain items noted above follows.

***Short-Term Debt*****.**  Because thecompany's business is highly seasonal, short-term debt is used to meet seasonalworking capital requirements.  It alsois used to finance portions of the company's capital expenditures, and is thenrefinanced through the issuance of equity or long-term indebtedness at a laterdate, depending upon prevailing market conditions.

The company's revolving credit facility dated as ofDecember 19, 2001, under which the company had the ability to borrow up to $80million and NUI Utilities' revolving credit facility dated as of December 19,2001, under which NUI Utilities had the ability to borrow up to $145 million,both expired on December 18, 2002.  As aresult of the reduced amount of short-term indebtedness outstanding at the endof fiscal 2002, and the expected lower requirements of the company and NUIUtilities for short-term credit going forward, at the company's request, thelenders in the company's and NUI Utilities' bank group unanimously agreed toextend the maturity of $55 million of the company's revolving credit facilityand $140 million of NUI Utilities revolving credit facility through February12, 2003.  At December 31, 2002, the companyhad outstanding borrowings under its credit facility amounting to $35.0 millionand unused borrowing capacity amounting to $20.0 million, and NUI Utilities hadoutstanding borrowings under its credit facility amounting to $110.0 millionand unused borrowing capacity amounting to $30.0 million.  The weighted average daily amountsoutstanding of borrowings under the company's credit facility and the weightedaverage interest rates on those amounts were $46.9 million at 3.0 percent forthe three-month period ended December 31, 2002, and $88.8 million at 2.4percent for the three-month period ended December 31, 2001. The weightedaverage daily amounts outstanding of borrowings under NUI Utilities' creditfacility and the weighted average interest rates on those amounts were $171.9million at 4.1 percent for the three-month period ended December 31, 2002, and$145 million at 3.2 percent for the twelve-day period ended December 31, 2001. 

On February 12, 2003, the company and NUI Utilitieseach entered into a new revolving credit facility that replaced theirrespective previous credit facilities. NUI's new credit facility consists of a credit agreement which allowsthe company to borrow up to approximately $38.1 million, and NUI Utilities newcredit facility consists of a credit agreement which allows NUI Utilities toborrow up to approximately $96.9 million. Upon the occurrence of certain conditions, these credit agreements maybe increased up to $55 million and approximately $142 million,respectively.  In addition, on February12, 2003, NUI Utilities entered into a 364-day bridge loan agreement for up to$45.0 million.  The new creditagreements and the bridge loan agreement mature on February 11, 2004. Thecredit agreements may be extended in successive 364-day increments uponobtaining approval of all the respective lenders.  The company's credit agreement and NUI Utilities' creditagreement and bridge loan agreement require the company and NUI Utilities,respectively, to meet certain covenants and limitations as well as maintaincertain financial ratios.  Included inthese covenants are provisions that limit the ability of each of the companyand NUI Utilities to incur future indebtedness, make capital expenditures,pledge or sell assets, make acquisitions, merge and pay dividends on commonstock, and prohibit the creation of guarantees (other than those in the normalcourse of business) or any sale and leasebacks in excess of $70 million.  The company must maintain a fixed chargecoverage ratio of 1.50x and NUI Utilities must maintain a fixed chargecoverage ratio of 1.75. The company and NUI Utilities each must maintainleverage ratios of 0.65 from March 1 through August 31 and 0.70x from September1 through February 28 (or 29, if applicable). In addition, if the amountsavailable under the NUI Utilities' credit agreement are increased, as providedabove, any borrowings under such increase first must be used to repay anyamounts outstanding under the bridge loan agreement.  The NUI Utilities' credit agreement and bridge loan agreementalso restricts the payment of dividends from NUI Utilities to the company.  The company and NUI Utilities repaid all ofthe $195 million of borrowings outstanding under the prior credit agreementsfrom the borrowings under the company's and NUI Utilities' new creditagreements and the bridge loan agreement and cash on hand.  

Borrowings under the new credit facilities and thebridge loan agreement bear interest at a rate based on either the LondonInterbank Offering Rate (LIBOR) or the Prime Rate as of the date of theadvance.  Based on the company's currentdebt rating, the interest rate on outstanding borrowings under the company'scredit facility was 3.0 percent.  Basedon NUI Utilities' current debt rating, the interest rate on outstandingborrowings under its credit facility was 2.8 percent  and its bridge loan agreement was 4.4 percent.  As a result of obtaining the new revolvingcredit facility, the company's facility fees and borrowing costs increased by62.5 basis points, or 0.625 percent and, as a result of obtaining the newrevolving credit facility and bridge loan agreement, NUI Utilities' facilityfees and borrowing costs increased by 50 basis points, or 0.50 percent.  Pricing grids have been provided to the companyand NUI Utilities by their respective lenders, which tier pricing to higher andlower credit ratings should a debt rating change occur. As of February 12,2003, the total aggregate outstanding borrowings under the company's new creditfacilities were $180 million. The amount outstanding under the company's creditfacility was approximately $142 million and under the NUI Utilities' new creditfacility was approximately $38 million. On that date, the company had availablecash of approximately $80 million.

The company's anticipated credit needs are expected todecline going forward. The company also expects improved cash flow fromoperations during fiscal 2003 as a result of the following factors: thecollection of approximately $20 million of under-recovered gas costs; thecollection of weather normalization recoveries of approximately $8 millionrelated to the warmer than normal weather experienced during fiscal 2002;improved profitability as a result of the outcome of the Elizabethtown Gas ratecase; and reduced losses from discontinued operations related to the company'sTIC and NUI Environmental subsidiaries. In November 2002, the company raised approximately $15 million from thesale of its Valley Cities Gas and Waverly Gas subsidiaries. The company alsohas negotiated another meter-leasing arrangement with a financial institutionrelated to up to $33 million of gas meters in New Jersey that it expects wouldclose during the second quarter of fiscal 2003 pending NJBPU approval andfavorable market conditions at that time.  The company and NUI Utilitieswill continue to explore advantageous financing arrangements that would enablethe company and NUI Utilities to reduce rates or extend the maturity of theexisting credit agreements.  Because ofthe above factors that are expected to have a materiallypositive impactupon the company's profitability, cash flows, financial position anddebt-servicing capabilities, the company believes that it has sufficientamounts available under the new credit agreement, and that NUI Utilities hassufficient amounts available under the new NUI Utilities credit agreement andbridge loan agreement, to cover their respective projected needs as well as toprovide a contingent cash reserve for potential unforeseen events.

 In January2003, the company became aware of issues of technical default under the Note Purchase Agreementdated as of August 20, 2001, and the companyobtained a waiver of certain covenants contained in theNote Purchase Agreement from the holders of the notes issued under theagreement.  The covenantsconsisted of the minimum fixed charge coverage ratio, restrictions on theability to enter into sale and leaseback transactions, restrictions onsubsidiaries' ability to pay dividends to the company and make advances to andinvestments in the company, and the requirement that the company delivercertain financial information and statements of cash flows to the noteholders.Prior to obtaining the waiver, the company was in technical default under theNote Purchase Agreement during fiscal 2002. On February 14, 2003, the companyentered into an agreement with the noteholders to amend the Note PurchaseAgreement on or prior to February 18, 2003.  The amendment will addresseach of the items covered in the waiver, noted above as well as provide amongother things for an increase in the interest rate under each of the outstandingnotes of 50 basis points or 0.50 percent, effective April 1, 2003 and for theestablishment of a covenant requiring the company to maintain a level ofconsolidated debt to consolidated assets of no greater than fifty percent. The amendment will also require the issuance of guarantees by certain of thecompany's subsidiaries and the execution by the noteholders and the lenders inthe credit facilities of the company and NUI Utilities of an inter-creditoragreement.  The amendment is required to be approved by the lendersrepresenting a majority of the outstanding indebtedness in each of the company'sand NUI Utilities credit facilities.  Management believes that it isprobable that the amendment will be approved by the lenders. 

***Long-Term Debt and Funds for Construction Held by Trustee*****.**  The company is scheduled to repay $50million of medium-term notes on February 1, 2005.

The company deposited in trustthe unexpended portion of the net proceeds from its Gas Facilities RevenueBonds until drawn upon for eligible expenditures. As of June 30, 2002, all ofthe original net proceeds from the bonds had been expended. The remaining $3.9million classified as Funds for Construction Held by Trustee on the company'sConsolidated Balance Sheet at December 31, 2002, represents the unexpendedportion of interest earned on the original net proceeds of the bonds. 

***Common Stock*****. **The company periodically issuesshares of common stock in connection with NUI Direct, the company's dividendreinvestment and stock purchase plan, and various employee benefit plans. From time to time, the companymay issue additional equity to reduce short-term indebtedness and for othergeneral corporate purposes.  As previouslynoted, the company sold 1.725 million shares of its common stock for netproceeds of approximately $37.0 million in March 2002. 

The company issued stock in conjunction withseveral acquisitions during fiscal 2002. This included 144,648 shares worthapproximately $3.1 million to acquire VGSC and VGDC (see Commitments andContingencies- Acquisition of Virginia Gas Storage Company (VGSC) and VirginiaGas Distribution Company (VGDC)), and 216,039 shares worth approximately $4.2million to acquire Norcom (see Note 4 of the Notes to the ConsolidatedFinancial Statements). In addition, the company issued 47,136 shares to theformer owners of NUI Telecom as payment of an incentive of $1.0 million under aprovision of the Agreement and Plan of Merger.

The company's long-term debt agreements include,among other things, restrictions as to the payment of cash dividends. Under themost restrictive of these provisions, the company is permitted to payapproximately $49.5 million of cash dividends at December 31, 2002.

***Assets andLiabilities Held for Sale***. The company completed the sale of its NC utility operation on September30, 2002, and completed the sale of its VCW utility operations on November 7,2002 (see Capital Expenditures and Commitments- Sale of North Carolina Gas andSale of Valley Cites Gas and Waverly Gas). In accordance with the provisions ofStatement of Financial Accounting Standards No. 144, "Accounting for Impairmentor Disposal of Long-lived Assets," the company has reclassified the assets andliabilities of NC and VCW as Held for Sale on the Consolidated Balance Sheet atSeptember 30, 2002 (see Note 8 to the Notes to the Consolidated FinancialStatements).  

**Capital Expenditures and Commitments**

***CapitalExpenditures***. Capital expenditures,which consist primarily of expenditures to expand and upgrade the company's gasdistribution systems, were $14.1 million for the three months ended December31, 2002, and $14.4 million for the three months ended December 31, 2001.Capital expenditures are expected to be approximately $54 million in fiscal2003, which will be used primarily for the company's contribution toward thedevelopment and expansion of the Saltville Storage project (see additionaldiscussion below), continued expansion and upkeep of the company's natural gasdistribution system and certain information technology projects.

***JointVenture with Duke Energy***. On April 30, 2001, the companyannounced an agreement with a unit of Duke Energy to develop a natural gasstorage facility in Saltville, Virginia. A subsidiary of VGC and Duke EnergyGas Transmission (DEGT) have created a limited liability company, Saltville GasStorage Company LLC (the LLC).  VGC,which received final regulatory approvals in January 2003, will contributecertain storage assets valued at approximately $16 million to the LLC. DEGTwill contribute $16 million of capital required to expand the facility for itsintended purpose. 

The companyand DEGT will fund the costs of developing the storage assets equally over thenext five years. The company currently estimates its share of future fundingneeds to be $18.3 million in fiscal 2003, $7.3 million in fiscal 2004, $0.8million in fiscal 2005, $0.7 million in fiscal 2006, and $0.8 million in fiscal2007. The company expects that all, or substantially all, of its fundingrequirements for the joint venture during fiscal 2003 will be provided throughthe execution of a long-term (12 to 15 year) capital lease with a bank on acompressor station. The company has issued a request for proposal on thecompressor station lease and is currently evaluating bids to provide thefunding. However, there can be no assurance that the company will be able tonegotiate and close on the planned capital lease transaction.

The LLC plans to expand the present Saltvillestorage facility from its current capacity of 1 Bcf to approximately 12 Bcf andconnect it to DEGT's East Tennessee Natural Gas interstate system and DEGT'sPatriot pipeline, which is under construction. At full capacity, the Saltvillestorage field will be able to deliver up to 500 million cubic feet per day ofnatural gas to area markets. The Saltville facility features fast-injection andfast-withdrawal capabilities offered by salt cavern storage. The expansion willbe completed in phases starting in fiscal 2003, with the Phase I total of 6.1Bcf of working natural gas storage capacity to be completed by fiscal 2008. Themarket demand for additional storage will dictate the timing of the otherphases of the expansion.

Developmentof the Saltville facility is intended to create a strategically locatedenergy-trading hub for NUI's wholesale trading arm, NUI Energy Brokers, andenable the company to capitalize on the energy supply, wholesale trading andportfolio management opportunities in the rapidly developing Mid-Atlanticregion. The additional storage capacity would allow the company to meet thesignificant demand from local distribution companies as well as power plantdevelopment that is underway in the region.

On October26, 2001, the LLC filed a certification application with the Virginia StateCorporation Commission (VSCC). A public hearing was held on this matter onFebruary 20, 2002 and the Hearing Examiner's report was issued on May 31, 2002.On August 6, 2002, the VSCC issued an order granting a Certificate of PublicConvenience and Necessity (CPCN) for the storage facilities and attendantpipeline. Those conditions included a final technical analysis to be performedby VSCC staff. The CPCN authorizes the LLC to construct, develop and maintainPhase I of the project, and specifies certain other information, includingallowed returns on this regulated storage asset. The VGCC staff completed theirtechnical analysis in January 2003 and the VSCC issued the LLC a final CPCN onJanuary 22, 2003.

On August23, 2002, the LLC filed an application with the Federal Energy RegulatoryCommission requesting a limited jurisdiction certificate that would allow theLLC to serve interstate customers. That certificate was granted to the LLC onJanuary 29, 2003.

***Developmentof Trading Hubs***. The company'swholesale trading subsidiary, NUI Energy Brokers, has acquired options on theland and mineral rights for property located in Richton, Perry County,Mississippi, that the company plans to develop into a natural gas storagefacility to help serve the Southeast United States. NUI Energy Brokers plans todevelop a two-well salt dome storage facility in Richton that would have aworking gas capacity of approximately 7.8 billion cubic feet. 

The first well and a 14-mile pipeline to bedeveloped by the company that will connect with the Destin Pipeline aretentatively scheduled to be operational in the latter part of fiscal 2004 or infiscal 2005. Implementation of this development plan is dependent on favorableresults from testing and other operational issues that are currently underconsideration by the company. This project is not expected to have any materialcapital requirements in fiscal 2003 and, if the project proves feasible, willprimarily impact the company's capital expenditure program in fiscal years 2004and 2005 after the funding needs of Phase I of the Saltville facility(discussed above) are essentially satisfied.

The benefits of the Richton site to customers andEnergy Brokers are: (1) its proximity to a number of major interstatepipelines, including Destin Pipeline and its connections to Williams GasPipeline-Transco, Florida Gas Transmission, Gulf South Pipeline, TennesseeNatural Gas, Southern Natural Gas and Gulfstream Pipeline; and (2) thequick-fill, quick-withdrawal capabilities offered by salt dome storage. 

***Gas Procurement Contracts****.* Certain of the company's long-termcontracts for the supply, storage and delivery of natural gas include fixedcharges that amount to approximately $53.1 million annually. The company alsois committed to purchase from multiple suppliers, at market-related prices,minimum quantities of gas that, in the aggregate, are approximately 2.1 Bcf peryear 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 ofthese contracts will continue to exceed these minimum purchase obligations. Asdiscussed earlier, the company's utility operations do not earn a profit on thesale of the gas commodity; changes to gas commodity prices have no effect onoperating margins.

** *Environmental*****.**  The company owns or previouslyowned properties on which former manufactured gas plants (MGP) were operated inthe states of New Jersey, North Carolina, South Carolina, Pennsylvania, NewYork and Maryland.  Although the actual total cost of future environmental investigationand remediation efforts cannot be reasonably estimated, the company has recorded atotal reserve of approximately $33.7 million, which the company believes represents theprobable minimum amount the company may expend over the next 30 years.  Of this reserve, approximately $30.1 million relates to the NewJersey MGP properties and approximately $3.6 million relates to the MGP properties locatedoutside the state of New Jersey. The company believes that all costs associatedwith remediation of the New Jersey MGP properties will be recoverable in ratesor from insurance carriers. In New Jersey, the company has begun rate recovery of approximately $8.2 million of suchcosts and recovery of an additional $1.7 million is currently pending NJBPUapproval. With respect to costs that may beassociated with the MGP properties located outside the state of New Jersey, thecompany intends to pursue recovery from ratepayers, former owners andoperators, and/or insurance carriers. However, the company is not able, at thistime, to express a belief as to whether any or all of these recovery effortswill ultimately be successful.

** *Acquisition of Norcom, Inc.* **As discussed in Note 4 of the Notes to theConsolidated Financial Statements, on March 22, 2002, the company entered intoan agreement to acquire certain assets of Norcom, including approximately 4,000customer accounts.  The agreementprovided that NUI Telecom assumed management control of the business of Norcomeffective March 1, 2002. Accordingly, the revenues and expenses of Norcom havebeen consolidated as of that date.

On August 28, 2002, the company completed thetransaction, subject to post-closing adjustments. The purchase price totaledapproximately $5.2 million and included the issuance of 216,039 shares of NUIcommon stock. Norcom is a provider of telecommunications services in theNortheast and Southeast regions of the United States and its customer accountsand has been combined with the company's NUI Telecom subsidiary.  

***Acquisition of Telcorp, Ltd***. As discussed in Note 5 of the Notes to theConsolidated Financial Statements, on May 31, 2002, the company enteredinto an agreement to acquire certain assets of Telcorp, Ltd. (Telcorp).  In addition, the company entered into aletter agreement with Telcorp, which provides that NUI Telecom assumed management control of the business effectiveApril 1, 2002.  Accordingly, therevenues and expenses of Telcorp have been consolidated as of that date.

On September 1, 2002, the company completed itsacquisition of certain assets of Telcorp, subject to post-closing adjustments.The initial payment totaled approximately $3.4 million in cash, and thepurchase price when finalized is expected to range between $5 million and $9million. Telcorp is a non-facilities-based reseller that provides a suite ofadvanced voice and data services to large and small businesses and its customeraccounts and has been combined with the company's NUI Telecom subsidiary.

** *Agreement to Acquire Assets of NorcomAgency Sales, Inc.*** On March 22, 2002, the company entered into anagreement to acquire certain assets of Norcom Agency Sales, Inc. (NAS). Theagreement provides for the company to pay the seller a multiple of total salesto new customers obtained by NAS as agent for NUI Telecom during the periodApril 1, 2002, through October 31, 2003. The multiple to be paid will bedetermined based on the actual new customer revenues generated by NAS for themonth of October 2003, and is subject to post-closing adjustments. 

Thepurchase price will be paid in NUI common stock. The number of shares of NUI common stock to be issued will be determinedby dividing the total purchase price by the average closing price of NUI'scommon stock for the first 20 of the 25 consecutive trading days immediatelypreceding October 31, 2003. The company expects to close on this transaction in or around February 2004.

***Acquisitionof Virginia Gas Storage Company (VGSC) and Virginia Gas Distribution Company(VGDC***). At the time VGC was acquired, it had two 50 percentowned subsidiaries, VGSC and VGDC. On October 4, 2001, the company completedits acquisition of the remaining 50 percent interests in each of VGSC and VGDCfrom the two individuals that each owned 25 percent of the stock of bothcompanies. Under terms of the agreements entered into with those twoindividuals in June 2001, the company paid each owner $750,000 and issued to eachowner 72,324 shares of NUI Common Stock in exchange for each owner's stock inboth VGSC and VGDC. The acquisition was accounted for as a purchase. The fairvalue of the net assets was equal to the purchase price. 

***Sale of Virginia Gas Propane and Company******Sale of Virginia Gas Exploration Companyand Virginia Gas Marketing Company***. On October 11, 2001, the companysold the capital stock of Virginia Gas Propane Company, a subsidiary of VGC, toHeritage Holdings, Inc. The sales price was approximately $3.8 million.

On March 1, 2002, the companysold the capital stock of Virginia Gas Exploration Company and Virginia GasMarketing Company, subsidiaries of VGC, to Appalachian Energy, Inc. The salesprice was approximately $0.8 million.

**Application of Critical Accounting Policies**

** **The preparation of financial statements in accordancewith generally accepted accounting principles (GAAP) requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities, the disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Management considers Critical Accounting Policiesto be those that could result in materially different financial statementresults if the assumptions regarding application of accounting principles weredifferent.  A description of thecompany's Critical Accounting Policies can be found in the company's AnnualReport filed on Form 10-K for the year ended September 30, 2002. Othersignificant accounting policies are discussed in Note 1 of the Notes to theConsolidated Financial Statements- "Summary of Significant Accounting Policies" of the company's Form 10-K.Recently issued accounting standards are also discussed in Note 12 of the Notesto the Consolidated Financial Statements- "New Accounting Standards."

**Forward-Looking Statements**

This document contains forward-looking statements.These statements are based on management's current expectations and informationcurrently available, are believed to be reasonable and are made in good faith.However, the forward-looking statements are subject to risks and uncertaintiesthat could cause actual results to differ materially from those projected inthe statements. Factors that may make the actual results differ fromanticipated results include, but are not limited to, economic conditions; thevolatility of natural gas prices; weather fluctuations; regulatory changes;competition from other providers of similar products; counterparty credit risk;access to capital markets; interest rate changes; and other uncertainties, allof which are difficult to predict and many of which are beyond our control. Forthese reasons, you should not rely on these forward-looking statements whenmaking investment decisions. The words "expect," "believe," "project,""anticipate," "intend," "should," "could," "will," "might," "estimate" andvariations of such words and similar expressions, are intended to identifyforward-looking statements. We do not undertake any obligation to updatepublicly any forward-looking statement, either as a result of new information,future events or otherwise, except as required by securities laws.

For anadditional discussion of factors that may affect the company's business andresults of operations, see "Risk Factors" in our Annual Report filed on Form10-K for the fiscal year ended September 30, 2002.

** Item 3.Quantitative and Qualitative Disclosure About Market Risk**

** **NUI Energy Brokers uses derivatives for multiplepurposes: i) to hedge price commitments and minimize the risk of fluctuatinggas prices, ii) to fulfill its trading strategies and, therefore, ensurefavorable prices and margins, and iii) to take advantage of market informationand opportunities in the marketplace. These derivative instruments includeforwards, futures, options and swaps.NUI Energy Brokers accounts for its trading activities in accordance withEmerging Issues Task Force Issue 98-10, by marking-to-market all trading positions.The majority of NUI Energy Brokers' positions are short-term in nature (up to 2years) and can be readily valued using New York Mercantile Exchange settlementprices and those from several otherwell-established, third-party organizations.

Therisk associated with open positions is closely monitored on a daily basis, andcontrolled in accordance with NUI Energy Brokers' Risk Management Policy. Thispolicy has been prepared by senior management and approved by the company'sBoard of Directors, and dictates policies and procedures for all tradingactivities. The policy defines both value-at-risk (VaR) and loss limits, andall traders are required to read, sign, and follow this policy. At the end ofeach 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 tosenior management daily. In addition, the Risk Management Policy is regularlyreviewed by senior management to assure that it is current and responsive toall marketplace risks, with any changes approved by the Board of Directors.

Thefollowing schedule summarizes the changes in derivative assets and liabilitiesfor the three-month period ended December 31, 2002 (in thousands). Amounts areshown net of valuation reserves. 

Derivative assets at  September 30, 2002

$30,441

Derivative liabilities at  September 30, 2002

   (852)

   Fair value of contracts outstanding at September 30,              2002

$29,589

Contracts realized or  settled during the period

(6,353)

Changes in fair value  attributable to market pricing

7,958

Derivative assets at  December 31, 2002

$31,557

Derivative liabilities at  December 31, 2002

    (363)

   Fair value of contracts outstanding at December 31,              2002

$31,194

Changesin the fair value attributable to market pricing represents the changes invalue of the company's unrealized mark-to-market net assets that relate tochanges in commodity pricing, volatility of options on commodities, and othermarket related changes.

Thefollowing table summarizes the fair value of the contracts comprising thecompany's net derivative assets by maturity date (amounts in thousands):

**Fair Value of Contracts at Period-End**

 
**Source of Fair Value**

**Less than 1 Year**

**1-3 Years**

**4-5 Years**

**In Excess of 5 Years**

**Total**

Prices actively quoted

$18,968

$1,191

$---

$---

$20,159

Prices provided by other  external sources

1,443

192

(4)

---

1,631

Prices based on models and  other valuation methods, net of valuation reserves

 

   2,638

 

 3,731

 

 2,302

 

 733

 

   9,404

Total Fair Value of Contracts

$23,049

$5,114

$2,298

$733

$31,194

Energy Brokers utilizes the variance/covariance VaRmethodology. Using a 95 percent confidence interval and a one-day time horizon,Energy Brokers' VaR was $255,000 and $240,000 at December 31, 2002 and 2001,respectively. The average, high, and low value at risk for the quarter endedDecember 31, 2002 was $321,000, $686,000, and $22,000, respectively.

**Item 4. Controls andProcedures**

(a)          Evaluationof Disclosure Controls and Procedures

The company's Chief ExecutiveOfficer and Chief Operating Officer and Chief Financial Officer have evaluatedthe effectiveness of our disclosure controls and procedures as of a date within90 days before the filing of this quarterly report (the "Evaluation Date").Based on their evaluation as of the Evaluation Date, the Chief Executive andthe Chief Operating Officer and Chief Financial Officer have concluded that thecompany's disclosure controls and procedures (as defined in Rules 13a-14(c) and15d-14(c) of the Exchange Act) are effective to ensure that informationrequired to be disclosed by the company in reports that it files or submitsunder the Exchange Act is recorded, processed, summarized and reported withinrequired time periods.

(b)         Changesin Internal Controls

The company maintains asystem of internal accounting controls that are designed to provide reasonableassurance that the company's books and records accurately reflect the company'stransactions and that the company's established policies and procedures arefollowed. Subsequent to the Evaluation Date, there were not significant changesto the company's internal controls or other factors that could significantlyaffect our internal controls.

**PART II - OTHER INFORMATION**

**Item 1.    LegalProceedings**

** **Between October 28, 2002 and December 20, 2002, fivesubstantially similar civil actions were commenced in the United StatesDistrict Court for the District of New Jersey, in which plaintiffs allege thatthe company and its president and chief executive officer violated federalsecurities laws by issuing false statements and failing to disclose informationregarding the company's financial condition and current and future financialprospects in its earnings statements, press releases, and in statements toanalysts and others.  By orders datedDecember 19, 2002, January 22, 2003 and February 3, 2003, the five actions wereconsolidated into one action captioned In re NUI Securities Litigation.  The five consolidated lawsuits include: (1)an action captioned Jack Klebanow, on behalf of himself and all otherssimilarly situated v. NUI Corporation and John Kean, Jr., filed in theUnited States District Court for the District of New Jersey on October 28,2002;  (2) an action captioned GiselaFriedman, on behalf of herself and all others similarly situated v. NUICorporation and John Kean, Jr., filed in the United States District Courtfor the District of New Jersey on October 31, 2002;  (3) an action captioned Thomas Davis, on behalf of himself andall others similarly situated v. NUI Corporation and John Kean, Jr., filedin the United States District Court for the District of New Jersey on November6, 2002; (4) an action captioned Marvin E. Russell, on behalf of himself andall others similarly situated v. NUI Corporation and John Kean, Jr., filedin the United States District Court for the District of New Jersey on December10, 2002; and (5) an action captioned Phyllis Waltzer, on behalf of herselfand all others similarly situated v. NUI Corporation and John Kean, Jr.,filed in the United States District Court for the District of New Jersey onDecember 20, 2002.  The Company haslearned of the Waltzer complaint through its investigation and has not beenserved in such action.  The plaintiffsare shareholders who assert claims on behalf of a putative class of purchasersof NUI's common stock between November 8, 2001 and October 17, 2002, except forthe Friedman and the Waltzer complaints, which assert a class period of July26, 2001 to October 17, 2002.  Specifically,the plaintiffs allege that the company failed to disclose that it wasexperiencing problems with regard to increased costs in its telecommunicationsbusiness; increased costs of insuring its medical benefits; a rise in bad debtfrom its customers; and a decline in the value of its pension plan assets.  The plaintiffs allege that thesenon-disclosed costs put a strain on the company's operating margins, and onOctober 18, 2002, caused the company to announce that it would sustain greatlyreduced earnings for fiscal years 2002 and 2003.  Based upon these allegations, the plaintiffs allege claims underSection 10(b), including Rule 10b-5 promulgated thereunder, and Section 20(a)of the Securities Exchange Act of 1934 (the Exchange Act), and seek unspecifiedmonetary damages, pre- and post-judgment interest, attorneys' fees and experts'fees, costs, and any other available relief.  The parties have adjourned by stipulation the time for responsivepleadings to be filed to until thirty days after plaintiffs file and serve aconsolidated amended complaint.  Nodiscovery has yet occurred.  By orderdated February 3, 2003, a Lead Plaintiff, Lead Counsel and Liaison Counsel wereappointed in the consolidated action and an Amended Consolidated Class ActionComplaint is to be filed within 60 days of entry of the order.  Furthermore, on December 23, 2002, a lawfirm made a public announcement with respect to a lawsuit purportedly filed inthe Southern District of New York on behalf of a putative class of purchasersof NUI's common stock between November 8, 2001 and October 17, 2002 against NUICorporation and John Kean, Jr., alleging violations under Section 10(b),including Rule 10b-5 promulgated thereunder, and Section 20(a) of the ExchangeAct.  Specifically, the announcementalleges that the company knowingly or recklessly failed to properly recordfixed cost expenses, accrue necessary pension expenses and reserve adequateamounts for its self-insured medical benefits in its quarterly financialstatements.  At this time, the companyhas not been served with the purported complaint. Although the company intendsto vigorously defend these lawsuits, it is not possible at this time todetermine a likely outcome.

Thecompany is also involved in various other claims and litigation incidental toits business. In the opinion of management, none of these other claims andlitigation will have a material adverse effect on the company's results ofoperations or its financial condition.

**Item 6.    Exhibitsand Reports on Form 8‐K**

**(a)           Exhibits**

10.1             Note Purchase Agreement, dated August 20, 2001, for theissuance of $60 million of Senior Notes at interest rates ranging between 6.60percent and 7.29 percent, with maturities from August 20, 2006 through August20, 2011.

**(b)    ****       Reports on Form 8‐K**

(1)**         **On October 18, 2002, the company filed a CurrentReport on Form 8-K dated October 18, 2002, under Items 5 and 7, announcingfiscal year 2002 earnings guidance and fiscal 2003 earnings outlook.

(2)          On October 29, 2002, the company filed a Current Reporton Form 8-K dated October 29, 2002, under Item 5, announcing the amendment ofthe Credit Agreement, dated December 19, 2001, among the company, FleetNational Bank, as agent, PNC Bank National Association, as syndication agent,First Union National Bank, as documentation agent, and the other lenders namedtherein and the Credit Agreement dated December 19, 2001, among NUI Utilities,Inc., Fleet National Bank, as agent, PNC Bank National Association, assyndication agent, First Union National Bank, as documentation agent, and theother lenders named therein.

** SIGNATURES**

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

**NUI CORPORATION**

  February  14, 2003

  JOHN KEAN, JR.  President and Chief Executive Officer

  February  14, 2003

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

**CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002**

I, John Kean, Jr.,certify that:

1. I have reviewedthis quarterly report on Form 10-Q of NUI Corporation;

2. Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report; 

3. Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report; 

4. The registrant'sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

a) designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

b) evaluated theeffectiveness of the registrant's disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the"Evaluation Date"); and

c) presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

5. The registrant'sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant's auditors and the audit committee ofregistrant's board of directors (or persons performing the equivalentfunction):

a) all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant's ability to record, process, summarize andreport financial data and have identified for the registrant's auditors anymaterial weaknesses in internal controls; and

b) any fraud, whetheror not material, that involves management or other employees who have asignificant role in the registrant's internal controls; and

6. The registrant's othercertifying officers and I have indicated in this quarterly report whether ornot there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

Date: February 14,2003

/s/ John Kean, Jr.President andChief ExecutiveOfficer 

** **

**CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TO SECTION 302 OF THESARBANES-OXLEY ACT OF 2002**

I, A. Mark Abramovic,certify that:

1. I have reviewedthis quarterly report on Form 10-Q of NUI Corporation;

2. Based on myknowledge, this quarterly report does not contain any untrue statement of a materialfact or omit to state a material fact necessary to make the statements made, inlight of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report; 

3. Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report; 

4. The registrant'sother certifying officers and I are responsible for establishing andmaintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and we have:

a) designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

b) evaluated theeffectiveness of the registrant's disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the"Evaluation Date"); and

c) presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

5. The registrant'sother certifying officers and I have disclosed, based on our most recentevaluation, to the registrant's auditors and the audit committee ofregistrant's board of directors (or persons performing the equivalentfunction):

a) all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant's ability to record, process, summarize andreport financial data and have identified for the registrant's auditors anymaterial weaknesses in internal controls; and

b) any fraud, whetheror not material, that involves management or other employees who have asignificant role in the registrant's internal controls; and

6. The registrant'sother certifying officers and I have indicated in this quarterly report whetheror not there were significant changes in internal controls or in other factorsthat could significantly affect internal controls subsequent to the date of ourmost recent evaluation, including any corrective actions with regard tosignificant deficiencies and material weaknesses.

Date: February 14,2003

/s/ A. MarkAbramovic Chief Operating Officer andChief FinancialOfficer

** **

** **

** **

*(*