SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
Delta Natural Gas Company, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14-a-6(j)(2)
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
DELTA NATURAL GAS COMPANY, INC.
Holders of Common Stock
Appointment of Proxy
For the Annual Meeting of Shareholders
To Be Held November 21, 1996 at 10:00 a.m.
at the Principal Office of the Company at
3617 Lexington Road, Winchester, Kentucky
The undersigned hereby appoints Harrison D. Peet and Glenn R. Jennings, and
either of them with power of substitution, as proxies to vote the shares of
Common Stock of the undersigned in Delta Natural Gas Company, Inc. at the
Annual Meeting of its Shareholders to be held November 21, 1996 and at any
adjournments thereof, upon all matters that may properly come before the
meeting, including the matters identified (and in the manner indicated) on
the reverse side of this proxy and described in the proxy statement furnished
herewith.
This proxy is solicited on behalf of the Board of Directors, which recommends
votes FOR all items. It will be voted as specified. If not specified, the
shares represented by this proxy will be voted FOR all items.
Please sign and date this proxy on the reverse side, and return it promptly
in the enclosed envelope.
Indicate your vote by an (X) in the appropriate boxes:
ITEM:
1. Election of Directors
Nominees for three year term expiring 1999:
Glenn R. Jennings
Virgil E. Scott
Arthur E. Walker, Jr.
Nominee for two year term expiring in 1998:
John D. Harrison
__ ___ ___
FOR all Nominees WITHHELD all Nominees FOR all Nominees EXCEPT
those listed below
_________________________
NUMBER OF SHARES
SIGN EXACTLY AS NAME(S) APPEARS HEREON:
X______________________________________
X______________________________________
If joint account, each joint owner must sign. If
signing for a corporation or partnership or as agent,
attorney or fiduciary, indicate the capacity in which
you are signing.
Date ____________________________, 1996
Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, Kentucky 40391
Notice To Common Shareholders Of Annual Meeting To Be Held
November 21, 1996
Please take notice that the Annual Meeting of Shareholders of Delta Natural
Gas Company, Inc. will be held at the principal office of the Company, 3617
Lexington Road, Winchester, Kentucky, on Thursday, November 21, 1996 at 10:00
a.m. for the purposes of:
1. Electing three Directors for three year terms expiring in 1999 and one
Director for a two year term expiring in 1998; and
2. Acting on such other business as may properly come before the meeting.
Holders of Common Stock of record at the close of business on October 7, 1996
will be entitled to vote at the meeting.
By Order of the Board of Directors
John F. Hall
Vice President - Finance,
Secretary and Treasurer
Winchester, Kentucky
October 13, 1996
To ensure proper representation at the meeting at a minimum of expense, it
will be very helpful if you fill out, sign and return the
enclosed proxy promptly.
Proxy Statement
Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, Kentucky 40391
Information Concerning Proxy
This solicitation of proxies is made by Delta Natural Gas Company, Inc.
("Delta" or "the Company"), upon the authority of Delta's Board of Directors
and the costs associated with this solicitation will be borne by Delta.
Management intends to use the mails to solicit all Shareholders and intends
first to send this proxy statement and the accompanying form of proxy to
Shareholders on or about October 13, 1996. Delta will provide copies of this
proxy statement, the accompanying proxy and the Annual Report to brokers,
dealers, banks and voting trustees and their nominees for mailing to
beneficial owners and upon request therefor will reimburse such record
holders for their reasonable expenses in forwarding solicitation materials. In
addition to using the mails, proxies may be solicited by directors,
officers and regular employees of Delta in person or by telephone, but
without extra compensation. As part of its duties as registrar and transfer
agent, Fifth Third Bank mails Delta's proxy solicitation materials to
shareholders. Fees for this service are included in the annual fee paid by
Delta to Fifth Third Bank for its services as registrar and transfer agent.
You may revoke your proxy at any time before it is exercised by giving notice to
Mr. John F. Hall, Vice President - Finance, Secretary and Treasurer of Delta.
Election of Directors
Delta's Board of Directors is classified into three classes, with terms
expiring in either 1996, 1997 or 1998.
The terms of three Directors, Glenn R. Jennings, Virgil E. Scott and Arthur E.
Walker, Jr. are scheduled to end in 1996. John D. Harrison, Glenn R.
Jennings, Virgil E. Scott and Arthur E. Walker, Jr., are nominated as
Directors for election at the Annual Meeting of Shareholders. Glenn R.
Jennings, Virgil E. Scott and Arthur E. Walker, Jr. will hold office until
the Annual Meeting in 1999 and until their successors have been elected and
qualified. John D. Harrison will hold office until the Annual Meeting in
1998 and until his successor has been elected and qualified.
If the enclosed proxy is duly executed and received in time for the meeting,
and if no contrary specification is made as provided therein, the shares
represented by this proxy will be voted for John D. Harrison, Glenn R.
Jennings, Virgil E. Scott and Arthur E. Walker, Jr. as Directors of Delta. If
one of them should refuse or be unable to serve, the proxy will be voted for
such person as shall be designated by the Board of Directors to replace them
as a Nominee. Management presently has no knowledge that any of the Nominees
will refuse or be unable to serve.
The names of Directors and Nominees and certain information about them are
set forth below:
Additional Business
Name, Age and Position Experience During Period of Service
Held With Delta Last Five Years As
Director
Donald R. Crowe (3) - 62 Senior Analyst, 1966 to present
Director Department of Insurance,
Commonwealth of Kentucky,
Lexington, Kentucky
Jane Hylton Green (2) - 66
Retired Vice President - 1976 to present
Director Human Resources and
Secretary, Delta and
Delta's subsidiaries, Delta
Resources, Inc. ("Resources"),
Delgasco, Inc. ("Delgasco"),
Deltran, Inc. ("Deltran") and
Enpro, Inc. ("Enpro")
Billy Joe Hall (3) - 59 Investment Broker, 1978 to present
Director LPL Financial Services
(general brokerage
services), Mount Sterling,
Kentucky
John D. Harrison - 81 Retired President, Power 1950 to 1993
Nominee Line Construction Co., Inc.
(Utility construction
contractor), Stanton,
Kentucky; Retired Vice-
President and Director and
Emeritus Director, Delta;
Emeritus Director, Pioneer
Federal Savings Bank,
Winchester, Kentucky
Glenn R. Jennings (1) - 47 President and Chief Execu- 1984 to present
President and Chief tive Officer and Director,
Executive Officer; Delta, Resources, Delgasco,
Director Deltran and Enpro
Harrison D. Peet (2) - 76 Chairman of the Board, 1950 to present
Chairman of the Board Resources, Delgasco,
Deltran and Enpro
Virgil E. Scott (1) - 75 Retired Vice President 1950 to present
Director Administration, Delta and
Resources; Retired Director,
Resources, Delgasco,
Deltran and Enpro
Henry C. Thompson (2) - 74 President, Triple Land 1967 to present
Director Company, Inc. (land
development and real
estate rental); Retired
President, Henry Thompson
Construction Company, Inc.
(land development and
commercial real estate
rental); both of
Nicholasville, Kentucky
Arthur E. Walker, Jr.(1)(4) - 51
Director President, The Walker 1981 to present
Company (general and
highway construction),
Mount Sterling, Kentucky
(1) Term expires November 16, 1996.
(2) Term expires on date of Annual Meeting of Shareholders in 1997.
(3) Term expires on date of Annual Meeting of Shareholders in 1998.
(4) On November 8, 1993, Arthur E. Walker, Jr., entered a guilty plea
in Montgomery County, Kentucky, District Court to the charge of making
a political contribution in the name of another, a misdemeanor under
Kentucky Law. The Court fined Mr. Walker $1,000 plus court costs.
Committees and Board Meetings
Delta has an Audit Committee comprised of Mrs. Green and Messrs. Scott and
Thompson. The Committee, which met one time during fiscal 1996, is empowered to
recommend independent auditors to the Board, review audit results and
financial statements, review the system of internal control and make reports
and recommendations to the Board.
Delta has a Compensation Committee comprised of Messrs. Hall, Scott and
Thompson. The Committee, which met one time during fiscal 1996, is empowered to
make recommendations to the Board as to the compensation of the Board and
Officers and any other personnel matters.
Delta has a Nominating Committee comprised of Messrs. Crowe, Hall and Walker.
The Committee, which met one time during fiscal 1996, is empowered to present to
the Board names of individuals who would make suitable Directors and to
counsel with appropriate Officers of the Company on matters relating to the
organization of the Board. The Nominating Committee will consider Nominees
recommended by Shareholders, if such nominations are submitted in writing to
the attention of Mr. John F. Hall at Delta's corporate office in Winchester,
Kentucky.
Delta has an Executive Committee comprised of Messrs. Jennings, Peet and
Walker. The Committee, which did not meet during fiscal 1996, is empowered to
act for and on behalf of the Board of Directors, during the interval
between the meetings of the Board of Directors, in the management and
direction of the business of the Company.
During fiscal 1996, Delta's Board of Directors held five meetings. All
Directors attended 75% or more of the aggregate number of meetings of the
Board of Directors and applicable committee meetings.
Until September 1, 1996, each Non-Officer Director (except for the Chairman)
received a monthly Directors' fee of $300 plus a fee of $500 for each board
and committee meeting attended. Mr. Peet, as Chairman of the Board of
Directors, was paid a monthly fee of $2,500. Directors who were also
Officers of the Company received no Directors' fees. Beginning September 1,
1996, each Non-Officer Director (except for the Chairman) receives a monthly
Directors' fee of $600 and no additional fees for attending board and
committee meetings. Mr. Peet, as Chairman of the Board of Directors, is paid a
monthly fee of $3,000. Directors who are also Officers of the Company
receive no Directors' fees.
Officers of Delta
Date Began
in this
Name Position(1) Age Position(2)
Johnny L. Caudill(3) Vice President - 47 3/1/95
Administration and
Customer Service
John F. Hall Vice President - 53 3/1/95
Finance, Secretary
and Treasurer
Robert C. Hazelrigg Vice President- 49 5/20/93
Public and Consumer
Affairs
Alan L. Heath Vice President - 49 5/21/84
Operations and
Engineering
Glenn R. Jennings President and Chief 47 11/17/88
Executive Officer
(1) Each Officer is normally elected to serve a one year term. Each
Officer's current term is scheduled to end on November 21, 1996, the date
of the Board of Directors' meeting following the Annual Shareholders'
Meeting.
(2) All current Officers except Mr. Caudill have functioned as Officers of
Delta for at least five years.
(3) Mr. Caudill was elected an Officer on March 1, 1995. Prior to that, Mr.
Caudill held the position of Manager - Customer Service for 2 years and
Manager - Distribution for 3 years. Mr. Caudill has been employed by
Delta since 1972.
Board Compensation Committee Report on
Executive Compensation
The Compensation Committee of the Board of Directors ("Committee") is
composed of three independent, non-employee directors. The Committee is
responsible for developing and making recommendations to the Board with
respect to Delta's executive compensation. All decisions by the Committee
relating to the compensation of Delta's executive officers, including the
Chief Executive Officer, are reviewed and given final approval by the full
Board of Directors. During 1996, no decisions of the Committee were modified in
any material way or rejected by the full Board.
The goal of the Committee in establishing the compensation for the Company's
executive officers is to provide fair and appropriate levels of compensation
that will ensure the Company's ability to attract and retain a competent and
energetic management team.
Salaries for Delta's officers, including all executive officers and the Chief
Executive Officer, are determined in a manner similar to that for all
employees, using a pay grade system established with the assistance of a
consulting firm. Salary grades are developed for all positions in the
Company through the use of external comparisons with other companies and are
periodically adjusted for inflation. The salary grades have a minimum and
maximum compensation level for each grade. Salary increases for executive
officers are established by the Compensation Committee, considering factors
which include the overall raises budgeted for the Company, individual
performance of the executive officers and their position in their individual
pay grades. There is no specific, quantified relationship between corporate
performance and individual compensation.
There is no formal bonus plan for executive officers or the Chief Executive
Officer. Bonuses have been paid in the past from time to time, at the
discretion of the Company, based on the Company's overall performance and the
contributions and performances of the individual officers and other
employees. There has been no specific, quantified relationship between
corporate performance and individual bonuses.
A summary of the compensation awarded to Glenn R. Jennings, President and
Chief Executive Officer of the Company, and Alan L. Heath, Vice President
Operations and Engineering, is set forth in the "Summary Compensation Table".
The compensation paid to Mr. Jennings and Mr. Heath for fiscal 1996 reflects a
cash bonus. No bonus was paid for fiscal 1995, and the other components of
Mr. Jennings' and Mr. Heath's 1996 salary package are generally consistent
with prior years.
The Committee believes Mr. Jennings has positioned the Company well to
address a changing business climate, to provide for total shareholder return
and to continue the Company's growth.
Billy Joe Hall
Virgil E. Scott
Henry C. Thompson
Compensation Committee Interlocks and Insider Participation
The Compensation Committee during fiscal year 1996 consisted of Billy Joe
Hall, Virgil E. Scott and Henry C. Thompson. Mr. Scott retired in 1986 as
the Vice President - Administration of Delta.
Summary Compensation Table
The following table sets forth information concerning the compensation of the
Company's Chief Executive Officer and Executive Officers whose total annual
salary and bonus exceeded $100,000 for the last three fiscal years. No other
executive officer of the Company earned compensation in excess of $100,000
for the periods.
Annual
Name and Compensation All Other
Principal Position Year Salary Bonus Compensation(1)
Glenn R. Jennings 1996 $136,000 $42,900 $24,000
President and Chief 1995 $136,000 $ -- $24,500
Executive Officer 1994 $130,000 $34,101 $12,000
Alan L. Heath 1996 $ 88,700 $ 16,776 $ --
Vice President - 1995 $ 85,200 $ -- $ --
Operations and 1994 $ 81,700 $ 15,336 $ --
Engineering
(1) During each of the preceding three fiscal years, Delta forgave a portion of
the principal amount of a loan made by Delta to Mr. Jennings (see "Certain
Relationships and Related Transactions" for a discussion of this loan).
Comparison of Five Year Cumulative Total Return Among the
Company, S & P 500 and
Natural Gas Distribution Industry Index
The following graph sets forth a comparison of five year cumulative total
return among the common shares of the Company, the S & P 500 Index and the
Edward D. Jones & Co. Natural Gas Distribution Industry Index ("Industry
Index") for the fiscal years indicated. Information reflected on the graph
assumes an investment of $100 on June 30, 1991 in each of the common shares of
the Company, the S & P 500 Index and the Industry Index. Cumulative total
return assumes reinvestment of dividends. The Industry Index consists of
thirty-two natural gas distribution companies chosen by Edward D. Jones & Co.
The Company is among the thirty-two companies included in the Industry Index.
1991 1992 1993 1994 1995 1996
Delta 100 127.1 167.6 188.5 168.9 162.0
S & P 500 Index 100 113.4 128.7 130.6 164.5 207.2
Industry Index 100 119.6 158.2 151.2 156.9 188.5
Estimated Annual Benefits Upon Retirement
Delta has a trusteed, non-contributory, defined benefit retirement plan. The
following table illustrates the approximate pension benefits payable under
the terms of the plan to employees retiring at the normal retirement age of 65
assuming five years' average annual compensation and years of service as
indicated:
Average Annual Estimated Annual Benefits For
Compensation Years of Service Indicated
(Five Year
Average) 15 20 25 30 35
$100,000 $ 24,000 $ 32,000 $ 40,000 $ 48,000 $ 56,000
125,000 30,000 40,000 50,000 60,000 70,000
150,000 36,000 48,000 60,000 72,000 84,000
175,000 42,000 46,000 70,000 84,000 98,000
200,000 48,000 64,000 80,000 96,000 112,000
The plan is available to all employees as they become eligible. The basic
retirement benefit is payable for 120 months certain and life thereafter,
based upon a formula of 1.6% of the highest five years average monthly salary
for each year of service. The compensation used to determine the average
monthly salary under the plan includes only base salary of employees (see
"Salary" in the "Summary Compensation Table"). An employee may also elect
from various joint, survivor, lump sum and annuitant provisions that would
change the above amounts. Social Security benefits would be in addition to
the amounts received under Delta's pension plan.
Mr. Jennings and Mr. Heath have seventeen years and twelve years,
respectively, of credited service in the plan.
Employment Contract and Termination of
Employment and Change in Control Agreement
Delta entered into an agreement with Mr. Jennings on May 31, 1995. The
agreement provides for Mr. Jennings' employment in his present capacity
through November 30, 2000, and such agreement continues on a year-to-year
basis thereafter. This agreement provides for the termination of Mr.
Jennings' employment in the event of his death or incapacity or for cause. In
addition, Mr. Jennings may terminate his employment following a change in
control if he determines in good faith that, due to the change in control,
his continued employment is not in Delta's best interests or he is unable to
carry out his duties effectively. A change in control is defined as a change in
control that would be required to be reported under Regulation 14A of the
Securities and Exchange Act of 1934 or an acquisition by any person or entity of
twenty percent or more of Delta's issued and outstanding voting Common Stock.
Under the agreement, if Delta terminates Mr. Jennings without cause, or if
Mr. Jennings terminates his employment under the agreement following a change in
control because he determines in good faith that his continued employment is not
in Delta's best interests or that he is unable to carry out his duties
effectively, then in any such instance Delta is required to continue to pay
Mr. Jennings as severance pay an amount equal to his salary for the number of
years remaining under the agreement, but in no event less than three years.
Mr. Jennings' current yearly salary is $143,000. In addition, in all such
cases the agreement provides for the continuance, at not less than present
levels, of Mr. Jennings' employee benefit plans and practices, including the
retirement plan, 401-K Plan, stock purchase plan, life and accidental death
and dismemberment insurance, company furnished automobile and office,
vacation plan, and medical, dental, health, and long term disability plans,
and the agreement obligates Delta to forgive any unpaid principal outstanding on
a loan made to him (see "Certain Relationships and Related Transactions" for a
description of this loan).
If, as described above, Mr. Jennings elects under the terms of the agreement to
terminate his employment following a change in control, he has, in
addition to the rights described in the immediately preceding paragraph, the
right to a lump sum payment for all such amounts due to him under the
agreement as salary.
Delta also has agreed to indemnify Mr. Jennings for actions taken by him in
good faith while performing services for Delta and has agreed to provide
liability insurance for lawsuits and to pay legal expenses arising from any
such proceedings.
On December 1, 1985, Delta entered into an agreement with Mr. Heath. The
terms of the agreement will become effective with a change in control while
Mr. Heath is employed by Delta. For the purpose of the agreement, a change in
control will be deemed to take place upon the happening of either of the
following events: (a) the acquisition by anyone of ten percent of Delta's
issued and outstanding voting Common Stock followed by either (i) a change in
the majority of the Board of Directors of Delta as it existed on December 1,
1985, as a result of a Shareholders' meeting involving a contest for the
election of Directors or (ii) the termination without cause of Harrison D.
Peet as Chairman of the Board of Delta; or (b) the election at any time of
two or more Directors whose election is opposed by a majority of Delta's
Board of Directors as it existed on December 1, 1985.
The agreement provides that Mr. Heath may continue in the employment of Delta in
his customary position for a period of three years immediately following a
change in control. During this time he would receive compensation consisting of
(i) a base salary which would be not less than the annual rate in effect on the
day before the change in control, with such increase as may thereafter be
awarded in accordance with Delta's regular compensation practices; and (ii)
incentive and bonus awards not less than the annualized amount of any such
awards paid to him for the twelve months ending on the date of a change in
control. In addition, his agreement provides for the continuance, at not less
than present levels, of employee benefit plans and practices, including the
retirement plan, 401-K Plan, stock purchase plan, life and accidental death
and dismemberment insurance, company furnished automobile and office, vacation
plan and medical, dental, health and long-term disability plans.
Under the agreement, if Mr. Heath is terminated by Delta without cause during
the three year period immediately following a change in control, his
compensation and benefits and service credits under the employee benefit
plans will be continued for the remainder of the period, but in no event for
less than two years following termination of employment. The current yearly
base salary of Mr. Heath is $93,200. If Mr. Heath determines that in good
faith he cannot continue to fulfill his responsibilities as a result of a
change in control, then that is to be considered termination without cause.
Further, Delta has agreed to indemnify Mr. Heath for actions taken by him in
good faith while performing services for Delta and has agreed to provide
liability insurance for lawsuits and to pay legal expenses arising from any
such proceedings.
Security Ownership Of Certain
Beneficial Owners and Management (1)
Amount and Nature
Of Beneficial Percent Of
Name Of Owner Ownership(2)(3)(4) Stock
Donald R. Crowe 3,700 *
(1,200 shares jointly owned)
Jane Hylton Green 6,754
(629 shares jointly owned) *
Billy Joe Hall 3,399 *
John D. Harrison 10,912 *
(10,010 shares jointly owned)
Glenn R. Jennings 5,511 *
Harrison D. Peet (5) 18,456 *
Virgil E. Scott 12,442 *
Henry C. Thompson 4,275 *
Arthur E. Walker, Jr. (6) 12,261 *
(4,310 shares jointly owned)
All Directors, Officers 85,833 4.5%
and Nominees, as a (16,149 shares jointly owned)
Group (13 persons)
* Less than 1%.
(1) The only class of stock issued and outstanding is Common Stock.
(2) Under the terms of Delta's Employee Stock Purchase Plan, all Officers and
employees (with certain limited exceptions) have the right to contribute
1% of their July 1, 1996 annual salary level on a monthly basis. At the
end of fiscal 1997, Delta will issue its Common Stock, based upon 1997
contributions, using an average of the last sale price of Delta's stock as
quoted in the National Association of Securities Dealers Automated Quotation
National Market System at the close of business for the last five
business days in June, 1997, and will match those share so purchased.
If employees cease to participate in the plan prior to year end, their
contributions will be returned with no matching Company portion. The
continuation and terms of the plan are subject to approval by Delta's
Board of Directors on an annual basis. Accordingly, all the persons
listed who are Officers (Directors, however, have no rights under this
plan, unless they are also Officers) have the right to participate in
the Plan in 1997. Stock acquired pursuant to the Plan during fiscal
1997 will not be issued until July, 1997. Accordingly, ownership figures
in the above table do not include shares to be issued under the Plan
for fiscal 1997.
(3 The persons listed, unless otherwise indicated in this column, are the
sole owners of the reported securities and accordingly exercise both
sole voting and sole investment power over the securities.
(4) The figures, which are as of August 1, 1996, are based on information
supplied to Delta by its Officers and Directors.
(5) The listed shares include 15,000 shares held by Mr. Peet's wife in a
voting trust, which is administered and voted by Mr. Peet.
(6) The listed shares include 3,652 shares held by Mr. Walker as guardian for
his children and 658 shares held by his wife.
Appointment of Auditors
The Audit Committee of the Board of Directors of Delta has appointed
Arthur Andersen LLP as independent public accountants and auditors in
connection with Delta's accounting matters and to make an annual audit of the
accounts of Delta and its subsidiary companies for the fiscal year ending
June 30, 1997. Arthur Andersen LLP have been auditors for Delta since 1962
and, both by virtue of their long familiarity with Delta's affairs and
their ability, are considered to be well qualified to perform this important
function. Representatives of Arthur Andersen LLP are expected to be
present at the Annual Meeting of Shareholders, and they will have an
opportunity to make a statement, if they so desire, and will be available to
respond to questions.
Certain Relationships and Related Transactions
Delta has an agreement with Glenn R. Jennings, President and Chief Executive
Officer and a Director of Delta, under the terms of which Mr. Jennings
received a secured loan of $132,000. The agreement provides that interest is to
be paid by Mr. Jennings at the annual rate of 8%, payable monthly, with Delta
forgiving $2,000 of the principal amount for each month of service Mr. Jennings
completes. The outstanding balance on this loan was $122,000 as of August 31,
1996. The maximum amount outstanding during fiscal 1996 was $130,000.
Shareholders' Proposals
Proposals of security holders intended to be presented at Delta's 1997 annual
meeting must be received by Delta no later than June 16, 1997, in order to be
included in Delta's proxy statement and form of proxy related to that
meeting.
Financial Statements
Delta's 1996 Annual Report to Shareholders containing financial statements
will precede or accompany the mailing of this proxy to Common Shareholders.
Other Matters
Management is not aware of any other matters to be presented at the meeting of
Shareholders to be held on November 21, 1996. However, if any other
matters come before the meeting, it is intended that the Holders of proxies
solicited hereby will vote such shares thereon in their discretion.
As of the close of business on October 7, 1996, the record date fixed for
determination of voting rights, Delta had outstanding 2,319,359 shares of
Common Stock, each share having one vote. A majority of the shares entitled to
be cast on a matter constitutes a quorum for action on that matter. Once a
share is represented for any purpose at the meeting, it will be deemed
present for quorum purposes for the remainder of the meeting and any
adjournment of the meeting (unless a new record date is set). If a quorum
exists, action on a matter (other than the election of Directors) will be
approved if the votes cast favoring the action exceed the votes cast opposing
the action unless a higher vote is required by law.
Under applicable Kentucky law, each Common Shareholder of Delta is entitled to
vote cumulatively for the election of Directors. This means that each Common
Shareholder has the right to give one Nominee votes equal to the number of
Directors to be elected multiplied by the number of shares of Common Stock
the Shareholder owns or to distribute such votes among two or more Nominees
as the Shareholder desires. The four nominees for Director receiving the
highest number of votes will be elected.
There are no conditions precedent to the exercise of cumulative voting
rights.
Shares represented by a limited proxy, such as where a broker may not vote on a
particular matter without instructions from the beneficial owner and no
instructions have been received (i.e., "broker non-vote"), will be counted to
determine the presence of a quorum but will not be deemed present for other
purposes and will not be the equivalent of a "no" vote on a proposition.
Shares represented by a proxy with instructions to abstain on a matter will be
counted in determining whether a quorum is in attendance. An abstention is
not the equivalent of a "no" vote on a proposition. Under Kentucky law, there
are no appraisal or similar rights of dissenters with respect to any
matter to be acted upon at the Shareholders' meeting.
Any stockholder may obtain without charge a copy of Delta's Annual Report on
Form 10-K, as filed with the Securities and Exchange Commission for the year
ended June 30, 1996, by submitting a request in writing to: John F. Hall,
Vice President - Finance, Secretary and Treasurer, Delta Natural Gas Company,
Inc., 3617 Lexington Road, Winchester, KY 40391.
The above Notice and Proxy Statement are sent by order of the Board of
Directors.
John F. Hall
Vice President - Finance,
Secretary and Treasurer
October 13, 1996
The Company
Delta Natural Gas Company, Inc. ("Delta" or "the Company") is engaged primarily
in the distribution, transmission, storage and production of natural gas with
its facilities which are located in 17 counties in central and southeastern
Kentucky. Delta serves approximately 34,000 residential, commercial,
industrial and transportation customers and makes transportation deliveries
to several interconnected pipelines.
Unless the context requires otherwise, references to Delta include Delta's
wholly-owned subsidiaries, Delta Resources, Inc. ("Resources"), Delgasco,
Inc. ("Delgasco"), Deltran, Inc. ("Deltran") and Enpro, Inc. ("Enpro").
Resources buys gas and resells it to industrial customers on Delta's
system and to Delta for system supply. Delgasco buys gas and resells it
to Resources and to customers not on Delta's system. Deltran operates
an underground nataural gas storage field that it leases from Delta.
Enpro owns and operates production properties and undeveloped acreage.
Delta and its subsidiaries are under common executive management.
Delta was incorporated under Kentucky law in 1949. Its principal executive
offices are located at 3617 Lexington Road, Winchester, Kentucky 40391.
Its telephone number is (606) 744-6171, and its Fax number is (606) 744-6552.
Corporate Mission
Delta will provide competitive, high quality service to its customers; strive
for the best achievable customer satisfaction; ensure an optimal work
environment for its employees; enhance the quality of its shareholders'
investments; and maintain cooperative relationships with governmental
officials, regulatory agencies and local community leaders.
To Our Shareholders
The weather this past year was approximately 12% colder than normal weather,
as compared with 1995 when the weather was approximately 10% warmer than
normal. As a result, sales volumes increased by approximately 980,000 Mcf, or
26%, and earnings per share increased to $1.41, a 36% increase over the
previous year.
Delta continued to grow during fiscal 1996 as our number of customers increased
by 2.9%. Capital expenditures exceeded $13 million. These expenditures
provided expansion of our system to serve these new customers and also allowed
for continuing enhancement of our assets.
These expenditures included our continuing effort to develop an underground
storage field in Bell County, Kentucky. We continue to inject gas into this
field and we anticipate withdrawing gas this coming winter season as needed to
meet a portion of our customers' needs. Our capital expenditure plans for
fiscal 1997 include a continuance of this development effort.
During July, 1996, we completed the sale of 400,000 shares of common stock
and $15 million of debentures. The proceeds were used to repay short-term
borrowings, which allows us to utilize our credit line to augment internally-
generated cash as we proceed with our capital expenditure plans for 1997.
Our service areas continue to grow and expand. As reflected in our record
capital expenditures plan for 1997 of $16.4 million, we are committed to
provide for this growth by building gas lines to new construction as well
as to existing homes and businesses that convert from other energy sources
to clean, efficient natural gas.
All our employees, as well as suppliers and contractors who assist us, are
to be congratulated for their efforts in helping to provide gas service to
our expanding markets. We plan to continue our aggressive expansion,
including the acquisition of other systems where appropriate.
At its meeting on August 21, 1996, Delta's Board of Directors increased
the quarterly common stock dividend from $.28 to $.285, which now
represents an annualized rate of $1.14 per share.
Thank you for supporting the Company this past year.
Sincerely,
H. D. Peet
Chairman of the Board
Glenn R. Jennings
President & Chief Executive Officer
August 22, 1996
<TABLE>
Selected Consolidated Financial Information
<CAPTION>
For the Years Ended
June 30, 1996(a) 1995 1994(b) 1993 1992
<S> <C> <C> <C> <C> <C>
Summary of
Operations ($)
Operating revenues 36,576,055 31,844,339 34,846,941 31,221,410 29,200,834
Operating income 5,437,055 4,255,088 4,850,673 4,791,816 4,586,323
Net income 2,661,349 1,917,735 2,671,001 2,620,664 2,453,813
Earnings per common
share 1.41 1.04 1.50 1.60 1.52
Dividends declared
per common share 1.12 1.12 1.11 1.09 1.08
Average Number of Common
Shares Outstanding 1,886,629 1,850,986 1,775,068 1,635,945 1,612,437
Total Assets ($) 81,140,637 65,948,716 61,932,480 55,129,912 50,478,014
Capitalization ($)
Common shareholders' equity 23,628,323 22,511,513 22,164,791 17,501,045 16,227,158
Long-term debt 24,488,916 23,702,200 24,500,000 19,596,401 20,187,826
Notes payable refinanced
subsequent to year end 18,075,000 _ _ _ _
Total capitalization 66,192,239 46,213,713 46,664,791 37,097,446 36,414,984
Short-Term Debt ($) (a)(c) 1,084,800 6,732,700 3,205,000 7,729,000 4,029,000
Other Items ($)
Capital expenditures 13,373,416 8,122,838 7,374,747 6,289,508 5,074,483
Total plant 98,795,623 84,944,969 77,882,135 71,187,860 66,032,217
</TABLE>
(a) During July, 1996, $15,000,000 of debentures and 400,000 shares of
common stock were sold, and the proceeds were used to short-term debt and for
general corporate purposes. The balance of the note payable at June 30, 1996
($18,075,000) is included in total capitalization as a result of the subsequent
refinancing.
(b) During October 1993, $15,000,000 of debentures and 170,000 shares of
common stock were sold, and the proceeds were used to repay short-term debt and
to refinance certain long-term debt
(c) Includes current portion of long-term debt.
Summary Of Operations
Gas Operations and Supply
The Company purchases and produces gas for distribution to its retail
customers and also provides transportation service to industrial customers
and inter-connected pipelines with its facilities that are located in
17 predominantly rural counties in central and southeastern Kentucky.
The economy of Delta's service area is based principally on coal mining, farming
and light industry. The communities in Delta's service area typically contain
populations of less than 20,000. The four largest service areas are Corbin,
Nicholasville, Middlesboro and Berea, where Delta serves approximately 6,100,
6,000, 3,700 and 3,800 customers, respectively.
Several communities served by Delta continue to expand, resulting in growth
opportunities for the Company. Industrial parks have been developed in certain
areas and have resulted in new industrial customers, some of whom are on-system
transportation customers. As a result of this growth, Delta's total customer
count increased by 2.9% in 1996. Currently, over 99% of Delta's customers are
residential and commercial. Delta's remaining, light industrial customers
purchased approximately 6% of the total volume of gas sold by Delta at retail in
1996.
The Company's revenues are affected by various factors, including rates billed
to customers, the cost of natural gas, economic conditions in the areas that the
Company serves, weather conditions and competition. Delta competes for customers
and sales with alternative sources of energy, including electricity, coal, oil,
propane and wood. The Company's marketing subsidiaries, which purchase gas and
resell it to various industrial customers and others, also compete for their
customers with producers and marketers of natural gas. Gas costs, which the
Company is generally able to pass through to customers, may influence customers
to conserve, or, in the case of industrial customers, to use alternative energy
sources. Also, the potential bypass of Delta's system by industrial customers
and others is a competitive concern that Delta has addressed and will continue
to address as the need arises.
Delta's retail sales are seasonal and temperature-sensitive as the majority of
the gas sold by Delta is used for heating. This seasonality impacts Delta's
liquidity position and its management of its working capital requirements during
each twelve month period, and changes in the average temperature during the
winter months impacts its revenues year-to-year (see Management's Discussion and
Analysis of Financial Condition and Results of Operations).
Retail gas sales in 1996 were approximately 4,705,000 thousand cubic feet
("Mcf"), generating approximately $27,810,000 in revenues, as compared to
approximately 3,724,000 Mcf and approximately $24,693,000 in revenues for 1995.
Heating degree days billed during 1996 were approximately 112% of the thirty
year average ("normal") as compared with approximately 90% in 1995. Principally
as a result of this colder weather, sales volumes increased by 980,000 Mcf, or
26.3%, in 1996 as compared to 1995.
Delta's transportation of natural gas in 1996 generated revenues of
approximately $3,331,000 as compared with approximately $3,049,000 during 1995.
Of the total from transportation in 1996, approximately $2,913,000 (2,570,000
Mcf) and $418,000 (1,134,000 Mcf) were earned from transportation for on-system
and off-system customers, respectively. Of the total from transportation for
1995, approximately $2,588,000 (2,390,000 Mcf) and $461,000 (1,452,000 Mcf)
were earned from transportation for on-system and off-system customers,
respectively.
As an active participant in many areas of the natural gas industry, Delta plans
to continue its efforts to expand its gas distribution system. Delta continues
to consider acquisitions of other gas systems, some of which are contiguous to
its existing service areas, as well as expansion within its
existing service areas. The Company also anticipates continuing activity in gas
production and transportation and plans to pursue and increase these activities
wherever practicable. The Company will continue to consider the construction or
acquisition of additional transmission, storage and gathering facilities to
provide for increased transportation, enhanced supply and system flexibility.
Some producers in Delta's service area can access certain pipeline delivery
systems other than Delta, which provides competition from others for
transportation of such gas. Delta will continue its efforts to purchase or
transport any natural gas available that is produced in reasonable proximity to
its facilities. Delta will continue to maintain an active gas supply management
program that emphasizes long-term reliability and the pursuit of cost effective
sources of gas for its customers.
Delta receives its gas supply from a combination of interstate and Kentucky
sources. The Company intends to maintain an adequate gas supply to provide
service to existing and future customers.
Delta's interstate gas supply is transported and stored by Tennessee Gas
Pipeline Company ("Tennessee"), Columbia Gas Transmission Corporation
("Columbia") and Columbia Gulf Transmission Company ("Columbia Gulf"). Delta
acquires its interstate gas supply from gas marketers. Delta also acquires gas
supply from Kentucky producers and suppliers.
During the past few years, the Federal Energy Regulatory Commission ("FERC")
restructured interstate natural gas pipeline operations, services and rates. As
a result, Delta contracted for transportation and storage services with
Tennessee, Columbia and Columbia Gulf and Delta now purchases gas supplies from
others. This nation-wide change has resulted in a competitive national market
for natural gas supplies as supply and demand determine the availability and
prices of natural gas.
Enpro produces oil and gas from leases it owns in southeastern Kentucky. Enpro's
natural gas production is purchased by Delta for system supply, and Enpro's
remaining proved, developed natural gas reserves are estimated at approximately
4,500,000 Mcf. Delta purchased a total of approximately 205,000 Mcf from those
properties in 1996. Enpro also produces oil from certain of these leases, but
oil production has not been significant.
Resources and Delgasco purchase gas from various marketers and Kentucky
producers. The gas is resold to industrial customers on Delta's system, to Delta
for system supply and to others. Delta continues to seek additional new gas
supplies from all available sources, including those in the proximity of its
facilities in southeastern Kentucky. Also, Resources and Delgasco continue to
pursue acquisitions of new gas supplies from Kentucky producers and others.
Delta is presently developing an underground natural gas storage field on Canada
Mountain in Bell County, Kentucky, with an estimated eventual working capacity
of 4,000,000 Mcf. It is anticipated that this storage capability will permit
Delta to purchase and store gas during the non-heating season, and then withdraw
and sell the gas during the peak usage winter months. Storage project capital
expenditures are estimated at approximately $6 million during fiscal 1997. Delta
is currently recovering a return on storage field investments through rates.
REGULATORY MATTERS
Delta is subject to the regulatory authority of the Public
Service Commission of Kentucky ("PSC") with respect to various aspects of
Delta's business, including rates and service to retail and transportation
customers. The Company monitors the need to file a general rate case as a way
to adjust its sales prices. Delta currently has no general rate cases filed
with the PSC.
Delta's rates include a Gas Cost Recovery ("GCR") clause, which permits changes
in Delta's gas costs to be reflected in the rates charged to
customers. The GCR requires Delta to make quarterly filings with the PSC, but
such procedure does not require a general rate case. The PSC historically has
allowed Delta to recover storage costs in rates through the GCR mechanism or
general rate cases.
In addition to PSC regulation, Delta may obtain non-exclusive franchises from
the cities and communities in which it operates authorizing it to place its
facilities in the streets and public grounds. However, no utility may obtain a
franchise until it has obtained from the PSC a Certificate of Convenience and
Necessity authorizing it to bid on the franchise. Delta holds franchises in four
of the ten cities in which it maintains branch offices and in six other
communities it serves. In the other cities or communities, either Delta's
franchises have expired, the communities do not have governmental organizations
authorized to grant franchises, or the local governments have not required, or
do not want to offer, a franchise. Delta attempts to acquire or reacquire
franchises whenever feasible.
Without a franchise, a local government could require Delta to cease its
occupation of the streets and public grounds or prohibit Delta from
extending its facilities into any new area of that city or community. To
date, the absence of a franchise has had no adverse effect on Delta's
operations.
Gas Storage on Canada Mountain
Delta's storage field on Canada Mountain is northwest of Middlesboro in Bell
County. Natural gas is injected into underground storage zones through existing
wells. The 12" diameter pipeline to be built will connect to Delta's existing
transmission pipelines and will facilitate injections and withdrawals after the
field is developed.
CAPITAL EXPENDITURES
Capital expenditures during 1996 were approximately $13.4
million and for 1997 are estimated to be approximately $16.4 million. These
include planned expenditures for development of underground natural gas storage,
system extensions, computer system upgrades, and the replacement and improvement
of existing transmission, distribution, gathering and general facilities.
FINANCING
The Company's capital expenditures and operating cash requirements
are met through the use of internally generated funds and a short-term line of
credit. The available line of credit at June 30, 1996, was $20 million of which
approximately $14.7 million had been borrowed. These short-term borrowings are
periodically repaid with long-term debt and equity securities, as was done in
July, 1996, when the net proceeds of approximately $20.4 million from the sale
of $15 million of debentures and 400,000 shares of common stock were used to
repay short-term notes payable and for working capital.
Present plans are to utilize the short-term line of credit to help meet planned
capital expenditures and operating cash requirements. The amounts and
types of future long-term debt and equity financings will depend upon
the Company's capital needs and market conditions.
During 1996 the requirements of the Employee Stock Purchase Plan were met
through the issuance of 5,822 shares of common stock resulting in an increase of
approximately $99,000 in Delta's common shareholders' equity. The Dividend
Reinvestment and Stock Purchase Plan (see Note 3 of the Notes to Consolidated
Financial Statements) resulted in the issuance of 28,024 shares of common stock
providing an increase of approximately $453,000 in Delta's common shareholders'
equity.
COMMON STOCK DIVIDENDS AND PRICES
Delta has paid cash dividends on its common stock each year since 1964.
While it is the intention of the Board of Directors to continue to
declare dividends on a quarterly basis, the frequency and amount of future
dividends will depend upon the Company's earnings, financial requirements
and other relevant factors, including limitations imposed by the
indenture for the Debentures. There were 2,382 record holders of Delta's common
stock as of August 1, 1996.
Delta's common stock is traded in the National Association of Securities
Dealers Automated Quotation ("NASDAQ") National Market System under the symbol
DGAS. The accompanying table reflects the high and low sales prices during
each quarter as reported by NASDAQ and the quarterly dividends declared per
share.
Range of Stock Prices($) Dividends
Quarter High Low Per Share($)
Fiscal 1996
First 17 1/4 15 3/4 .28
Second 18 1/4 15 1/2 .28
Third 18 16 .28
Fourth 16 3/4 15 1/2 .28
Fiscal 1995
First 20 17 1/2 .28
Second 18 15 3/4 .28
Third 18 3/4 16 .28
Fourth 18 1/2 16 3/4 .28
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Liquidity and Capital Resources
The Company's utility operations are subject to regulation by the PSC,
which approves rates that are intended to permit a specified rate of
return on investment. The Company's rate tariffs allow the
cost of gas to be passed through to customers.
Delta's business is temperature-sensitive. Accordingly, the Company's operating
results in any given period reflect, in addition to other factors, the impact of
weather, with colder temperatures resulting in increased sales. The Company
anticipates that this sensitivity to seasonal and weather conditions will
continue to be so reflected in the Company's operating results in future
periods.
Capital expenditures for Delta for fiscal 1997 are expected to be approximately
$16,400,000. Delta generates internally only a portion of the cash necessary for
its capital expenditure requirements and finances the balance of its capital
expenditures on an interim basis through the use of its borrowing capability
under its short-term line of credit. The current available line of credit is
$20,000,000, of which approximately $18,075,000 was borrowed at June 30, 1996.
The line of credit, which is with Bank One, Kentucky, NA, expires during
November, 1996. These short-term borrowings are periodically repaid with the net
proceeds from the sale of long-term debt and equity securities, as was done in
July, 1996 when the net proceeds of approximately $20,400,000 from the sale of
$15,000,000 of debentures and 400,000 shares of common stock was used to repay
short-term debt and for working capital.
Because of the seasonal nature of Delta's sales, the smallest proportion of cash
generated from operations is received during the warmer months when sales
volumes decrease considerably. Additionally, most construction activity takes
place during the non-heating season because of more favorable weather
conditions. Therefore, during the warmer, non-heating months, cash needs for
operations and construction are partially met through short-term borrowings.
The primary cash flows during the last three years are summarized below:
1996 1995 1994
Provided by operating activities $3,094,809 $6,943,183 $6,172,019
Used in investing activities (13,373,416) (8,122,838) (7,374,747)
Provided by financing activities 10,294,461 1,158,887 1,144,396
Net increase (decrease) in cash
and cash equivalents $15,854 $ (20,768) $ (58,332)
Results of Operations
Operating Revenues
The increase in operating revenues for 1996 of approximately $4,732,000
was due primarily to an increase in retail sales volumes of approximately
980,000 Mcf as a result of the colder winter weather in 1996. Billed
degree days were approximately 112% of normal weather for 1996 as
compared with approximately 90% for 1995. In addition, on-system transportation
volumes for 1996 increased approximately 180,000 Mcf, or 8%. These increases
were partially offset by decreases in the cost of gas purchased that were
reflected in rates billed to customers through Delta's gas cost recovery clause
and by a decrease in off-system transportation volumes of approximately 318,000
Mcf, or 22%, due primarily to reduced deliveries from local producers.
The decrease in operating revenues for 1995 of approximately $3,003,000 was due
primarily to a decrease in retail sales volumes of approximately 609,000 Mcf as
a result of the warmer winter weather in 1995 (approximately 90% of normal
weather compared to approximately 106% for 1994) and an approximate $162,000
(545,000 Mcf) decrease in off-system transportation due to reduced deliveries
from some local production. The decrease was partially offset by an increase in
on-system transportation of approximately $278,000 due to a 204,000 Mcf increase
in volumes transported and by an increase in customers served of approximately
1,100, or 3.5%.
Operating Expenses
The increase in purchased gas expense for 1996 of approximately $1,893,000
was due primarily to the increased gas purchases for retail sales resulting
from the colder winter weather during 1996. The increase was partially
offset by decreases in the cost of gas purchased for retail sales.
The decrease in purchased gas expense for 1995 of approximately $1,753,000 was
due primarily to the decreased retail sales volumes resulting from the warmer
winter weather during 1995.
The increase in operation and maintenance expenses during 1996 of approximately
$640,000 was due primarily to increases in payroll and related benefit costs.
The decrease in operation and maintenance expenses during 1995 of approximately
$380,000 was due primarily to decreases in payroll and related benefit costs.
The increases in depreciation expense during 1996 and 1995 of approximately
$327,000 and $206,000, respectively, were due primaraily to additional
depreciable plant.
The increases in taxes other than income taxes during 1996 and 1995 of
approximately $173,000 and $78,000, respectively, were primarily due to
increased property taxes which resulted from increased plant and property
valuations, and to increased payroll taxes, which resulted from increased
wages.
Changes in income taxes during 1996 and 1995 of approximatly $517,000 and
$467,000, respectively, were primarily due to changes in net income.
Interest Charges
The increases in other interest charges during 1996 and 1995 of approximately
$448,000 and $176,000, respectively, were due primarily to increased
average short-term borrowings and increased average interest rates.
Consolidated Statements of Income
For the Years Ended June 30, 1996 1995 1994
Operating Revenues $36,576,055 $31,844,339 $34,846,941
Operating Expenses
Purchased gas $17,389,755 $15,497,156 $17,250,556
Operation and maintenance (Note 1) 8,642,511 8,002,797 8,382,767
Depreciation and depletion (Note 1) 2,510,952 2,183,558 1,977,868
Taxes other than income taxes 1,036,282 863,340 875,477
Income taxes (Note 1) 1,559,500 1,042,400 1,509,600
Total operating expenses $31,139,000 $27,589,251 $29,996,268
Operating Income $ 5,437,056 $ 4,255,088 $ 4,850,673
Other Income and Deductions, Net 32,503 50,582 34,987
Income Before Interest Charges $ 5,469,558 $ 4,305,670 $ 4,885,660
Interest Charges
Interest on long-term debt $1,851,768 $ 1,879,442 $ 1,879,526
Other interest 867,641 419,693 243,729
Amortization of debt expense 88,800 88,800 91,404
Total interest charges $2,808,209 $ 2,387,935 $ 2,214,659
Net Income $2,661,349 $ 1,917,735 $ 2,671,001
Weighted Average Number of
Common Shares Outstanding 1,886,629 1,850,986 1,775,068
Earnings Per Common Share $ 1.41 $ 1.04 $ 1.50
Dividends Declared Per Common Share $ 1.12 $ 1.12 $ 1.11
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1996 1995 1994
Cash Flows From Operating Activities:
Net income $ 2,661,349 $ 1,917,735 $2,671,001
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation, depletion and
amortization 2,663,475 2,272,358 2,069,013
Deferred income taxes and
investment tax credits 1,762,500 (77,000) 874,800
Other - net 484,474 602,180 446,969
(Increase) decrease in assets:
Accounts receivable (860,255) (118,237) 802,197
Materials and supplies (124,697) 173,319 (229,275)
Prepayments 53,702 (105,903) 25,701
Other assets 31,823 (209,225) (780)
Increase (decrease) in liabilities:
Accounts payable 871,207 (178,609) 513,265
Refunds due customers (456,283) 83,572 358,270
Accrued taxes (270,394) (72,210) (34,543)
Other current liabilities 56,951 69,742 38,675
(Deferred) advance recovery
of gas cost (3,788,143) 2,583,128 (1,372,030)
Advances for construction and
other 9,100 2,333 8,756
Net cash provided by
operating activities $3,094,809 $ 6,943,183 $6,172,019
Cash Flows From Investing Activities:
Capital expenditures $(13,373,416) $(8,122,838) $(7,374,747)
Net cash used in investing
activities $(13,373,416) $(8,122,838) $(7,374,747)
Cash Flows From Financing
Activities: (Note 5)
Dividends on common stock $ (2,113,414) $(2,073,374) $(1,972,368)
Issuance of common stock, net 568,875 502,361 3,965,113
Issuance of debentures, net _ _ 14,246,937
Repayment of long-term debt (561,000) (240,100) (11,330,286)
Issuance of notes payable 25,955,000 19,495,000 20,180,000
Repayment of notes payable (13,555,000) (16,525,000) (23,945,000)
Net cash provided by
financing activities $ 10,294,461 $ 1,158,887 $ 1,144,396
Net Increase (Decrease) in Cash
and Cash Equivalents $ 15,854 $ (20,768) $ (58,332)
Cash and Cash Equivalents,
Beginning of Year 135,779 156,547 214,879
Cash and Cash Equivalents,
End of Year $ 151,633 $ 135,779 $ 156,547
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 2,491,091 $ 2,253,472 $ 2,141,705
Income taxes $ 193,560 $ 1,264,942 $ 715,000
Consolidated Balance Sheets
As of June 30, 1996 1995
Assets
Gas Utility Plant, at cost $98,795,623 $84,944,969
Less - Accumulated provision
for depreciation (26,749,774) (24,588,203)
Net gas plant $72,045,849 $60,356,766
Current Assets
Cash and cash equivalents $ 151,633 $ 135,779
Accounts receivable, less
accumulated provisions for
doubtful accounts of $105,756
and $81,608 in 1996 and 1995,
respectively 2,096,454 1,236,199
Gas in storage, at average cost 427,164 490,710
Deferred gas costs (Note 1) 2,676,357 _
Materials and supplies, at
first-in, first-out cost 652,139 527,442
Prepayments 369,544 423,246
Total current assets $ 6,373,291 $ 2,813,376
Other Assets
Cash surrender value of
officers' life insurance
(face amount of $1,036,009
and $1,044,355 in 1996 and
1995, respectively) $ 304,339 $ 293,116
Note receivable from officer 126,000 130,000
Unamortized debt expense and
other (Note 5) 2,291,158 2,355,458
Total other assets $2,721,497 $ 2,778,574
Total assets $81,140,637 $65,948,716
Liabilities and Shareholders' Equity
Capitalization (See Consolidated
Statements of Capitalization)
Common shareholders' equity $23,628,323 $22,511,513
Long-term debt (Notes 5 and 6) 24,488,916 23,702,200
Notes payable refinanced
subsequent to yearend (Note 4) 18,075,000 _
Total capitalization $66,192,239 $46,213,713
Current Liabilities
Notes payable (Note 4) $ _ $ 5,675,000
Current portion of long-term
debt (Notes 5 and 6) 1,084,800 1,057,700
Accounts payable 2,826,438 1,955,231
Accrued taxes 93,554 363,948
Refunds due customers 23,354 479,637
Advance recovery of gas cost _ 1,111,786
Customers' deposits 304,246 331,708
Accrued interest on debt 637,596 473,001
Accrued vacation 485,847 454,728
Other accrued liabilities 238,571 349,872
Total current liabilities $ 5,694,406 $12,252,611
Deferred Credits and Other
Deferred income taxes $ 7,318,500 $ 5,510,400
Investment tax credits 779,400 850,400
Regulatory liability (Note 1) 938,300 912,900
Advances for construction and other 217,792 208,692
Total deferred credits and other $ 9,253,992 $ 7,482,392
Commitments and Contingencies (Note 7)
Total liabilities and share-
holders' equity $81,140,637 $65,948,716
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended June 30, 1996 1995 1994
Common Shares
Balance, beginning of year $1,868,734 $1,839,340 $ 1,648,485
$1.00 par value of 34,846,
29,394 and 190,855 shares issued
in 1996, 1995 and 1994, respectively
Public issuance of common shares _ _ 170,000
Dividend reinvestment and stock
purchase plan 28,024 25,802 15,355
Employee stock purchase plan and
other 6,822 3,592 5,500
Balance, end of year $1,903,580 $1,868,734 $ 1,839,340
Premium on Common Shares
Balance, beginning of year $20,022,643 $19,532,909 $15,562,427
Premium on issuance of common shares-
Public issuance of common shares _ _ 3,570,000
Dividend reinvestment and stock
purchase plan 440,621 425,357 293,782
Employee stock purchase plan and
other 108,868 64,377 106,700
Balance, end of year $20,572,132 $20,022,643 $19,532,909
Capital Stock Expense
Balance, beginning of year $(1,604,792) $(1,588,025) $(1,391,801)
Issuance of common shares (15,460) (16,767) (196,224)
Balance, end of year $(1,620,252) $(1,604,792) $(1,588,025)
Retained Earnings
Balance, beginning of year $ 2,224,928 $ 2,380,567 $ 1,681,934
Net income 2,661,349 1,917,735 2,671,001
Cash dividends declared on
common shares (See
Consolidated Statements
of Income for rates) (2,113,414) (2,073,374) (1,972,368)
Balance, end of year $2,772,863 $ 2,224,928 $ 2,380,567
Consolidated Statements of Capitalization
As of June 30, 1996 1995
Common Shareholders' Equity
Common shares, par value $1.00
per share (Notes 2 and 3)
Authorized - 6,000,000 shares
Issued and outstanding - 1,903,580
and 1,868,734 shares in
1996 and 1995, respectively $ 1,903,580 $ 1,868,734
Premium on common shares 20,572,132 20,022,643
Capital stock expense (1,620,252) (1,604,792)
Retained earnings (Note 5) 2,772,863 2,224,928
Total common shareholders' equity $23,628,323 $22,511,513
Long-Term Debt (Notes 5 and 6)
Debentures, 6 5/8%, due 2023 $14,000,000 $14,561,000
Debentures, 9%, due 2011 10,000,000 10,000,000
Promissory note from acquisition
of underground storage,
non-interest bearing, due
through 2001 (less $398,419
unamortized discount) 1,401,581 _
Other 172,135 198,900
Total long-term debt $25,573,716 $24,759,900
Less - Amounts due within
one year, included in
current liabilities (1,084,800) (1,057,700)
Net long-term debt $24,488,916 $23,702,200
Notes payable refinanced subsequent
to yearend (Note 4) $18,075,000 $ _
Total capitalization $66,192,239 $46,213,713
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies:
(a) Principles of Consolidation Delta Natural Gas Company, Inc. ("Delta" or
"the Company") has four wholly-owned subsidiaries. Delta Resources, Inc.
("Resources") buys gas and resells it to industrial customers on Delta's system
and to Delta for system supply. Delgasco, Inc. buys gas and resells it to
Resources and to customers not on Delta's system. Deltran, Inc. operates
underground natural gas storage facilities that it leases from Delta. Enpro,
Inc. owns and operates production properties. All subsidiaries of Delta are
included in the consolidated financial statements. Intercompany balances and
transactions have been eliminated.
(b) Cash Equivalents For the purposes of the Consolidated Statements of Cash
Flows, all temporary cash investments with a maturity of three months or less at
the date of purchase are considered cash equivalents.
(c) Depreciation The Company determines its provision for depreciation using
the straight-line method and by the application of rates to various classes of
utility plant. The rates are based upon the estimated service lives of the
properties and were equivalent to composite rates of 2.9%, 2.8%, and 2.7% of
average depreciable plant for 1996, 1995 and 1994, respectively.
(d) Maintenance All expenditures for maintenance and repairs of units of
property are charged to the appropriate maintenance expense accounts. A
betterment or replacement of a unit of property is accounted for as an addition
and retirement of utility plant. At the time of such a retirement, the
accumulated provision for depreciation is charged with the original cost of the
property retired and also for the net cost of removal.
(e) Gas Cost Recovery Delta has a Gas Cost Recovery ("GCR") clause which
provides for a dollar-tracker that matches revenues and gas costs and provides
eventual dollar-for-dollar recovery of all gas costs incurred. The Company
expenses gas costs based on the amount of gas costs recovered through revenue.
Any differences between actual gas costs and those estimated costs billed are
deferred and reflected in the computation of future billings to customers using
the GCR mechanism.
(f) Revenue Recognition The Company records revenues as billed to its
customers on a monthly meter reading cycle. At the end of each month, gas
service which has been rendered from the latest date of each cycle meter
reading to the month-end is unbilled.
(g) Revenues and Customer Receivables The Company supplies natural gas to
approximately 34,000 customers in central and southeastern Kentucky. Revenues
and customer receivables arise primarily from sales of natural gas to customers
and from transportation services for others. Provisions for doubtful accounts
are recorded to reflect the expected net realizable value of accounts
receivable.
(h) Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(I) Long-lived assets In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS No. 121"), effective for fiscal years beginning after December 15, 1995.
The Company plans to adopt the provisions of SFAS No. 121 in the first quarter
of 1997. The new standard requires that long-lived assets and certain identified
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. In performing such impairment reviews, companies will be required
to estimate the sum of future cash flows from an asset and compare such amount
to the asset's carrying amount. Any excess of carrying amount over expected cash
flows will result in a possible write-down of an asset to its fair value. Based
on current operating conditions, legal requirements and regulatory environment,
the Company does not expect adoption of SFAS No. 121 to have a material adverse
impact on its financial position or results of operations.
(J) Income Taxes The Company provides for income taxes on temporary
differences resulting from the use of alternative methods of income and expense
recognition for financial and tax reporting purposes. The differences result
primarily from the use of accelerated tax depreciation methods for certain
properties versus the straight-line depreciation method for financial purposes,
differences in recognition of purchased gas cost recoveries and certain other
accruals which are not currently deductible for income tax purposes. Investment
tax credits were deferred for certain periods prior to fiscal 1987 and are being
amortized to income over the estimated useful lives of the applicable
properties. The Company utilizes the liability method for accounting for income
taxes, which requires that deffered income tax assets and liabilities are
computed using tax rates that will be in effect when the book and tax temporary
differences reverse. The change in tax rates applied to accumulated deferred
income taxes may not be immediately recognized in operating results because of
ratemaking treatment. A regulatory liability has been established to
recognize the future revenue requirement impact from these deferred taxes.
The temporary differences which gave rise to the net accumulated deferred
income tax liability for the periods are as follows:
1996 1995
Deferred Tax Liabilities
Accelerated depreciation $8,091,500 $7,186,700
Deferred gas cost 1,055,700 _
Debt expense 399,200 413,500
Other 252,900 178,900
Total $9,799,300 $7,779,100
Deferred Tax Assets
Unamortized investment tax credits $307,400 $ 335,400
Regulatory liabilities 370,000 360,100
Alternative minimum tax credits 1,305,600 724,300
Deferred gas cost _ 438,500
Other 497,800 410,400
Total $2,480,800 $2,268,700
Net accumulated deferred
income tax liability $7,318,500 $5,510,400
The components of the income tax provision are comprised of the following for
the years ended June 30:
1996 1995 1994
Components of income tax expense:
Payable currently:
Federal $ 52,100 $ 453,900 $ 306,300
State (255,100) 194,500 100,800
Total $(203,000) $ 648,400 $ 407,100
Deferred 1,762,500 394,000 1,102,500
Income tax expense $1,559,500 $1,042,400 $1,509,600
Reconciliation of the statutory federal income tax rate to the effective income
tax rate is shown in the table below:
1996 1995 1994
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes net of federal benefit 5.2 5.2 5.2
Amortization of investment tax credit (1.7) (2.4) (1.8)
Other differences - net _ (.9) (.9)
Effective income tax rate 37.5% 35.9% 36.5%
(2) Employee Benefit Plans:
(a) Defined Benefit Retirement Plan Delta has a trusteed, noncontributory,
defined benefit pension plan covering all eligible employees. Retirement
income is based on the number of years of service and annual rates of
compensation. The Company makes annual contributions equal to the amounts
necessary to fund the plan adequately. The funded status of the pension plan at
March 31, the plan year end, and the amounts recognized in the Company's
consolidated balance sheets at June 30 were as follows:
1996 1995 1994
Plan assets at fair value $6,058,458 $5,358,108 $ 5,251,296
Actuarial present value of
benefit obligation:
Vested benefits $2,789,736 $3,605,363 $ 4,114,517
Non-vested benefit 9,346 21,742 30,562
Accumulated benefit obligation $2,799,082 $3,627,105 $ 4,145,079
Additional amounts related
to projected salary increases 2,811,907 1,638,014 1,734,413
Total projected benefit obligation $5,610,989 $5,265,119 $ 5,879,492
Plan assets in excess of
(less than) projected benefit
obligation $ 447,469 $ 92,989 $ (628,196)
Unrecognized net assets at date
of initial application being
amortized over 15 years (254,365) (296,759) (339,153)
Unrecognized net (gain) loss (13,481) 286,557 950,735
Accrued pension asset (liability) $179,623 $ 82,787 $ (16,614)
1996 1995 1994
Service cost for benefits earned
during the year $382,751 $432,546 $455,097
Interest cost on projected
benefit obligation 356,897 382,167 357,372
Actual return on plan assets (886,211) (623,972) (45,100)
Net amortization and deferral 444,044 185,660 (353,530)
Net periodic pension cost $297,481 $376,401 $413,839
Delta Natural Gas Company, Inc. and Subsidiary Companies
The weighted average discount rates and the assumed rates of increase in future
compensation levels used in determining the actuarial present values of the
projected benefit obligation at June 30, 1996, 1995 and 1994 were 7.0%, 7.0%,
and 6.5%, respectively (discount rates), and 4% (rates of
increase). The expected long-term rates of return on plan assets were 8%. SFAS
No. 106, "Employers' Accounting for Post-Retirement Benefits", and
SFAS No. 112, "Employers' Accounting for Post-Employment Benefits", do not
affect the Company, as Delta does not provide benefits for post-retirement
or post-employment other than the pension plan for retired employees.
(b) Employee Savings Plan The Company has an Employee Savings Plan ("Savings
Plan") under which eligible employees may elect to contribute any whole
percentage between 2% and 15% of their annual compensation. The Company
will match 50% of the employee's contribution up to a maximum Company
contribution of 2% of the employee's annual compensation through June 30,
1996. The maximum Company contribution was increased to 2.5% effective
July 1, 1996. For 1996, 1995 and 1994, Delta's Savings Plan expense was
approximately $111,000, $112,000 and $107,000, respectively.
(c) Employee Stock Purchase Plan The Company has an Employee Stock
Purchase Plan ("Stock Plan") under which qualified permanent employees
are eligible to participate. Under the terms of the Stock Plan, such
employees can contribute on a monthly basis 1% of their annual salary
level (as of July 1 of each year) to be used to purchase Delta's
common stock. The Company issues Delta common stock, based upon the
fiscal year contributions, using an average of the last sale price
of Delta's stock as quoted in NASDAQ's National Market System at the close of
business for the last five business days in June and matches those shares so
purchased. Therefore, stock equivalent to approximately $100,900 was issued in
July, 1996. The continuation and terms of the Stock Plan are subject to
approval by Delta's Board of Directors on an annual basis. Delta's Board
has continued the Stock Plan through June 30, 1997.
(3) Dividend Reinvestment and Stock Purchase Plan:
The Company's Dividend Reinvestment and Stock Purchase Plan (Reinvestment Plan)
provides that shareholders of record can reinvest dividends and also make
limited additional investments of up to $50,000 per year in shares of common
stock of the Company. Shares purchased under the Reinvestment Plan are
authorized but unissued shares of common stock of the Company, and 28,024 shares
were issued in 1996. Delta reserved 200,000 shares under the Reinvestment Plan
in December, 1994, and, as of June 30, 1995 there were 154,791 shares still
available for issuance.
(4) Notes Payable and Line of Credit:
Substantially all of the cash balances of Delta are maintained to compensate the
respective banks for banking services and to obtain lines of credit; however, no
specific amounts have been designated as compensating balances, and Delta has
the right of withdrawal of such funds. At June 30, 1996, the available line of
credit was $20,000,000, ($15,000,000 at June 30, 1995) of which $18,075,000 and
$5,675,000 had been borrowed at an interest rate of 6.285%, and 6.935% for 1996
and 1995, respectively. The maximum amount borrowed during 1996 and 1995 was
$18,075,000 and $8,430,000, respectively. The interest on this line is, at the
option of Delta, either at the daily prime rate or is based upon certificate of
deposit rates. The current line of credit expires on November 15, 1996.
These short-term borrowings were repaid in July, 1996, with net proceeds of
approximately $20,400,000 from the sale of $15 million of debentures and 400,000
shares of common stock.
(5) Long-Term Debt:
On July 19, 1996, Delta issued $15,000,000 of 8.3% Debentures that mature in
July, 2026. Redemption on behalf of deceased holders within 60 days of notice
of up to $25,000 per holder will be made annually, subject to an annual
aggregate limitation of $500,000. The 8.3% Debentures can be redeemed by the
Company beginning in August, 2001 at a 5% premium, such premium declining
ratably until it ceases in August, 2006. Restrictions under the indenture
agreement covering the 8.3% Debentures include, among other things, a
restriction whereby dividend payments cannot be made unless consolidated
shareholders' equity of the company exceeds $18,000,000. No retained earnings
are restricted under the provisions of the indenture.
On October 18, 1993, Delta issued $15,000,000 of 6 5/8% Debentures that
mature in October, 2023. Each holder may require redemption of up to $25,000
annually, subject to an annual aggregate limitation of $500,000. Such
redemption will also be made on behalf of deceased holders within 60 days of
notice, subject to the annual aggregate $500,000 limitation. The 6 5/8%
Debentures can be redeemed by the Company beginning in October, 1998 at a 5%
premium, such premium declining ratably until it ceases in October, 2003.
On May 1, 1991, Delta issued $10,000,000 of 9% Debentures that mature in
April, 2011. Each holder may require redemption of up to $25,000 of the 9%
Debentures annually, subject to an annual aggregate limitation of $500,000. Such
redemption will also be made on behalf of deceased holders within 60 days of
notice, subject to the annual aggregate $500,000 limitation. The 9% Debentures
can be redeemed by the Company beginning in April, 1996 at a 5% premium, such
premium declining ratably until it ceases in April, 2001. The Company may not
assume any additional mortgage indebtedness in excess of $1 million without
effectively securing the 9% Debentures equally to such additional indebtedness.
Debt issuance expenses are deferred and amortized over the terms of the
related debt. Call premium in 1994 of approximately $475,000 was deferred and
is being amortized over the term of the related debt consistent with regulatory
treatment.
A non-interest bearing promissory note was issued by Delta on November 10,
1995 in the amount of $1,800,000, payable in installments of 400,000 in 1998,
$700,000 in 2000 and $700,000 in 2002. The note was issued when Delta purchased
leases and depleted gas wells to develop them for the underground
storage of natural gas. Delta secured the promissory note by escrow of 102,858
shares of Delta's common stock. These shares will be issued to the holder of
the promissory note only in the event of default in payment by Delta.
This underground natural gas storage field located on Canada Mountain in Bell
County, Kentucky will have an estimated working capacity of 4,000,000 Mcf. It is
anticipated that this storage capability will permit Delta to purchase and store
gas during the non-heating season, and then withdraw and sell the gas during the
peak usage winter months. Storage project capital expenditures are estimated at
approximately $6 million during fiscal 1997. Delta is currently recovering on
storage field investments through rates.
Other long-term debt requires principal payments of approximately $85,000
in 1997 and $67,000 in 1998.
(6) Fair Values of Financial Instruments:
The fair value of the Company's debentures is estimated using discounted
cash flow analysis, based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements. The fair value of the Company's
debentures at June 30, 1996 is estimated to be $22,073,000. The carrying amount
in the accompanying consolidated financial statements is $24,000,000.
The carrying amounts of the Company's other financial instruments including
cash equivalents, accounts receivable, notes receivable, accounts payable, and
the non-interest bearing promissory note approximate their fair value.
(7) Commitments and Contingencies:
The Company has entered into individual employment agreements with its five
officers. The agreements expire or may be terminated at various times. The
agreements provide for continuing monthly payments or lump sum payments and
continuation of certain benefits over varying periods in the event employment is
altered or terminated following certain changes in ownership of the Company.
(8) Rates:
Reference is made to "Regulatory Matters" herein with respect to rate
matters.
(9) Quarterly Financial Data (Unaudited):
The quarterly data reflects, in the opinion of management, all normal
recurring adjustments necessary to present fairly the results
Earnings
Operating Net (Loss) per
Operating Income Income Common
Quarter Ended Revenues (Loss) (Loss) Share (a)
Fiscal 1996
September 30 $ 3,774,849 $ (147,522) $ (760,662) $ (.41)
December 31 8,406,787 1,331,803 649,089 .34
March 31 16,023,581 3,421,608 2,725,444 1.44
June 30 8,370,838 831,166 47,478 .03
Fiscal 1995
September 30 $ 3,634,262 $ (45,141) $ (633,058) $ (.34)
December 31 7,131,698 822,241 228,119 .12
March 31 14,903,281 2,842,418 2,255,994 1.22
June 30 6,175,098 635,570 66,680 .04
Report of Independent Public Accountants
To the Board of Directors and Shareholders of Delta Natural Gas Company, Inc.:
We have audited the accompanying consolidated balance sheets and statements of
capitalization of Delta Natural Gas Company, Inc. (a Kentucky corporation) and
subsidiary companies as of June 30, 1996 and 1995, and the related consolidated
statements of income, cash flows and changes in shareholders' equity for each of
the three years in the period ended June 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Delta Natural Gas Company, Inc.
and subsidiary companies as of June 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1996, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Louisville, Kentucky
August 16, 1996
Management Report
Management is responsible for the preparation, presentation and integrity of the
financial statements and other financial information in this report. In
preparing financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that affect
the reported amount of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
The Company maintains a system of accounting and internal controls which
management believes provides reasonable assurance that the accounting records
are reliable for purposes of preparing financial statements and that the assets
are properly accounted for and protected.
The Board of Directors pursues its oversight role for these financial statements
through its Audit Committee which consists of three outside directors. The Audit
Committee meets periodically with management to review the work and monitor the
discharge of their responsibilities. The Audit Committee also meets periodically
with the Company's internal auditor as well as Arthur Andersen LLP, the
independent auditors, who have full and free access to the Audit Committee, with
or without management present, to discuss internal accounting control, auditing
and financial reporting matters.
Consolidated Statistics
For the Years Ended June 30, 1996 1995 1994 1993 1992
Retail Customers Served,
End of Period
Residential 29,840 29,029 27,939 27,293 26,488
Commercial 4,453 4,287 4,242 4,093 4,035
Industrial 75 72 76 75 66
Total 34,368 33,388 32,257 31,461 30,589
Operating Revenues ($000)
Residential sales 16,540 14,772 16,597 14,578 13,945
Commercial sales 9,788 8,673 9,663 8,269 7,651
Industrial sales 1,483 1,248 1,671 1,383 1,188
On-system transportation 2,913 2,588 2,310 2,451 2,348
Off-system transportation 418 461 623 836 1,342
Subsidiary sales 5,297 3,959 3,755 3,532 2,580
Other 137 143 228 172 147
Total 36,576 31,844 34,847 31,221 29,201
System Throughput (Million Cu. Ft.)
Residential sales 2,741 2,173 2,511 2,341 2,202
Commercial sales 1,673 1,328 1,506 1,368 1,235
Industrial sales 291 223 316 281 229
Total retail sales 4,705 3,724 4,333 3,990 3,666
On-system transportation 2,570 2,390 2,186 2,248 2,061
Off-system transportation 1,134 1,452 1,997 2,668 4,580
Total 8,409 7,566 8,516 8,906 10,307
Average Annual Consumption Per
End of Period
Residential Customer
(Thousand Cu. Ft.) 92 75 90 86 83
Lexington, Kentucky Degree Days
Actual 5,266 4,217 4,999 4,676 4,370
Percent of 30 year average
(4,712) 111.8 89.5 106.1 99.2 92.7
Average Revenue Per Mcf
Sold at Retail ($) 5.91 6.63 6.44 6.07 6.21
Average Gas Cost Per Mcf
Sold at Retail ($) 2.81 3.37 3.34 2.90 3.01
Directors & Officers
Board of Directors
Donald R. Crowe (a)
Senior Analyst
Kentucky Department of Insurance
Lexington, Kentucky
Jane Hylton Green (c)
Retired Vice President-
Human Resources and
Corporate Secretary
Billy Joe Hall (a)(b)
Investment Broker
LPL Financial Services
Mount Sterling, Kentucky
Glenn R. Jennings (d)
President and Chief Executive Officer
Harrison D. Peet (d)
Chairman of the Board
Retired President
and Chief Executive Officer
Virgil E. Scott (b)(c)
Retired Vice President-
Administration
Henry C. Thompson (b)(c)
President
Triple Land Co., Inc.
(land development and real estate)
Retired President
Henry Thompson Construction Co., Inc. both of Nicholasville, Kentucky
Arthur E. Walker, Jr. (a)(d)
President
The Walker Company
(general and highway construction)
Mount Sterling, Kentucky
Directors Emeriti
Roger A. Byron
John D. Harrison
Officers
Johnny L. Caudill
Vice President-
Administration and Customer Service
John F. Hall
Vice President-
Finance, Secretary and Treasurer
Robert C. Hazelrigg
Vice President-
Public and Consumer Affairs
Alan L. Heath
Vice President-
Operations and Engineering
Glenn R. Jennings
President and Chief Executive Officer
(a) Member of Nominating Committee
(b) Member of Compensation Committee
(c) Member of Audit Committee
(d) Member of Executive Committee
Corporate Information
Shareholders' Inquiries
Communications regarding stock transfer requirements, lost certificates,
changes of address or other items may be directed to the Transfer Agent and
Registrar. Communications regarding dividends, the above items or any other
shareholder inquiries may be directed to Investor Relations, Delta Natural Gas
Company, Inc., 3617 Lexington Road, Winchester, Kentucky 40391.
Independent Public Accountants
Arthur Andersen LLP
2300 Meidinger Tower
The Louisville Galleria
Louisville, Kentucky 40202
Disbursement Agent, Transfer Agent and Registrar for Common Shares
FifthThird Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45202
Trustee and Interest Paying Agents for Debentures
6 5/8% due 2023; 9% due 2011
Corporate Trust Bank One
235 W. Schrock Rd.
Westerville, Ohio 43081
8.3% due 2026
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45202
Dividend Reinvestment and Stock Purchase Plan Administrator and Agent
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45202
1996 Annual Report
This annual report and the financial statements contained herein are submitted
to the shareholders of the Company for their general information and not in
connection with any sale or offer to sell, or solicitation of any offer to buy,
any securities.
1996 Annual Meeting
The annual meeting of shareholders of the Company will be held at the General
Office of the Company in Winchester, Kentucky on November 21, 1996, at
10:00 a.m. Proxies for the annual meeting will be requested from
shareholders when notice of meeting, proxy statement and form of proxy
are mailed on or about October 13, 1996.
SEC Form 10-K
A copy of Delta's most recent annual report on SEC Form 10-K is available,
without charge, upon written request to John F. Hall, Vice President_ Finance,
Secretary and Treasurer, Delta Natural Gas Company, Inc., 3617 Lexington Road,
Winchester, Kentucky 40391.
Dividend Reinvestment and Stock Purchase Plan
This plan provides shareholders of record with a convenient way to acquire
additional shares of the Company's common stock without paying brokerage fees.
Participants may reinvest their dividends and make optional cash payments to
acquire additional shares. Fifth Third Bank administers the Plan and is the
agent for the participants. For more information, inquiries may be directed to
Investor Relations, Delta Natural Gas Company, Inc., 3617 Lexington Road,
Winchester, Kentucky 40391.
