SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-8788
DELTA NATURAL GAS COMPANY, INC.
(Exact Name of Registrant as Specified in its Charter)
Incorporated in the State 61-0458329
of Kentucky (I.R.S. Employer
Identification No.)
3617 LEXINGTON ROAD, WINCHESTER, KENTUCKY 40391
(Address of Principal Executive Offices) (Zip Code)
606-744-6171
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90
days.
YES X . NO .
Common Shares, Par Value $1.00 Per Share
2,334,531 Shares Outstanding as of March 31, 1997.
<TABLE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended Twelve Months
Ended March 31 March 31 March 31
<CAPTION>
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES $18,651,406 $ 16,023,581 $32,749,137 $ 28,205,217 $ 41,119,975 $ 34,380,315
OPERATING EXPENSES
Purchased gas $11,433,864 $ 7,961,672 $18,995,029 $ 13,318,723 $ 23,066,061 $ 16,071,147
Operation and maintenance 1,960,066 2,148,759 5,772,822 6,163,554 8,251,779 8,212,164
Depreciation and depletion 750,982 610,832 2,179,212 1,837,354 2,852,810 2,382,070
Taxes other than income 270,250 280,710 767,868 753,497 1,050,653 970,275
taxes
Income taxes 1,201,400 1,600,000 872,700 1,526,200 906,000 1,503,200
Total operating expenses $15,616,562 $ 12,601,973 $28,587,631 $ 23,599,32 $ 36,127,303 $ 29,138,856
8
OPERATING INCOME $ 3,034,844 $ 3,421,608 $ 4,161,506 $ 4,605,889 $ 4,992,672 $ 5,241,459
OTHER INCOME AND DEDUCTIONS, 4,979 1,031 27,991 15,519 44,975 28,243
NET
INCOME BEFORE INTEREST CHARGES $ 3,039,823 $ 3,422,639 $4,189,497 $ 4,621,408 $ 5,037,647 $ 5,269,702
INTEREST CHARGES 989,505 697,195 2,675,322 2,007,537 3,475,994 2,589,151
NET INCOME $ 2,050,318 $ 2,725,444 $1,514,175 $ 2,613,871 $ 1,561,653 $ 2,680,551
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,329,286 1,890,068 2,280,928 1,882,708 2,192,288 1,877,207
NET INCOME PER COMMON SHARE $ .88 $ 1.44 $ .66 $ 1.39 $ .71 $1.43
DIVIDENDS DECLARED PER COMMON $ .285 $ .28 $.855 $ .84 $ 1.135 $ 1.12
SHARE
</TABLE>
<TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
ASSETS March 31, 1997 June 30, 1996 March 31, 1996
<S> <C> <C> <C>
UTILITY PLANT $ 110,214,371 $ 98,795,623 $ 95,017,635
Less-Accumulated provision
for depreciation (28,694,189) (26,749,774) (26,086,634)
Net utility plant $ 81,520,182 $ 72,045,849 $ 68,931,001
CURRENT ASSETS
Cash and cash equivalents $ 993,517 $ 151,633 $ 201,301
Accounts receivable - net 3,234,489 2,096,454 3,532,467
Deferred gas cost 4,120,929 2,676,357 3,506,175
Gas in storage 326,088 427,164 349,909
Materials and supplies 813,760 652,139 526,717
Prepayments 852,375 369,544 525,405
Total current assets $ 10,341,158 $ 6,373,291 $ 8,641,974
OTHER ASSETS
Cash surrender value of
officers' life insurance $ 312,913 $ 304,339 $ 295,137
Note receivable from officer 108,000 126,000 112,000
Unamortized debt expense and 2,892,877 2,291,158 2,288,857
other
Total other assets $ 3,313,790 $ 2,721,497 $ 2,695,994
Total assets $ 95,175,130 $ 81,140,637 $ 80,268,969
LIABILITIES AND SHAREHOLDERS'
EQUITY
CAPITALIZATION
Common shareholders' equity $ 29,800,389 $ 23,628,323 $ 23,986,407
Long-term debt 38,206,645 24,488,916 24,976,650
Notes refinanced subsequent to
year-end - 18,075,000 -
Total capitalization $ 68,007,034 $ 66,192,239 $ 48,963,057
CURRENT LIABILITIES
Notes payable $ 9,010,000 $ - $ 15,460,000
Current portion of long-term 1,986,300 1,084,800 1,063,200
debt
Accounts payable 2,800,265 2,826,438 3,494,601
Accrued taxes 858,870 93,554 1,793,307
Refunds due customers 474,102 23,354 101,967
Customers' deposits 401,247 304,246 374,842
Accrued interest on debt 1,047,839 637,596 585,926
Accrued vacation 485,847 485,847 445,335
Other current and accrued
liabilities 424,835 238,571 113,017
Total current liabilities $ 17,489,305 $ 5,694,406 $ 23,432,195
DEFERRED CREDITS AND OTHER
Deferred income taxes $ 7,801,800 $ 7,318,500 $ 5,952,100
Investment tax credits 743,900 779,400 814,900
Regulatory liability 915,200 938,300 889,800
Advances for construction and 217,891 217,792 216,917
other
Total deferred credits and
other $ 9,678,791 $ 9,253,992 $ 7,873,717
Total liabilities and
shareholders' equity $ 95,175,130 $ 81,140,637 $ 80,268,969
</TABLE>
<TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended Twelve Months
Ended March 31 March 31 31
<CAPTION>
1997 1996 1997 1996
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C>
Net income $ 1,514,175 $ 2,613,871 $ 1,561,653 $ 2,680,551
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation, depletion
and amortization 2,341,348 1,903,955 3,099,994 2,470,872
Deferred income taxes and
investment tax credits 424,700 383,100 1,804,100 (82,200)
Other, net 496,617 355,575 626,270 527,730
Increase in other assets (3,140,576) (6,858,883) (944,763) (4,854,340)
Increase (decrease) in other
liabilities 1,883,498 2,509,095 (415,016) 1,734,006
Net cash provided by
operating activities $ 3,519,762 $ 906,713 $ 5,732,238 $ 2,476,619
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures $ (12,149,508) $ (8,967,164) $ (16,026,733) $ (11,327,477)
Net cash used in
investing activities $ (12,149,508) $ (8,967,164) $ (16,026,733) $ (11,327,477)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Dividends on common stock $ (1,985,174) $ (1,581,873) $ (2,516,715) $ (2,103,594)
Issuance of common stock 6,643,065 442,896 6,769,044 671,664
Issuance of long-term debt 14,334,834 - 13,848,192 -
Repayment of long-term debt (456,095) (520,050) (563,810) (351,150)
Issuance of short-term debt 22,835,000 19,060,000 29,730,000 23,905,000
Repayment of short-term debt (31,900,000) (9,275,000) (36,180,000) (13,340,000)
Net cash provided by
financing activities $ 9,471,630 $ 8,125,973 $ 11,086,711 $ 8,781,920
NET INCREASE (DECREASE)IN
CASH AND CASH EQUIVALENTS $ 841,884 $ 65,522 $ 792,216 $ (68,938)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 151,633 135,779 201,301 270,239
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 993,517 $ 201,301 $ 993,517 $ 201,301
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period
for:
Interest $ 2,177,613 $ 1,828,012 $ 2,840,692 $ 2,393,397
Income taxes (net of refunds) $ (220,813) $ (31,310) $ 65,687 $ 1,000,586
</TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) 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 or
other large use 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 an underground natural
gas storage field that it leases from Delta. Enpro,
Inc. owns and operates production properties. All
subsidiaries are included in the consolidated financial
statements. Intercompany balances and transactions have
been eliminated.
(2) The accompanying information reflects, in the opinion
of management, all normal recurring adjustments necessary
to present fairly the results for the interim
periods. Reference should be made to Delta's Form 10-K for
the year ending June 30, 1996 for additional footnote
disclosures, including a summary of significant accounting
policies.
(3) On July 19, 1996, Delta completed the issuance and sale
of $15,000,000 of 8.3% Debentures that mature in July,
2026 and 400,000 shares of common stock. The net
proceeds of approximately $20.4 million were used to
repay short-term notes payable and for working capital.
(4) On March 14, 1997, Delta filed a request for increased
rates with the Kentucky Public Service Commission
(PSC). This general rate case (Case No. 97-066) requested
an annual revenue increase of approximately $2,962,000, an
increase of 7.7%. The test year for the case was the
twelve months ended December 31, 1996. The increased
rates were requested to become effective on April 13,
1997. On April 3, 1997, the PSC issued an Order in
the above case suspending the implementation of the
proposed rates until September 12, 1997 so that the
PSC could investigate and determine the reasonableness
of the proposed rates. A hearing has been scheduled for
later in the year for the cross-examination of witnesses.
Although Delta is of the opinion that its request is
reasonable, the Company is unable to predict the outcome of
the proceeding.
(5) Reference is made to Part II - Item 1 relative to the
status of legal proceedings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures for Delta for fiscal 1997 are expected
to be approximately $16.4 million, of which approximately $12.1
million was expended during the nine months ended March 31, 1997.
Planned capital expenditures for fiscal 1997 include
approximately $6 million for continued development of an
underground storage field. 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 million, of which approximately $9.0 million was
borrowed at March 31, 1997. The line of credit, which is with
Bank One, Kentucky, NA, expires during November, 1997. 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 $20,400,000 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.
Delta's sales are seasonal in nature, and the largest
proportion of cash is received during the winter heating months
when sales volumes increase considerably. During non-heating
months, cash needs for operations and construction are partially
met through short-term borrowings. Additionally, most
construction activity takes place during the non-heating season
because of more favorable weather conditions, thus increasing
seasonal cash needs.
The primary cash flows for the nine and twelve month periods
ending March 31, 1997 and 1996 are summarized below:
Nine Months Ended March 31
1997 1996
Provided by operating
activities $ 3,519,762 $ 906,713
Used in investing activities (12,149,508) (8,967,164)
Provided by financing
activities 9,471,630 8,125,973
Net increase in cash and cash
equivalents $ 841,884 $ 65,522
Twelve Months Ended March 31
1997 1996
Provided by operating
activities $ 5,732,238 $ 2,476,619
Used in investing activities (16,026,733) (11,327,477)
Provided by financing
activities 11,086,711 8,781,920
Net increase (decrease) in
cash and cash equivalents $ 792,216 $ (68,938)
RESULTS OF OPERATIONS
Operating Revenues
The increases in operating revenues for the three, nine and
twelve months ended March 31, 1997 of approximately $2,628,000,
$4,544,000 and $6,740,000, respectively, were due primarily to
increases in the cost of gas purchased that were reflected in
rates billed to customers through Delta's gas cost recovery
clause. The increases were partially offset by decreases in
retail sales volumes of approximately 289,000 Mcf, 332,000 Mcf
and 14,000 Mcf for the respective periods as a result of the
warmer winter weather in 1997. Billed degree days were
approximately 97.7%, 87.0%, and 99.8% of the normal (thirty-year
average) degree days for the three, nine and twelve months ended
March 31, 1997 as compared with approximately 117.7%, 100.5% and
105.0% for the similar periods of 1996.
Operating Expenses
The increases in purchased gas expense for the three, nine
and twelve months ended March 31, 1997 of approximately
$3,472,000, $5,676,000 and $6,995,000, respectively, were due
primarily to increases in the cost of gas purchased for retail
sales. The increases were partially offset by decreased gas
purchases for retail sales resulting from the warmer winter
weather in 1997.
The increases in depreciation expense for the three, nine
and twelve months ended March 31, 1997 of approximately $140,000,
$342,000 and $471,000, respectively, were due primarily to
additional depreciable plant.
The decreases in income taxes for the three, nine and twelve
months ended March 31, 1997, of $399,000, $654,000 and $597,000,
respectively, were primarily due to decreases in net income.
Interest Charges
The increases in interest charges for the three, nine and
twelve months ended March 31, 1997 of $292,000, $668,000 and
$887,000, respectively, were due primarily to increased
borrowings.
Net Income Per Common Share
For the periods ended March 31, 1997, the net income per
common share was diluted by the increased average common shares
outstanding that resulted from the additional 400,000 shares of
common stock issued in July, 1996, as well as the common shares
issued under Delta's dividend reinvestment plan and shares issued to
employees during the 1997 periods.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The detailed information required by Item 1 has been
disclosed in previous reports filed with the Commission and is
unchanged from the information as presented in Item 3 of Form 10K
for the period ending June 30, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. No exhibits are required to be filed
with this report.
(b) Reports on Form 8-K. No reports on Form 8-K have
been filed by the Registrant during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DELTA NATURAL GAS COMPANY, INC.
(Registrant)
/s/Glenn R. Jennings____________________
DATE: May 13, 1997 Glenn R. Jennings
President and Chief Executive Officer
(Duly Authorized Officer)
/s/John F. Hall_________________________
John F. Hall
Vice President - Finance, Secretary and
Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> OPUR1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 81,520,182
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 10,341,158
<TOTAL-DEFERRED-CHARGES> 2,892,877
<OTHER-ASSETS> 420,913
<TOTAL-ASSETS> 95,175,130
<COMMON> 2,334,531
<CAPITAL-SURPLUS-PAID-IN> 25,163,995
<RETAINED-EARNINGS> 2,301,863
<TOTAL-COMMON-STOCKHOLDERS-EQ> 29,800,389
0
0
<LONG-TERM-DEBT-NET> 38,206,645
<SHORT-TERM-NOTES> 9,010,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,986,300
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 16,171,796
<TOT-CAPITALIZATION-AND-LIAB> 95,175,130
<GROSS-OPERATING-REVENUE> 32,749,137
<INCOME-TAX-EXPENSE> 872,700
<OTHER-OPERATING-EXPENSES> 27,714,931
<TOTAL-OPERATING-EXPENSES> 28,587,631
<OPERATING-INCOME-LOSS> 4,161,506
<OTHER-INCOME-NET> 27,991
<INCOME-BEFORE-INTEREST-EXPEN> 4,189,497
<TOTAL-INTEREST-EXPENSE> 2,675,322
<NET-INCOME> 1,514,175
0
<EARNINGS-AVAILABLE-FOR-COMM> 1,514,175
<COMMON-STOCK-DIVIDENDS> 1,985,174
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 3,519,762
<EPS-PRIMARY> .66
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</TABLE>
