DELTA NATURAL GAS COMPANY, INC.
Holders of Common Stock
Appointment of Proxy
For the Annual Meeting of Shareholders To Be Held November 20,
1997 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 20,
1997 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 2000:
Jane Hylton Green, Harrison D.Peet, Henry C. Thompson
__ ___ ___
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 ____________________________, 1997
Delta Natural Gas Company, Inc.
3617 Lexington Road
Winchester, Kentucky 40391
Notice To Common Shareholders Of Annual Meeting To Be
Held November 20, 1997
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
20, 1997 at 10:00 a.m. for the purposes of:
1. Electing three Directors for three year terms expiring in 2000; 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 6,
1997 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 12, 1997
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 12, 1997. 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 1997, 1998 or 1999.
The terms of three Directors, Jane Hylton Green, Harrison D. Peet and
Henry C. Thompson are scheduled to end in 1997. Jane Hylton Green,
Harrison D. Peet and Henry C. Thompson are nominated as Directors for
election at the Annual Meeting of Shareholders and, if elected, will
hold office until the Annual Meeting in 2000 and until their
successors have 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 Jane Hylton Green,
Harrison D. Peet and Henry C. Thompson 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 (2) - 63 Senior Analyst, 1966 to present
Director Department of Insurance,
Commonwealth of Kentucky,
Lexington, Kentucky
Jane Hylton Green (1) - 67 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 (2) - 60 Investment Broker, 1978 to present
Director LPL Financial Services
(general brokerage
services), Mount Sterling,
Kentucky
John D. Harrison (2) - 82 Retired President, Power 1950 to 1993
Director Line Construction Co., Inc. 1996 to present
(Utility construction
contractor), Stanton,
Kentucky; Retired Vice-
President ; Emeritus Director,
Pioneer Federal Savings Bank,
Winchester, Kentucky
Glenn R. Jennings (3) - 48 President and Chief 1984 to present
President and Chief Executive Officer and Director,
Executive Officer; Resources, Delgasco, Deltran,
Director Enpro and TranEx Corporation
("TranEx")
Harrison D. Peet (1) - 77 Chairman of the Board, 1950 to present
Chairman of the Board Resources, Delgasco,
Deltran, Enpro and TranEx
Virgil E. Scott (3) - 76 Retired Vice President 1950 to present
Director Administration, Delta and
Resources; Retired Director,
Resources, Delgasco,
Deltran and Enpro
Henry C. Thompson(1)-75 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.
(3)(4) - 52
Director President, The Walker 1981 to present
Company (general and highway
construction), Mount
Sterling, Kentucky
(1) Term expires November 20, 1997.
(2) Term expires on date of Annual Meeting of Shareholders in 1998.
(3) Term expires on date of Annual Meeting of Shareholders in 1999.
(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.
Harrison, Scott and Thompson. The Committee, which met one time during
fiscal 1997, 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 Nominating and Compensation Committee comprised of Messrs.
Crowe, Hall and Walker. The Committee, which met four times during fiscal
1997, is empowered to make recommendations to the Board as to the
compensation of the Board and Officers and any other personnel
matters. The Committee is empowered to present to the Board names
of individuals who would make suitable Directors. The 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 1997, 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 1997, Delta's Board of Directors held four meetings. All
Directors attended 75% or more of the aggregate number of meetings of
the Board of Directors and applicable committee meetings.
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 - 48 3/1/95
Administration and
Customer Service
John F. Hall Vice President - 54 3/1/95
Finance, Secretary
and Treasurer
Robert C. Hazelrigg Vice President- 50 5/20/93
Public and Consumer
Affairs
Alan L. Heath Vice President - 50 5/21/84
Operations and
Engineering
Glenn R. Jennings President and Chief 48 11/17/88
Executive Officer;
Director
(1) Each Officer is normally elected to serve a one year term.
Each Officer's current term is scheduled to end on November 20, 1997,
the date of the Board of Directors' meeting following the Annual
Shareholders' Meeting, except Mr. Jennings has an employment contract
in his present capacity through November 30, 2000 (see
"Employment Contract and Termination of Employment and Change
in Control Agreement").
(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 Nominating and Compensation Committee
Report on Executive Compensation
The Nominating and Compensation Committee of the Board of
Directors ("Committee") is composed of three independent, non-employee
directors. Among other duties, 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 1997, 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 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 1997, and the
other components of Mr. Jennings' and Mr. Heath's 1997 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.
Donald R. Crowe
Billy Joe Hall
Arthur E. Walker, Jr., Committee Chairman
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 1997 $143,000 $ -- $ 24,000
President and Chief 1996 $136,000 $ 42,900 $ 24,000
Executive Officer 1995 $136,000 $ -- $ 24,500
Alan L. Heath 1997 $ 93,200 $ -- $ --
Vice President - 1996 $ 88,700 $ 16,776 $ --
Operations and 1995 $ 85,200 $ -- $ --
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, 1992 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.
1992 1993 1994 1995 1996 1997
Delta 100 131.8 148.3 132.8 127.4 155.4
S & P 500 Index 100 113.6 115.2 145.1 182.8 246.4
Industry Index 100 132.2 126.9 132.6 159.6 177.0
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 eighteen
years and thirteen 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, either 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
$150,000. 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 $97,700. 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 3,879 *
(1,279 shares jointly owned)
Jane Hylton Green 7,300
(670 shares jointly owned) *
Billy Joe Hall 3,724 *
John D. Harrison 11,012 *
(10,010 shares jointly owned)
Glenn R. Jennings 6,140 *
Harrison D. Peet (5) 18,556 *
Virgil E. Scott 12,542 *
Henry C. Thompson 4,389 *
Arthur E. Walker, Jr. (6) 13,172 *
(4,595 shares jointly owned)
All Directors, Officers 88,532 3.8%
and Nominees, as a (16,554 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, 1997 annual salary level on a monthly basis.
At the end of fiscal 1998, Delta will issue its Common Stock, based
upon 1998 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, 1998, 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. As a result, 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 1998. Stock acquired pursuant to the Plan during fiscal 1998 will
not be issued until July, 1998. Accordingly, ownership figures in the
above table do not include shares to be issued under the Plan for fiscal
1998.
(3) The persons listed, unless otherwise indicated in this column, are the
sole beneficial 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, 1997, 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 3,892 shares held by Mr. Walker as guardian
for his children and 702 shares held by his wife.
Appointment of Auditors
Arthur Andersen LLP, upon recommendation of the Audit Committee and
approval by Delta's Board of Directors, was appointed independent public
accountants and auditors in connection with Delta's accounting matters and
made 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 $136,000. 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 $132,000 as of
August 31, 1997. The maximum amount outstanding during fiscal 1997 was
$136,000.
Shareholders' Proposals
Proposals of security holders intended to be presented at Delta's 1998
annual meeting must be received by Delta no later than June 14, 1998, in
order to be included in Delta's proxy statement and form of proxy
related to that meeting.
Financial Statements
Delta's 1997 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 20, 1997. 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 6, 1997, the record date fixed
for determination of voting rights, Delta had outstanding 2,353,781
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
three 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, 1997, 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 12, 1997
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 20 counties in
central and southeastern Kentucky. Delta serves approximately 36,000
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"), Enpro, Inc. ("Enpro") and TranEx Corporation
("TranEx"). 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 natural gas storage
field that it leases from Delta. Enpro owns and operates production
properties and undeveloped acreage. TranEx owns a 43 mile intrastate
pipeline. 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.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
For the Years
Ended June 30, 1997 1996(a) 1995 1994(b) 1993
Summary of
Operations
Operating
revenues 42,169,185 36,576,055 31,844,339 34,846,941 31,221,410
Operating
income 5,315,582 5,437,055 4,255,088 4,850,673 4,791,816
Net income 1,724,265 2,661,349 1,917,735 2,671,001 2,620,664
Earnings per
common share .75 1.41 1.04 1.50 1.60
Dividends declared
per common share 1.14 1.12 1.12 1.11 1.09
Average Number of
Common Shares
Outstanding 2,294,134 1,886,629 1,850,986 1,775,068 1,635,945
Total Assets($) 96,681,165 81,140,637 65,948,716 61,932,480 55,129,912
Capitalization($)
Common share-
holders' equity 29,474,569 23,628,323 22,511,513 22,164,791 17,501,045
Long-term
debt 38,107,860 24,488,916 23,702,200 24,500,000 19,596,401
Notes payable
refinanced sub-
sequent to
yearend -- 18,075,000 -- -- --
Total
capitalization 67,582,429 66,192,239 46,213,713 46,664,791 37,097,446
Short-Term
Debt ($) (c) 12,852,600 1,084,800 6,732,700 3,205,000 7,729,000
Other Items ($)
Capital
expenditures 16,648,994 13,373,416 8,122,838 7,374,747 6,289,508
Total plant 116,829,158 98,795,623 84,944,969 77,882,135 71,187,860
(a) During July, 1996, $15,000,000 of debentures and 400,000 shares of common
stock sere sold, and the proceeds were used to repay 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.
To Our Shareholders:
Our continued expansion through internal growth and acquisition
resulted in 1997 being a year of significant activity for Delta. We
refinanced our $20 million credit line in July, 1996, by the issuance of
$15 million of 8.3% debentures and 400,000 shares of common stock, and
this had a dilutive effect on 1997 earnings per share. This allowed
us to utilize our credit line and internally generated cash for our 1997
growth. Our record capital expenditures were in excess of $16.6
million, and we plan to continue our growth in 1998 and beyond.
The weather this past year was not only warmer than the previous year,
but followed a very unusual pattern of a mild winter followed by a cold,
wet spring. Our billed degree days were 103% of thirty year average
weather, a decline of 8% from the year before, and our retail sales
volumes declined by 406,000 Mcf, or 9%. Earnings per share decreased to
$.75.
In order to provide for a reasonable return on our increased capital,
as well as to recover increased operating costs resulting from
inflation since our last rate case in 1990, on March 14, 1997 we filed
a request for a general rate increase with the Kentucky Public Service
Commission. The rate case requests a total revenue increase of
$2,962,000 and, as anticipated, the proposed rates were suspended by the
Commission until September 12. A public hearing is scheduled beginning
September 9.
During 1997, we continued development of our Canada Mountain
underground natural gas storage field. Although the field was used to
help meet our winter supply needs this past year, our plans are to
continue to develop the field during the next year. It is planned to
be utilized to a more significant level this coming year, especially
after
completion this fall of 14 miles of 12 inch diameter steel pipeline that
will enhance the delivery of gas from the field into Delta's system.
We continued to expand our system this past year and increased our
customers served by 5.4%. Exten-
sions were made this year to serve new areas such as a portion of
Fayette County, where we serve a residential area that did not have gas
service and a new residential development that together have the
potential for approximately 500 customers. During November, 1996, we
acquired the City of North Middletown gas system in Bourbon County, and
we now serve approximately 180 primarily residential customers in that
community.
During June, 1997, Delta acquired TranEx Corporation, which owns a
43 mile, 8 inch diameter steel pipeline that extends from Clay County to
Madison County. Delta has been operating this pipeline for several
years and plans to continue to utilize it to provide natural gas to
Delta's Canada Mountain storage field as well as for Delta's system
supply.
Additionally, during July, 1997, we purchased the gas system of Annville
Gas & Transmission Corporation in Jackson County, which serves several
industrial and residential customers. We plan to expand this system to
provide gas service to customers in the City of Annville.
We certainly appreciate your support this past year and we believe
next year will be an even better year for Delta. The hard work and dedi
cation of our employees provided for our growth in 1997 and their
continued efforts will allow us to expand in 1998 and beyond as we pre
pare for the 21st century.
Sincerely,
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 20 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 Nicholasville, Corbin, Berea and Middlesboro,
where Delta serves approximately 6,500, 6,300, 3,800 and 3,600
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 5.4% in
1997. 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
during 1997.
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 1997 were approximately 4,299,000 thousand cubic
feet ("Mcf"), generating approximately $33,561,000 in revenues, as
compared to approximately 4,705,000 Mcf and approximately $27,811,000 in
revenues for 1996. The increase in operating revenues for 1997 was 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.
Heating degree days billed during 1997 were approximately 103% of the
thirty year average ("normal") as compared with approximately 112% in
1996. Principally as a result of this warmer weather, retail sales
volumes decreased by approximately 406,000 Mcf, or 9%, in 1997 as
compared to 1996.
Delta's transportation of natural gas in 1997 generated revenues of
approximately $3,596,000 as compared with approximately $3,331,000
during 1996. Of the total from transportation in 1997, approximately
$3,214,000 (2,863,000 Mcf) and $382,000 (1,205,000 Mcf) were earned from
transportation for on-system and off-system customers, respectively. 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.
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. During November, 1996,
Delta acquired the City of North Middletown gas system in Bourbon
County, consisting of approximately 180 primarily residential customers.
During July, 1997, Delta purchased the gas system of Annville Gas &
Transmission Corporation in Jackson County, which serves several
industrial and residential customers. This system will be expanded
during fiscal 1998 to provide gas service to customers in the City
of Annville.
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. During June, 1997, Delta acquired TranEx
Corporation, which owns a 43 mile, 8 inch diameter steel pipeline that
extends from Clay County to Madison County. Delta has been operating
this pipeline for several years and plans to continue to utilize the
pipeline to provide natural gas to its Canada Mountain storage field as
well as for Delta's system supply.
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 receives its gas supply from a combination of interstate and
Kentucky sources. The Company intends to pursue an adequate gas supply
to provide service to existing and future customers. Delta will
continue to maintain an active gas supply management program that
emphasizes longterm reliability and the pursuit of cost effective
sources of gas for its customers.
Delta's interstate gas supply is transported and/or stored by Tennessee
Gas Pipeline Company ("Tennessee"), Columbia Gas Transmission
Corporation ("Columbia"), Columbia Gulf Transmission Company ("Columbia
Gulf") and Texas Eastern Transmission Corporation ("Texas Eastern").
Delta acquires its interstate gas supply from gas marketers. Delta also
acquires gas supply from Kentucky producers and suppliers. There is 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 4,400,000 Mcf. Delta purchased a total of
approximately 203,000 Mcf from those properties in 1997. Enpro's 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 completing the development of an underground natural gas
storage field on Canada Mountain in Bell County, Kentucky, with an
estimated eventual working capacity of 4,000,000 Mcf. This field is
operational and was used to help meet Delta's winter supply needs this
past year. Delta plans to continue to develop the capability of this
storage field, including completion of 14 miles of 12 inch diameter
steel pipeline. The new pipeline, planned to be in operation by this
fall, will enhance Delta's ability to withdraw gas from the field and
deliver it into Delta's system. This storage capability should permit
Delta to continue to purchase and store gas during the non-heating
months, and then withdraw and sell the gas during the peak usage months
as Delta did this past winter.
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.
On March 14, 1997, Delta filed a request for increased rates with the
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 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 September 9, 1997, for the cross-
examination of witnesses.
On July 11, 1997, the PSC issued a staff report entitled "Natural Gas
Unbundling in Kentucky: Exploring the Next Step Toward Customer
Choice." This report represented the culmination of numerous
discussions among the PSC and various parties, including Delta,
regarding issues related to the potential unbundling, or separate
pricing of supply and service components, of natural gas service in
Kentucky, including residential and small commercial customer choice.
The report also included observations on certain topics which need to be
addressed and resolved if further unbundling occurs in Kentucky, and it
addressed some of the options available to the PSC. The PSC held a
public meeting on August 22, 1997, on gas unbundling and customer choice
for interested parties to provide further input. Delta participated in
that meeting and intends to be an active participant in future
discussions.
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 seven 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.
Capital Expenditures
Capital expenditures during 1997 were approximately $16.6 million and
for 1998 are estimated to be approximately $10.4 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, 1997, was $20
million of which approximately $10.9 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 1997 the requirements of the Employee Stock Purchase Plan were
met through the issuance of 6,456 shares of common stock resulting in an
increase of approximately $101,000 in Delta's common shareholders'
equity. The Dividend Reinvestment and Stock Purchase Plan (see Note 4 of
the Notes to Consolidated Financial Statements) resulted in the issuance
of 31,187 shares of common stock providing an increase of approximately
$550,000 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 2,407 record holders of
Delta's common stock as of August 1, 1997.
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:
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 (see Regulatory Matters).
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.
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. Capital expenditures for Delta for
fiscal 1998 are expected to be approximately $10.4 million.
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 $10.9 million was
borrowed at June 30, 1997. The line of credit, which is with Bank One,
Kentucky, NA, expires during November, 1997. 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 were used to repay short
term notes payable and for working capital.
The primary cash flows during the last three years are summarized below:
1997 1996 1995
Provided by operating activities $ 6,209,226 $ 3,094,809 $ 6,943,183
Used in investing activities $(16,648,994) (13,373,416) (8,122,838)
Provided by financing activities 10,768,558 10,294,461 1,158,887
Net increase (decrease) in cash
and cash equivalents $ 328,790 $ 15,854 $ (20,768)
Cash provided by operating activities consists of net income and noncash
items including depreciation, depletion, amortization and deferred
income taxes. Additionally, changes in working capital are also
included in cash provided by operating activities. The Company expects
that internally generated cash, coupled with seasonal short-term
borrowings, will continue to be sufficient to satisfy its operating and
capital requirements.
Results of Operations
Operating Revenues
The increase in operating revenues for 1997 of approximately $5,593,000
was 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. This was partially offset by a decrease in retail sales volumes
of approximately 406,000 Mcf as a result of the warmer winter weather in
1997. Billed degree days were approximately 103% of normal degree days
for 1997 as compared with approximately 112% for 1996. In addition, on
system transportation volumes for 1997 increased approximately 293,000
Mcf, or 11.4%.
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 for 1996 as
compared with approximately 89% 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.
Operating Expenses
The increase in purchased gas expense for 1997 of approximately
$5,875,000 was due primarily to increases in the cost of gas purchased
for retail sales. The increase was partially offset by the decreased gas
purchases for retail sales resulting from the warmer winter weather
in 1997.
The increase in purchased gas expense of approximately $1,893,000 for
1996 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 increase in operation and maintenance expenses during 1996 of
approximately $640,000 was due primarily to increases in payroll and
related benefit costs.
The increases in depreciation expense during 1997 and 1996 of
approximately $424,000 and $327,000, respectively, were due primarily to
additional depreciable plant.
The increase in taxes other than income taxes during 1996 of
approximately $173,000 was 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 1997 and 1996 of approximately $595,000
and $517,000, respectively, were primarily due to changes in net income.
Interest Charges
The increases in interest on long-term debt and amortization of debt
expense during 1997 of approximately $1,146,000 and $27,000,
respectively, were due primarily to the issuance of $15 million of 8.3%
Debentures during July, 1996. The decrease in other interest charges
during 1997 of approximately $348,000 was due primarily to decreased
average short-term borrowings as short-term debt was repaid with the
net proceeds from the sale of long-term debt and equity securities
during July, 1996.
The increase in other interest charges during 1996 of approximately
$448,000 was due primarily to increased average short- term borrowings
and increased average interest rates.
Earnings Per Common Share
For the year ended June 30, 1997, earnings per common share were 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 period.
Consolidated Statements of Income
For the Years Ended June 30, 1997 1996 1995
Operating Revenues $ 42,169,185 $ 36,576,055 $ 31,844,339
Operating Expenses
Purchased gas $ 23,265,222 $ 17,389,755 $ 15,497,156
Operation and
maintenance(Note 1) 8,631,635 8,642,511 8,002,797
Depreciation and
depletion (Note 1) 2,935,257 2,510,952 2,183,558
Taxes other than
income taxes 1,056,689 1,036,282 863,340
Income taxes(Note 2) 964,800 1,559,500 1,042,400
Total operating
expenses $ 36,853,603 $ 31,139,000 $ 27,589,251
Operating Income $ 5,315,582 $ 5,437,055 $ 4,255,088
Other Income and
Deductions, Net 40,874 32,503 50,582
Income Before
Interest Charges $ 5,356,456 $ 5,469,558 $ 4,305,670
Interest Charges
Interest on long-
term debt $ 2,997,393 $ 1,851,768 $ 1,879,442
Other interest 519,432 867,641 419,693
Amortization of
debt expense 115,366 88,800 88,800
Total interest
charges $ 3,632,191 $ 2,808,209 $ 2,387,935
Net Income $ 1,724,265 $ 2,661,349 $ 1,917,735
Weighted Average
Number of Common
Shares Outstanding 2,294,134 1,886,629 1,850,986
Earnings Per
Common Share $ .75 $ 1.41 $ 1.04
Dividends Declared
Per Common Share $ 1.14 $ 1.12 $ 1.12
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1997 1996 1995
Cash Flows From Operating
Activities
Net income $ 1,724,265 $ 2,661,349 $ 1,917,735
Adjustments to reconcile
net income to net cash
from operating activities:
Depreciation, depletion
and amortization 3,049,229 2,663,475 2,272,358
Deferred income
taxes and investment
tax credits 485,400 1,762,500 (77,000)
Other-net 666,798 484,474 602,180
(Increase) decrease in
assets:
Accounts receivable (318,178) (860,255) (118,237)
Gas in storage (782,007) 63,546 (138,138)
Advance (deferred)
recovery of gas cost 495,751 (3,788,143) 2,583,128
Materials and supplies (120,969) (124,697) 173,319
Prepayments (346,532) 53,702 (105,903)
Other assets (541,669) (31,723) (71,087)
Increase (decrease) in
liabilities:
Accounts payable (439,721) 871,207 (178,609)
Refunds due customers 554,520 (456,283) 83,572
Accrued taxes 1,038,761 (270,394) (72,210)
Other current
liabilities 744,054 56,951 69,742
Advances for construc-
tion and other (476) 9,100 2,333
Net cash provided by
operating activities $ 6,209,226 $ 3,094,809 $ 6,943,183
Cash Flows From Investing Activities
Capital expenditures $(16,648,994) $(13,373,416) $(8,122,838)
Net cash used in
investing activities $(16,648,994) $(13,373,416) $(8,122,838)
Cash Flows From
Financing Activities
(Note 6)
Dividends on common stock $ (2,651,073) $ (2,113,414) $ (2,073,374)
Issuance of common stock,
net 6,773,054 568,875 502,361
Issuance of debentures, net 14,334,833 - -
Repayment of long-term debt (478,256) (561,000) (240,100)
Issuance of notes payable 30,975,000 25,955,000 19,495,000
Repayment of notes payable (38,185,000) (13,555,000) (16,525,000)
Net cash provided by
financing activities $ 10,768,558 $ 10,294,461 $ 1,158,887
Net Increase (Decrease)
in Cash and Cash Equivalents $ 328,790 $ 15,854 $ (20,768)
Cash and Cash Equivalents,
Beginning of Year 151,633 135,779 156,547
Cash and Cash Equivalents,
End of Year $ 480,423 $ 151,633 $ 135,779
Supplemental Disclosures of
Cash Flow Information
Cash paid during the year for:
Interest $ 3,019,881 $ 2,491,091 $ 2,253,472
Income taxes (net of
refunds) $ (432,163) $ 193,560 $ 1,264,942
Consolidated Balance Sheets
As of June 30, 1997 1996
Assets
Gas Utility Plant, at cost $ 116,829,158 $ 98,795,623
Less - Accumulated provision
for depreciation (31,734,976) (26,749,774)
Net gas plant $ 85,094,182 $ 72,045,849
Current Assets
Cash and cash equivalents $ 480,423 $ 151,633
Accounts receivable, less
accumulated provisions for
doubtful accounts of
$113,945 and $105,756 in
1997 and 1996, respectively 2,414,632 2,096,454
Gas in storage, at average cost 1,209,171 427,164
Deferred gas costs (Note 1) 2,180,606 2,676,357
Materials and supplies, at
first-in, first-out cost 773,108 652,139
Prepayments 716,076 369,544
Total current assets $ 7,774,016 $ 6,373,291
Other Assets
Cash surrender value of
officers' life insurance
(face amount of $1,036,009) $ 321,339 $ 304,339
Note receivable from officer 134,000 126,000
Unamortized debt expense and
other (Note 6) 3,357,628 2,291,158
Total other assets $ 3,812,967 $ 2,721,497
Total assets $96,681,165 $ 81,140,637
Liabilities and Shareholders' Equity
Capitalization (See Consolidated
Statements of Capitalization)
Common shareholders' equity $ 29,474,569 $ 23,628,323
Long-term debt (Notes 6 and 7) 38,107,860 24,488,916
Notes payable refinanced
subsequent to yearend (Note 5) -- 18,075,000
Total capitalization $ 67,582,429 $ 66,192,239
Current Liabilities
Notes payable (Note 5) $ 10,865,000 $ -
Current portion of long-
term debt (Notes 6 and 7) 1,987,600 1,084,800
Accounts payable 2,386,717 2,826,438
Accrued taxes 1,132,315 93,554
Refunds due customers 577,874 23,354
Customers' deposits 368,561 304,246
Accrued interest on debt 1,033,220 637,596
Accrued vacation 516,032 485,847
Other accrued liabilities 492,501 238,571
Total current liabilities $19,359,820 $ 5,694,406
Deferred Credits and Other
Deferred income taxes $ 7,921,100 $ 7,318,500
Investment tax credits 708,400 779,400
Regulatory liability (Note 2) 892,100 938,300
Advances for construction
and other 217,316 217,792
Total deferred credits
and other $ 9,738,916 $ 9,253,992
Commitments and Contingencies (Note 8)
Total liabilities and
shareholders' equity $96,681,165 $81,140,637
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended June 30, 1997 1996 1995
Common Shares
Balance, beginning of year $ 1,903,580 $ 1,868,734 $ 1,839,340
$1.00 par value of 438,643,
34,846 and 29,394 shares
issued in 1997, 1996 and
1995, respectively
Public issuance of
common shares 400,000 - -
Dividend reinvestment and
stock purchase plan 31,187 28,024 25,802
Employee stock purchase
plan and other 7,456 6,822 3,592
Balance, end of year $ 2,342,223 $ 1,903,580 $ 1,868,734
Premium on Common Shares
Balance, beginning of
year $20,572,132 $20,022,643 $19,532,909
Premium on issuance
of common shares-
Public issuance of
common shares 6,000,000 - -
Dividend reinvestment
and stock purchase plan 519,478 440,621 425,357
Employee stock purchase
plan and other 111,701 108,868 64,377
Balance, end of year $27,203,311 $20,572,132 $20,022,643
Capital Stock Expense
Balance, beginning
of year $(1,620,252) $(1,604,792) $(1,588,025)
Issuance of common
shares (296,768) (15,460) (16,767)
Balance, end of year $(1,917,020) $(1,620,252) $(1,604,792)
Retained Earnings
Balance, beginning
of year $ 2,772,863 $ 2,224,928 $ 2,380,567
Net income 1,724,265 2,661,349 1,917,735
Cash dividends
declared on common
shares - (See Con-
solidated Statements
of Income for rates) (2,651,073) (2,113,414) (2,073,374)
Balance, end of year $ 1,846,055 $ 2,772,863 $ 2,224,928
Consolidated Statements of Capitalization
As of June 30, 1997 1996
Common Shareholders' Equity
Common shares, par value $1.00
per share (Notes 3 and 4)
Authorized - 6,000,000 shares
Issued and outstanding -
2,342,223 and 1,903,580
shares in 1997 and 1996,
respectively $ 2,342,223 $ 1,903,580
Premium on common shares 27,203,311 20,572,132
Capital stock expense (1,917,020) (1,620,252)
Retained earnings (Note 6) 1,846,055 2,772,863
Total common shareholders'
equity $ 29,474,569 $ 23,628,323
Long-Term Debt (Notes 6 and 7)
Debentures, 8.3%, due 2026 $ 15,000,000 $ -
Debentures, 6 5/8%, due 2023 13,505,000 14,000,000
Debentures, 9%, due 2011 10,000,000 10,000,000
Promissory note from
acquisition of underground
storage, non-interest
bearing, due through 2001
(less unamortized discount
of $297,099 and $398,419 in
1997 and 1996, respectively) 1,502,901 1,401,581
Other 87,559 172,135
Total long-term debt $ 40,095,460 $ 25,573,716
Less - Amounts due within one
year, included in current
liabilities (1,987,600) (1,084,800)
Net long-term debt $ 38,107,860 $ 24,488,916
Notes Payable Refinanced
Subsequent to Yearend (Note 5) $ - $ 18,075,000
Total capitalization $ 67,582,429 $ 66,192,239
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
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 five 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. TranEx
Corporation owns a 43 mile intrastate pipeline. 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 3.0%, 2.9%, and 2.8% of average depreciable plant for
1997, 1996, and 1995, 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 36,000 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 adopted 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. Adoption of SFAS No. 121 did not
have a material adverse impact on the Company's financial position or
results of operations.
(2) 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 deferred 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:
1997 1996
Deferred Tax Liabilities
Accelerated depreciation $ 9,018,800 $8,091,500
Deferred gas cost 860,100 1,055,700
Accrued pension 433,000 252,900
Debt expense 384,900 399,200
Total $10,696,800 $9,799,300
1997 1996
Deferred Tax Assets
Alternative investment tax $ 1,534,100 $ 1,305,600
credit
Regulatory liabilities 339,400 370,000
Unbilled revenue 327,500 236,100
Investment tax credit 279,400 307,400
Other 295,300 261,700
Total $ 2,775,700 $ 2,480,800
Net accumulated deferred $ 7,921,100 $ 7,318,500
income tax liability
The components of the income tax provision are comprised of the
following for the years ended June 30:
1997 1996 1995
Components of income tax expense:
Payable currently:
Federal $ 242,200 $ 52,100 $ 453,900
State (31,300) (255,100) 194,500
Total $ 210,900 $ (203,000) 648,400
Deferred 753,900 1,762,500 394,000
Income tax expense $ 964,800 $1,559,500 $1,042,400
Reconciliation of the statutory federal income tax rate to the
effective income tax rate is shown in the table below:
1997 1996 1995
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes net of federal 5.0 5.2 5.2
benefit
Amortization of investment tax (2.6) (1.7) (2.4)
credit
Other differences - net - - (.9)
Effective income tax rate 36.4% 37.5% 35.9%
(3) 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:
1997 1996 1995
Plan assets at fair value $6,835,393 $6,058,458 $5,358,108
Actuarial present value of benefit
obligation:
Vested benefits $4,505,619 $2,789,736 $3,605,363
Non-vested benefits 11,025 9,346 21,742
Accumulated benefit $4,516,644 $2,799,082 $3,627,105
obligation
Additional amounts related
to projected salary increases 1,828,856 2,811,907 1,638,014
Total projected benefit $6,345,500 $5,610,989 $5,265,119
obligation
Plan assets in excess of (less
than) projected benefit
obligation $ 489,893 $ 447,469 $ 92,989
Unrecognized net assets at
date of initial application
being amortized over 15 years (211,972) (254,365) (296,759)
Unrecognized net (gain) loss 286,557 125,777 (13,481)
Accrued pension asset $ 403,698 $ 179,623 $ 82,787
The assets of the plan consist primarily of common stocks, bonds and
certificates of deposit. Net pension costs for the years ended June 30
include the following:
1997 1996 1995
Service cost for benefits
earned during the year $ 405,386 $ 382,751 $ 432,546
Interest cost on projected
benefit obligation 392,539 356,897 382,167
Actual return on plan assets (407,965) (886,211) (623,972)
Net amortization and deferral 444,044 (136,843) 185,660
Net periodic pension cost $ 253,117 $ 297,481 $ 376,401
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, 1997, 1996
and 1995 were 7.0% (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 2.5% 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. For 1997, 1996 and 1995, Delta's Savings Plan expense was
approximately $151,000, $111,000 and $112,000, 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 $101,000 was issued in July, 1997. 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, 1998.
(4) 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 31,187 shares were issued in
1997. Delta reserved 200,000 shares under the Reinvestment Plan in
December, 1994, and, as of June 30, 1997 there were 123,604 shares
still available for issuance.
(5) 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, 1997 and June 30, 1996, the available line of
credit was $20,000,000,
of which $10,865,000 and $18,075,000 had been borrowed at an interest
rate of 6.785% and 6.285% for 1997 and 1996, respectively. The
maximum amount borrowed during 1997 and 1996 was $10,865,000 and
$18,075,000, respectively. The interest on this line is, at the option
of Delta, eiter at the daily prime rate or is based upon certificate of
deposit rates. The current line of credit expires on November 15, 1997.
Short-term borrowings at June 30, 1996 were repaid in July, 1996,
with the net proceeds of approximately $20,400,000 from the sale of
$15,000,000 of debentures and 400,000 shares of common stock.
(6) 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 9.5% 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 is now partially developed and will
have an estimated working capacity of 4,000,000 Mcf upon completion.
Delta utilized this storage field to help meet its winter supply
needs this year. 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 $2.2 million during fiscal 1998, which includes
completion of a 14 mile, 12 inch diameter steel pipeline to provide
expanded capacity to deliver gas to Delta's system. Delta is
currently recovering a return on storage field investments through
rates.
Other long-term debt requires principal payments totaling
approximately $88,000 in 1998.
(7) 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,
1997 is estimated to be $37,723,000. The carrying amount in the
accompanying consolidated financial statements is $38,505,000.
The carrying amount 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.
(8) 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.
(9) Rates:
Reference is made to "Regulatory Matters" herein with respect to
rate matters.
(10) Quarterly Financial Data (Unaudited):
The quarterly data reflects, in the opinion of management, all
normal recurring adjustments necessary to present fairly the results for
the interim periods.
Earnings
Operating Net (Loss) per
Operating Income Income Common
Quarter Ended Revenues (Loss) (Loss) Share(a)
Fiscal 1997
September 30 $4,074,332 $ 36,149 $(734,296) $ (.33)
December 31 10,023,399 1,090,13 198,153 .09
March 31 18,651,406 3,034,844 2,050,318 .88
June 30 9,420,048 1,154,076 210,090 .09
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
______________________________________________________________
(a) Quarterly earnings per share may not equal annual earnings per
share due to changes in shares outstanding.
Directors and Officers
Board of Directors
Donald R. Crowe (a)
Senior Analyst, Department of
Insurance, Commonwealth of
Kentucky, Lexington, Kentucky
Jane Hylton Green (b)
Retired Vice President - Human
Resources and Secretary
Billy Joe Hall (a)
Investment Broker, LPL Financial
Services (general brokerage
services), Mount Sterling, Kentucky
John D. Harrison (b)
Retired President, Power Line
Construction Co., Inc. (utility
construction contractor),
Stanton, Kentucky
Glenn R. Jennings (c)
President and Chief Executive Officer
Harrison D. Peet (c)
Chairman of the Board; Retired President and Chief Executive Officer
Virgil E. Scott (b)
Retired Vice President - Administration
Henry C. Thompson (b)
President, Triple Land Co., Inc. (land development and real estate
rental); Retired President, Henry Thompson Construction Co., Inc. (land
development and commercial real estate rental); both of Nicholasville,
Kentucky
Arthur E. Walker, Jr. (a)(c) President, The Walker Company
(general and highway construction),
Mount Sterling, Kentucky
_________________
Director Emeritus
Roger A. Byron
(a) Member of Nominating and Compensation Committee
(b) Member of Audit Committee
(c) Member of Executive Committee
Officers
Johnny L. Caudill
Vice President - Administration & 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
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
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, OH 45202
Trustee and Interest Paying Agents for Debentures
6 5/8% due 2023; 9% due 2011
Bank One - Corporate Trust
235 W. Schrock Rd.
Westerville, OH 43081
8.3% due 2026
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, OH 45202
Dividend Reinvestment and Stock Purchase Plan Administrator and Agent
Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, OH 45202
1997 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.
1997 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 20,
1997, 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 12, 1997.
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 Emily P. Bennett,
Director - Corporate Services, Delta Natural Gas Company, Inc., 3617
Lexington Road, Winchester, Kentucky 40391.
