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 December 31, 1996
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
2,325,333 Shares Outstanding as of December 31, 1996.
<TABLE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
December 31 December 31 December 31
1996 1995 1996 1995 1996 1995
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES $ 10,023,399 $ 8,406,787 $ 14,097,731 $ 12,181,636 $ 38,492,150 $ 33,260,015
OPERATING EXPENSES
Purchased gas $ 5,914,925 $ 3,838,121 $ 7,561,165 $ 5,357,051 $ 19,593,869 $ 16,013,471
Operation and maintenance 1,954,326 1,995,766 3,812,756 4,014,795 8,440,472 8,123,326
Depreciation and depletion 701,040 622,873 1,428,230 1,226,522 2,712,660 2,318,701
Taxes other than income taxes 251,495 241,224 497,618 472,787 1,061,113 918,448
Income taxes 111,100 377,000 (328,700) (73,800) 1,304,600 1,223,800
Total operating expenses $ 8,932,886 $ 7,074,984 $ 12,971,069 $ 10,997,355 $ 33,112,714 $ 28,597,746
OPERATING INCOME $ 1,090,513 $ 1,331,803 $ 1,126,662 $ 1,184,281 $ 5,379,436 $ 4,662,269
OTHER INCOME AND DEDUCTIONS, NET 9,009 7,282 23,012 14,488 41,027 34,896
INCOME BEFORE INTEREST CHARGES $ 1,099,522 $ 1,339,085 $ 1,149,674 $ 1,198,769 $ 5,420,463 $ 4,697,165
INTEREST CHARGES 901,369 689,996 1,685,817 1,310,342 3,183,684 2,486,064
NET INCOME (LOSS) $ 198,153 $ 649,089 $ (536,143) $ (111,573) $ 2,236,779 $ 2,211,101
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,321,571 1,883,326 2,259,639 1,879,037 2,090,251 1,867,994
NET INCOME (LOSS) PER COMMON $ .09 $ .34 $ (.24) $ (.06) $ 1.07 $ 1.18
SHARE
DIVIDENDS DECLARED PER COMMON $ .285 $ .28 $ .57 $ .56 $ 1.13 $ 1.12
SHARE
</TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS December 31, 1996 June 30, 1996 December 31
1995
UTILITY PLANT $108,226,719 $ 98,795,623 $ 92,959,368
Less-Accumulated provision
for depreciation (27,896,192) (26,749,774) (25,555,643)
Net utility plant $ 80,330,527 $ 72,045,849 $ 67,403,725
CURRENT ASSETS
Cash and cash equivalents $ 18,201 $ 151,633 $ 441,938
Accounts receivable - net 2,218,541 2,096,454 2,090,988
Deferred gas cost 5,851,153 2,676,357 1,165,093
Gas in storage 411,625 427,164 488,658
Materials and supplies 640,722 652,139 437,814
Prepayments 174,857 369,544 146,498
Total current assets $ 9,315,099 $ 6,373,291 $ 4,770,989
OTHER ASSETS
Cash surrender value of
officers' life insurance $ 312,913 $ 304,339 $ 295,137
Note receivable from officer 114,000 126,000 118,000
Unamortized debt expense and other 2,896,758 2,291,158 2,311,058
Total other assets $ 3,323,671 $ 2,721,497 $ 2,724,195
Total assets $ 92,969,297 $ 81,140,637 $74,898,909
LIABILITIES AND SHAREHOLDERS' EQUITY
CAPITALIZATION
Common shareholders' equity $ 28,248,744 $ 23,628,323 $ 21,645,813
Long-term debt 38,257,155 24,488,916 25,066,182
Notes refinanced subsequent to yearend - 18,075,000 -
Total capitalization $ 66,505,899 $ 66,192,239 $ 46,711,995
CURRENT LIABILITIES
Notes payable $ 7,790,000 $ - $ 12,710,000
Current portion of long-term debt 1,986,300 1,084,800 1,063,200
Accounts payable 4,979,032 2,826,438 4,338,009
Accrued taxes (184,122) 93,554 35,682
Refunds due customers 82,060 23,354 382,433
Customers' deposits 381,341 304,246 380,647
Accrued interest on debt 890,233 637,596 594,071
Accrued vacation 485,847 485,847 451,046
Other current and accrued
liabilities 369,381 238,571 379,467
Total current liabilities $ 16,780,072 $ 5,694,406 $ 20,334,555
DEFERRED CREDITS AND OTHER
Deferred income taxes $ 7,801,800 $ 7,318,500 $ 5,933,500
Investment tax credits 743,900 779,400 814,900
Regulatory liability 915,200 938,300 889,800
Advances for construction and other 222,426 217,792 214,159
Total deferred credits and other
$ 9,683,326 $ 9,253,992 $ 7,852,359
Total liabilities and shareholders'
equity $ 92,969,297 $81,140,637 $74,898,909
<TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Six Months Ended Twelve Months Ended
December 31 December 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (536,143) $ (111,573) $ 2,236,779 $ 2,211,101
Adjustments to reconcile net
income (loss) to net cash from
operating activities:
Depreciation, depletion
and amortization 1,537,572 1,270,922 2,930,125 2,407,501
Deferred income taxes and
investment tax credits 424,700 364,500 1,822,700 (100,800)
Other, net 358,853 237,052 606,155 556,267
Increase in other
assets (3,071,814) (476,382) (4,981,623) (703,996)
Increase (decrease) in other
liabilities 2,398,800 (118,182) 450,684 3,123,507
Net cash provided by
operating activities $ 1,111,968 $ 1,166,337 $ 3,064,820 $ 7,493,580
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures $ (10,071,761) $ (8,510,533) $(16,205,617) $ (12,063,549)
Net cash used in
investing activities $ (10,071,761) $ (8,510,533) $(16,205,617) $ (12,063,549)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Dividends on common stock $ (1,321,313) $ (1,052,488) $ (2,382,238) $ (2,092,790)
Issuance of common stock 6,477,877 298,361 6,748,390 611,802
Issuance of long-term debt 14,334,834 1,369,482 13,848,192 1,322,382
Repayment of long-term debt (380,037) - (577,284) -
Issuance of short-term debt 12,300,000 9,920,000 28,335,000 20,465,000
Repayment of short-term debt (22,585,000) (2,885,000) (33,255,000) (15,785,000)
Net cash provided by
financing activities $ 8,826,361 $ 7,650,355 $ 12,717,060 $ 4,521,394
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ (133,432) $ 306,159 $ (423,737) $ (48,575)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 151,633 135,779 441,938 490,513
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 18,201 $ 441,938 $ 18,201 $ 441,938
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,373,614 $ 1,144,872 $ 2,719,833 $ 2,327,938
Income taxes (net of refunds) $ (131,000) $ (34,588) $ 97,148 $ 997,308
</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) 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 $10.1
million was expended during the six months ended December 31, 1996.
Planned capital expenditures for fiscal 1997 include approximately
$6 million for storage project expenditures. 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
$7.8 million was borrowed at December 31, 1996. The line of
credit, which is with Bank One, Kentucky, NA, expires 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 six and twelve month periods
ending December 31, 1996 and 1995 are summarized below:
Six Months Ended December 31
1996 1995
Provided by operating
activities $ 1,111,968 $ 1,166,337
Used in investing activities (10,071,761) (8,510,533)
Provided by financing 8,826,361 7,650,355
activities
Net increase (decrease) in cash
and cash equivalents $ (133,432) $ 306,159
Twelve Months Ended December 31
1996 1995
Provided by operating
activities $ 3,064,820 $ 7,493,580
Used in investing activities (16,205,617) (12,063,549)
Provided by financing activities 12,717,060 4,521,394
Net decrease in cash
and cash equivalents $ (423,737) $ (48,575)
RESULTS OF OPERATIONS
Operating Revenues
The increases in operating revenues for the three and six
months ended December 31, 1996 of approximately $1,617,000 and
$1,916,000, 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. In addition, on-
system transportation volumes for the three and six months ended
December 31, 1996 increased approximately 26,000 Mcf and 144,000
Mcf, respectively, as compared with the similar periods of 1995.
The increases were partially offset by decreases in retail sales
volumes of approximately 60,000 Mcf and 44,000 Mcf for the
respective periods as a result of the warmer winter weather in the
six months ended December 31, 1996. Billed degree days were
approximately 72% of the thirty-year average degree days for the
six months ended December 31, 1996 as compared with approximately
77% for the similar period of 1995.
The increase in operating revenues of approximately $5,232,000
for the twelve months ended December 31, 1996 was primarily due to
an increase in retail sales volumes of approximately 640,000 Mcf as
a result of the colder winter weather in 1996. Billed degree days
were approximately 110% of normal weather for 1996 as compared with
approximately 99% for 1995. In addition, on-system transportation
volumes for 1996 increased approximately 222,000 Mcf, or 9%. These
increases were partially offset by decreases in off-system
transportation volumes of approximately 233,000 Mcf, or 18%, due
primarily to reduced deliveries from local producers.
Operating Expenses
The increases in purchased gas expense for the three and six
months ended December 31, 1996 of approximately $2,077,000 and
$2,204,000, respectively, were due primarily to increases in the
cost of gas purchased for retail sales.
The increase in purchased gas expense for the twelve months
ended December 31, 1996 of approximately $3,580,000 was due
primarily to the increased gas purchases for retail sales resulting
from the colder winter weather in 1996 as well as an increase in
the cost of gas purchased for retail sales.
The increases in depreciation expense for the three, six and
twelve months ended December 31, 1996 of approximately $78,000,
$202,000 and $394,000, respectively, were due primarily to
additional depreciable plant.
The increase in taxes other than income taxes for the twelve
months ended December 31, 1996 of approximately $143,000, was
primarily due to increased property taxes, which resulted from
increased plant and property valuation, and to increased payroll
taxes, which resulted from increased wages.
The decreases in income taxes for the three and six months
ended December 31, 1996, of $266,000 and $255,000, respectively,
and the increase in income taxes for the twelve months ended
December 31, 1996 of $81,000, were primarily due to changes in net
income.
Interest Charges
The increases in interest charges for the three, six and
twelve months ended December 31, 1996 of $211,000, $375,000 and
$698,000, respectively, were due primarily to increased average
short-term borrowings.
Net Income (Loss) Per Common Share
For the periods ended December 31, 1996, the net income (loss)
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 1996 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 10-K for the period
ending June 30, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Registrant held its annual meeting of
shareholders on November 21, 1996.
(b) Glenn R. Jennings, Virgil E. Scott and Arthur E.
Walker, Jr. were elected to Delta's Board of Directors
for three-year terms expiring in 1999. John D. Harrison
was elected to Delta's Board of Directors for a two year
term expiring in 1998. Donald R. Crowe and Billy Joe
Hall will continue to serve on Delta's Board of Directors
until the election in 1998. Jane Hylton Green, Harrison D.
Peet and Henry C. Thompson will continue to serve on
Delta's Board of Directors until the election in 1997.
(c) The total shares voted in the election of Directors
were 2,084,272. There were no broker non-votes. The
shares voted for each Nominee were:
Glenn R. Jennings For 2,058,797 Withheld 25,475
Virgil E. Scott For 2,054,334 Withheld 29,939
Arthur E. Walker, Jr. For 2,051,913 Withheld 32,359
John D. Harrison For 2,058,797 Withheld 25,475
(d) Not applicable.
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: February 10, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 80,330,527
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 9,315,099
<TOTAL-DEFERRED-CHARGES> 2,896,758
<OTHER-ASSETS> 426,913
<TOTAL-ASSETS> 92,969,297
<COMMON> 2,325,333
<CAPITAL-SURPLUS-PAID-IN> 25,008,004
<RETAINED-EARNINGS> 915,407
<TOTAL-COMMON-STOCKHOLDERS-EQ> 28,248,744
0
0
<LONG-TERM-DEBT-NET> 38,257,155
<SHORT-TERM-NOTES> 7,790,000
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<LONG-TERM-DEBT-CURRENT-PORT> 1,986,300
0
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<GROSS-OPERATING-REVENUE> 14,097,731
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<OTHER-OPERATING-EXPENSES> 13,299,769
<TOTAL-OPERATING-EXPENSES> 12,971,069
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</TABLE>
