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 September 30, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-8788
DELTA NATURAL GAS COMPANY, INC.
(Exact Name of Registrant as Specified in its Charter)
Incorporated in the State 61-0458329
of Kentucky (I.R.S. Employer Identification No.)
3617 LEXINGTON ROAD, WINCHESTER, KENTUCKY 40391
(Address of Principal Executive Offices) (Zip Code)
606-744-6171
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
YES X . NO .
Common Shares, Par Value $1.00 Per Share
2,353,781 Shares Outstanding as of September 30, 1997.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
September 30 September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
OPERATING REVENUES $ 5,215,272 $ 4,074,332 $ 43,310,125 $ 36,875,538
OPERATING EXPENSES
Purchased gas $ 2,108,688 $ 1,466,145 $ 23,907,765 $ 17,336,970
Operation and maintenance 2,229,271 2,038,525 8,822,381 8,662,007
Depreciation and depletion 846,154 727,190 3,054,221 2,634,493
Taxes other than income taxes 330,454 246,123 1,141,020 1,050,842
Income taxes (481,200) (439,800) 923,400 1,570,500
Total operating expenses $ 5,033,367 $ 4,038,183 $ 37,848,787 $ 31,254,812
OPERATING INCOME $ 181,905 $ 36,149 $ 5,461,338 $ 5,620,726
OTHER INCOME AND DEDUCTIONS, NET 4,413 14,003 31,284 39,300
INCOME BEFORE INTEREST CHARGES $ 186,318 $ 50,152 $ 5,492,622 $ 5,660,026
INTEREST CHARGES 1,000,300 784,448 3,848,043 2,972,311
NET INCOME (LOSS) $ (813,982) $ 1,644,579 $ 2,687,715 (734,296)
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,348,453 2,212,638 2,334,164 1,988,707
NET INCOME (LOSS) PER COMMON $ (.35) $ (.33) $ .70 $ 1.35
SHARE
DIVIDENDS DECLARED PER COMMON $ .285 $ .285 $ 1.14 $ 1.14
SHARE
</TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS September 30, June 30, September 30,
1997 1997 1996
GAS UTILITY PLANT $ 121,085,327 $ 116,829,158 $103,908,130
Less-Accumulated provision
for depreciation (32,684,990) (31,734,976) (27,245,397)
Net gas plant $ 88,400,337 $ 85,094,182 $76,662,733
CURRENT ASSETS
Cash and cash equivalents $ 169,731 $ 480,423 $ 260,072
Accounts receivable - net 1,313,799 2,414,632 384,482
Gas in storage 2,368,774 1,209,171 479,216
Deferred gas costs 2,631,094 2,180,606 3,540,863
Materials and supplies 688,607 773,108 587,990
Prepayments 591,012 716,076 241,636
Total current assets $ 7,763,017 $ 7,774,016 $5,494,259
OTHER ASSETS
Cash surrender value of
officers' life insurance $ 329,917 $ 321,339 $ 312,913
Note receivable from officer 128,000 134,000 120,000
Unamortized debt expense
and other 3,355,249 3,357,628 2,924,658
Total other assets $ 3,813,166 $ 3,812,967 $ 3,357,571
Total assets $99,976,520 $96,681,165 $85,514,563
LIABILITIES AND SHAREHOLDERS' EQUITY
CAPITALIZATION
Common shareholders' equity $ 28,192,000 $ 29,474,569 $28,601,950
Long-term debt 38,117,638 38,107,860 38,997,690
Total capitalization $ 66,309,638 $ 67,582,429 $67,599,640
CURRENT LIABILITIES
Notes payable $ 15,485,000 $ 10,865,000 $3,355,000
Current portion of long-
term debt 1,987,600 1,987,600 1,584,800
Accounts payable 3,096,744 2,386,717 1,999,886
Accrued taxes 238,147 1,132,315 (103,741)
Refunds due customers 566,142 577,874 116,090
Customers' deposits 392,158 368,561 302,043
Accrued interest on debt 1,241,222 1,033,220 647,917
Accrued vacation 516,032 516,032 485,847
Other accrued liabilities 405,796 492,501 271,143
Total current liabilities $ 23,928,841 $ 19,359,820 $8,658,985
DEFERRED CREDITS AND OTHER
Deferred income taxes $ 7,921,100 $ 7,921,100 $7,318,500
Investment tax credits 708,400 708,400 779,400
Regulatory liability 892,100 892,100 938,300
Advances for construction
and other 216,441 217,316 219,738
Total deferred credits $ 9,738,041 $ 9,738,916 $9,255,938
and other
Total liabilities and
shareholders' equity $ 99,976,520 $ 96,681,165 $85,514,563
<TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended Twelve Months Ended
September 30 September 30
1997 1996 1997 1996
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (813,982) $ (734,296) $1,644,579 $2,687,715
Adjustments to reconcile net
income (loss) to net cash
from operating activities:
Depreciation, depletion
and amortization 902,512 783,527 3,270,189 2,821,034
Deferred income taxes and
investment tax credits - - 485,400 1,762,500
Other, net 160,285 133,978 692,449 522,271
(Increase) decrease in other
assets (327,792) 984,897 (2,926,294) (4,078,289)
Increase (decrease) in other
liabilities (51,854) (888,475) 2,733,759 307,812
Net cash provided by (used
in) operating activities $ (130,831) $ 279,631 $5,900,082 $4,023,043
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures $ (4,314,597) $ (5,478,052) $(15,485,538) $(15,929,336)
Net cash used in
investing activities $ (4,314,597) $ (5,478,052) $(15,485,538) $(15,929,336)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Dividends on common stock $ (669,494) $ (659,786) $(2,660,781) $(2,247,733)
Issuance of common stock, net 200,907 6,367,709 606,252 6,720,718
Issuance of long-term debt, net - 14,334,834 - 14,310,334
Repayment of long-term debt (16,677) (15,897) (580,356) (562,471)
Issuance of notes payable 8,230,000 5,015,000 34,190,000 25,770,000
Repayment of notes payable (3,610,000) (19,735,000) (22,060,000) (31,980,000)
Net cash provided by
financing activities $ 4,134,736 $ 5,306,860 $9,495,115 $12,010,848
NET INCREASE (DECREASE)IN
CASH AND CASH EQUIVALENTS $ (310,692) $ 108,439 $(90,341) $104,555
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 480,423 151,633 260,072 155,517
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 169,731 $ 260,072 $169,731 $260,072
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period
for:
Interest $ 764,398 $ 742,461 $3,143,138 $2,547,821
Income taxes (net of refunds) $ 563,200 $ (66,222) $262,037 $161,926
</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 five 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 and undeveloped acreage. TranEx Corporation owns a
43 mile intrastate pipeline. 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, 1997 for additional footnote disclosures, including a
summary of significant accounting policies.
(3) On July 19, 1996, Delta completed the issuance and sale
of $15,000,000 of 8.3% Debentures that mature in July, 2026
and 400,000 shares of common stock. The net proceeds of
approximately $20.4 million were used to repay short-term
notes payable and for working capital
(4) On March 14, 1997, Delta filed a request for increased
rates with the Kentucky Public Service Commission (PSC). This
general rate case (Case No. 97-066) requested an annual
revenue increase of approximately $2,962,000, an increase of
7.7%. The test year for the case was the twelve months ended
December 31, 1996. The increased rates were requested to
become effective on April 13, 1997. The PSC suspended the
implementation of the proposed rates so that they could
investigate and determine the reasonableness of those rates.
The hearing for cross-examination of witnesses was held during
September, 1997. This rate increase request is still being
considered by the PSC.
(5) Reference is made to Part II - Item 1 relative to the
status of legal proceedings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures for Delta for fiscal 1998 are expected to
be approximately $10.4 million, of which approximately $4.3 million
was expended during the three months ended September 30, 1997.
Planned capital expenditures for fiscal 1998 include approximately
$2.6 million for continued development of an underground storage
field. Delta generates internally only a portion of the cash
necessary for its capital expenditure requirements and finances the
balance of its capital expenditures on an interim basis through the
use of its borrowing capability under its short-term line of
credit. The current available line of credit is $20 million, of
which approximately $15.5 million was borrowed at September 30,
1997. The line of credit, which is with Bank One, Kentucky, NA,
expires November 15, 1997 and Delta plans to extend the line of
credit through November 15, 1998. These short-term borrowings are
periodically repaid with the net proceeds from the sale of long-
term debt and equity securities, as was done in July, 1996, when
the net proceeds of approximately $20,400,000 from the sale of
$15,000,000 of debentures and 400,000 shares of common stock was
used to repay short-term notes payable 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 during the three and twelve month
periods ending September 30, 1997 and 1996 are summarized below:
Three Months Ended September 30
1997 1996
Provided by (used in)
operating activities $ (130,831) $ 279,631
Used in investing activities (4,314,597) (5,478,052)
Provided by financing
activities 4,134,736 5,306,860
Net increase (decrease) in
cash and cash equivalents $ (310,692) $ 108,439
Twelve Months Ended September 30
1997 1996
Provided by operating
activities $ 5,900,082 $ 4,023,043
Used in investing activities (15,485,538 (15,929,336)
Provided by financing
activities 9,495,115 12,010,848
Net increase (decrease) in
cash and cash equivalents $ (90,341) $ 104,555
RESULTS OF OPERATIONS
Operating Revenues
The increase in operating revenues for the three months ended September
30, 1997 of $1,141,000 was due primarily to 237,600 Mcf (36.2%) increase in
on-system transportation volumes and 197,097 Mcf (53.3%) increase in sales to
Resources customers. An increase in retail sales volumes of 21,000 Mcf
(8.3%) and increases in the cost of gas purchased that were reflected in
rates billed to customers through Delta's gas cost recovery clause also
contributed to the increase.
The increase in operating revenues for the twelve months ended September
30, 1997 of $6,435,000, 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 401,000 Mcf as a result of the warmer winter weather in
1997. Billed degree days were 104% of normal degree days for 1997 as
compared with 112% in 1996. In addition, on-system transportation volumes
for 1997 increased 411,000 Mcf, or 15.3%.
Operating Expenses
The increase in purchased gas expense of $643,000 for the three months
ended September 30, 1997, was due primarily to increased gas purchases for
Resources' customers, increases in the cost of gas purchased for retail sales
and increased volumes of gas purchased for retail sales.
The increase in purchased gas expense of $6,571,000 for the twelve
months ended September 30, 1997, was due primarily to increases in the cost
of gas purchased for retail sales. The increase was partially offset by
decreased gas purchases for retail sales resulting from the warmer winter
weather in 1997.
The increases in operation and maintenance expenses of $191,000 and
$160,000 for the three and twelve months ended September 30, 1997,
respectively, were primarily due to increases in payroll and related benefit
costs.
The increases in depreciation and depletion expense for the three and
twelve months ended September 30, 1997 of $119,000 and $420,000,
respectively, were primarily due to additional depreciable plant.
The increase in taxes other than income taxes for the three and twelve
months ended September 30, 1997 of $84,000 and $90,000, respectively, were
primarily due to increased property taxes which resulted from increased plant
and property valuations, and to increased payroll taxes, which resulted from
increased wages.
The decreases in income taxes for the three and twelve months ending
September 30, 1997 of $41,000 and $647,000, respectively, were primarily due
to the decreases in net income.
Interest Charges
The increases in interest charges for the three and twelve months ended
September 30, 1997 of $216,000 and $876,000, respectively, were due primarily
to increased borrowings for the periods.
Earnings per Common Share
For the twelve months ended September 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.
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, 1997.
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: November 12, 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> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 88,400,337
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 7,763,017
<TOTAL-DEFERRED-CHARGES> 3,355,249
<OTHER-ASSETS> 457,917
<TOTAL-ASSETS> 99,976,520
<COMMON> 2,353,781
<CAPITAL-SURPLUS-PAID-IN> 25,475,640
<RETAINED-EARNINGS> 362,579
<TOTAL-COMMON-STOCKHOLDERS-EQ> 28,192,000
0
0
<LONG-TERM-DEBT-NET> 38,117,638
<SHORT-TERM-NOTES> 15,485,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 1,987,600
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 16,194,282
<TOT-CAPITALIZATION-AND-LIAB> 99,976,520
<GROSS-OPERATING-REVENUE> 5,215,272
<INCOME-TAX-EXPENSE> (481,200)
<OTHER-OPERATING-EXPENSES> 5,514,567
<TOTAL-OPERATING-EXPENSES> 5,033,367
<OPERATING-INCOME-LOSS> 181,905
<OTHER-INCOME-NET> 4,413
<INCOME-BEFORE-INTEREST-EXPEN> 186,318
<TOTAL-INTEREST-EXPENSE> 1,000,300
<NET-INCOME> (813,982)
0
<EARNINGS-AVAILABLE-FOR-COMM> (813,982)
<COMMON-STOCK-DIVIDENDS> 669,494
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> (130,831)
<EPS-PRIMARY> (.35)
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</TABLE>
