SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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
2,367,461 Shares Outstanding as of March 31, 1998.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
Nine Months Ended
Twelve Months Ended
March 31
March 31
March 31
1998
1997
1998
1997
1998
1997
OPERATING REVENUES
$
18,305,458
$
18,651,406
$
35,308,550
$
32,749,137
$
44,728,600
$
41,119,975
OPERATING EXPENSES
Purchased gas
$
10,062,400
$
11,170,918
$
18,548,472
$
18,359,337
$
23,454,358
$
22,430,369
Operation and maintenance
2,242,846
2,223,012
6,693,607
6,408,514
8,916,730
8,887,471
Depreciation and depletion
868,254
750,982
2,562,812
2,179,212
3,318,856
2,852,810
Taxes other than income taxes
312,399
270,250
915,251
767,868
1,204,072
1,050,653
Income taxes
1,377,325
1,201,400
1,238,100
872,700
1,330,200
906,000
Total operating expenses
$
14,863,224
$
15,616,562
$
29,958,242
$
28,587,631
$
38,224,216
$
36,127,303
OPERATING INCOME
$
3,442,234
$
3,034,844
$
5,350,308
$
4,161,506
$
6,504,384
$
4,992,672
OTHER INCOME AND DEDUCTIONS, NET
10,217
4,979
21,148
27,991
34,032
44,975
INCOME BEFORE INTEREST CHARGES
$
3,452,451
$
3,039,823
$
5,371,456
$
4,189,497
$
6,538,416
$
5,037,647
INTEREST CHARGES
1,086,122
989,505
3,227,297
2,675,322
4,184,165
3,475,994
NET INCOME
$
2,366,329
$
2,050,318
$
2,144,159
$
1,514,175
$
2,354,251
$
1,561,653
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
2,363,783
2,329,286
2,356,167
2,280,928
2,351,418
2,192,288
BASIC EARNINGS PER
COMMON SHARE
$
1.00
$
.88
$
.91
$
.66
$
1.00
$
.71
DILUTED EARNINGS PER
COMMON SHARE
$
1.00
$
.88
$
.91
$
.66
$
1.00
$
.71
DIVIDENDS DECLARED PER COMMON SHARE
$
.285
$
.285
$
.855
$
.855
$
1.14
$
1.135
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
March 31, 1998
June 30, 1997
March 31, 1997
UTILITY PLANT
$
125,182,821
$
116,829,158
$
110,214,371
Less-Accumulated provision
for depreciation
(34,099,719)
(31,734,976)
(28,694,189)
Net utility plant
$
91,083,102
$
85,094,182
$
81,520,182
CURRENT ASSETS
Cash and cash equivalents
$
8,940,640
$
480,423
$
993,517
Accounts receivable - net
4,813,515
2,414,632
3,234,489
Deferred (advance) gas cost recovery
(163,693)
1,209,171
4,120,929
Gas in storage
443,663
2,180,606
326,088
Materials and supplies
692,025
773,108
813,760
Prepayments
373,649
312,379
385,377
Total current assets
$
15,099,799
$
7,370,319
$
9,874,160
OTHER ASSETS
Cash surrender value of
Officers' life insurance
$
329,913
$
321,339
$
312,913
Note receivable from officer
116,000
134,000
108,000
Unamortized debt expense and other
4,629,086
3,761,325
3,359,875
Total other assets
$
5,074,999
$
4,216,664
$
3,780,788
Total assets
$
111,257,900
$
96,681,165
$
95,175,130
LIABILITIES AND SHAREHOLDERS' EQUITY
CAPITALIZATION
Common shareholders' equity
$
30,048,071
$
29,474,569
$
29,800,389
Long-term debt
52,614,870
38,107,860
38,206,645
Total capitalization
$
82,662,941
$
67,582,429
$
68,007,034
CURRENT LIABILITIES
Notes payable
$
- -
$
10,865,000
$
9,010,000
Current portion of long-term debt
11,766,700
1,987,600
1,986,300
Accounts payable
2,185,433
2,386,717
2,800,265
Accrued taxes
1,550,746
1,132,315
858,870
Refunds due customers
149,207
577,874
474,102
Customers' deposits
509,098
368,561
401,247
Accrued interest on debt
1,330,529
1,033,220
1,047,839
Accrued vacation
516,032
516,032
485,847
Other current and accrued
liabilities
441,839
492,501
424,835
Total current liabilities
$
18,449,584
$
19,359,820
$
17,489,305
DEFERRED CREDITS AND OTHER
Deferred income taxes
$
8,393,000
$
7,921,100
$
7,801,800
Investment tax credits
673,500
708,400
743,900
Regulatory liability
861,300
892,100
915,200
Advances for construction and other
217,575
217,316
217,891
Total deferred credits and other
$
10,145,375
$
9,738,916
$
9,678,791
Total liabilities and
shareholders' equity
$
111,257,900
$
96,681,165
$
95,175,130
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
Twelve Months Ended
March 31
March 31
1998
1997
1998
1997
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income
$
2,144,159
$
1,514,175
$
2,354,251
$
1,561,653
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation, depletion
and amortization
2,776,232
2,341,348
3,585,434
3,099,994
Deferred income taxes and
investment tax credits
406,200
424,700
466,900
1,804,100
Other, net
555,788
496,617
792,836
626,270
(Increase) decrease in other assets
611,909
(3,140,576)
2,138,879
(944,763)
Increase (decrease) in other
liabilities
175,923
1,883,498
189,563
(415,016)
Net cash provided by
operating activities
$
6,670,211
$
3,519,762
$
9,527,863
$
5,732,238
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures
$
(9,138,924)
$
(12,149,508)
$
(13,705,277)
$
(16,026,733)
Net cash used in
Investing activities
$
(9,138,924)
$
(12,149,508)
$
(13,705,277)
$
(16,026,733)
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends on common stock
$
(2,014,795)
$
(1,985,174)
$
(2,680,694)
$
(2,516,715)
Issuance of common stock
Issuance of long-term debt
444,138
24,147,443
6,643,065
14,334,834
574,125
24,147,443
6,769,044
13,848,192
Repayment of long-term debt
(782,856)
(456,095)
(906,337)
(563,810)
Issuance of short-term debt
23,675,000
22,835,000
31,815,000
29,730,000
Repayment of short-term debt
(34,540,000)
(31,900,000)
(40,825,000)
(36,180,000)
Net cash provided by
Financing activities
$
10,928,930
$
9,471,630
$
12,124,537
$
11,086,711
NET INCREASE IN
CASH AND CASH EQUIVALENTS
$
8,460,217
$
841,884
$
7,947,123
$
792,216
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD
480,423
151,633
993,517
201,301
CASH AND CASH EQUIVALENTS,
END OF PERIOD
$
8,940,640
$
993,517
$
8,940,640
$
993,517
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for
Interest
$
3,013,688
$
2,177,613
$
4,013,075
$
2,840,692
Income taxes (net of refunds)
$
563,200
$
(220,813)
$
351,850
$
65,687
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) Effective November 30, 1997, Delta received approval from the
Kentucky Public Service Commission ("PSC") for an annual revenue
increase of approximately $1,670,000. This resulted from a general
rate case that Delta had filed with the PSC during March, 1997.
Effective May 1, 1998, Delta received approval from the PSC for an
additional annual revenue increase of approximately $157,000 in this
rate case, resulting from a rehearing of certain tax-related items.
(5) The PSC, by its order dated April 24, 1998, approved the
Company's continuing recovery in its rates, effective March 2, 1998,
of costs in connection with its recently developed underground
storage facilities on Canada Mountain. The Company does not expect
the implementation of this order to have a material adverse impact on
its financial position or results of operations.
(6) On March 23, 1998, Delta completed the issuance and sale of
$25,000,000 of 7.15% Debentures that mature in March, 2018. The net
proceeds of approximately $24.1 million were used to repay short-
term notes payable and to redeem the Company's 9% Debentures that
would have matured in April, 2011. The redemption of this debt, the
outstanding principal amount of which was $10,000,000, was completed
on April 30, 1998. Unamortized debt expense of $332,200 and call
premium of $300,000 on the redeemed 9% Debentures were deferred and
are being amortized over the term of the related debt consistent
with regulatory treatment.
(7) The Company adopted Statement of Financial Standards No. 128,
"Earnings per Share", during the second quarter of fiscal 1998. The
adoption of this statement had no impact on current or prior year
earnings per share.
(8) For comparative purposes, certain fiscal 1997 amounts have been
reclassified to conform with fiscal 1998 presentation. There was no
impact on the previously reported net income for fiscal 1997.
(9) 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 $11.6 million, of which approximately $9.1 million was
expended during the nine months ended March 31, 1998. 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 $25 million, of which none was borrowed at March 31,
1998. The line of credit, which is with Bank One, Kentucky, NA, expires
during November, 1998. These short-term borrowings are periodically
repaid with long-term debt and equity securities, as was done when the net
proceeds from the sale of $25,000,000 of debentures in March, 1998 was
used to redeem the Company's $10,000,000 of 9% Debentures that would have
matured in April, 2011 and to repay short-term borrowings.
Delta's sales are seasonal in nature, and the largest proportion of
cash is received during the winter heating months when sales volumes
increase considerably. During non-heating months, cash needs for
operations and construction are partially met through short-term
borrowings. Additionally, most construction activity takes place during
the non-heating season because of more favorable weather conditions, thus
increasing seasonal cash needs.
The primary cash flows for the nine and twelve month periods ending
March 31, 1998 and 1997 are summarized below:
Nine Months Ended March 31
1998
1997
Provided by operating
activities
$
6,670,211
$
3,519,762
Used in investing activities
(9,138,924)
(12,149,508)
Provided by financing activities
10,928,930
9,471,630
Net increase in cash and cash
equivalents
$
8,460,217
$
841,884
Twelve Months Ended March 31
1998
1997
Provided by operating
activities
$
9,527,863
$
5,732,238
Used in investing activities
(13,705,277)
(16,026,733)
Provided by financing
activities
12,124,537
11,086,711
Net increase in
cash and cash equivalents
$
7,947,123
$
792,216
RESULTS OF OPERATIONS
Operating Revenues
The increases in operating revenues for the nine and twelve months
ended March 31, 1998 of approximately $2,559,000 and $3,609,000,
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 and the general rate increase effective November 30, 1997.
In addition, on-system transportation volumes for the nine and twelve
months ended March 31, 1998 increased 504,000 Mcf (23%) and 554,000 Mcf
(20%), respectively, and sales to Resources' customers increased 407,000
Mcf (29%) and 426,000 Mcf (23%), respectively. The increases were
partially offset by decreases in Delta's retail sales volumes of
approximately 71,000 Mcf and 144,000 Mcf for the respective periods.
Billed degree days were approximately 85.2% and 101.5% of the thirty-year
average degree days for the nine and twelve months ended March 31, 1998
as compared with approximately 87.5% and 100% for the similar periods of
1997.
Operating Expenses
The decrease in purchased gas expense for the three months ended
March 31, 1998 of approximately $1,109,000 was due primarily to a decrease
in gas purchases for retail sales of approximately 180,000 Mcf (8.4%)
resulting from warmer winter weather in 1998. Billed degree days in 1998
were 6% less than the billed degree days for the same period in 1997.
The increases in depreciation expense for the three, nine and twelve
months ended March 31, 1998 of approximately $117,000, $384,000 and
$466,000, respectively, were due primarily to additional depreciable
plant.
The increases in taxes other than income taxes for the nine and
twelve months ended March 31, 1998 of $147,000 and $153,000, 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 payroll.
The increases in income taxes for the three, nine and twelve months
ended March 31, 1998, of $176,000, $365,000 and $424,000, respectively,
were primarily due to increases in net income.
Interest Charges
The increases in interest charges for the three and nine months
ended March 31, 1998 of $97,000 and $552,000, respectively, were due
primarily to increased average short-term borrowings. The increase in
interest charges for the twelve months ended March 31, 1998 of $708,000
was due to increased average short-term borrowings and increased long-term
debt issued in July, 1996.
Basic Earnings Per Common Share
For the twelve months ended March 31, 1998, the basic 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 1998 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: May 11, 1998 Glenn R. Jennings
President and Chief Executive Officer
(Duly Authorized Officer)
/s/John F. Hall_____________________
John F. Hall
Vice President - Finance, Secretary
and Treasurer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> OPUR1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 91,083,102
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 15,099,799
<TOTAL-DEFERRED-CHARGES> 4,629,086
<OTHER-ASSETS> 445,913
<TOTAL-ASSETS> 111,257,900
<COMMON> 2,367,461
<CAPITAL-SURPLUS-PAID-IN> 25,705,190
<RETAINED-EARNINGS> 1,975,420
<TOTAL-COMMON-STOCKHOLDERS-EQ> 30,048,071
0
0
<LONG-TERM-DEBT-NET> 52,614,870
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 11,766,700
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 16,828,259
<TOT-CAPITALIZATION-AND-LIAB> 111,257,900
<GROSS-OPERATING-REVENUE> 35,308,550
<INCOME-TAX-EXPENSE> 1,238,100
<OTHER-OPERATING-EXPENSES> 28,720,142
<TOTAL-OPERATING-EXPENSES> 29,958,242
<OPERATING-INCOME-LOSS> 5,350,308
<OTHER-INCOME-NET> 21,148
<INCOME-BEFORE-INTEREST-EXPEN> 5,371,456
<TOTAL-INTEREST-EXPENSE> 3,227,297
<NET-INCOME> 2,144,159
0
<EARNINGS-AVAILABLE-FOR-COMM> 2,144,159
<COMMON-STOCK-DIVIDENDS> 2,014,795
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 6,670,211
<EPS-PRIMARY> .91
<EPS-DILUTED> .91
</TABLE>
