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, 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
2,361,922 Shares Outstanding as of December 31, 1997.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
Three Months Ended Six Months Ended Twelve Months Ended
December 31 December 31 December 31
1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES $ 11,787,820 $ 10,023,399 $ 17,003,092 $14,097,731 $45,074,546 $38,492,151
OPERATING EXPENSES
Purchased gas $ 6,377,384 $ 5,722,274 $ 8,486,072 $ 7,188,419 $24,562,876 $19,221,120
Operation and maintenance 2,221,490 2,146,977 4,450,761 4,185,502 8,896,894 8,813,219
Depreciation and depletion 848,404 701,040 1,694,558 1,428,230 3,201,585 2,712,661
Taxes other than income taxes 272,398 251,495 602,852 497,618 1,161,923 1,061,115
Income taxes 341,975 111,100 (139,225) (328,700) 1,154,275 1,304,600
Total operating expenses $ 10,061,651 $ 8,932,886 $ 15,095,018 $12,971,069 $38,977,553 $33,112,715
OPERATING INCOME $ 1,726,169 $ 1,090,513 $ 1,908,074 $ 1,126,662 $ 6,096,993 $5,379,436
OTHER INCOME AND DEDUCTIONS, NET 6,518 9,009 10,931 23,012 28,794 41,027
INCOME BEFORE INTEREST CHARGES $ 1,732,687 $ 1,099,522 $ 1,919,005 $ 1,149,674 $6,125,787 $5,420,463
INTEREST CHARGES 1,140,875 901,369 2,141,175 1,685,817 4,087,549 3,183,684
NET INCOME (LOSS) $ 591,812 $ 198,153 $ (222,170) $ (536,143) $2,038,238 $2,236,779
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,357,107 2,321,571 2,352,637 2,259,639 2,342,910 2,090,251
BASIC EARNINGS (LOSS) PER
COMMON SHARE $ .25 $ .09 $ (.09) $ (.24) $.87 $1.07
DILUTED EARNINGS (LOSS) PER
COMMON SHARE $ .25 $ .09 $ (.09) $ (.24) $.87 $1.07
DIVIDENDS DECLARED PER COMMON $ .285 $ .285 $ .57 $ .57 $1.14 $1.13
SHARE
</TABLE>
<TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS December 31, 1997 June 30, 1997 December 31, 1996
<S> <C> <C> <C>
UTILITY PLANT $123,913,386 $ 116,829,158 $ 108,226,719
Less-Accumulated provision
for depreciation (33,251,728) (31,734,976) (27,896,192)
Net utility plant $ 90,661,658 $ 85,094,182 $ 80,330,527
CURRENT ASSETS
Cash and cash equivalents $ 444,404 $ 480,423 $ 18,201
Accounts receivable - net 3,615,358 2,414,632 2,218,541
Gas in Storage 1,855,202 1,209,171 411,625
Deferred gas cost 3,796,666 2,180,606 5,851,153
Materials and supplies 710,358 773,108 640,722
Prepayments 388,449 716,076 174,857
Total current assets $ 10,810,437 $ 7,774,016 $ 9,315,099
OTHER ASSETS
Cash surrender value of
officers' life insurance $ 329,913 $ 321,339 $ 312,913
Note receivable from officer 122,000 134,000 114,000
Unamortized debt expense and other 3,335,330 3,357,628 2,896,758
Total other assets $ 3,787,243 $ 3,812,967 $ 3,323,671
Total assets $105,259,338 $ 96,681,165 $ 92,969,297
LIABILITIES AND SHAREHOLDERS' EQUITY
CAPITALIZATION
Common shareholders' equity $ 28,255,698 $ 29,474,569 $ 28,248,744
Long-term debt 37,976,596 38,107,860 38,257,155
Total capitalization $ 66,232,294 $ 67,582,429 $ 66,505,899
CURRENT LIABILITIES
Notes payable $ 19,395,000 $ 10,865,000 $ 7,790,000
Current portion of long-term debt 1,553,777 1,987,600 1,986,300
Accounts payable 4,391,125 2,386,717 4,979,032
Accrued taxes 592,850 1,132,315 (184,122)
Refunds due customers 461,147 577,874 82,060
Customers' deposits 498,566 368,561 381,341
Accrued interest on debt 1,081,096 1,033,220 890,233
Accrued vacation 516,032 516,032 485,847
Other current and accrued
liabilities 385,701 492,501 369,381
Total current liabilities $ 28,875,294 $ 19,359,820 $ 16,780,072
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 867,675 892,100 915,200
Advances for construction and other 217,575 217,316 222,426
Total deferred credits and other $ 10,151,750 $ 9,738,916 $ 9,683,326
Total liabilities and shareholders'
equity $105,259,338 $ 96,681,165 $92,969,297
</TABLE>
<TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended Twelve Months Ended
December 31 December 31
1997 1996 1997 1996
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (222,170) $ (536,143) $ 2,038,238 $ 2,236,779
Adjustments to reconcile net
income (loss) to net cash
from operating activities:
Depreciation, depletion
and amortization 1,823,208 1,537,572 3,436,840 2,930,125
Deferred income taxes and
investment tax credits 412,575 424,700 473,275 1,822,700
Other, net 380,844 358,853 688,134 606,155
Increase in other assets (3,109,967) (3,071,814) (1,651,758) (4,981,623)
Increase in other
liabilities 1,419,556 2,398,800 917,894 450,684
Net cash provided by
operating activities $ 704,046 $ 1,111,968 $ 5,902,623 $ 3,064,820
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures $(7,659,582) $(10,071,761) $(14,236,815) $(16,205,617)
Net cash used in
investing activities $ (7,659,582) $ (10,071,761) $ (14,236,815) $(16,205,617)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Dividends on common stock $ (1,341,332) $ (1,321,313) $ (2,671,093) $ (2,382,238)
Issuance of common stock 344,631 6,477,877 639,809 6,748,390
Issuance of long-term debt - 14,334,834 - 13,848,192
Repayment of long-term debt (613,782) (380,037) (813,321) (577,284)
Issuance of short-term debt 16,605,000 12,300,000 35,280,000 28,335,000
Repayment of short-term debt (8,075,000) (22,585,000) (23,675,000) (33,255,000)
Net cash provided by
financing activities $ 6,919,517 $ 8,826,361 $ 8,760,395 $ 12,717,060
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ (36,019) $ (133,432) $ 426,203 $ (423,737)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 480,423 151,633 18,201 441,938
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 444,404 $ 18,201 $ 444,404 $ 18,201
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,149,099 $ 1,373,614 $ 4,008,286 $ 2,719,833
Income taxes (net of refunds) $ 563,200 $ (131,000) $ 366,032 $ 97,148
</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) 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. The PSC has agreed to a re-hearing,
scheduled for April 2, 1998, on tax-related items that could
result in approximately $157,000 of additional annual
revenues.
(5) 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.
(6) 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 $7.7 million
was expended during the six months ended December 31, 1997. 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
approximately $19.4 million was borrowed at December 31, 1997. 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 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.
The Company anticipates a long-term debt financing during the third
or fourth quarter of fiscal 1998. Proceeds are to be used to
refinance certain long-term debt 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 six and twelve month periods
ending December 31, 1997 and 1996 are summarized below:
Six Months Ended December 31
1997 1996
Provided by operating activities $ 704,046 $ 1,111,968
Used in investing activities (7,659,582) (10,071,761)
Provided by financing activities 6,919,517 8,826,361
Net decrease in cash
and cash equivalents $ (36,019) $ (133,432)
Twelve Months Ended December 31
1997 1996
Provided by operating activities $ 5,902,623 $ 3,064,820
Used in investing activities (14,236,815) (16,205,617)
Provided by financing activities 8,760,395 12,717,060
Net increase (decrease) in cash
and cash equivalents $ 426,203 $ (423,737)
RESULTS OF OPERATIONS
Operating Revenues
The increases in operating revenues for the three and six
months ended December 31, 1997 of $1,764,000 and $2,905,000,
respectively, were due primarily to increases in retail sales
volumes of 89,000 Mcf (8.9%) and 110,000 Mcf (8.8%), respectively,
as compared to similar periods of 1996, 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 three and six months ended December
31, 1997, increased 195,000 Mcf (27.2%) and 431,000 Mcf (31.5%),
respectively, as compared with the similar periods of 1996 and
sales to Resources' customers increased 134,000 Mcf (24.8%) and
331,000 Mcf (36.4%), respectively, as compared with the similar
periods of 1996. Heating degree days billed were 84% of the thirty-
year average ("normal") for the six months ended December 31, 1997,
as compared with 72% for the similar period of 1996.
The increase in operating revenues of $6,582,000 for the
twelve months ended December 31, 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, and
the general rate increase effective November 30, 1997. In addition,
on-system transportation volumes for the twelve months ended
December 31, 1997, increased 580,000 Mcf (21.4%) and sales to
Resources' customers increased 367,000 Mcf (20.1%). These increases
were partially offset by a decrease in retail sales volumes of
252,000 Mcf (5.4%). Heating degree days billed were 107% of normal
weather for 1997 as compared with 110% for 1996.
Operating Expenses
The increases in purchased gas expense for the three and six
months ended December 31, 1997 of $655,000 and $1,298,000,
respectively, were due primarily to increased gas purchases for
retail sales and 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 $5,342,000 for the
twelve months ended December 31, 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 reduced sales due to the warmer winter
weather during 1997.
The increases in depreciation expense for the three, six
and twelve months ended December 31, 1997 of $147,000, $266,000 and
$489,000, respectively, were due primarily to additional
depreciable plant.
The increases in taxes other than income taxes for the six and
twelve months ended December 31, 1997 of $105,000 and $101,000,
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 and six months
ended December 31, 1997, of $231,000 and $189,000, respectively,
and the decrease in income taxes for the twelve months ended
December 31, 1997 of $150,000, were primarily due to changes in net
income.
Interest Charges
The increases in interest charges for the three and six months
ended December 31, 1997 of $240,000 and $455,000, respectively,
were due primarily to increased average short-term borrowings. The
increase for the twelve months ended December 31, 1997 of $904,000
was due primarily to the increased long-term debt issued in July,
1996.
Basic Earnings (Loss) Per Common Share
For the twelve months ended December 31, 1997, the basic
earnings (loss) 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Registrant held its annual meeting of
shareholders on November 20, 1997.
(b) Jane Hylton Green, Harrison D. Peet and Henry C.
Thompson were elected to Delta's Board of Directors for
three-year terms expiring in 2000. Glenn R. Jennings,
Virgil E. Scott and Arthur E. Walker, Jr. will continue
to serve on Delta's Board of Directors until the election
in 1999. Donald R. Crowe, Billy Joe Hall and John D.
Harrison will continue to serve on Delta's Board of
Directors until the election in 1998.
(c) The total shares voted in the election of Directors
were 2,049,614. There were no broker non-votes. The
shares voted for each Nominee were:
Jane Hylton Green For 2,023,120 Withheld 26,494
Harrison D. Peet For 2,023,022 Withheld 26,592
Henry C. Thompson For 2,023,423 Withheld 26,191
(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. On December 29, 1997, the
Registrant filed a report on Form 8-K disclosing an Order
from the Kentucky Public Service Commission (general rate
case 97-066) approving new rates effective November 30,
1997. The approved new rates provided for additional
annual revenues of approximately $1,670,000. The Form 8-
K also disclosed that the Registrant had filed for
rehearing on approximately $900,000 of additional
revenues the PSC had disallowed.
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 12, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> DEC-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 90,661,658
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<TOTAL-CURRENT-ASSETS> 10,810,437
<TOTAL-DEFERRED-CHARGES> 3,335,330
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<CAPITAL-SURPLUS-PAID-IN> 25,611,223
<RETAINED-EARNINGS> 282,553
<TOTAL-COMMON-STOCKHOLDERS-EQ> 28,255,698
0
0
<LONG-TERM-DEBT-NET> 37,976,596
<SHORT-TERM-NOTES> 19,395,000
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<INCOME-TAX-EXPENSE> (139,225)
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<INCOME-BEFORE-INTEREST-EXPEN> 1,919,005
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