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, 1999
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
2,436,419 Shares Outstanding as of December 31, 1999.
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
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES $ 9,964,446 $ 8,630,074 $ 14,717,489 $ 13,568,209 $ 39,821,517 $ 40,823,124
OPERATING EXPENSES
Purchased gas $ 4,070,707 $ 3,560,085 $ 5,329,818 $ 5,081,164 $ 16,704,642 $ 19,094,583
Operation and maintenance 2,337,947 2,232,268 4,646,064 4,384,316 9,398,854 8,901,768
Depreciation and depletion 989,753 961,346 1,963,820 1,900,275 3,904,541 3,651,099
Taxes other than income taxes 332,522 323,076 679,723 634,237 1,380,463 1,243,443
Income taxes 364,225 138,025 (115,850) (278,750) 1,404,100 1,261,475
Total operating expenses $ 8,095,154 $ 7,214,800 $ 12,503,575 $ 11,721,242 $ 32,792,600 $ 34,152,368
OPERATING INCOME $ 1,869,292 $ 1,415,274 $ 2,213,914 $ 1,846,967 $ 7,028,917 $ 6,670,756
OTHER INCOME AND DEDUCTIONS, NET 7,700 10,487 12,282 15,082 26,960 72,059
INCOME BEFORE INTEREST CHARGES $ 1,876,992 $ 1,425,761 $ 2,226,196 $ 1,862,049 $ 7,055,877 $ 6,742,815
INTEREST CHARGES 1,243,674 1,172,986 2,394,737 2,303,051 4,632,622 4,510,374
NET INCOME (LOSS) $ 633,318 $ 252,775 $ (168,541) $ (441,002) $ 2,423,255 $ 2,232,441
AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 2,424,747 2,390,737 2,420,809 2,386,177 2,411,344 2,376,645
BASIC AND DILUTED EARNINGS
(LOSS) PER COMMON SHARE $ .26 $ .11 $ (.07) $ (.18) $ 1.00 $ .94
DIVIDENDS DECLARED PER
COMMON SHARE $ .285 $ .285 $ .57 $ .57 $ 1.14 $ 1.14
</TABLE>
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS December 31, 1999 June 30, 1999 December 31, 1998
UTILITY PLANT $ 139,959,214 $ 133,804,954 $ 131,386,516
Less-Accumulated provision
for depreciation (40,213,472) (38,308,798) (36,790,643)
Net utility plant $ 99,745,742 $ 95,496,156 $ 94,595,873
CURRENT ASSETS
Cash and cash equivalents $ 350,108 $ 248,588 $ 422,379
Accounts receivable - net 2,445,288 1,629,883 1,903,643
Gas in storage 3,718,333 3,501,177 3,364,903
Deferred gas cost 2,327,254 - 1,354,892
Materials and supplies 565,387 664,830 451,812
Prepayments 36,390 188,089 106,884
Total current assets $ 9,442,760 $ 6,232,567 $ 7,604,513
OTHER ASSETS
Cash surrender value of
officers' life insurance $ 339,450 $ 339,450 $ 347,789
Note receivable from officer 110,000 122,000 134,000
Unamortized debt expense
and other 5,341,830 5,282,944 4,589,311
Total other assets $ 5,791,280 $ 5,744,394 $ 5,071,100
Total assets $ 114,979,782 $ 107,473,117 $ 107,271,486
LIABILITIES AND SHAREHOLDERS' EQUITY
CAPITALIZATION
Common shareholders'
equity $ 28,728,396 $ 29,912,007 $ 28,351,812
Long-term debt 50,518,921 51,699,700 51,757,845
Total capitalization $ 79,247,317 $ 81,611,707 $ 80,109,657
CURRENT LIABILITIES
Notes payable $ 16,700,000 $ 5,695,000 $ 9,030,000
Current portion of long-
term debt 2,450,000 2,450,000 2,450,000
Accounts payable 2,467,220 2,324,383 2,870,630
Accrued taxes 572,039 954,675 (43,869)
Refunds due customers 79,693 41,349 72,839
Advance recovery of gas costs - 1,198,465 -
Customers' deposits 550,986 524,263 594,863
Accrued interest on debt 1,328,555 1,225,903 1,220,198
Accrued vacation 584,014 584,014 528,952
Other accrued liabilities 359,359 493,518 382,906
Total current liabilities $ 25,091,866 $ 15,491,570 $ 17,106,519
DEFERRED CREDITS AND OTHER
Deferred income taxes $ 9,281,914 $ 8,826,655 $ 8,436,725
Investment tax credits 536,100 567,800 602,550
Regulatory liability 726,975 760,625 795,975
Advances for construction
and other 95,610 214,760 220,060
Total deferred credits
and other $ 10,640,599 $ 10,369,840 $ 10,055,310
Total liabilities and
shareholders' equity $114,979,782 $107,473,117 $107,271,486
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended Twelve Months Ended
December 31 December 31
1999 1998 1999 1998
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (168,541) $ (441,002) $ 2,423,255 $ 2,232,441
Adjustments to reconcile net
Income (loss) to net cash
From operating activities:
Depreciation, depletion
and amortization 2,150,668 2,238,006 4,176,610 4,307,282
Deferred income
taxes and investment
tax credits 389,909 343,050 709,739 (98,925)
Other, net 490,710 387,858 831,656 705,594
(Increase)decrease in other
assets (4,968,439) (3,011,834) (3,369,493) 2,594,114
Increase(decrease) in other
liabilities (325,389) (292,027) 190,897 (2,297,513)
Net cash provide by
(used in) operating
activities $ (2,431,082) $ (775,949) $4,962,664 $7,442,993
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures $ (6,239,328) $ (4,820,728) $(9,338,263) $(8,355,710)
Net cash used in
investing
activities $ (6,239,328) $ (4,820,728) $(9,338,263) $(8,355,710)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Dividends on common
stock $ (1,383,228) $(1,360,481) $ (2,751,745) $ (2,709,382)
Issuance of common
stock, net 368,158 343,001 705,074 573,055
Issuance of long-term
debt, net - - - 23,797,796
Repayment of long-term
debt (1,218,000) (237,000) (1,320,001) (10,405,777)
Issuance of notes
payable 15,805,000 12,140,000 25,280,000 21,735,000
Repayment of notes
payable (4,800,000) (4,985,000) (17,610,000) (32,100,000)
Net cash provided by
financing
activities $ 8,771,930 $ 5,900,520 $ 4,303,328 $ 890,692
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS $ 101,520 $ 303,843 $ (72,271) $ (22,025)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 248,588 118,536 422,379 444,404
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 350,108 $ 422,379 $ 350,108 $ 422,379
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the
period for:
Interest $ 2,086,716 $ 2,378,698 $ 4,811,131 $ 4,520,604
Income taxes (net of
refunds) $ 211,452 $ 380,400 $ 543,075 $ 1,456,400
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, to customers not on Delta's system and to
Delta for system supply. Deltran, Inc., now inactive, operated an
underground natural gas storage field that it leased from Delta through
December 31, 1999. Enpro, Inc. owns and operates production properties
and undeveloped acreage. All subsidiaries of Delta 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, 1999 for additional
footnote disclosures, including a summary of significant accounting
policies.
(3) Effective November 30, 1997, Delta received approval from the
Kentucky Public Service Commission ("PSC") for an annual revenue
increase of $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 $117,000 in this rate case, resulting from a
rehearing of certain tax related items.
(4) 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. Loss on extinguishment of debt of $632,000, which
included $332,000 of unamortized debt issuance expense and call
premium of $300,000 on the redeemed 9% Debentures, was deferred and is
being amortized over the term of the related debt consistent with
regulatory treatment.
(5) On December 27, 1999, Delta received approval from the PSC for an
annual revenue increase of $420,000. This resulted from a general rate
case that Delta had filed with the PSC during July, 1999. The new
tariffs include a weather normalization tariff whereby Delta is
permitted to adjust rates for the billing months of November through
March to reflect variations from normal weather. The new rates are
effective for service on and after January 1, 2000.
(6) External and intersegment revenues and income(loss) by business
segment are shown below:
($000) 1999
Three Months Six Months Twelve Months
Ended Ended Ended
December 31, 1999 December 31, 1999 December 31, 1999
Revenues
Regulated
External customers 6,473 9,354 30,368
Intersegment 1,754 3,035 5,802
Total regulated 8,227 12,389 36,170
Non-regulated
External customers 3,491 5,363 9,454
Intersegment 3,391 7,233 14,279
Total non-regulated 6,882 12,596 23,733
Eliminations for
intersegment
(5,145) (10,268) (20,081)
Total operating revenues 9,964 14,717 39,822
Net Income (Loss)
Regulated 292 (608) 1,842
Non-regulated 341 439 581
Total net income (loss) 633 (169) 2,423
1998
Three Months Six Months Twelve Months
Ended Ended Ended
December 31, 1998 December 31, 1998 December 31, 1998
Revenues
Regulated
External customers 6,114 8,987 31,574
Intersegment 1,480 2,731 5,399
Total regulated 7,594 11,718 36,973
Non-regulated
External customers 2,516 4,581 9,249
Intersegment 2,412 8,765 17,990
Total non-regulated 4,928 13,346 27,239
Eliminations for
intersegment (3,892) (11,496) (23,389)
Total operating
revenues 8,630 13,568 40,823
Net Income (Loss)
Regulated 146 (683) 1,711
Non-regulated 107 242 521
Total net income (loss) 253 (441) 2,232
(7) On July l, 1999, the Company adopted Statement of Position
("SOP") 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." The adoption of this SOP did not and is
not expected to have a material impact on the Company's financial
position, results of operations or financial statement disclosures.
(8) 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
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. During the warmer, non-
heating months, therefore, cash needs for operations and construction
are partially met through short-term borrowings.
Capital expenditures for Delta for fiscal 2000 are expected to be
$9.9 million, of which $6.2 million was expended during the six months
ended December 31, 1999. 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 $16.7 million
was borrowed at December 31, 1999. The line of credit, which is with
Bank One, Kentucky, NA, requires renewal during November, 2000. 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 March
1998 when the net proceeds of $24.1 million from the sale of $25 million
of debentures were used to repay short-term debt and to redeem the
Company's 9% debentures, that would have matured in 2011, in the amount
of $10 million.
The primary cash flows for the six and twelve month periods ending
December 31, 1999 and 1998 are summarized below:
Six Months Ended December 31
1999 1998
Used in operating activities $ (2,431,082) $ (775,949)
Used in investing activities (6,239,328) (4,820,728)
Provided by financing activities 8,771,930 5,900,520
Net increase in cash
and cash equivalents $ 101,520 $ 303,843
Twelve Months Ended December 31
1999 1998
Provided by operating activities $ 4,962,664 $ 7,442,993
Used in investing activities (9,338,263) (8,355,710)
Provided by financing activities 4,303,328 890,692
Net decrease in cash
and cash equivalents $ (72,271) $ (22,025)
RESULTS OF OPERATIONS
Operating Revenues
A comparison of Delta's revenues and volumes for the three, six
and twelve months ended December 31, 1999 with the same periods in the
preceding year are set forth below:
Increase or (Decrease) 1999 Compared with 1998
Three Months Six Months Twelve Months
Ended Ended Ended
December 31 December 31 December 31
Retail sales
Variation in gas rates $ 171,000 $ 191,000 $(2,458,000)
Variation in sales volume 1,107,000 852,000 1,246,000
Transportation 56,000 106,000 210,000
$1,334,000 $1,149,000 $(1,002,000)
Volumes sold at retail (Mcf) 35,000 24,800 135,000
Volumes transported (Mcf) 196,000 248,000 500,000
Heating degree days billed were 49%, 48% and 90%, of the thirty-year
average ("normal") for the three, six and twelve months ended December
31, 1999, as compared with 47%, 46% and 83% for the similar periods of
1998.
Operating Expenses
The increases in purchased gas expense for the three and six
months ended December 31, 1999 of $511,000 and $249,000, respectively,
were due primarily to increased gas purchases for retail sales resulting
from the colder weather in 1999.
The decrease in purchased gas expense for the twelve months ended
December 31, 1999 of $2,390,000 was primarily due to decreases in the
cost of gas purchased for retail sales. This decrease was partially
offset by increased gas purchases for retail sales resulting from the
colder weather in 1999.
The increases in income taxes for the three, six, and twelve
months ended December 31, 1999, of $226,000, $163,000 and $143,000,
respectively, were primarily due to increases in pre-tax income.
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, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Registrant held its annual meeting of shareholders on
November 18, 1999.
(b) Glenn R. Jennings, Lewis N. Melton and Arthur E. Walker, Jr.
were elected to Delta's Board of Directors for three-year
terms expiring in 2002. Donald R. Crowe and Billy Joe Hall
will continue to serve on Delta's Board of Directors until
the election in 2001. Effective January 15, 2000, John D.
Harrison resigned from Delta's Board of Directors. Jane
Hylton Green, Harrison D. Peet and Henry C. Thompson will
continue to serve on Delta's Board of Directors until the
election in 2000.
(c) The total shares voted in the election of Directors were
2,145,823. There were no broker non-votes. The shares voted
for each Nominee were:
Glenn R. Jennings For 2,114,723 Withheld 31,100
Lewis N. Melton For 2,114,209 Withheld 31,614
Arthur E. Walker, Jr. For 2,116,523 Withheld 29,300
(d) Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) No Exhibits are required to be filed with this request.
(b) Reports on Form 8-K. On January 5, 2000, the Registrant filed
a report on Form 8-K disclosing an order from the Kentucky
Public Service Commission (general rate case 99-176)
approving new rates effective January 1, 2000. The approved
new rates provided for additional annual revenues of
approximately $420,000. The form 8-K also disclosed that the
order allowed the establishment of a three year pilot weather
normalization adjustment clause as a part of Delta's new
rates.
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, 2000 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-30-2000
<PERIOD-END> DEC-31-1999
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<TOTAL-NET-UTILITY-PLANT> 99,745,742
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<TOTAL-DEFERRED-CHARGES> 5,341,830
<OTHER-ASSETS> 449,450
<TOTAL-ASSETS> 114,979,782
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<CAPITAL-SURPLUS-PAID-IN> 26,814,856
<RETAINED-EARNINGS> (522,879)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 28,728,396
0
0
<LONG-TERM-DEBT-NET> 50,518,921
<SHORT-TERM-NOTES> 16,700,000
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<OTHER-INCOME-NET> 12,282
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