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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________.
Commission file number 0-8788.
DELTA NATURAL GAS COMPANY, INC.
-------------------------------
(Exact name of registrant as specified in its charter)
KENTUCKY 61-0458329
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(State of Incorporation) (IRS Employer Identification Number)
3617 Lexington Road, Winchester, Kentucky 40391
----------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 859-744-6171.
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
---- ----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $1 Par Value
-------------------------
(Title of class)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X]
As of August 30, 2001, Delta Natural Gas Company, Inc. had outstanding
2,503,095 shares of common stock $1 Par Value, and the aggregate market value of
the voting stock held by non-affiliates was approximately $49,411,095.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive proxy statement to be filed with the
Commission not later than 120 days after June 30, 2001, is incorporated by
reference in Part III of this Report.
TABLE OF CONTENTS
Page Number
PART I
Item 1. Business 1
General 1
Gas Operations and Supply 1
Regulatory Matters 3
Capital Expenditures 5
Financing 5
Employees 5
Consolidated Statistics 6
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of
Security Holders 8
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 8
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 15
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 16
PART III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial
Owners and Management 16
Item 13. Certain Relationships and Related Transactions 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 17
Signatures 20
PART I
Item 1. Business
General
Delta Natural Gas Company, Inc. ("Delta" or "the Company"), a regulated
public utility, was organized in 1949. Delta established its first retail gas
distribution system in 1951, which provided service to 300 customers in
Owingsville and Frenchburg, Kentucky. As a result of acquisitions and expansions
of its customer base within its existing service areas, Delta provides retail
gas distribution service to 40,000 customers in central and southeastern
Kentucky and, additionally, provides transportation service to industrial
customers and interconnected pipelines located in the area. Delta operates under
two segments, a regulated segment and an unregulated segment (see Note 10 of the
Notes to Consolidated Financial Statements).
Gas Operations and Supply
The Company purchases, produces and stores natural gas for distribution to
its retail customers and also provides transportation service to industrial
customers and inter-connected pipelines through facilities located in 23
predominantly rural counties in central and southeastern Kentucky. The economy
of Delta's service area is based principally on light industry, farming and coal
mining. The communities in Delta's service area typically contain populations of
less than 20,000. The three largest service areas are Nicholasville, Corbin and
Berea, where Delta serves 7,100, 6,500 and 4,100 customers, respectively.
The communities served by Delta continue to expand, resulting in growth
opportunities for the Company. Industrial parks have been developed in several
areas and have resulted in additional industrial customers, some of which are
on-system transportation customers.
Currently, over 99% of Delta's customers are residential and commercial.
Delta's remaining, light industrial customers purchased 5% of the total volume
of gas sold by Delta at retail during 2001.
The Company's revenues are affected by various factors, including rates
billed to customers, the cost of natural gas, economic conditions in the areas
that the Company serves, weather conditions and competition.
Delta competes for customers and sales with alternative sources of energy,
including electricity, coal, oil, propane and wood. The Company's marketing
subsidiaries, which purchase gas and resell it to various industrial customers
and others, also compete for their customers with producers and marketers of
natural gas. Higher gas costs, which the Company is generally able to pass
through to customers, may influence customers to conserve, or, in the case of
industrial customers, to use alternative energy sources. Also, the potential
bypass of Delta's system by industrial customers and others is a competitive
concern that Delta has addressed and will continue to address.
Delta's retail sales are seasonal and temperature-sensitive as the majority
of the gas sold by Delta is used for heating. This seasonality impacts Delta's
liquidity position and its management of its working capital requirements during
each twelve month period, and changes in the average temperature during the
winter months impacts its revenues year-to-year. Delta's current tariffs provide
for some adjustments of gas rates through a weather normalization tariff (see
Management's Discussion and Analysis of Financial Condition and Results of
Operations).
Retail gas sales in 2001 were 4,528,000 Mcf, generating $47,174,000 in
revenues, as compared to 3,837,000 Mcf and $31,728,000 in revenues for 2000.
Heating degree days billed during 2001 were 106.8% of normal as compared with
89.6% in 2000. Sales volumes increased by 691,000 Mcf, or 18%, in 2001 as
compared to 2000.
Delta's transportation of natural gas during 2001 generated revenues of
$4,709,500 as compared with $4,578,000 during 2000. Of the total transportation
in 2001, $3,895,000 (4,768,000 Mcf) and $814,000 (2,677,000 Mcf) were earned for
transportation for on-system and off-system customers, respectively. Of the
total transportation for 2000, $4,056,000 (4,703,000 Mcf) and $522,000
(1,672,000 Mcf) were earned for transportation for on-system and off-system
customers, respectively.
As an active participant in many areas of the natural gas industry, Delta
plans to continue its efforts to expand its gas distribution system. Delta
continues to consider acquisitions of other gas systems, some of which are
contiguous to its existing service areas, as well as expansion within its
existing service areas. During October, 1999, Delta acquired the Mt. Olivet
Natural Gas Company in Robertson and Mason counties, consisting of approximately
300 primarily residential customers.
The Company also anticipates continuing activity in gas production and
transportation and plans to pursue and increase these activities wherever
practicable. The Company will continue to consider the construction or
acquisition of additional transmission, storage and gathering facilities to
provide for increased transportation, enhanced supply and system flexibility.
Some producers in Delta's service area can access certain pipeline delivery
systems other than Delta, which provides competition from others for
transportation of such gas. Delta will continue its efforts to purchase or
transport any natural gas available that is produced in reasonable proximity to
its facilities.
Delta receives its gas supply from a combination of interstate and Kentucky
sources. Delta's interstate gas supply is transported and/or stored by Tennessee
Gas Pipeline Company ("Tennessee"), Columbia Gas Transmission Corporation
("Columbia"), Columbia Gulf and Texas Eastern Transmission Corporation. Delta
acquires its interstate gas supply from gas marketers. These marketers are
responsible for arranging transportation of the gas volumes to Delta's system.
Delta's agreements with Tennessee extend until 2005 and thereafter continue
on a year-to-year basis until terminated by either party. Tennessee is obligated
under the agreements to transport on a firm basis up to 19,500 Mcf per day for
Delta. During 2001, Delta purchased 1,388,000 Mcf that was delivered on
Tennessee from a gas marketer under an agreement that began May 1, 2000 and
extends through April 30, 2003.
Delta's agreements with Columbia and Columbia Gulf extend until 2008 and
thereafter continue on a year-to-year basis until terminated by one of the
parties to the particular agreement. Columbia and Columbia Gulf are obligated
under the agreements to transport up to 12,500 Mcf per day and 4,300 Mcf per
day, respectively, for Delta. During 2001, Delta purchased a total of 815,000
Mcf that was delivered on Columbia and Columbia Gulf from a gas marketer under
an agreement that extends through April 30, 2002 and continues thereafter on a
year-to-year basis.
Delta has an agreement with Columbia Natural Resources ("CNR") to purchase
natural gas through October 31, 2004. Delta purchased 74,000 Mcf from CNR during
2001. CNR is responsible for the delivery of these volumes to Delta's system.
Delta has an agreement with its wholly-owned subsidiary, Enpro, Inc.
("Enpro"), to purchase natural gas, and during 2001 Delta purchased a total of
132,000 Mcf from Enpro. Enpro's volumes are transported on Delta's system. Enpro
also produces oil, but that production has not been significant.
Delta's wholly-owned subsidiaries, Delta Resources, Inc. ("Delta
Resources") and Delgasco, Inc. ("Delgasco") purchase gas under agreements with
various marketers and Kentucky producers. The marketers are responsible for the
transportation of their volumes to Delta's system. Volumes from the Kentucky
producers are transported on Delta's system. The gas is resold to industrial
customers on Delta's system, to Delta for system supply and to others.
Delta owns and operates an underground natural gas storage field with an
estimated eventual working capacity of 4,000,000 Mcf. This field has been used
to provide a significant portion of Delta's winter supply needs since 1996. This
storage capability permits Delta to purchase and store gas during the
non-heating months and then withdraw and sell the gas during the peak usage
months. During 2001, 1,900,000 Mcf was withdrawn from this storage field.
Although there are competitors for the acquisition of gas supplies, Delta
continues to seek additional new gas supplies from all available sources,
including those in the proximity of its facilities in southeastern Kentucky.
Also, Delta Resources and Delgasco continue to pursue acquisitions of new gas
supplies from Kentucky producers and others. Delta will continue to maintain an
active gas supply management program that emphasizes long-term reliability and
the pursuit of cost effective sources of gas for its customers.
Regulatory Matters
Delta is subject to the regulatory authority of the Public Service
Commission of Kentucky ("PSC") with respect to various aspects of Delta's
business, including rates and service to retail and transportation customers.
The company monitors the need to file a general rate case as a way to adjust its
sales prices.
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 adjustment tariff whereby Delta is permitted to adjust rates for
the billing months of December through April to reflect variations from normal
weather. The new rates were effective for service on and after January 1, 2000.
Delta's weather normalization adjustment tariff was approved by the PSC in
Delta's last rate case on an experimental basis through the 2002 heating season.
On June 19, 2001, Delta filed a request with the PSC seeking to make the weather
normalization adjustment tariff a permanent part of its tariffs. This request is
pending before the PSC.
Delta's rates include a Gas Cost Recovery ("GCR") clause, which permits
changes in Delta's gas costs to be reflected in the rates charged to customers.
The GCR requires Delta to make quarterly filings with the PSC, but such
procedure does not require a general rate case.
On September 12, 2000, the PSC initiated an investigation of increases in
wholesale natural gas prices and their impacts on customers served by Kentucky's
jurisdictional natural gas distribution companies. On July 17, 2001, the PSC
issued an order in this proceeding requiring an audit by an outside consultant
of the gas procurement activities of Delta and certain other gas distribution
companies regulated by the PSC. The PSC order indicated that Kentucky
distributors had generally developed sound planning and procurement procedures
for meeting their customers' natural gas requirements and that these procedures
have provided consumers with a reliable supply of natural gas at reasonable
costs. The PSC noted the events of the past year, including changes in natural
gas wholesale markets, and ordered the audits to evaluate distributors' gas
planning and procurement strategies in light of the recent more volatile
wholesale markets, with a primary focus on a balanced portfolio of gas supply
that balances cost issues, price risk and reliability. There is no specific time
schedule for the audits.
In addition to PSC regulation, Delta may obtain non-exclusive franchises
from the cities and communities in which it operates authorizing it to place its
facilities in the streets and public grounds. However, no utility may obtain a
franchise until it has obtained from the PSC a Certificate of Convenience and
Necessity authorizing it to bid on the franchise. Delta holds franchises in four
of the cities and seven other communities it serves. In the other cities and
communities served by the Company, either Delta's franchises have expired, the
communities do not have governmental organizations authorized to grant
franchises, or the local governments have not required or do not want to offer a
franchise. Delta attempts to acquire or reacquire franchises whenever feasible.
Without a franchise, a local government could require Delta to cease its
occupation of the streets and public grounds or prohibit Delta from extending
its facilities into any new area of that city or community. To date, the absence
of a franchise has had no adverse effect on Delta's operations.
Capital Expenditures
Capital expenditures during 2001 were $7.1 million and for 2002 are
estimated to be $8.9 million. The Company's planned expenditures include system
extensions as well as the replacement and improvement of existing transmission,
distribution, gathering and general facilities.
Financing
The Company's capital expenditures and operating cash requirements are met
through the use of internally generated funds and a short-term line of credit.
The current available line of credit is $40 million, of which $16.8 million had
been borrowed at June 30, 2001.
Present plans are to utilize the short-term line of credit to help meet
planned capital expenditures and operating cash requirements. The amounts and
types of future long-term debt and equity financings will depend upon the
Company's capital needs and market conditions.
During 2001 the requirements of the Employee Stock Purchase Plan (see Note
3(c) of the Notes to Consolidated Financial Statements) were met through the
issuance of 6,750 shares of common stock resulting in an increase of $104,000 in
Delta's common shareholders' equity. The Dividend Reinvestment and Stock
Purchase Plan (see Note 4 of the Notes to Consolidated Financial Statements)
resulted in the issuance of 28,958 shares of common stock providing an increase
of $533,000 in Delta's common shareholders' equity.
Employees
Delta employed a total of 157 full-time employees on June 30, 2001. Delta
considers its relationship with its employees to be satisfactory. Delta's
employees are not represented by unions or subject to any collective bargaining
agreements.
Consolidated Statistics
For the Years Ended June 30, 2001 2000 1999 1998 1997
Average Retail Customers Served
Residential 33,691 33,251 32,429 31,953 31,102
Commercial 5,227 5,110 4,958 4,873 4,770
Industrial 65 66 68 70 73
------ ------ ------ ------ ------
Total 38,983 38,427 37,455 36,896 35,945
====== ====== ====== ====== ======
Operating Revenues ($000)
Residential sales 28,088 19,672 17,329 19,969 19,694
Commercial sales 17,040 10,952 10,039 11,890 11,977
Industrial sales 2,046 1,104 1,173 1,576 1,890
On-system transportation 3,895 4,056 4,107 3,877 3,214
Off-system transportation 814 522 363 483 382
Subsidiary sales 18,640 9,431 5,491 6,335 4,904
Other 247 190 170 128 108
------ ------ ------ ------ -------
Total 70,770 45,927 38,672 44,258 42,169
====== ====== ====== ====== ======
System Throughput
(Million Cu. Ft.)
Residential sales 2,614 2,266 2,223 2,377 2,464
Commercial sales 1,666 1,397 1,401 1,504 1,557
Industrial sales 249 174 189 231 278
------ ------ ------ ------ ------
Total retail sales 4,529 3,837 3,813 4,112 4,299
On-system transportation 4,768 4,703 4,434 3,467 2,863
Off-system transportation 2,677 1,672 1,144 1,489 1,205
----- ------ ------ ------ -----
Total 11,974 10,212 9,391 9,068 8,367
====== ======= ====== ====== =====
Average Annual Consumption Per
Average Residential Customer
(Thousand Cu. Ft.) 78 68 69 74 79
Lexington, Kentucky Degree Days
Actual 4,961 4,162 4,188 4,397 4,867
Percent of 30 year average
(4,647) 106.8 89.6 90.1 94.6 104.7
Average Revenue Per Mcf Sold
at Retail ($) 10.42 8.27 7.49 8.13 7.81
Average Gas Cost Per Mcf Sold
at Retail ($) 6.07 3.77 3.69 4.60 4.62
Item 2. Properties
Delta owns its corporate headquarters in Winchester, Kentucky. In addition,
Delta owns ten buildings used for branch operations in the cities it serves.
Also, Delta owns a building in Laurel County used for training and equipment and
materials storage.
The Company owns 2,294 miles of natural gas gathering, transmission,
distribution and service lines. These lines range in size up to twelve inches in
diameter.
Delta holds leases for the storage of natural gas under 8,000 acres located
in Bell County, Kentucky. This property was developed for the underground
storage of natural gas and has an estimated capacity to store 4,000,000 Mcf of
gas.
Delta owns the rights to any oil and gas underlying 3,500 acres in Bell
County. Portions of these properties are used by Delta for the storage of
natural gas. The maximum capacity of the storage facilities is estimated to be
550,000 Mcf. These properties otherwise are currently non-producing, and no
reserve studies have been undertaken on the properties.
All the foregoing properties described in this Item 2 are used principally
in connection with Delta's regulated natural gas distribution, transmission and
storage segment. See Note 10 of the Notes to Delta's Consolidated Financial
Statements for a description of Delta's two business segments.
In addition, through its three wholly-owned subsidiaries, Enpro, Delgasco
and Delta Resources, the Company operates its unregulated segment, which
involves related ventures consisting of natural gas marketing and production.
The properties owned by Enpro that are described in the following two paragraphs
are used in connection with Delta's unregulated segment.
Enpro owns interests in certain oil and gas leases relating to 11,000 acres
located in Bell, Knox and Whitley Counties. There presently are 40 gas wells and
5 oil wells producing from these properties. Enpro's remaining proved, developed
natural gas reserves are estimated at 2,900,000 Mcf. Oil production from the
property has not been significant. Also, Enpro owns the oil and gas underlying
11,500 additional acres in Bell, Clay and Knox Counties. These properties are
currently non-producing, and no reserve studies have been performed on the
properties.
Under the terms of an agreement with a producer relating to 14,000 acres of
Enpro's undeveloped holdings, the producer is conducting exploration activities
on the acreage. Enpro reserved the option to participate in wells drilled and
also retained certain working and royalty interests in any production from
future wells.
There are no significant encumbrances on the Company's assets.
Item 3. Legal Proceedings
Delta and its subsidiaries are not parties to any legal proceedings which
are expected to have a materially adverse impact on the financial condition or
results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of 2001.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Delta has paid cash dividends on its common stock each year since 1964.
While it is the intention of the Board of Directors to continue to declare
dividends on a quarterly basis, the frequency and amount of future dividends
will depend upon the Company's earnings, financial requirements and other
relevant factors, including limitations imposed by the indenture for the
Debentures. There were 2,265 record holders of Delta's common stock as of August
1, 2001.
Delta's common stock is traded in the National Association of Securities
Dealers Automated Quotation ("NASDAQ") National Market System under the symbol
DGAS. The accompanying table reflects the high and low sales prices during each
quarter as reported by NASDAQ and the quarterly dividends declared per share.
Range of Stock Prices($) Dividends
Quarter High Low Per Share($)
- ------- ---- --- ------------
Fiscal 2001
First 18.00 15.25 .285
Second 19.625 16.25 .285
Third 20.313 17.688 .285
Fourth 20.75 18.00 .285
Fiscal 2000
First 17.75 14.125 .285
Second 16.25 14.375 .285
Third 15.625 13.813 .285
Fourth 15.75 13.625 .285
During July, 2000, Delta distributed 6,750 shares of its common stock to
its employees under its Employee Stock Purchase Plan (see Note 3(c) of the Notes
to Consolidated Financial Statements). Delta received cash consideration of
$15.33 per share for one-half of those shares (3,375 shares), for a total cash
consideration of $52,000, while one-half of the shares (3,375 shares) were
provided to the employees without cash consideration as a part of Delta's
compensation and benefits for its employees. The securities were sold pursuant
to the exemption from registration provided by Rule 147 under the Securities Act
of 1933. This exemption was relied upon in light of the facts that Delta is
incorporated and doing business in Kentucky, and all eligible employees are
residents of Kentucky. Subsequent to year end, in July, 2001 Delta distributed
4,916 shares of its common stock to its employees at $19.58 per share under the
same program, and this was recorded in July, 2001.
Also, during June, 2001, Delta provided a total of 900 shares of its common
stock to its directors (100 shares per director). Delta received no cash
consideration for the shares, which were provided to its directors as a part of
their compensation. This transaction may not involve a "sale" of securities
under the Securities Act of 1933, and in any event, the securities were
qualified for an exemption from registration provided by Rule 147 under the
Securities Act of 1933. This exemption was relied upon in light of the facts
that Delta is incorporated and doing business in Kentucky, and that, in the
opinion of Delta, all directors are residents of Kentucky.
No underwriters were engaged in connection with any of the foregoing
transactions, and thus no underwriter discounts or commissions were paid in
connection with any of the foregoing.
Item 6. Selected Financial Data
For the Years Ended June 30, 2001 2000 1999 1998(a) 1997
---- ---- ---- ------- ----
Summary of Operations ($)
Operating revenues 70,770,156 45,926,775 38,672,238 44,258,000 42,169,185
Operating income 8,721,719 8,176,722 6,652,070 6,731,859 5,315,582
Net income 3,635,895 3,464,857 2,150,794 2,451,272 1,724,265
Basic and diluted earnings
per common share 1.47 1.42 .90 1.04 .75
Dividends declared
per common share 1.14 1.14 1.14 1.14 1.14
Average Number of Common
Shares Outstanding 2,477,983 2,433,397 2,394,181 2,359,598 2,294,134
Total Assets ($) 124,179,138 112,918,919 107,473,117 102,866,613 96,681,165
Capitalization ($)
Common shareholders'
equity 32,754,560 31,297,418 29,912,007 29,810,294 29,474,569
Long-term debt 49,258,902 50,723,795 51,699,700 52,612,494 38,107,860
---------- ---------- ---------- ---------- ----------
Total capitalization 82,013,462 82,021,213 81,611,707 82,422,788 67,582,429
========== ========== ========== ========== ==========
Short-Term Debt ($)(b) 19,250,000 11,375,000 8,145,000 3,665,000 12,852,600
Other Items ($)
Capital expenditures 7,069,713 8,795,653 7,982,143 11,193,613 16,648,994
Total plant 147,792,390 141,986,856 133,804,954 127,028,159 116,829,158
- ---------------------
(a) During March, 1998, $25,000,000 of debentures were sold, and the
proceeds were used to repay short-term debt and to redeem the Company's
$10,000,000 of 9% debentures.
(b) Includes current portion of long-term debt.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
The Company's utility operations are subject to regulation by the PSC,
which has a significant role in determining the Company's return on equity. The
PSC approves rates that are intended to permit a specified rate of return on
investment. The Company's rate tariffs allow the cost of gas to be passed
through to customers (see Business - Regulatory Matters).
The Company's business is temperature-sensitive. Accordingly, the Company's
sales volumes in any given period reflect, in addition to other factors, the
impact of weather, with colder temperatures generally resulting in increased
sales volumes by the Company. The Company anticipates that this sensitivity to
seasonal and other weather conditions will continue to be reflected in the
Company's sales volumes in future periods. However, Delta's current tariffs,
approved by the PSC effective January 1, 2000, provide for some adjustment of
gas rates through a weather normalization tariff (see Business - Regulatory
Matters). Under the weather normalization tariff, Delta's rates for residential
and small non-residential customers are generally increased when winter weather
is warmer than normal and decreased when winter weather is colder than normal.
Delta is permitted to adjust rates for these classes of customers for the
billing months of December through April under this tariff.
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 2002 are expected to be $8.9
million. The capital expenditures will be made for system extensions as well as
the replacement and improvement of existing transmission, distribution,
gathering and general facilities.
Delta has been generating internally only a portion of the cash necessary
for its capital expenditure requirements and thus 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 $40,000,000, of which $16,800,000 was borrowed at June 30, 2001. The
line of credit, which is with Bank One, Kentucky, NA, requires renewal during
October, 2002. 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 $24,100,000 from the sale of $25,000,000 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 $10,000,000.
The primary cash flows during the last three years are summarized below:
2001 2000 1999
---- ---- ----
Provided by operating activities $ 2,652,572 $ 8,827,505 $ 6,680,276
Used in investing activities (7,069,713) (8,795,653) (7,982,143)
Provided by financing activities 4,185,248 115,554 1,431,919
----------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents $ (231,893) $ 147,406 $ 130,052
=========== =========== ============
Cash provided by operating activities consists of net income and noncash
items including depreciation, depletion, amortization and deferred income taxes.
Additionally, changes in working capital are also included in cash provided by
operating activities. The Company expects that internally generated cash,
coupled with short-term borrowings, will be sufficient to satisfy its operating,
normal capital expenditure and dividend requirements.
Results of Operations
Operating Revenues
The increase in operating revenues for 2001 of $24,843,000 was primarily
attributable to increased gas rates and increased sales volumes. Gas rates
increased due to higher gas prices, net of decreases from the impact of the
weather normalization tariff. Sales volumes increased due to the colder winter
weather in 2001.
The increase in operating revenues for 2000 of $7,254,600 was primarily
attributable to increased gas rates and increased non-regulated sales volumes.
Gas rates increased due to higher gas prices coupled with increases from the
impact of the weather normalization tariff. Non-regulated revenues increased due
to the 1,092,000 Mcf, or 52.6% , increase in non-regulated sales volumes.
Heating degree days billed for 2001 were 106.8% of normal as compared with
89.6 % of normal for 2000 and 90.1% of normal for 1999.
The following table sets forth certain comparisons for variations in
revenues for the last two fiscal years:
2001 compared 2000 compared
-------------- -------------
Increase (Decrease) to 2000 to 1999
------------------- ------- -------
Variations in regulated revenues
Gas rates $11,364,800 $ 2,307,700
Weather normalization adjustment (1,634,000) 679,200
Sales volumes 5,715,700 199,500
Transportation 130,700 109,100
Other 57,400 20,100
-------------- -------------
Total $15,634,600 $ 3,315,600
----------- ------------
Variations in non-regulated revenues
Gas rates $ 8,607,400 $ 595,000
Sales volumes 601,000 3,344,000
-------------- -------------
Total $ 9,208,400 $ 3,939,000
------------ ------------
Total variations in revenues $24,843,000 $ 7,254,600
=========== ============
Variations in regulated volumes (%)
Gas Sales 18.0 0.6
Transportation 16.8 14.2
Variations in non-regulated volumes (%)
Gas Sales 7.7 52.6
Operating Expenses
The increase in purchased gas expense for 2001 of $23,493,000 was due
primarily to the 73% increase in the cost of gas purchased for retail sales and
the 13% increase in volumes sold, both related to the above detailed revenue
variations.
The increase in purchased gas expense for 2000 of $4,747,000 was due
primarily to increased gas purchases for non-regulated sales and from increases
in the cost of gas purchased for retail sales.
Changes in income taxes during 2001 and 2000 of $164,000 and $829,000,
respectively, were primarily due to changes in net income.
Basic and Diluted Earnings Per Common Share
For the years ended June 30, 2001, 2000 and 1999, basic earnings per common
share changed as a result of changes in net income and the increased average
common shares outstanding that resulted from the common shares issued under
Delta's dividend reinvestment plan and shares issued to employees during the
periods. There are no potentially dilutive securities, therefore basic and
diluted earnings per common share are the same.
Factors That May Affect Future Results
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the other sections of this report contain forward-looking
statements that are not statements of historical facts. These forward-looking
statements are identified by their language, which may in some cases include
words such as "estimates", "attempts", "expects", "monitors", "plans",
"anticipates", "intends", "continues" or "will continue", "believes", and
similar expressions. Such forward-looking statements may concern future matters
(among other matters) such as: Delta's cost and the availability of natural gas
supplies; Delta's capital expenditures; its sources and availability of funding
for operation and expansion; Delta's anticipated growth and growth opportunities
through system expansion and acquisition; competitive conditions; Delta's
production, storage, gathering and transportation activities; regulatory and
legislative matters; dividends; and external and internal funding sources.
Such forward-looking statements are accordingly subject to important risks
and uncertainties that could cause the Company's actual results to differ
materially from those expressed in any such forward-looking statements.
Factors that could cause future results to differ materially from those
expressed in or implied by the forward-looking statements or historical results
include the impact or outcome of:
o The ongoing restructuring of the gas industry and the outcome of the
regulatory proceedings related to that restructuring. o The changing regulatory
environment generally. o A change in the rights under present regulatory rules
to recover for costs of gas supply, other expenses and investments in capital
assets. o Uncertainty in Delta's capital expenditure requirements. o Changes in
economic conditions, demographic patterns and weather conditions in Delta's
retail service areas. o Changes affecting Delta's cost of providing gas service,
including changes in interest rates, changes in the availability of external
sources of financing for Delta's operations, tax laws, environmental laws, and
the general rate of inflation. o Changes affecting the cost of competing energy
alternatives and competing gas distributors. o Changes in accounting principles
or the application of such principles to Delta.
New Accounting Pronouncements
Delta adopted Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities" as subsequently
amended by SFAS No. 137 and SFAS No. 138, effective July 1, 2000. The adoption
of this standard did not impact the Company's financial position or results of
operations.
In June, 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 currently applies to all business combinations initiated.
SFAS No. 142 is effective July 1, 2002 for Delta. The adoption of these
standards is not expected to have a significant impact on the Company's
financial position or results of operations; however, these new standards will
be applied to future acquisitions to the extent that Delta completes any such
transactions.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
As discussed in "Gas Operations and Supply" under Item 1, the Company is a
party to long-term fixed-price gas purchase and transportation contracts.
Therefore, the prices the Company pays under these contracts may differ from the
current market prices. However, the Company has minimal price risk resulting
from these contracts as these costs are passed through to customers either
through Delta's gas cost recovery mechanism or specific contracts with customers
which consider the costs of supply for those customers. These contracts qualify
as normal purchases and sales under SFAS No. 133. The Company currently is not a
party to any hedge instruments or agreements that represent derivatives and
require mark-to-market accounting.
Delta's exposure to changes in interest rates is limited to interest on
the Company's notes payable, and that interest rate is benchmarked to the London
Interbank Offered Rate ("LIBOR").
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE PAGE
Management's Statement of Responsibility for Financial Reporting
and Accounting 22
Report of Independent Public Accountants 23
Consolidated Statements of Income for the years ended
June 30, 2001, 2000, and 1999 24
Consolidated Statements of Cash Flows for the years
ended June 30, 2001, 2000 and 1999 25
Consolidated Balance Sheets as of June 30, 2001 and 2000 27
Consolidated Statements of Changes in Shareholders' Equity
for the years ended June 30, 2001, 2000, and 1999 29
Consolidated Statements of Capitalization as of June 30,
2001 and 2000 30
Notes to Consolidated Financial Statements 31
Schedule II - Valuation and Qualifying Accounts for
the years ended June 30, 2001, 2000, and 1999 40
Schedules other than those listed above are omitted because they are not
required, not applicable or the required information is shown in the financial
statements or notes thereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Registrant intends to file a definitive proxy statement with the Commission
pursuant to Regulation 14A (17 CFR 240.14a) not later than 120 days after the
close of the fiscal year. In accordance with General Instruction G(3) to Form
10-K, the information called for by Items 10, 11, 12 and 13 is incorporated
herein by reference to the definitive proxy statement. Neither the report on
Executive Compensation nor the performance graph included in the Company's
definitive proxy statement shall be deemed incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) - Financial Statements, Schedules and Exhibits
(1) - Financial Statements
See Index at Item 8
(2) - Financial Statement Schedules
See Index at Item 8
(3) - Exhibits
Exhibit No.
3(a) - Delta's Amended and Restated Articles of Incorporation
are incorporated herein by reference to Exhibit 3(a) to Delta's
Form 10-Q for the period ended March 31, 1990.
3(b) - Delta's By-Laws as amended August 21, 1996 are incorporated
herein by reference to Exhibit 3(b) to Delta's Form 10-K for
the period ended June 30, 1996.
4(a) - The Indenture dated September 1, 1993 in respect of 6 5/8%
Debentures due October 1, 2023, is incorporated herein by
reference to Exhibit 4(e) to Delta's Form S-2 dated
September 2, 1993.
4(b) - The Indenture dated July 1, 1996 in respect of 8.3%
Debentures due August 1, 2026, is incorporated herein by
reference to Exhibit 4(c) to Delta's Form S-2 dated
June 21, 1996.
4(c) - The Indenture dated March 1, 1998 in respect of 7.15%
Debentures due April 1, 2018, is incorporated herein by
reference to Exhibit 4(d) to Delta's Form S-2 dated
March 11, 1998.
10(a) - Certain of Delta's material natural gas supply contracts are
incorporated herein by reference to Exhibit 10 to Delta's
Form 10 for the year ended June 30, 1978 and by reference to
Exhibits C and D to Delta's Form 10-K for the year ended
June 30, 1980.
10(b) - Assignment to Delta by Wiser of its Columbia Service Agreement,
including a copy of said Service Agreement, is incorporated
herein by reference to Exhibit 2(D) to Delta's Form 8-K dated
February 9, 1981.
10(c) - Contract between Tennessee and Delta (amends earlier contract
for Nicholasville and Wilmore Service Areas) is incorporated
herein by reference to Exhibit 10(d) to Delta's Form 10-Q for
the period ended September 30, 1990.
10(d) - Contract between Tennessee and Delta (amends earlier contract
for Jeffersonville Service Area) is incorporated herein by
reference to Exhibit 10(e) to Delta's Form 10-Q for the
period ended September 30, 1990.
10(e) - Contract between Tennessee and Delta (amends earlier contract
for Salt Lick Service Area) is incorporated herein by reference
to Exhibit 10(f) to Delta's Form 10-Q for the period
ended September 30, 1990.
10(f) - Contract between Tennessee and Delta (amends earlier contract
for Berea Service Area) is incorporated herein by reference to
Exhibit 10(g) to Delta's Form 10-Q for the period ended
September 30, 1990.
10(g) - Service Agreements between Columbia and Delta (amends
earlier service agreements for Cumberland, Stanton and
Owingsville service areas) are incorporated herein by
reference to Exhibit 10(h) to Delta's Form 10-Q for the
period ended September 30, 1990.
10(h) - Employment agreements between Delta and five officers, those
being John B. Brown, Johnny L. Caudill, John F. Hall,
Alan L. Heath and Glenn R. Jennings, are incorporated
herein by reference to Exhibit 10(k) to Delta's Form
0-Q for the period ended March 31, 2000.
10(i) - Agreement between Delta and Harrison D. Peet, Chairman
of the Board, is incorporated herein by reference to Exhibit
10(l) to Delta's Form 10-Q for the period ended March 31, 2000.
12 - Computation of the Consolidated Ratio of Earnings to Fixed
Charges.
21 - Subsidiaries of the Registrant.
23 - Consent of Independent Public Accountants.
(b) Reports on 8-K.
No reports on Form 8-K were filed during the three months ended June 30,
2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 4th day of
September, 2001.
DELTA NATURAL GAS COMPANY, INC.
By: /s/Glenn R. Jennings
--------------------
Glenn R. Jennings, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
(i) Principal Executive Officer:
/s/Glenn R. Jennings President, Chief Executive September 4, 2001
- ------------------------- Officer and Vice Chairman
(Glenn R. Jennings) of the Board
(ii) Principal Financial Officer:
/s/John F. Hall September 4, 2001
------------------------ Vice-President - Finance,
(John F. Hall) Secretary and Treasurer
(iii) Principal Accounting Officer:
/s/John B. Brown
- -------------------------- Controller September 4, 2001
(John B. Brown)
(iv) A Majority of the Board of Directors:
/s/H. D. Peet Chairman of the Board September 4, 2001
--------------------------
(H. D. Peet)
/s/Donald R. Crowe Director September 4, 2001
- ---------------------------
(Donald R. Crowe)
/s/Jane Hylton Green Director September 4, 2001
- ---------------------------
(Jane Hylton Green)
/s/Lanny D. Greer Director September 4, 2001
- ---------------------------
(Lanny D. Greer)
/s/Billy Joe Hall Director September 4, 2001
- ---------------------------
(Billy Joe Hall)
/s/Lewis N. Melton Director September 4, 2001
- ---------------------------
(Lewis N. Melton)
/s/Arthur E. Walker, Jr. Director September 4, 2001
- ---------------------------
(Arthur E. Walker, Jr.)
/s/Michael R. Whitley Director September 4, 2001
- ----------------------------
(Michael R. Whitley)
Management's Statement of Responsibility for Financial Reporting and Accounting
Management is responsible for the preparation, presentation and integrity
of the financial statements and other financial information in this report. In
preparing financial statements in conformity with accounting principles
generally accepted in the United States, management is required to make
estimates and assumptions that affect the reported amount of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and revenues and expenses during the reporting
period. Actual results could differ from these estimates. The Company maintains
a system of accounting and internal controls which management believes provides
reasonable assurance that the accounting records are reliable for purposes of
preparing financial statements and that the assets are properly accounted for
and protected. The Board of Directors pursues its oversight role for these
financial statements through its Audit Committee, which consists of four outside
directors. The Audit Committee meets periodically with management to review the
work and monitor the discharge of their responsibilities. The Audit Committee
also meets periodically with the Company's internal auditor as well as Arthur
Andersen LLP, the independent auditors, who have full and free access to the
Audit Committee, with or without management present, to discuss internal
accounting control, auditing and financial reporting matters.
Glenn R. Jennings John F. Hall John B. Brown
President & Chief Vice President - Finance, Controller
Executive Officer Secretary &Treasurer
Report of Independent Public Accountants
To the Board of Directors and Shareholders of Delta Natural Gas Company, Inc.:
We have audited the accompanying consolidated balance sheets and statements
of capitalization of DELTA NATURAL GAS COMPANY, INC. (a Kentucky corporation)
and subsidiary companies as of June 30, 2001 and 2000, and the related
consolidated statements of income, cash flows and changes in shareholders'
equity for each of the three years in the period ended June 30, 2001. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Delta Natural Gas Company,
Inc. and subsidiary companies as of June 30, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 2001, in conformity with accounting principles generally accepted
in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the Index to
Consolidated Financial Statements and Schedule is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Louisville, Kentucky
August 10, 2001
Delta Natural Gas Company, Inc. and Subsidiary Companies
Consolidated Statements of Income
For the Years Ended June 30, 2001 2000 1999
Operating Revenues $ 70,770,156 $45,926,775 $ 38,672,238
------------ ----------- ------------
Operating Expenses
Purchased gas $ 44,707,739 $21,214,834 $ 16,467,988
Operation and maintenance 9,844,728 9,139,143 9,137,107
Depreciation and depletion 3,840,450 3,989,090 3,840,996
Taxes other than income
taxes 1,423,020 1,338,486 1,334,977
Income taxes (Note 2) 2,232,500 2,068,500 1,239,100
------------ ------------ ------------
Total operating expenses $ 62,048,437 $37,750,053 $ 32,020,168
------------ ----------- ------------
Operating Income $ 8,721,719 $ 8,176,722 $ 6,652,070
Other Income and Deductions, Net 31,141 42,866 33,660
------------ ----------- ------------
Income Before Interest Charges $ 8,752,860 $ 8,219,588 $ 6,685,730
----------- ----------- -----------
Interest Charges
Interest on long-term debt $ 3,775,856 $ 3,845,565 $ 3,912,826
Other interest 1,179,949 748,006 460,950
Amortization of debt expense 161,160 161,160 161,160
----------- ----------- -----------
Total interest charges $ 5,116,965 $ 4,754,731 $ 4,534,936
----------- ----------- -----------
Net Income $ 3,635,895 $ 3,464,857 $ 2,150,794
=========== =========== ===========
Weighted Average Number of
Common Shares Outstanding 2,477,983 2,433,397 2,394,181
Basic and Diluted Earnings
Per Common Share $ 1.47 $ 1.42 $ .90
Dividends Declared Per
Common Share $ 1.14 $ 1.14 $ 1.14
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Delta Natural Gas Company, Inc. and Subsidiary Companies
Consolidated Statements of Cash Flows
For the Years Ended June 30, 2001 2000 1999
Cash Flows From Operating Activities
Net income $ 3,635,895 $ 3,464,857 $ 2,150,794
Adjustments to reconcile net
income to net cash from
operating activities
Depreciation, depletion and
amortization 4,047,715 4,240,595 4,088,362
Deferred income taxes and
investment tax credits 2,332,458 1,446,444 662,880
Other - net 700,091 841,877 730,601
(Increase) decrease in assets
Accounts receivable (1,860,926) (1,160,957) 908,917
Gas in storage (1,665,124) 48,005 (1,451,177)
Materials and supplies (129,278) 200,689 (144,468)
Prepayments (690,662) (51,964) 53,642
Other assets (333,402) (561,893) (593,980)
Increase (decrease) in
Liabilities
Accounts payable 1,647,056 1,630,760 273,755
Refunds due customers (5,708) 2,679 (75,774)
Deferred (advance recovery
of) gas cost (4,518,953) (1,124,219) 50,446
Accrued taxes (521,190) 284,891 (131,091)
Other current liabilities 11,340 (302,553) 160,329
Advances for construction
and other 3,260 (131,706) (2,960)
------------ ------------ ------------
Net cash provided by
operating activities $ 2,652,572 $ 8,827,505 $ 6,680,276
----------- ------------ ------------
Cash Flows From Investing Activities
Capital expenditures $(7,069,713) $ (8,795,653) $ (7,982,143)
------------ ------------ ------------
Net cash used in investing
activities $(7,069,713) $ (8,795,653) $ (7,982,143)
----------- ------------ ------------
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Delta Natural Gas Company, Inc. and Subsidiary Companies
Consolidated Statements of Cash Flows (continued)
For the Years Ended June 30, 2001 2000 1999
Cash Flows From Financing
Activities
Dividends on common stock $ (2,825,267) $ (2,777,372) $ (2,728,997)
Issuance of common stock, net 646,514 697,926 679,916
Repayment of long-term debt (810,999) (1,735,000) (339,000)
Issuance of notes payable 52,415,000 27,810,000 21,615,000
Repayment of notes payable (45,240,000) (23,880,000) (17,795,000)
------------ ------------ ------------
Net cash provided by
financing activities $ 4,185,248 $ 115,554 $ 1,431,919
------------ ------------ ------------
Net Increase (Decrease) in Cash
and Cash Equivalents $ (231,893) $ 147,406 $ 130,052
Cash and Cash Equivalents,
Beginning of Year 395,994 248,588 118,536
------------ ------------ ------------
Cash and Cash Equivalents,
End of Year $ 164,101 $ 395,994 $ 248,588
============ ============ ============
Supplemental Disclosures of Cash
Flow Information
Cash paid during the year for
Interest $ 4,970,327 $ 4,626,542 $ 4,685,458
Income taxes (net of refunds) $ 395,737 $ 533,908 $ 712,023
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Delta Natural Gas Company, Inc. and Subsidiary Companies
Consolidated Balance Sheets
As of June 30, 2001 2000
Assets
Gas Utility Plant, at cost $147,792,390 $141,986,856
Less - Accumulated provision for
depreciation (45,375,230) (42,067,229)
------------ ------------
Net gas plant $102,417,160 $ 99,919,627
------------ ------------
Current Assets
Cash and cash equivalents $ 164,101 $ 395,994
Accounts receivable, less accumulated
provisions for doubtful accounts of
$575,000 and $144,380 in 2001 and
2000, respectively 4,651,766 2,790,840
Gas in storage, at average cost 4,659,901 2,963,137
Deferred gas costs 4,444,707 -
Materials and supplies, at first-in,
first-out cost 593,419 464,141
Prepayments 1,090,515 240,053
------------ ------------
Total current assets $ 15,604,409 $ 6,854,165
------------ ------------
Other Assets
Cash surrender value of officers' life
insurance (face amount of $1,236,009) $ 354,891 $ 356,753
Note receivable from officer 128,000 152,000
Unamortized debt expense and
other (Note 6) 5,674,678 5,636,374
------------ ------------
Total other assets $ 6,157,569 $ 6,145,127
------------ ------------
Total assets $124,179,138 $112,918,919
============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Delta Natural Gas Company, Inc. and Subsidiary Companies
Consolidated Balance Sheets (continued)
As of June 30, 2001 2000
Liabilities and Shareholders' Equity
Capitalization (See Consolidated Statements
of Capitalization)
Common shareholders' equity $ 32,754,560 $ 31,297,418
Long-term debt (Notes 6 and 7) 49,258,902 50,723,795
------------ ------------
Total capitalization $ 82,013,462 $ 82,021,213
------------ ------------
Current Liabilities
Notes payable (Note 5) $ 16,800,000 $ 9,625,000
Current portion of long-term
debt (Notes 6 and 7) 2,450,000 1,750,000
Accounts payable 5,602,199 3,955,143
Accrued taxes 718,376 1,239,566
Refunds due customers 38,320 44,028
Advance recovery of gas costs - 74,246
Customers' deposits 418,582 421,900
Accrued interest on debt 1,178,410 1,192,932
Accrued vacation 538,595 519,066
Other accrued liabilities 400,898 391,247
------------ ------------
Total current liabilities $ 28,145,380 $ 19,213,128
------------ ------------
Deferred Credits and Other
Deferred income taxes $ 12,851,457 $ 10,403,299
Investment tax credits 449,800 504,400
Regulatory liability (Note 2) 632,725 693,825
Advances for construction and other 86,314 83,054
------------ ------------
Total deferred credits and other $ 14,020,296 $ 11,684,578
------------ ------------
Commitments and Contingencies (Note 8) ____________ ____________
Total liabilities and
shareholders' equity $124,179,138 $112,918,919
============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Delta Natural Gas Company, Inc. and Subsidiary Companies
Consolidated Statements of Changes in
Shareholders' Equity
For the Years Ended June 30, 2001 2000 1999
Common Shares
Balance, beginning of year $ 2,459,067 $ 2,413,942 $ 2,375,093
$1.00 par value of 36,612, 45,125,
and 38,849 shares issued in 2001,
2000 and 1999, respectively
Dividend reinvestment and stock
purchase plan 28,958 37,499 32,551
Employee stock purchase plan and
other 7,654 7,626 6,298
------------ ------------ ------------
Balance, end of year $ 2,495,679 $ 2,459,067 $ 2,413,942
============ ============ ============
Premium on Common Shares
Balance, beginning of year $ 29,038,995 $ 28,386,194 $ 27,745,127
Premium on issuance of common shares
Dividend reinvestment and stock
purchase plan 503,897 533,760 536,520
Employee stock purchase plan and
other 114,416 119,041 104,547
------------ ------------ ------------
Balance, end of year $ 29,657,308 $ 29,038,995 $ 28,386,194
============ ============ ============
Capital Stock Expense
Balance, beginning of year $ (1,917,020) $ (1,917,020) $ (1,917,020)
Dividend reinvestment and stock
purchase plan (8,411) - -
------------ ------------ ------------
Balance, end of year $ (1,925,431) $ (1,917,020) $ (1,917,020)
============ ============ ============
Retained Earnings
Balance, beginning of year $ 1,716,376 $ 1,028,891 $ 1,607,094
Net income 3,635,895 3,464,857 2,150,794
Cash dividends declared on common
shares (See Consolidated
Statements of Income for rates) (2,825,267) (2,777,372) (2,728,997)
------------ ------------ ------------
Balance, end of year $ 2,527,004 $ 1,716,376 $ 1,028,891
============ ============ ============
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Delta Natural Gas Company, Inc. and Subsidiary Companies
Consolidated Statements of Capitalization
As of June 30, 2001 2000
Common Shareholders' Equity
Common shares, par value $1.00 per share
(Notes 3 and 4)
Authorized 6,000,000 shares
Issued and outstanding 2,495,679 and
2,459,067 shares in 2001 and
2000, respectively $ 2,495,679 $ 2,459,067
Premium on common shares 29,657,308 29,038,995
Capital stock expense (1,925,431) (1,917,020)
Retained earnings (Note 6) 2,527,004 1,716,376
----------- -----------
Total common shareholders' equity $32,754,560 $31,297,418
----------- -----------
Long-Term Debt (Notes 6 and 7)
Debentures, 8.3%, due 2026 $14,821,000 $14,925,000
Debentures, 6 5/8%, due 2023 11,933,000 12,243,000
Debentures, 7.15%, due 2018 24,271,000 24,668,000
Promissory note from acquisition of under-
ground storage, non-interest bearing,
due through 2001 (less unamortized
discount of $16,098 and $62,205 in
2001 and 2000, respectively) 683,902 637,795
----------- -----------
Total long-term debt $51,708,902 $52,473,795
Less amounts due within one year,
included in current liabilities (2,450,000) (1,750,000)
----------- -----------
Net long-term debt $49,258,902 $50,723,795
----------- -----------
Total capitalization $82,013,462 $82,021,213
=========== ===========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Principles of Consolidation -- Delta Natural Gas Company, Inc. ("Delta"
or "the Company") has three wholly-owned subsidiaries. Delta Resources, Inc.
("Delta 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. 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.
(b) Cash Equivalents -- For the purposes of the Consolidated Statements of
Cash Flows, all temporary cash investments with a maturity of three months or
less at the date of purchase are considered cash equivalents.
(c) Depreciation -- The Company determines its provision for depreciation
using the straight-line method and by the application of rates to various
classes of utility plant. The rates are based upon the estimated service lives
of the properties and were equivalent to composite rates of 2.8%, 3.1% and 3.2%
of average depreciable plant for 2001, 2000 and 1999, respectively.
(d) Maintenance -- All expenditures for maintenance and repairs of units of
property are charged to the appropriate maintenance expense accounts. A
betterment or replacement of a unit of property is accounted for as an addition
and retirement of utility plant. At the time of such a retirement, the
accumulated provision for depreciation is charged with the original cost of the
property retired and also for the net cost of removal.
(e) Gas Cost Recovery -- Delta has a Gas Cost Recovery ("GCR") clause which
provides for a dollar-tracker that matches revenues and gas costs and provides
eventual dollar-for-dollar recovery of all gas costs incurred. The Company
expenses gas costs based on the amount of gas costs recovered through revenue.
Any differences between actual gas costs and those estimated costs billed are
deferred and reflected in the computation of future billings to customers using
the GCR mechanism.
(f) Revenue Recognition -- The Company records revenues as billed to its
customers on a monthly meter reading cycle. At the end of each month, gas
service which has been rendered from the latest date of each cycle meter reading
to the month-end is unbilled.
(g) Revenues and Customer Receivables -- The Company serves 40,000
customers in central and southeastern Kentucky. Revenues and customer
receivables arise primarily from sales of natural gas to customers and from
transportation services for others. Provisions for doubtful accounts are
recorded to reflect the expected net realizable value of accounts receivable.
(h) Use of Estimates -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
(i) New Accounting Pronouncements -- Delta adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities" as subsequently amended by SFAS No. 137 and SFAS No. 138,
effective July 1, 2000. The adoption of this standard did not impact the
Company's financial position or results of operations.
In June, 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 currently applies to all business combinations initiated.
SFAS No. 142 is effective July 1, 2002 for Delta. The adoption of these
standards is not expected to have a significant impact on the Company's
financial position or results of operations; however, these new standards will
be applied to future acquisitions to the extent that Delta completes any such
transactions.
(2) Income Taxes
The Company provides for income taxes on temporary differences resulting
from the use of alternative methods of income and expense recognition for
financial and tax reporting purposes. The differences result primarily from the
use of accelerated tax depreciation methods for certain properties versus the
straight-line depreciation method for financial purposes, differences in
recognition of purchased gas cost recoveries and certain other accruals which
are not currently deductible for income tax purposes. Investment tax credits
were deferred for certain periods prior to fiscal 1987 and are being amortized
to income over the estimated useful lives of the applicable properties. The
Company utilizes the liability method for accounting for income taxes, which
requires that deferred income tax assets and liabilities are computed using tax
rates that will be in effect when the book and tax temporary differences
reverse. The change in tax rates applied to accumulated deferred income taxes
may not be immediately recognized in operating results because of ratemaking
treatment. A regulatory liability has been established to recognize the future
revenue requirement impact from these deferred taxes. The temporary differences
which gave rise to the net accumulated deferred income tax liability for the
periods are as follows:
2001 2000
---- ----
Deferred Tax Liabilities
Accelerated depreciation $12,440,957 $11,521,999
Deferred gas cost/unbilled revenue 1,444,200 -
Accrued pension 1,157,200 988,000
Debt expense 426,900 447,100
----------- -----------
Total $15,469,257 $12,957,099
----------- -----------
Deferred Tax Assets
Alternative minimum tax credits $ 1,701,100 $ 1,400,800
Regulatory liabilities 249,600 273,700
Deferred gas cost/unbilled revenue - 309,300
Investment tax credit 177,400 199,000
Other 489,700 371,000
----------- -----------
Total $ 2,617,800 $ 2,553,800
----------- -----------
Net accumulated deferred
income tax liability $12,851,457 $10,403,299
=========== ===========
The components of the income tax provision are comprised of the
following for the years ended June 30:
2001 2000 1999
---- ---- ----
Components of Income Tax Expense
Current
Federal $ (77,000) $ 568,100 $ 563,400
State (71,700) 137,500 63,000
----------- ----------- -----------
Total $ (148,700) $ 705,600 $ 626,400
Deferred 2,381,200 1,362,900 612,700
----------- ----------- -----------
Income tax expense $ 2,232,500 $ 2,068,500 $ 1,239,100
=========== =========== ===========
Reconciliation of the statutory federal income tax rate to the
effective income tax rate is shown in the table below:
2001 2000 1999
---- ---- ----
Statutory federal income tax rate 34.0 % 34.0 % 34.0 %
State income taxes net of federal benefit 5.4 5.2 5.2
Amortization of investment tax credit (0.9) (1.1) (2.0)
Other differences - net (0.3) (0.4) (0.4)
------ ----- -----
Effective income tax rate 38.2 % 37.7 % 36.8 %
====== ====== ======
(3) Employee Benefit Plans
(a) Defined Benefit Retirement Plan -- Delta has a trusteed,
noncontributory, defined benefit pension plan covering all eligible employees.
Retirement income is based on the number of years of service and annual rates of
compensation. The Company makes annual contributions equal to the amounts
necessary to fund the plan adequately. The following table provides a
reconciliation of the changes in the plans' benefit obligations and fair value
of assets over the two-year period ended March 31, 2001, and a statement of the
funded status as of March 31 of both years, as recognized in the Company's
consolidated balance sheets at June 30.
2001 2000
---- ----
Change in Benefit Obligation
Benefit obligation at beginning of year $ 8,188,361 $ 8,286,366
Service cost 487,392 535,681
Interest cost 592,537 538,400
Actuarial loss 332,610 91,615
Effect of curtailment - (2,834)
Benefits paid (1,114,797) (1,260,867)
------------ -------------
Benefit obligation at end of year $ 8,486,103 $ 8,188,361
------------ -------------
Change in Plan Assets
Fair value of plan assets at beginning of year $ 10,176,049 $ 9,188,450
Actual return (loss) on plan assets (636,591) 1,507,558
Employer contribution 648,737 740,908
Benefits paid (1,114,797) (1,260,867)
------------ - -------------
Fair value of plan assets at end of year $ 9,073,398 $ 10,176,049
------------ -------------
Funded status $ 587,295 $ 1,987,688
Unrecognized net actuarial loss (gain) 1,652,236 (117,267)
Net transition asset (29,262) (71,656)
------------ -------------
Prepaid benefit cost (included in other
assets in the accompanying balance sheet) $ 2,210,269 $ 1,798,765
============ =============
The assets of the plan consist primarily of common stocks, bonds and
certificates of deposit. Net pension costs for the years ended June 30 include
the following:
2001 2000 1999
---- ---- ----
Components of Net Periodic Benefit Cost
Service cost $ 487,392 $ 535,681 $ 467,417
Interest cost 592,537 538,400 471,939
Expected return on plan assets (800,303) (764,449) (715,795)
Amortization of net transition asset (42,394) (42,394) (42,394)
--------- --------- ---------
Net periodic benefit cost $ 237,232 $ 267,238 $ 181,167
========= ========= =========
Weighted-Average Assumptions
Discount rate 7.75% 7.75% 6.50%
Expected return on plan assets 8.00% 8.00% 8.00%
Rate of compensation increase 4.00% 4.00% 4.00%
During the plan year ended March 31, 2000, Delta eliminated 16 positions in
conjunction with a workforce reduction plan. Subsequently, 7 additional
positions were eliminated as a result of reorganization of Delta's branch
offices, which was completed by June 30, 2000. These events constituted a
curtailment under SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits". The
combined impact of the curtailment gain, the savings in salary expense, and the
cost of one time payments made to severed employees was not material to results
of operations.
SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits", and
SFAS No. 112, "Employers' Accounting for Post-Employment Benefits", do not
affect the Company, as Delta does not provide benefits for post-retirement or
post-employment other than the pension plan for retired employees.
(b) Employee Savings Plan -- The Company has an Employee Savings Plan
("Savings Plan") under which eligible employees may elect to contribute any
whole percentage between 2% and 15% of their annual compensation. The Company
will match 50% of the employee's contribution up to a maximum Company
contribution of 2.5% of the employee's annual compensation. For 2001, 2000, and
1999, Delta's Savings Plan expense was $154,600, $170,800, and $169,300,
respectively.
(c) Employee Stock Purchase Plan -- The Company has an Employee Stock
Purchase Plan ("Stock Plan") under which qualified permanent employees are
eligible to participate. Under the terms of the Stock Plan, such employees can
contribute on a monthly basis 1% of their annual salary level (as of July 1 of
each year) to be used to purchase Delta's common stock. The Company issues Delta
common stock, based upon the fiscal year contributions, using an average of the
high and low sale prices of Delta's stock as quoted in NASDAQ's National Market
System on the last business day in June and matches those shares so purchased.
Therefore, stock with an equivalent market value of $96,000 was issued in July,
2001. The continuation and terms of the Stock Plan are subject to approval by
Delta's Board of Directors on an annual basis. Delta's Board has continued the
Stock Plan through June 30, 2002.
(4) Dividend Reinvestment and Stock Purchase Plan
The Company's Dividend Reinvestment and Stock Purchase Plan ("Reinvestment
Plan") provides that shareholders of record can reinvest dividends and also make
limited additional investments of up to $50,000 per year in shares of common
stock of the Company. Under the Reinvestment Plan the Company issued 28,958,
37,499, and 32,551 shares in 2001, 2000, and 1999, respectively. Delta reserved
150,000 shares for issuance under the Reinvestment Plan in December, 2000, and
as of June 30, 2001 there were 134,772 shares still available for issuance.
(5) Notes Payable and Line of Credit
The current available line of credit is $40,000,000, of which $16,800,000
was borrowed at an interest rate of 4.85% as of June 30, 2001. At June 30, 2000,
the available line of credit was $25,000,000, of which $9,625,000 was borrowed
at an interest rate of 6.51%. The maximum amount borrowed during 2001 and 2000
was $21,445,000 and $16,700,000, respectively. The interest on this line is
determined monthly at the London Interbank Offered Rate ("LIBOR") plus 1% on the
used line of credit. The cost of the unused line of credit is 0.30%. The current
line of credit must be renewed during October, 2002.
(6) Long-Term Debt
In March, 1998 Delta issued $25,000,000 of 7.15% Debentures that mature in
March, 2018. Redemption of up to $25,000 annually will be made on behalf of
deceased holders within 60 days of notice, subject to an annual aggregate
$750,000 limitation. The 7.15% Debentures can be redeemed by the Company after
April 1, 2003. Restrictions under the indenture agreement covering the 7.15%
Debentures include, among other things, a restriction whereby dividend payments
cannot be made unless consolidated shareholders' equity of the Company exceeds
$21,500,000. No retained earnings are restricted under the provisions of the
indenture.
In July, 1996 Delta issued $15,000,000 of 8.3% Debentures that mature in
July, 2026. Redemption on behalf of deceased holders within 60 days of notice of
up to $25,000 per holder will be made annually, subject to an annual aggregate
limitation of $500,000. The 8.3% Debentures can be redeemed by the Company
beginning in August, 2001 at a 5% premium, such premium declining ratably until
it ceases in August, 2006.
In October, 1993 Delta issued $15,000,000 of 6 5/8% Debentures that mature
in October, 2023. Each holder may require redemption of up to $25,000 annually,
subject to an annual aggregate limitation of $500,000. Such redemption will also
be made on behalf of deceased holders within 60 days of notice, subject to the
annual aggregate $500,000 limitation. The 6 5/8% Debentures can be redeemed by
the Company beginning in October, 1998 at a 5% premium, such premium declining
ratably until it ceases in October, 2003. The Company may not assume any
additional mortgage indebtedness in excess of $2 million without effectively
securing the 6 5/8% Debentures equally to such additional indebtedness.
Debt issuance expenses are deferred and amortized over the terms of the
related debt. Call premium in 1998 of $300,000 and loss on extinguishment of
debt of $332,000 was deferred and is being amortized over the term of the
related debt consistent with regulatory treatment.
A non-interest bearing promissory note was issued by Delta in November,
1995 in the amount of $1,800,000. The remaining installment of $700,000 due
under this note is payable in 2002. The note was issued when Delta purchased
leases and depleted gas wells to develop them for the underground storage of
natural gas. The promissory note installment is secured by escrow of 40,000
shares of Delta's common stock. These shares will be issued to the holder of the
promissory note only in the event of default in payment by Delta.
(7) Fair Values of Financial Instruments
The fair value of the Company's debentures is estimated using discounted
cash flow analysis, based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements. The fair value of the Company's
debentures at June 30, 2001 and 2000 was estimated to be $48,429,000 and
$47,152,000, respectively. The carrying amount in the accompanying consolidated
financial statements as of June 30, 2001 and 2000 is $51,025,000 and
$51,836,000, respectively.
The carrying amount of the Company's other financial instruments including
cash equivalents, accounts receivable, notes receivable, accounts payable and
the non-interest bearing promissory note approximate their fair value.
(8) Commitments and Contingencies
The Company has entered into individual employment agreements with its five
officers and an agreement with the Chairman of the Board. The agreements expire
or may be terminated at various times. The agreements provide for continuing
monthly payments or lump sum payments and continuation of specified benefits
over varying periods in certain cases following defined changes in ownership of
the Company.
(9) Rates
Reference is made to "Regulatory Matters" herein with respect to rate
matters.
(10) Operating Segments
Delta adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information", during fiscal 1999. SFAS No. 131 established standards
for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to stockholders. It also established standards for
related disclosures about products and services in geographic areas. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how to allocate
resources and in assessing performance. Delta's chief operating decision making
group is the Company's officers.
The Company has two segments: (i) a regulated natural gas distribution,
transmission and storage segment, and (ii) an unregulated segment which
participates in related ventures, consisting of natural gas marketing and
production. The Company operates in a single geographic area of central and
southeastern Kentucky.
The segments follow the same accounting policies as described in the
Summary of Significant Accounting Policies and Principles of Consolidation in
Note 1 of the Notes to Consolidated Financial Statements. Because the Company
earns revenues on the transportation of natural gas in its regulated segment,
management evaluates the performance of the unregulated natural gas marketing
subsidiaries based on the additional margin added from their sales and their
ability to maintain contact with customers who choose to transport on the
regulated system. Inter-segment transportation revenue/expense is recorded at
Delta's tariff rates. Transfer pricing for sales of gas between segments is at
cost. Operating expenses, taxes and interest are allocated to the unregulated
segment.
Segment information is shown below for the periods:
($000) 2001 2000 1999
---- ---- ----
Revenues
Regulated
External customers 48,887 33,314 30,000
Intersegment 3,244 4,606 5,496
--------- --------- --------
Total regulated 52,131 37,920 35,496
Non-regulated
External customers 21,883 12,613 8,672
Intersegment 27,609 16,249 15,881
--------- --------- --------
Total non-regulated 49,492 28,862 24,553
Eliminations for intersegment (30,853) (20,855) (21,377)
-------- -------- --------
Total operating revenues 70,770 45,927 38,672
========= ========= ========
Operating Expenses
Regulated
Depreciation 3,797 3,940 3,804
Income taxes 1,696 1,657 1,001
Other 38,662 24,792 24,398
--------- --------- --------
Total regulated 44,155 30,389 29,203
--------- --------- --------
Non-regulated
Depreciation 43 49 37
Income taxes 536 412 238
Other 48,167 27,755 23,838
--------- --------- --------
Total non-regulated 48,746 28,216 24,113
Eliminations for intersegment (30,853) (20,855) (21,296)
-------- -------- --------
Total operating expenses 62,048 37,750 32,020
========= ========= ========
Other Income and Deductions
Regulated 31 43 25
Non-regulated - - 9
--------- --------- --------
Total other income and deductions 31 43 34
========= ========= ========
Interest Charges
Regulated 5,191 4,766 4,552
Non-regulated 42 41 64
Eliminations for intersegment (116) (52) (81)
-------- -------- --------
Total interest charges 5,117 4,755 4,535
========= ========= ========
($000) 2001 2000 1999
---- ---- ----
Net Income
Regulated 2,817 2,808 1,766
Non-regulated 819 657 385
------ ------ -------
Total net income 3,636 3,465 2,151
====== ====== =======
Assets
Regulated 120,710 108,876 105,716
Non-regulated 3,469 4,043 1,757
------- ------- -------
Total assets 124,179 112,919 107,473
======== ======== =======
Capital Expenditures
Regulated 7,070 8,796 7,981
Non-regulated - - 1
------ ------ -------
Total capital expenditures 7,070 8,796 7,982
======= ======= =======
(11) Quarterly Financial Data (Unaudited)
The quarterly data reflects, in the opinion of management, all normal
recurring adjustments necessary to present fairly the results for the interim
periods. Basic and Diluted Earnings(Loss) per Operating Revenues Operating
Income Net Income (Loss) Common Share(a) -------- ------ ------- --------
Quarter Ended
Fiscal 2001
September 30 $ 6,722,188 $ 152,070 $(1,055,810) $ (.43)
December 31 16,941,117 2,081,843 765,633 .31
March 31 32,330,755 5,315,853 3,983,175 1.60
June 30 14,776,096 1,171,953 (57,103) (.02)
Fiscal 2000
September 30 $ 4,753,043 $ 344,622 $ (801,859) $ (.33)
December 31 9,964,446 1,869,292 633,318 .26
March 31 20,708,156 4,609,595 3,400,687 1.39
June 30 10,501,130 1,353,213 232,711 .09
(a) Quarterly earnings per share may not equal annual earnings per share due
to changes in shares outstanding.
SCHEDULE II
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 2001, 2000 AND 1999
Column A Column B Column C Column D Column E
Additions Deductions
- ---------- ----------- -------------------------- ------------- -----------
Balance Charged to
at Charged to Other Amounts Balance
Beginning Costs and Accounts- Charged Off at End
Description of Period Expenses Recoveries or Paid of Period
----------- ---------- ------------ ------------ ------------
Deducted From the Asset
to Which it Applies - Allowance
for doubtful accounts
for the years ended:
June 30, 2001 $ 144,380 $ 810,432 $ 40,565 $ 420,377 $ 575,000
June 30, 2000 $ 138,514 $ 213,000 $ 39,086 $ 246,220 $ 144,380
June 30, 1999 $ 120,001 $ 213,385 $ 48,888 $ 243,760 $ 138,514
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF THE CONSOLIDATED RATIO OF EARNINGS
TO FIXED CHARGES
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Earnings:
Net income $ 3,635,895 $ 3,464,858 $ 2,150,794 $ 2,451,272 $ 1,724,265
Provisions for income
taxes 2,232,500 2,068,500 1,239,100 1,401,000 964,800
Fixed charges 5,116,965 4,754,731 4,534,936 4,348,498 3,632,191
----------- ----------- ----------- ----------- -----------
Total $10,985,360 $10,288,089 $ 7,924,830 $ 8,200,770 $ 6,321,256
=========== =========== =========== =========== ===========
Fixed Charges:
Interest on debt $ 4,955,805 $ 4,593,571 $ 4,373,776 $ 4,223,946 $ 3,516,825
Amortization of debt
expense 161,160 161,160 161,160 124,552 115,366
----------- ----------- ----------- ----------- -----------
Total $ 5,116,965 $ 4,754,731 $ 4,534,936 $ 4,348,498 $ 3,632,191
=========== =========== =========== =========== ===========
Ratio of Earnings to
Fixed Charges 2.15x 2.16x 1.75x 1.89x 1.74x
EXHIBIT 21
Subsidiaries of the Registrant
Delgasco, Inc., Enpro, Inc. and Delta Resources, Inc. are wholly-owned
subsidiaries of the Registrant, are incorporated in the state of Kentucky and do
business under their corporate names.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated August 10, 2001, included in this Form 10-K, into the
Company's previously filed Registration Statement No. 33-56689, relating to the
Dividend Reinvestment and Stock Purchase Plan of the Company.
Arthur Andersen LLP
Louisville, Kentucky
September 4, 2001