SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-----
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
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)
859-744-6171
(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 .
Indicate by check mark whether the registrant is an accelerated filer as
defined in Rule 12b-2 of the Exchange Act). YES__. NO X .
Common Shares, Par Value $1.00 Per Share 2,544,479 Shares
Outstanding as of September 30, 2002.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Twelve Months Ended
September 30 September 30
2002 2001 2002 2001
---- ---- ---- ----
OPERATING REVENUES $ 7,153,282 $ 7,258,892 $ 55,824,171 $ 71,306,859
-------------------------------------------- -----------------------------------------
OPERATING EXPENSES
Purchased gas $ 3,626,250 $ 3,647,286 $ 30,136,188 $ 44,598,018
Operation and maintenance 2,444,638 2,282,667 9,847,719 10,007,653
Depreciation and depletion 1,042,502 977,311 4,146,135 3,834,062
Taxes other than income taxes 364,826 347,723 1,372,015 1,426,896
Income taxes (556,543) (475,400) 2,168,357 2,391,275
-------------------------------------------- -----------------------------------------
Total operating expenses $ 6,921,673 $ 6,779,587 $ 47,670,414 $ 62,257,904
-------------------------------------------- -----------------------------------------
OPERATING INCOME $ 231,609 $ 479,305 $ 8,153,757 $ 9,048,955
OTHER INCOME AND DEDUCTIONS, NET 11,273 5,551 22,739 23,502
-------------------------------------------- -----------------------------------------
INCOME BEFORE INTEREST CHARGES $ 242,882 $ 484,856 $ 8,176,496 $ 9,072,457
INTEREST CHARGES 1,145,759 1,263,181 4,664,335 5,159,078
-------------------------------------------- -----------------------------------------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE $ (902,877) $ (778,325) $ 3,512,161 $ 3,913,379
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE (NOTE 3) (88,370) - (88,370) -
-------------------------------------------- -----------------------------------------
NET INCOME (LOSS) $ (991,247) $ (778,325) $ 3,423,791 $ 3,913,379
============================================ =========================================
BASIC AND DILUTED EARNINGS (LOSS)
PER COMMON SHARE BEFORE CUMULA-
TIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE $ (.36) $ (.31) $ 1.39 $ 1.57
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE (.03) - (.03) -
-------------------------------------------- -----------------------------------------
BASIC AND DILUTED EARNINGS (LOSS)
PER COMMON SHARE $ (.39) $ (.31) $ 1.36 $ 1.57
============================================ =========================================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (BASIC AND
DILUTED) 2,537,691 2,502,139 2,523,041 2,487,268
DIVIDENDS DECLARED PER COMMON SHARE $ .295 $ .29 $ 1.165 $ 1.145
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS September 30, 2002 June 30, 2002 September 30, 2001
------------------ ------------- ------------------
GAS UTILITY PLANT $ 158,780,385 $ 156,305,063 $ 150,247,189
Less-Accumulated provision
for depreciation (50,140,256) (49,142,976) (46,348,616)
--------------------- -----------------------
----------------------
Net gas plant $ 108,640,129 $ 107,162,087 $ 103,898,573
---------------------- --------------------- -----------------------
CURRENT ASSETS
Cash and cash equivalents $ 287,667 $ 225,236 $ 645,947
Accounts receivable - net 1,781,760 2,884,025 2,024,498
Gas in storage 8,662,990 5,216,772 9,986,633
Deferred gas costs 4,944,273 4,076,059 6,264,749
Materials and supplies 545,014 523,756 578,204
Prepayments 399,222 388,794 308,998
---------------------- --------------------- -----------------------
Total current assets $ 16,620,926 $ 13,314,642 $ 19,809,029
---------------------- --------------------- -----------------------
OTHER ASSETS
Cash surrender value of
officers' life insurance $ 344,687 $ 344,687 $ 354,891
Note receivable from officer 152,000 158,000 122,000
Prepaid pension benefit cost 2,092,344 2,325,944 2,178,508
Unamortized debt expense and other 4,607,915 4,643,165 3,324,921
---------------------- --------------------- -----------------------
Total other assets $ 7,196,946 $ 7,471,796 $ 5,980,320
--------------------- --------------------- --------------------
Total assets $ 132,458,001 $ 127,948,525 $ 129,687,922
====================== ===================== =======================
LIABILITIES AND SHAREHOLDERS' EQUITY
CAPITALIZATION
Common shareholders' equity $ 32,748,493 $ 34,182,277 $ 31,489,678
Long-term debt 48,547,000 48,600,000 49,151,940
---------------------- --------------------- -----------------------
Total capitalization $ 81,295,493 $ 82,782,277 $ 80,641,618
---------------------- --------------------- -----------------------
CURRENT LIABILITIES
Notes payable $ 26,945,000 $ 19,355,000 $ 25,130,000
Current portion of long-term debt 1,750,000 1,750,000 2,450,000
Accounts payable 2,878,974 4,077,983 4,079,618
Accrued taxes (143,789) 673,873 392,369
Refunds due customers 69,658 73,973 114,023
Customers' deposits 433,663 440,568 430,866
Accrued interest on debt 1,542,860 1,162,956 1,568,222
Accrued vacation 558,066 558,066 538,595
Other accrued liabilities 401,818 503,178 315,628
---------------------- --------------------- -----------------------
Total current liabilities $ 34,436,250 $ 28,595,597 $ 35,019,321
---------------------- --------------------- -----------------------
DEFERRED CREDITS AND OTHER
Deferred income taxes $ 14,078,273 $ 14,078,273 $ 12,851,457
Investment tax credits 404,600 404,600 449,800
Regulatory liability 555,650 562,025 626,350
Additional minimum pension liability 1,461,440 1,461,440 -
Advances for construction and other 226,295 64,313 99,376
---------------------- --------------------- -----------------------
Total deferred credits and other $ 16,726,258 $ 16,570,651 $ 14,026,983
---------------------- --------------------- -----------------------
Total liabilities and
shareholders' equity
$ 132,458,001 $ 127,948,525 $ 129,687,922
====================== ===================== =======================
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended Twelve Months Ended
September 30 September 30
2002 2001 2002 2001
---- ---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ (991,247) $ (778,325) $ 3,423,791 $ 3,913,379
Adjustments to reconcile net
income (loss) to net cash from
operating activities
Cumulative effect of a
change in accounting
principle 88,370 - 88,370 -
Depreciation, depletion
and amortization 1,082,525 1,029,639 4,311,088 4,042,141
Deferred income taxes and
investment tax credits (6,375) (6,375) 1,110,916 2,332,458
Other, net 136,731 169,100 563,526 685,551
(Increase) decrease in assets (2,995,112) (3,585,815) 1,466,218 (8,368,666)
Increase (decrease) in
liabilities (1,705,121) (1,442,997) (227,468) 385,441
---------------------------------------------------------------- -----------------------
Net cash provided by (used
in) operating activities $ (4,390,229) $ (4,614,773) $ 10,736,441 $ 2,990,304
---------------------------------------------------------------- -----------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures $ (2,641,803) $ (2,627,824) $ (9,435,745) $ (8,221,229)
---------------------------------------------------------------- -----------------------
Net cash used in
investing activities $ (2,641,803) $ (2,627,824) $ (9,435,745) $ (8,221,229)
---------------------------------------------------------------- -----------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends on common stock $ (748,957) $ (725,895) $ (2,939,481) $ (2,848,103)
Issuance of common stock, net 306,420 239,338 774,505 678,133
Repayment of long-term debt (53,000) (119,000) (1,309,000) (703,000)
Issuance of notes payable 11,610,000 12,940,000 35,530,000 54,815,000
Repayment of notes payable (4,020,000) (4,610,000) (33,715,000) (46,485,000)
---------------------------------------------------------------- -----------------------
Net cash provided by (used
in) financing activities $ 7,094,463 $ 7,724,443 $ (1,658,976) $ 5,457,030
---------------------------------------------------------------- -----------------------
NET INCREASE (DECREASE)IN
CASH AND CASH EQUIVALENTS $ 62,431 $ 481,846 $ (358,280) $ 226,105
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 225,236 164,101 645,947 419,842
---------------------------------------------------------------- -----------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 287,667 $ 645,947 $ 287,667 $ 645,947
================================================================ =======================
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 725,565 $ 833,078 $ 4,528,537 $ 5,160,986
Income taxes (net of refunds) $ 301,900 $ 47,700 $ 1,384,766 $ 145,712
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) Delta Natural Gas Company, Inc. has three wholly-owned subsidiaries. Delta
Resources, Inc. buys gas and resells it to industrial or other large use
customers on Delta's system. Delgasco, Inc. buys gas and resells it to
Delta Resources and to customers not on Delta's system. Enpro, Inc. owns
and operates production properties and undeveloped acreage. All of our
subsidiaries are included in the consolidated financial statements.
Intercompany balances and transactions have been eliminated.
(2) In our opinion, all adjustments necessary for a fair presentation of the
unaudited results of operations for the three and twelve months ended
September 30, 2002 and 2001, respectively, are included. All such
adjustments are accruals of a normal and recurring nature. The results of
operations for the period ended September 30, 2002 are not necessarily
indicative of the results of operations to be expected for the full year.
The accompanying financial statements are unaudited and should be read in
conjunction with the financial statements, which are incorporated herein by
reference to our Annual Report on Form 10-K for the year ended June 30,
2002. Certain reclassifications have been made to prior-period amounts to
conform to the 2002 presentation.
(3) In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, entitled Accounting for Asset
Retirement Obligations, and Delta adopted this statement effective July 1,
2002. Statement No. 143 addresses financial accounting for legal
obligations associated with the retirement of long-lived assets. Upon
adoption of this statement, we recorded $178,000 of asset retirement
obligations in the balance sheet primarily representing the current
estimated fair value of our obligation to plug oil and gas wells at the
time of abandonment. Of this amount, $47,000 was recorded as incremental
cost of the underlying property, plant and equipment. The cumulative effect
on earnings of adopting this new statement was a charge to earnings of
approximately $88,000 (net of income taxes of approximately $55,000),
representing the cumulative amounts of depreciation and changes in the
asset retirement obligation due to the passage of time for historical
accounting periods. The adoption of the new standard did not have a
significant impact on income (loss) before cumulative effect of a change in
accounting principle for the three and twelve months ended September 30,
2002. Pro forma net income and earnings per share have not been presented
for the three months ended September 30, 2001 and for the twelve months
ended September 30, 2002 and 2001 because the pro forma application of
Statement No. 143 to prior periods would result in pro forma net income and
earnings per share not materially different from the actual amounts
reported for those periods in the accompanying consolidated statements of
income.
(4) In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, entitled Accounting for the
Impairment or Disposal of Long-Lived Assets. Statement No. 144 addresses
accounting and reporting for the impairment or disposal of long-lived
assets. Statement No. 144 was effective July 1, 2002. The impact of
implementation on our financial position or results of operations was not
material.
(5) In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, entitled Accounting for Costs
Associated with Exit or Disposal Activities. Statement No. 146 addresses
financial reporting and accounting for costs associated with exit or
disposal activities. This statement requires that a liability for a cost
associated with an exit or disposal activity be recognized when the
liability is incurred and is effective for exit or disposal activities that
are initiated after December 31, 2002. We have not committed to any such
exit or disposal plan. Accordingly, this new statement will not presently
have any impact on us.
(6) The American Institute of Certified Public Accountants has issued an
exposure draft Statement of Position, entitled Accounting for Certain Costs
and Activities Related to Property, Plant and Equipment. This proposed
statement will apply to all nongovernmental entities that acquire,
construct or replace tangible property, plant, and equipment. A significant
element of the statement requires that entities use component accounting to
the extent future component replacement will be capitalized. At adoption,
entities would have the option to apply component accounting retroactively
for all such assets, to the extent applicable, or to apply component
accounting as an entity incurs capitalizable costs that replace all or a
portion of property, plant and equipment. We are currently analyzing the
impact of this proposed statement, which has a proposed effective date of
January 1, 2003.
(7) In September 2002, our Board of Directors approved an amendment to our
Company's Defined Benefit Retirement Plan, effective November 1, 2002. The
plan amendment reduced the formula for benefits paid under the plan for
future service and restricted participants from taking lump-sum
distributions from the plan. Monthly pension expense is currently $71,000.
After the amendment becomes effective, monthly pension expense will be
$26,000.
(8) Reference is made to Part II - Item 1 relative to the status of legal
proceedings.
(9) During July 2001, the Kentucky Public Service Commission required an
independent audit of the gas procurement activities of Delta and four other
gas distribution companies as part of its investigation of increases in
wholesale natural gas prices and their impacts on customers. The Kentucky
Public Service Commission indicated that Kentucky distributors had
generally developed sound planning and procurement procedures for meeting
their customers' natural gas requirements and that these procedures had
provided customers with a reliable supply of natural gas at reasonable
costs. The Kentucky Public Service Commission noted the events of the prior
year, including changes in natural gas wholesale markets, and required 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. The consultants that were selected by the Kentucky Public
Service Commission are currently completing this audit. We have received a
draft of the consultants' report and have reviewed it and commented on it.
The draft report contains procedural and reporting-related recommendations
in the areas of gas supply planning, organization, staffing, controls, gas
supply management, gas transportation, gas balancing, response to
regulatory change and affiliate relations. The report also addresses
several general areas for the five gas distribution companies involved in
the audit, including Kentucky natural gas price issues, hedging, gas cost
recovery mechanisms, budget billing, uncollectible accounts and
forecasting. We cannot predict how the Kentucky Public Service Commission
will interpret or act on any audit recommendations. As a result, we cannot
predict the impact of this regulatory proceeding on our financial position
or results of operations.
(10) External and intersegment revenues and net income (loss) by business
segment are shown below:
($000) Three Months Ended Twelve Months Ended
----- ------ -----
September 30 September 30
--------- -- --------- --
2002 2001 2002 2001
---- ---- ---- ----
Revenues
Regulated
External customers 3,466 3,535 40,303 48,901
Intersegment 709 723 3,036 3,265
--- --- ----- -------
Total regulated 4,175 4,258 43,339 52,166
----- ----- ------ -------
Non-regulated 3,687 3,724 15,521 22,406
External customers - 996 694 5,527
- --- --- -------
Intersegment 3,687 4,720 16,215 27,933
----- ----- ------ -------
Total non-regulated
Eliminations for intersegment (709) (1,719) (3,730) (8,792)
Total operating revenues 7,153 7,259 55,824 71,307
Net Income (Loss)
Regulated (1,114) (1,108) 2,614 2,719
Non-regulated 123 330 810 1,194
--- --- --- -------
Total net income (loss) (991) (778) 3,424 3,913
==== ==== =====
Effective January 1, 2002, the non-regulated segment discontinued the practice
of selling gas to the regulated segment. This led to a decline in
intersegment revenues for the three and twelve months ending September 30,
2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Because of the seasonal nature of our 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.
Our capital expenditures for fiscal 2003 are expected to be $9.8 million.
The capital expenditures are being made for system extensions as well as the
replacement and improvement of existing transmission, distribution, gathering
and general facilities. We have been generating internally only a portion of the
cash necessary for our capital expenditure requirements and thus we finance the
balance of our capital expenditures on an interim basis through the use of our
borrowing capability under our short-term line of credit. The current available
line of credit is $40,000,000, of which $26,945,000 was borrowed at September
30, 2002. The line of credit was with Bank One, Kentucky, NA, at September 30,
2002. On October 31, 2002, we ceased this line of credit and completed a new
$40,000,000 line of credit with Branch Banking and Trust Company. This new line
of credit is on substantially the same terms as the former line of credit and
extends through October 31, 2003. These short-term borrowings are periodically
repaid with the net proceeds from the sale of long-term debt and equity
securities.
On October 30, 2002, we filed a Form S-2 Registration Statement with the
Securities and Exchange Commission to sell $20,000,000 of Debentures due in
2022. Once the registration statement is effective, we plan to sell the
securities and receive approximately $19,270,000 of net proceeds from the sale.
Of this amount, $15,409,000 of the net proceeds will be used to call our 8.30%
debentures due 2026, and the remaining $3,861,000 will be used to reduce our
short term notes payable.
The primary cash flows during the three and twelve month periods ending
September 30, 2002 and 2001 are summarized below:
Three Months Ended September 30,
2002 2001
---- ----
Used in our operating
activities $ (4,390,229) $ (4,614,773)
Used in our investing activities (2,641,803) (2,627,824)
Provided by our financing
activities
7,094,463 7,724,443
------------------ -------------------
Net increase in our cash and
cash equivalents $ 62,431 $ 481,846
================== ===================
The $419,000 change in the net increase in cash and cash equivalents for
the three months ended September 30, 2002, compared with the same period in the
previous year, was primarily due to the decrease in cash provided by financing
activities, which decrease is attributable to the net decrease in issuance of
short-term notes payable.
Twelve Months Ended September 30,
2002 2001
---- ----
Provided by our operating
activities $ 10,736,441 $ 2,990,304
Used in our investing activities (9,435,745) (8,221,229)
Provided by (used in) our financing
activities (1,658,976) 5,457,030
------------- --------------
Net increase (decrease) in our cash
and cash equivalents
$ (358,280) $ 226,105
============== =============
The $584,000 change in the net increase (decrease) in cash and cash
equivalents for the twelve months ended September 30, 2002, compared with the
same period in the previous year, was due to fluctuations in cash provided by
(used in) operating, investing and financing activities. The increase in cash
provided by operating activities is primarily attributable to a $6,172,000
increase in net cash received from customers through the gas cost recovery
mechanism and a $4,011,000 reduction in cash used for gas in storage. These
increases in cash provided by operating activities were partially offset by a
$1,451,000 increase in net cash paid to vendors through accounts payable and a
$1,222,000 increase in cash paid for income taxes. The increase in cash used in
investing activities resulted from an increase in capital expenditures. The
decrease in cash provided by (used in) financing activities is primarily
attributable to the $6,515,000 net decrease in short-term notes payable.
RESULTS OF OPERATIONS
For meaningful analysis of our revenue and expense variations, the
variation amounts and percentages presented below for regulated and
non-regulated revenues and expenses include intersegment transactions. These
intersegment revenues and expenses, whose variations are also disclosed in the
following tables, are eliminated in the consolidated statements of income.
Operating Revenues
The following table sets forth certain variations in our revenues for the
three and twelve months ended September 30, 2002 compared with the same periods
in the preceding year:
Increase (Decrease)
2002 Compared to 2001
Three months ended Twelve months ended
September 30 September 30
------------ ------------
Variations in our regulated revenues
Gas rates $ (106,000) $ (2,127,000)
Weather normalization adjustment - 1,935,000
Sales volumes (73,000) (8,901,000)
On-system transportation (4,000) (74,000)
Off-system transportation 109,000 392,000
Other (9,000) (52,000)
----------- ------------
Total $ (83,000) $ (8,827,000)
----------- ------------
Variations in our non-regulated
revenues
Gas rates $ 269,000 $ (6,439,000)
Sales volumes (1,302,000) (5,279,000)
----------- ------------
Total $(1,033,000) $(11,718,000)
----------- ------------
Total variations in revenues $(1,116,000) $(20,545,000)
Variations in our intersegment revenues 1,010,000 5,062,000
----------- ------------
Variations in our consolidated $ (106,000) $(15,483,000)
=========== ============
revenues
======= ============================================= ========================
Percentage variations in our
regulated volumes
Gas sales (2.4) (18.9)
On-system transportation 7.7 3.1
Off-system transportation 25.6 24.0
Percentage variations in our non-
regulated gas sales volumes (27.6) (18.9)
Heating degree days billed were 89.0% of normal thirty year average
temperatures for the twelve months ended September 30, 2002 as compared with
106.7% in 2001. A "heating degree day" is determined each day when the average
of the high and low temperature is one degree less than 65 degrees Fahrenheit.
The decreases in non-regulated revenues and intersegment revenues for the
three months ended September 30, 2002 were primarily attributable to the
non-regulated segment discontinuance of selling gas to the regulated segment
effective January 1, 2002.
The decrease in regulated revenues for the twelve months ended September
30, 2002, was primarily attributable to the 18.9% decrease in sales volumes and
decreased gas rates. Sales volumes decreased due to warmer winter weather in
2002. Gas rates decreased due to lower gas prices net of increases from the
impact of the weather normalization tariff. The decrease in non-regulated
revenues for the twelve months ended September 30, 2002, was primarily
attributable to decreased gas prices and the 18.9% decrease in sales volumes.
Gas rates decreased due to lower gas prices, and sales volumes decreased due to
the non-regulated segment discontinuance of selling gas to the regulated segment
effective January 1, 2002 and the warmer winter weather in 2002.
Operating Expenses
The following table sets forth certain variations in our purchased gas
expense for the three and twelve months ended September 30, 2002 compared with
the same periods in the preceding year:
Increase (Decrease)
2002 Compared to 2001
Three months ended Twelve months ended
September 30 September 30
------------ ------------
ariations in regulated gas expense
Gas rates $ (163,000) $ (2,806,000)
Purchase volumes (30,000) (5,210,000)
------------ ------------
Total $ (193,000) $ (8,016,000)
------------ ------------
ariations in non-regulated gas expense
Gas rates $ 125,000 $ (5,330,000)
Purchase volumes (963,000) (6,178,000)
----------- ------------
Total $ (838,000) $(11,508,000)
----------- ------------
Total variations in gas expense $(1,031,000) $(19,524,000)
ariations in intersegment gas expense 1,010,000 5,062,000
----------- ------------
Variations in consolidated gas
expense $ (21,000) $(14,462,000)
=========== ============
The decreases in non-regulated gas expense and intersegment gas expenses
for the three months ended September 30, 2002 were primarily attributable to the
non-regulated segment discontinuance of selling gas to the regulated segment
effective January 1, 2002.
The decrease in regulated gas expense for the twelve months ended September
30, 2002, was primarily attributable to the 18.9% decrease in sales volumes and
an 11.9% decrease in the cost of gas purchased for retail sales. The decrease in
non-regulated gas expense for the twelve months ended September 30, 2002, was
primarily attributable to the 18.9% decrease in sales volumes and a 32.1%
decrease in the cost of gas purchased for retail sales.
The decreases in income taxes for the three and twelve months ending
September 30, 2002 of $75,000 and $217,000, respectively, were primarily due to
decreases in net income.
The decreases in interest charges for the three and twelve moths ending
September 30, 2002 of $117,000 and $495,000, respectively, were primarily due to
lower interest rates on the short-term notes payable.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
------------------------------------------------------------------
We serve our regulated customers using a combination of spot market gas
purchases and forward gas purchases. The price of spot market gas is based on
the market price at the time of delivery, while the price of a forward purchase
is fixed months prior to the delivery of the gas. Some of our gas purchases are
injected into gas storage facilities in the non-heating months and withdrawn
from storage for delivery to customers during the heating season. We have
minimal price risk resulting from these gas purchase and storage arrangements
because these gas costs are passed on to our regulated customers through the gas
cost recovery rate mechanism.
Our non-regulated subsidiaries actively pursue gas sales opportunities for
customers within and outside our service area. At the time we make a sales
commitment to one of these customers, we attempt to cover this position
immediately with gas purchase commitments matched to the terms of the related
sales contract. Our non-regulated subsidiaries attempt to minimize their
exposure to price volatility by predetermining the gross profit on their sales
at the time of each sales commitment.
None of our gas contracts is accounted for using the fair value method of
accounting. While some of our gas purchase contracts meet the definition of a
derivative, we have designated these contracts as "normal purchases" under SFAS
No. 133, "Accounting for Derivatives".
We are exposed to risk resulting from changes in interest rates on our
variable rate notes payable. The interest rate on the notes payable is
benchmarked to the monthly London Interbank Offered Rate.
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. Within 90 days before filing this
report, we evaluated the effectiveness of the design and operation of our
disclosure controls and procedures. Our disclosure controls and procedures
are the controls and other procedures that we designed to ensure that we
record, process, summarize and report in a timely manner the information we
must disclose in reports that we file with or submit to the Securities and
Exchange Commission. Glenn R. Jennings, our President and Chief Executive
Officer, and John F. Hall, our Vice President-Finance, Secretary and
Treasurer, reviewed and participated in this evaluation. Based on this
evaluation, Mr. Jennings and Mr. Hall concluded that, as of the date of
their evaluation, our disclosure controls were effective.
(b) Internal Controls. Since the date of the evaluation described above, there
have not been any significant changes in our internal accounting controls
or in other factors that could significantly affect those controls.
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, 2002.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- --------------------------------------------------
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
None.
ITEM 5. OTHER INFORMATION
Effective October 31, 2002, we changed a $40,000,000 line of revolving
credit bank loan from Bank One to Branch Banking and Trust Company. The interest
rate on the new line of credit will be 100 basis points plus the one month
London Interbank Offered Rate, and it also includes 30 basis points for any
unused amount. The unsecured note is similar to the note Delta had with Bank
One. The new line of credit will extend through October 31, 2003.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
-----------------------------------------
(a) Exhibits.
10(a)Promissory note in the original principal amount of $40,000,000 made
by Registrant to the order of Branch Banking and Trust Company.
99.1 Certificate of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
99.2 Certificate of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
(b) Reports on Form 8-K. No reports on Form 8-K have been filed by the
Registrant during the quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DELTA NATURAL GAS COMPANY, INC.
(Registrant)
/s/Glenn R. Jennings
DATE: November 12, 2002 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)
/s/John B. Brown
------------------------------
John B. Brown
Controller
(Principal Accounting Officer)
CERTIFICATIONS
I, Glenn R. Jennings, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Delta Natural Gas
Company, Inc., the registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/Glenn R. Jennings
----------------------------------
Glenn R. Jennings
President & Chief Executive Officer
Date: November 12, 2002
CERTIFICATIONS
I, John F. Hall, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Delta Natural Gas
Company, Inc., the registrant;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/John F. Hall
-----------------------------
John F. Hall
Vice President - Finance,
Secretary & Treasurer
Date: November 12, 2002
Exhibit 10(a)
BB&T
LOAN AGREEMENT
Delta Natural Gas Company, Inc. Account Number 9580219605
----------------------
This Loan Agreement (the "Agreement") is made this 31st day of October, 2002 by
and between BRANCH BANKING AND TRUST COMPANY, a North Carolina banking
corporation ("Bank"), and:
Delta Natural Gas Company, Inc., a Kentucky corporation ("Borrower"), having its
chief executive office at Winchester, Kentucky.
The Borrower has applied to Bank for and the Bank has agreed to make, subject to
the terms of this Agreement, the following loan(s) (hereinafter referred to,
singularly or collectively, if more than one, as "Loan"):
Line of Credit ("Line of Credit" or "Line") in the maximum principal amount not
to exceed $40,000,000 at any one time outstanding for the purpose of Working
Capital which shall be evidenced by the Borrower's Promissory Note dated on or
after the date hereof which shall mature October 31, 2003, when the entire
unpaid principal balance then outstanding plus accrued interest thereon shall be
paid in full. Prior to maturity or the occurrence of any Event of Default
hereunder and subject to any Borrowing Base limitations, as applicable, the
Borrower may borrow, repay, and reborrow under the Line of Credit through
maturity. The Line of Credit shall bear interest at the rate set forth in any
such Note evidencing all or any portion of the Line of Credit, the terms of
which are incorporated herein by reference.
Section 1 Conditions Precedent
The Bank shall not be obligated to make any disbursement of Loan proceeds until
all of the following conditions have been satisfied by proper evidence,
execution, and/or delivery to the Bank of the following items in addition to
this Agreement, all in form and substance satisfactory to the Bank and the
Bank's counsel in their sole discretion:
Note(s): The Note(s) evidencing the Loans(s) duly executed by the Borrower.
Corporate Resolution: A Corporate Resolution duly adopted by the Board of
Directors of the Borrower authorizing the execution, delivery, and performance
of the Loan Documents on or in a form provided by or acceptable to Bank.
Articles of Incorporation: A copy of the Articles of Incorporation and all other
charter documents of the Borrower, all filed with and certified by the Secretary
of State of the State of the Borrower's incorporation.
By-Laws: A copy of the By-Laws of the Borrower, certified by the Secretary of
the Borrower as to their completeness and accuracy.
Certificate of Incumbency: A certificate of the Secretary of the Borrower
certifying the names and true signatures of the officers of the Borrower
authorized to sign the Loan Documents.
Certificate of Existence: A certification of the Secretary of State (or other
government authority) of the State of the Borrower's Incorporation or
Organization as to the existence or good standing of the Borrower and its
charter documents on file.
Opinion of Counsel: An opinion of counsel for the Borrower satisfactory to the
Bank and the Bank's counsel.
Additional Documents: Receipt by the Bank of other approvals, opinions, or
documents as the Bank may reasonably request.
Section 2 Representations and Warranties
The Borrower represents and warrants to Bank that:
2.01. Financial Statements. The balance sheet of the Borrower and its
subsidiaries, if any, and the related Statements of Income and Retained Earnings
of the Borrower and its subsidiaries, the accompanying footnotes together with
the accountant's opinion thereon, and all other financial information previously
furnished to the Bank, are in all material respects true and correct and fairly
reflect the financial condition of the Borrower and its subsidiaries as of the
dates thereof, including all contingent liabilities of every type required under
Generally Accepted Accounting Principles (GAAP) to be included thereunder, and
the financial condition of the Borrower and its subsidiaries as stated therein
has not changed materially and adversely since the date thereof.
2.02. Name, Capacity and Standing. The Borrower's exact legal name is correctly
stated in the initial paragraph of the Agreement. The Borrower warrants and
represents that it is duly organized and validly existing under the laws of its
respective state of incorporation or organization; that it and/or its
subsidiaries, if any, are duly qualified and in good standing in every other
state in which the nature of their business shall require such qualification,
and are each duly authorized by their board of directors to enter into the
Agreement.
2.03. No Violation of Other Agreements. The execution of the Loan Documents, and
the performance by the Borrower thereunder will not violate any material
provision, as applicable, of its articles of incorporation, by-laws, articles of
organization, operating agreement, agreement of partnership, limited partnership
or limited liability partnership, or, of any law, other agreement, indenture,
note, or other instrument binding upon the Borrower, or give cause for the
acceleration of any of the respective obligations of the Borrower.
2.04. Authority. All authority from and approval by any federal, state, or local
governmental body, commission or agency necessary to the making, validity, or
enforceability of this Agreement and the other Loan Documents has been obtained.
2.05. Asset Ownership. The Borrower has good and marketable title to all of the
properties and assets reflected on the balance sheets and financial statements
furnished to the Bank, and all such properties and assets are free and clear of
mortgages, deeds of trust, pledges, liens, and all other encumbrances except as
otherwise disclosed by such financial statements.
2.06. Discharge of Liens and Taxes. The Borrower and its subsidiaries, if any,
have filed, paid, and/or discharged all taxes or other claims which may become a
lien on any of their respective properties or assets, excepting to the extent
that such items are being appropriately contested in good faith and for which an
adequate reserve (in an amount acceptable to Bank) for the payment thereof is
being maintained.
2.07. Regulation U. None of the Loan proceeds shall be used directly or
indirectly for the purpose of purchasing or carrying any margin stock in
violation of the provisions of Regulation U of the Board of Governors of the
Federal Reserve System.
2.08. ERISA. Each employee benefit plan, as defined by the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), maintained by the Borrower or
by any subsidiary of the Borrower meets in all material respects, as of the date
hereof, the minimum funding standards of Section 302 of ERISA, all applicable
requirements of ERISA and of the Internal Revenue Code of 1986, as amended, and
no "Reportable Event" nor "Prohibited Transaction" (as defined by ERISA) has
occurred with respect to any such plan.
2.09. Litigation. There is no claim, action, suit or proceeding pending, (to the
knowledge of Borrower) threatened or reasonably anticipated before any court,
commission, administrative agency, whether State or Federal, or arbitration
which will materially adversely affect the financial condition, operations,
properties, or business of the Borrower or its subsidiaries, if any, or the
ability of the Borrower to perform its obligations under the Loan Documents.
2.10. Other Agreements. The representations and warranties made by Borrower to
Bank in the other Loan Documents are true and correct in all material respects
on the date hereof.
2.11. Binding and Enforceable. The Loan Documents, when executed, shall
constitute valid and binding obligations of the Borrower, the execution of such
Loan Documents has been duly authorized by the parties thereto, and are
enforceable in accordance with their terms, except as may be limited by
bankruptcy, insolvency, moratorium, or similar laws affecting creditors' rights
generally and by general equitable principles.
2.12. Commercial Purpose. The Loan(s) are not "consumer transactions", as
defined in the Kentucky Uniform Commercial Code.
Section 3 Affirmative Covenants
The Borrower covenants and agrees that from the date hereof and until payment in
full of all indebtedness and performance of all obligations owed under the Loan
Documents, Borrower shall:
3.01. Maintain Existence and Current Legal Form of Business. (a) Maintain its
existence and good standing in the state of its incorporation or organization,
(b) maintain its current legal form of business indicated above, and, (c), as
applicable, qualify and remain qualified as a foreign corporation, general
partnership, limited partnership, limited liability partnership or limited
liability company in each jurisdiction in which such qualification is required.
3.02. Maintain Records. Keep adequate records and books of account, in which
complete entries will be made in accordance with GAAP consistently applied,
reflecting all financial transactions of the Borrower.
3.03. Maintain Properties. Maintain, keep, and preserve all of its properties
(tangible and intangible) including the collateral necessary or useful in the
conduct of its business in good working order and condition, ordinary wear and
tear excepted.
3.04. Conduct of Business. Continue to engage in a business of the same general
type as now conducted.
3.05. Maintain Insurance. Maintain insurance with financially sound and
reputable insurance companies or associations in such amounts and covering such
risks as are usually carried by companies engaged in the same or a similar
business, and business interruption insurance if required by Bank, which
insurance may provide for reasonable deductible(s).
3.06. Comply With Laws. Comply in all material respects with all applicable
laws, rules, regulations, and orders including, without limitation, paying
before the delinquency of all taxes, assessments, and governmental charges
imposed upon it or upon its property, and all environmental laws.
3.07. Right of Inspection. Permit the officers and authorized agents of the
Bank, at any reasonable time or times in the Bank's sole discretion, to examine
and make copies of the records and books of account of, to visit the properties
of the Borrower, and to discuss such matters with any officers, directors,
managers, members or partners, limited or general of the Borrower, and the
Borrower's independent accountant as the Bank deems necessary and proper.
3.08. Reporting Requirements. Furnish to the Bank:
Quarterly Financial Statements: As soon as available and not more than forty
five (45) days after the end of each quarter, balance sheets, statements of
income, cash flow, and retained earnings for the period ended and a statement of
changes in the financial position, all in reasonable detail, and all prepared in
accordance with GAAP consistently applied and certified as true and correct by
an officer of the Borrower, as appropriate.
Annual Financial Statements: As soon as available and not more than one hundred
twenty (120) days after the end of each fiscal year, balance sheets, statements
of income, and retained earnings for the period ended and a statement of changes
in the financial position, all in reasonable detail, and all prepared in
accordance with GAAP consistently applied. The financial statements must be of
the following quality or better: Audited.
Notice of Litigation: Promptly after the receipt by the Borrower of notice or
complaint of any action, suit, and proceeding before any court or administrative
agency of any type which, if determined adversely, could have a material adverse
effect on the financial condition, properties, or operations of the Borrower.
Notice of Default: Promptly upon discovery or knowledge thereof, notice of the
existence of any event of default under this Agreement or any other Loan
Documents.
Other Information: Such other information as the Bank may from time to time
reasonably request.
3.09. Deposit Accounts. Maintain substantially all of its demand
deposit/operating accounts with the Bank.
3.10. Senior Management: No change in senior management shall occur that is
unacceptable to the Bank.
Section 4 Events of Default
The following shall be "Events of Default" by Borrower:
4.01. The failure to make prompt payment of any installment of principal or
interest on any of the Note(s) in accordance with the terms and conditions of
the Note(s).
4.02. Should any representation or warranty made in the Loan Documents prove to
be false or misleading in any material respect.
4.03 Should any report, certificate, financial statement, or other document
furnished prior to the execution of or pursuant to the terms of this Agreement
prove to be false or misleading in any material respect.
4.04. Should the Borrower default on the performance of any other obligation of
indebtedness to the Bank or to any third party when due or in the performance of
any obligation incurred in connection with money borrowed, and the default
remains uncured for a period of ten (10) days after notice from Bank to
Borrower.
4.05. Should the Borrower breach any material covenant, condition, or agreement
made under any of the Loan Documents, and the breach remains uncured for a
period of ten (10) days after notice from Bank to Borrower.
4.06. Should a custodian be appointed for or take possession of any or all of
the assets of the Borrower, or should the Borrower either voluntarily or
involuntarily become subject to any insolvency proceeding, including becoming a
debtor under the United States Bankruptcy Code, any proceeding to dissolve the
Borrower, any proceeding to have a receiver appointed, or should the Borrower
make an assignment for the benefit of creditors, or should there be an
attachment, execution, or other judicial seizure of all or any portion of the
Borrower's assets, including an action or proceeding to seize any funds on
deposit with the Bank, and such seizure is not discharged within 30 days.
4.07. Should final judgment for the payment of money be rendered against the
Borrower in excess of $100,000 which is not covered by insurance and shall
remain undischarged for a period of 30 days unless such judgment or execution
thereon be effectively stayed.
4.08. Upon the death of, or termination of existence of, or dissolution of, any
Borrower.
4.09. Should the Bank in good faith deem itself, its liens and security
interests, if any, or any debt thereunder unsafe or insecure, or should the Bank
believe in good faith that the prospect of payment of any debt or other
performance by the Borrower is impaired.
Section 5 Remedies Upon Default
Upon the occurrence of any of the above listed Events of Default, the Bank may
at any time thereafter, at its option, take any or all of the following actions,
at the same or at different times:
5.01. Declare the balance(s) of the Note(s) to be immediately due and payable,
both as to principal and interest, without presentment, demand, protest, or
notice of any kind, all of which are hereby expressly waived by Borrower, and
such balance(s) shall accrue interest at the Default Rate as provided herein
until paid in full;
5.02. Require the Borrower to pledge collateral to the Bank from the Borrower's
assets and properties, the acceptability and sufficiency of such collateral to
be determined in the Bank's sole discretion;
5.03. Take immediate possession of and foreclose upon any or all collateral
which may be granted to the Bank as security for the indebtedness and
obligations of Borrower under the Loan Documents;
5.04. Exercise any and all other rights and remedies available to the Bank under
the terms of the Loan Documents and applicable law, including the Kentucky
Uniform Commercial Code; and
5.05. Any obligation of the Bank to advance funds to the Borrower or any other
Person under the terms of the Note(s) and all other obligations, if any, of the
Bank under the Loan Documents shall immediately cease and terminate unless and
until Bank shall reinstate such obligation in writing.
Section 6 Negative Covenants.
The Borrower covenants and agrees that from the date hereof and until payment in
full of all indebtedness and performance of all obligations owed under the Loan
Documents, Borrower shall not:
6.01 Disposition of Assets. Sell, assign, lease, convey or transfer or otherwise
dispose of a material portion of its assets other than in the ordinary course of
its business.
6.02 Consolidations and Mergers. Merge, consolidate with or into any other
entity or otherwise dispose of substantially all of its assets.
6.03 Issuance of Stock. Issue any of its stock to the public or in an exempt
transaction whereby such issuances in the aggregate exceed thirty-five percent
(35%) of the Borrower's currently authorized and outstanding shares of common
stock.
6.04 Accumulation of Stock. Have any person or entity or a group of affiliated
persons or entities, hold more than twenty percent (20%) of the then outstanding
shares of Borrower common stock
Section 7 Miscellaneous Provisions
7.01. Definitions.
"Default Rate" shall mean a rate of interest equal to Bank's Prime Rate plus
five percent (5%) per annum (not to exceed the legal maximum rate) from and
after the date of an Event of Default hereunder which shall apply, in the Bank's
sole discretion, to all sums owing, including principal and interest, on such
date.
"Loan Documents" shall mean this Agreement including any schedule attached
hereto, the Note(s), and all other documents, certificates, and instruments
executed in connection therewith, and all renewals, extensions, modifications,
substitutions, and replacements thereto and therefore.
"Person" shall mean an individual, partnership, corporation, trust,
unincorporated organization, limited liability company, limited liability
partnership, association, joint venture, or a government agency or political
subdivision thereof.
"GAAP" shall mean generally accepted accounting principles as established by the
Financial Accounting Standards Board or the American Institute of Certified
Public Accountants, as amended and supplemented from time to time.
"Prime Rate" shall mean the rate of interest per annum announced by the Bank
from time to time and adopted as its Prime Rate, which is one of several rate
indexes employed by the Bank when extending credit, and may not necessarily be
the Bank's lowest lending rate.
"Committed Line Amount" shall mean the amount of Forty Million Dollars
($40,000,000) or in the event the Borrower exercises its option to reduce the
amount of the line under Section 7.16 hereof, it shall be the amount of Forty
Million Dollars ($40,000,000) less the reduction amount.
"Term" shall mean a period of time commencing on the execution of this Agreement
and continuing through October 31, 2003 unless earlier terminated or extended in
accordance with the terms and conditions hereof.
7.02.Non-impairment. If any one or more provisions contained in the Loan
Documents shall be held invalid, illegal, or unenforceable in any respect, the
validity, legality, and enforceability of the remaining provisions contained
therein shall not in any way be affected or impaired thereby and shall otherwise
remain in full force and effect.
7.03.Applicable Law. The Loan Documents shall be construed in accordance with
and governed by the laws of the Commonwealth of Kentucky without reference to
its principles of conflicts of law or choice of law.
7.04.Waiver. Neither the failure or any delay on the part of the Bank in
exercising any right, power or privilege granted in the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise of any other right, power, or privilege
which may be provided by law.
7.05.Modification. No modification, amendment, or waiver of any provision of any
of the Loan Documents shall be effective unless in writing and signed by the
Borrower and Bank.
7.06.Stamps and Fees. The Borrower shall pay all federal or state stamps, taxes,
or other fees or charges, if any are payable or are determined to be payable by
reason of the execution, delivery, or issuance of the Loan Documents or any
security granted to the Bank; and the Borrower agrees to indemnify and hold
harmless the Bank against any and all liability in respect thereof.
7.07.Attorneys' Fees. In the event the Borrower shall default in any of its
obligations hereunder and the Bank believes it necessary to employ an attorney
to assist in the enforcement or collection of the indebtedness of the Borrower
to the Bank, to enforce the terms and provisions of the Loan Documents, to
modify the Loan Documents, or in the event the Bank voluntarily or otherwise
should become a party to any suit or legal proceeding (including a proceeding
conducted under the Bankruptcy Code), the Borrower agrees to pay the reasonable
attorneys' fees of the Bank and all related costs of collection or enforcement
that may be incurred by the Bank. The Borrower shall be liable for such
attorneys' fees and costs whether or not any suit or proceeding is actually
commenced.
7.08.Right of Offset. Any indebtedness owing from Bank to Borrower may be set
off and applied by Bank on any indebtedness or liability of Borrower to Bank, at
any time and from time to time after maturity, whether by acceleration or
otherwise, and without demand or notice to Borrower. Bank may sell
participations in or make assignments of any Loan made under this Agreement, and
Borrower agrees that any such participant or assignee shall have the same right
of setoff as is granted to the Bank herein.
7.09.Modification and Renewal Fees. Bank may, at its option, charge any fees for
modification, renewal, extension, or amendment of any terms of the Note(s) not
prohibited by Kentucky law, and as otherwise permitted by law if Borrower is
located in another state.
7.10. Conflicting Provisions. If provisions of this Agreement shall conflict
with any terms or provisions of any of the Note(s), the provisions of such
Note(s) shall take priority over any provisions in this Agreement.
7.11. Notices. Any notice permitted or required by the provisions of this
Agreement shall be deemed to have been given when delivered in writing to the
City Executive or any Vice President of the Bank at its offices in Winchester,
Kentucky, and to the Chief Financial Officer of the Borrower at its offices in
Winchester, Kentucky, when sent by certified mail and return receipt requested.
7.12. Consent to Jurisdiction. Borrower hereby irrevocably agrees that any legal
action or proceeding arising out of or relating to this Agreement may be
instituted in any Kentucky state court or federal court sitting in the state of
Kentucky, or in such other appropriate court and venue as Bank may choose in its
sole discretion. Borrower consents to the jurisdiction of such courts and waives
any objection relating to the basis for personal or in rem jurisdiction or to
venue which Borrower may now or hereafter have in any such legal action or
proceedings.
7.13. Counterparts. This Agreement may be executed by one or more parties on any
number of separate counterparts and all of such counterparts taken together
shall be deemed to constitute one and the same instrument.
7.14. Fees. Payment quarterly of an unused availability fee equal to three
tenths of one percent (0.30%) of the unused availability of the Line of credit.
Unused availability is calculated by subtracting the average outstanding
principal balance for the previous ninety (90) days from the Committed Line
Amount. In addition, Borrower shall pay all attorneys' and related legal fees
and other costs, if any, incurred by Bank in connection with the making,
documenting and closing of the Line.
7.15.Advances and Repayment. Funds shall be advanced under the Line at the
request of an authorized officer of the Borrower, which shall be made in writing
in a form acceptable to the Bank. Prior to maturity or an Event of Default
hereunder, Borrower may borrow, repay, and re-borrow under the Loan.
7.16.Option to Reduce Amount Available. At the Borrower's option, the Borrower
has a one-time option to reduce the amount of the "Line" offered hereunder at
any time during the Term. Written notice of such exercise, including the amount
of such reduction, shall be delivered by the Borrower to the Bank.
Notwithstanding the provisions afforded under the paragraph Advances and
Repayment above, the Committed Line Amount will be reduced by the amount of the
reduction, thereby amending the Committed Line Amount available to the Borrower
for the remaining Term. At no time shall the Committed Line Amount fall below
$30 million. Exercising this Option will reduce the unused availability fee on
that portion of the Line no longer available to the Borrower, effective with the
date the Borrower's written notice, if any, is received by the Bank.
7.17.Indemnification by Borrower. Except for claims, damages, liabilities and
expenses arising from Bank's gross negligence or misconduct, Borrower agrees to
indemnify and hold harmless Bank from and against any and all claims, damages,
liabilities and expenses which may be incurred by or asserted against Bank in
connection with any proceeding arising out of this commitment or Borrower's use
of the proceeds of the Line.
7.18.Entire Agreement. The Loan Documents embody the entire agreement between
Borrower and Bank with respect to the Loans, and there are no oral or parol
agreements existing between Bank and Borrower with respect to the Loans which
are not expressly set forth in the Loan Documents.
IN WITNESS WHEREOF, the Bank and Borrower have caused this Agreement to be duly
executed under seal all as of the date first above written.
Borrower:
Delta Natural Gas Company, Inc.
----------------------------------------
Name of Corporation
Attest: By:
--------------------------- ------------------------------------
Glenn R. Jennings
Title: Chief Financial Officer Title: President
--------------------------- ------------------------------------
Branch Banking and Trust Company
Attest: By:
---------------------------- -----------------------------------
William W. James
Title: Title: City Executive and
Senior Vice President
EXHIBIT 99.1
CERTIFICATE PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Delta Natural Gas Company, Inc.
(the "Company") on Form 10-Q for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Glenn R. Jennings, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/Glenn R. Jennings
Glenn R. Jennings
President & Chief Executive Officer
November 12, 2002
EXHIBIT 99.2
CERTIFICATE PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of Delta Natural Gas Company, Inc.
(the "Company") on Form 10-Q for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, John F. Hall, Vice-President - Finance, Secretary and Treasurer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/John F. Hall
-----------------------------------
John F. Hall
Vice-President - Finance,
Secretary & Treasurer
November 12, 2002