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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
----X-- QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2003.
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
3,187,044 Shares Outstanding as of December 31, 2003.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Six Months Ended Twelve Months Ended
December 31, December 31, December 31,
2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
OPERATING REVENUES $ 16,828,444 $ 15,501,819 $ 26,966,286 $ 22,655,101 $ 72,691,447 $ 58,745,599
--------------- -------------- ------------- ------------- -------------- ------------
OPERATING EXPENSES
Purchased gas $ 10,747,374 $ 9,136,048 $ 17,234,788 $ 12,762,298 $ 45,464,160 $ 32,482,970
Operation and maintenance 2,847,033 2,681,083 5,375,109 5,125,721 10,906,942 10,262,310
Depreciation and depletion 1,096,249 1,060,963 2,162,241 2,103,465 4,319,983 4,169,822
Taxes other than income taxes 374,121 357,682 752,403 722,508 1,540,006 1,464,724
Income tax expense (benefit) 229,000 415,100 (310,800) (141,443) 2,264,000 2,241,457
--------------- ------------- --------------- -------------- -------------- --------------
Total operating expenses $ 15,293,777 $ 13,650,876 $ 25,213,741 $ 20,572,549 $ 64,495,091 $ 50,621,283
--------------- -------------- --------------- -------------- -------------- --------------
OPERATING INCOME $ 1,534,667 $ 1,850,943 $ 1,752,545 2,082,552 $ 8,196,356 $ 8,124,316
OTHER INCOME AND DEDUCTIONS, NET 10,976 11,420 21,856 22,693 46,806 26,976
INTEREST CHARGES 1,136,616 1,169,598 2,229,099 2,315,357 4,548,772 4,538,117
--------------- -------------- --------------- -------------- -------------- --------------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE $ 409,027 $ 692,765 $ (454,698) $ (210,112) $ 3,694,390 $ 3,613,175
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE, NET OF
INCOME TAXES
OF $55,000
(NOTE 3) - - - (88,370) - (88,370)
--------------- -------------- --------------- -------------- -------------- -------------
NET INCOME (LOSS) $ 409,027 $ 692,765 $ (454,698) $ (298,482) $ 3,694,390 $ 3,524,805
=============== ============== =============== ============== ============== ==============
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 INCOME (cont'd)(UNAUDITED)
Three Months Ended Six Months Ended Twelve Months Ended
December 31, December 31, December 31,
2003 2002 2003 2002 2003 2002
---- ---- ---- ---- ---- ----
BASIC AND DILUTED EARNINGS
(LOSS) PER COMMON SHARE
BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING
PRINCIPLE $ .13 $ .27 $ (.14) $ (.09) $ 1.26 $ 1.42
CUMULATIVE EFFECT OF A CHANGE
IN ACCOUNTING PRINCIPLE - - - (.03) _ - (.03)
---------------- -------------- --------------- ---------------- --------------- ----------------
BASIC AND DILUTED EARNINGS
(LOSS) PER COMMON SHARE $ .13 $ .27 $ (.14) $ (.12) $ 1.26 $ 1.39
================ ============== =============== ================ =============== ================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
(BASIC AND DILUTED) 3,181,806 2,546,886 3,177,417 2,541,975 2,936,639 2,531,974
DIVIDENDS DECLARED PER
COMMON SHARE $ .295 $ .295 $ .59 $ .59 $ 1.18 $ 1.17
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 (UNAUDITED)
ASSETS December 31, 2003 June 30, 2003 December 31, 2002
----------------- ------------- -----------------
GAS UTILITY PLANT, at cost $ 168,590,685 $ 163,745,044 $ 159,950,436
Less-Accumulated provision
for depreciation (54,395,018) (52,383,975) (50,476,406)
----------------------- ----------------------
-----------------------
Net gas plant $ 114,195,667 $ 111,361,069 $ 109,474,030
----------------------- ----------------------- ----------------------
CURRENT ASSETS
Cash and cash equivalents $ 329,668 $ 1,420,014 $ 857,411
Accounts receivable, less accumulated
provisions for doubtful accounts of
$300,000, $350,000 and $300,000 5,731,990 4,566,777 5,567,581
Gas in storage, at average cost 10,451,024 5,090,440 7,381,120
Deferred gas costs 7,364,853 4,291,824 6,706,204
Materials and supplies, at first-in,
first-out cost 451,043 552,479 462,736
Prepayments 1,264,598 467,149 1,075,934
----------------------- ----------------------- ----------------------
Total current assets $ 25,593,176 $ 16,388,683 $ 22,050,986
----------------------- ----------------------- ----------------------
OTHER ASSETS
Cash surrender value of
officers' life insurance $ 356,137 $ 356,137 $ 344,687
Note receivable from officer 122,000 134,000 146,000
Prepaid pension - - 1,924,344
Unamortized debt expense and other 4,236,403 4,333,900 3,123,300
----------------------- ----------------------- ----------------------
Total other assets $ 4,714,540 $ 4,824,037 $ 5,538,331
----------------------- ----------------------- ----------------------
Total assets $ 144,503,383 $ 132,573,789 $ 137,063,347
======================= ======================= ======================
LIABILITIES AND SHAREHOLDERS' EQUITY
CAPITALIZATION (see Consolidated
Statements of Changes in Shareholders'
Equity)
Common shareholders' equity
Common shares ($1.00 par value) $ 3,187,044 $ 3,166,940 $ 2,551,377
Premium on common shares 43,909,593 43,462,433 30,760,732
Capital stock expense (2,598,146) (2,598,146) (1,925,392)
Accumulated other comprehensive loss (2,050,636) (2,050,636) -
Retained earnings 1,582,466 3,912,006 1,448,636
----------------------- ----------------------- ----------------------
Total common shareholders' equity $ 44,030,321 $ 45,892,597 $ 32,835,353
Long-term debt 53,174,000 53,373,000 48,161,000
----------------------- ----------------------- ----------------------
Total capitalization $ 97,204,321 $ 99,265,597 $ 80,996,353
----------------------- ----------------------- ----------------------
CURRENT LIABILITIES
Notes payable $ 17,707,889 $ 1,031,099 $ 29,037,841
Current portion of long-term debt 1,650,000 1,650,000 1,750,000
Accounts payable 7,129,102 10,624,087 5,960,502
Accrued taxes 595,014 797,224 785,855
Refunds due customers - - 49,442
Customers' deposits 559,283 442,315 566,968
Accrued interest on debt 896,020 902,673 1,174,729
Accrued vacation 517,132 576,388 558,066
Other accrued liabilities 432,712 587,158 441,337
----------------------- ----------------------- ----------------------
Total current liabilities $ 29,487,152 $ 16,610,944 $ 40,324,740
----------------------- ----------------------- ----------------------
DEFERRED CREDITS AND OTHER
Deferred income taxes $ 15,628,366 $ 14,844,431 $ 14,589,173
Investment tax credits 345,400 364,600 384,600
Regulatory liabilities 466,075 491,325 536,275
Pension liability 1,079,514 716,780 -
Advances for construction and other 292,555 280,112 232,206
----------------------- ----------------------- ----------------------
COMMITMENTS AND CONTINGENCIES
----------------------- ----------------------- ----------------------
----------------------- ----------------------- ----------------------
Total deferred credits and other $ 17,811,910 $ 16,697,248 $ 15,742,254
----------------------- ----------------------- ----------------------
Total liabilities and
shareholders' equity $ 144,503,383 $ 132,573,789 $ 137,063,347
======================= ======================= ======================
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
(unaudited)
Six Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
---- ---- ---- ----
COMMON SHARES
Balance, beginning of period $ 3,166,940 $ 2,530,079 $ 2,551,377 $ 2,515,901
Common stock offering - - 600,000 -
Dividend reinvestment and
stock purchase plan 15,458 16,158 30,121 29,534
Employee stock purchase plan
and other 4,646 5,140 5,546 5,942
----------- ----------- ------------- -----------
Balance, end of period $ 3,187,044 $ 2,551,377 $ 3,187,044 $ 2,551,377
=========== =========== ============ ===========
PREMIUM ON COMMON SHARES
Balance, beginning of period $43,462,433 $30,330,330 $30,760,732 $30,035,340
Common stock offering - - 12,360,000 -
Dividend reinvestment and
stock purchase plan 343,708 323,680 664,934 601,916
Employee stock purchase
plan and other 103,452 106,722 123,927 123,476
----------- ----------- ----------- -----------
Balance, end of period $43,909,593 $30,760,732 $43,909,593 $30,760,732
=========== =========== =========== ===========
CAPITAL STOCK EXPENSE
Balance, beginning of period $(2,598,146) $(1,925,431) $(1,925,392) $(1,925,431)
Common stock offering - - (672,754) -
Dividend reinvestment and
stock purchase plan - 39 - 39
---------- ----------- ------------ -----------
Balance, end of period $(2,598,146) $(1,925,392) $(2,598,146) $(1,925,392)
=========== =========== =========== ===========
Accumulated Other Comprehensive Loss
Balance, beginning of period $(2,050,636) $ - $ - $ -
Minimum pension liability
adjustment, net of tax
benefit of $1,335,800 _ _ (2,050,636) _
----------- ----------- ----------- ----------
Balance, end of period $(2,050,636) $ - $(2,050,636) $ -
=========== ============ =========== ===========
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 (cont'd)
(UNAUDITED)
Six Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
---- ---- ---- ----
Retained Earnings
Balance, beginning of period $ 3,912,006 $ 3,247,299 $ 1,448,636 $ 886,508
Net income (454,698) (298,482) 3,694,390 3,524,805
Cash dividends declared on
common shares (See
Consolidated Statements
of Income for rates) (1,874,842) (1,500,181) (3,560,560) (2,962,677)
----------- ----------- ---------- -----------
Balance, end of period $ 1,582,466 $ 1,448,636 $ 1,582,466 $ 1,448,636
============ =========== ============ ===========
Common Shareholders' Equity
Balance, beginning of period $45,892,597 $34,182,277 $32,835,353 $31,512,318
----------- ----------- ----------- -----------
Comprehensive income
Net income (loss) $ (454,698) $ (298,482) $ 3,694,390 $ 3,524,805
Other comprehensive loss _ - - (2,050,636) _ -
---------- ------------ ----------- ----------
Comprehensive income
(loss) $ (454,698) $ (298,482) $ 1,643,754 $ 3,524,805
----------- ----------- ------------ -----------
Issuance of common stock 467,264 451,739 13,111,774 760,907
Dividends on common stock (1,874,842) (1,500,181) (3,560,560) (2,962,677)
----------- ----------- ----------- -----------
Balance, end of period $44,030,321 $32,835,353 $44,030,321 $32,835,353
=========== =========== =========== ===========
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
(UNAUDITED)
Six Months Ended Twelve Months Ended
December 31, December 31,
2003 2002 2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (454,698) $ (298,482) $ 3,694,390 $ 3,524,805
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 2,272,408 2,183,099 4,577,143 4,330,036
Deferred income taxes and
investment tax credits 739,485 465,150 2,265,593 1,147,516
Other - net 356,582 310,230 722,159 617,419
(Increase) in assets (10,287,743) (7,680,707) (3,979,818) (1,253,838)
Increase(decrease) in
liabilities (2,710,761) 2,096,439 73,452 1,921,077
----------------- ----------------------------------------------------
Net cash provided by (used
in) operating activities $ (10,084,727) $ (2,835,901) $ 7,352,919 $ 10,375,385
----------------- ----------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures $ (6,075,831) $ (4,727,323) $ (9,644,076) $ (8,884,605)
----------------- ----------------------------------------------------
Net cash used in
Investing activities $ (6,075,831) $ (4,727,323) $ (9,644,076) $ (8,884,605)
----------------- ----------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends on common stock $ (1,874,842) $ (1,500,181) $ 3,560,560) $ (2,962,677)
Issuance of common stock, net 467,264 451,739 13,111,774 760,907
Issuance of long-term debt - - 20,000,000 -
Repayment of long-term debt (199,000) (439,000) (15,679,240) (669,000)
Long-term debt issuance expense - - (778,608) -
Issuance of notes payable 33,469,248 50,660,202 67,365,058 65,820,201
Repayment of notes payable (16,792,458) (40,977,361) (78,695,010) (64,537,360)
----------------- ------------------------------------------------------
Net cash provided by
(used in) financing
activities $ 15,070,212 $ 8,195,399 $ 1,763,414 $ (1,587,929)
----------------- -------------------------------------------------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ (1,090,346) $ 632,175 $ (527,743) $ (97,149)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,420,014 225,236 857,411 954,560
----------------- -------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 329,668 $ 857,411 $ 329,668 $ 857,411
================= =======================================================
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 2,117,055 $ 2,223,004 $ 4,595,371 $ 4,437,934
Income taxes (net of refunds) $ 94,868 $ 271,271 $ 178,905 $ 1,354,137
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 (UNAUDITED)
(1) 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. 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, six and twelve months ended
December 31, 2003 and 2002, respectively, are included. All such
adjustments are accruals of a normal and recurring nature. The results of
operations for the period ended December 31, 2003 are not necessarily
indicative of the results of operations to be expected for the full fiscal
year. Our fiscal year end is June 30. Twelve month ended financial
information is provided for additional information only. The accompanying
financial statements are unaudited and should be read in conjunction with
the financial statements and the notes thereto included in our Annual
Report on Form 10-K for the year ended June 30, 2003. Certain
reclassifications have been made to prior-period amounts to conform to the
2003 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, as of July, 2002 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 $88,000 (net of income taxes of $55,000), representing the
cumulative amounts of depreciation and depletion expenses 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, six and twelve months ended December 31, 2003 and 2002. Pro
forma net income and earnings per share have not been presented for the
twelve months ended December 31, 2003 and 2002 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. We also have asset retirement obligations which have
indeterminate settlement dates. These obligations, relating to gas wells
and lines at our storage facility and compressor station sites, are not
recorded until an estimated range of potential settlement dates is known,
according to Statement No. 143. As allowed for ratemaking purposes and
Statement of Financial Accounting Standards No. 71, entitled Accounting for
the Effects of Certain Types of Regulation, we accrue costs of removal on
long-lived assets through depreciation expense if we believe removal of the
assets at the end of their useful life is likely. Approximately $700,000 of
accrued cost of removal for obligations outside of the scope of Statement
No. 143 is recorded in the accumulated provision for depreciation on the
accompanying balance sheet as of December 31, 2003.
(4) In January, 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, entitled Consolidation of Variable Interest
Entities, which significantly changes the consolidation requirements for
special purpose entities and certain other entities subject to its scope.
We have no entities as defined by Interpretation No. 46, therefore,
adoption of this Interpretation on December 31, 2003 had no impact on our
financial position and results of operations.
(5) In April, 2003, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 149, entitled Amendment of Statement
133 on Derivative Instruments and Hedging Activities. The changes in
Statement No. 149 improve financial reporting by requiring that contracts
with comparable characteristics be accounted for similarly. Statement No.
149 was effective July 1, 2003. There was no impact of implementation on
our financial position and results of operations.
(6) In May, 2003, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 150, entitled Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.
Statement No. 150 was developed in response to concerns relating to
classification in the consolidated balance sheet of certain financial
instruments that have characteristics of both liabilities and equity.
Statement No. 150 was effective July 1, 2003. There was no impact of
implementation on our financial position and results of operations.
(7) In December, 2003, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132 (Revised 2003),
entitled Employers' Disclosure about Pensions and Other Postretirement
Benefits. This Statement revises employers' disclosures about pension plans
and other postretirement benefit plans to present more information about
the economic resources and obligations of such plans. We adopted the
revised Statement No. 132 effective January 1, 2004. There was no impact of
implementation on our financial position and results of operations. The
additional disclosures, as required by the Standards, will be included in
our March 31, 2004 Report on Form 10-Q and in our June 30, 2004 Report on
Form 10-K.
(8) In December, 2003, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants approved for final
issuance the Statement of Position entitled Accounting for Certain Costs
and Activities Related to Property, Plant and Equipment. The purpose of the
Statement of Position is to create consistency in capitalization criteria.
This Statement of Position is expected to be cleared by the Financial
Accounting Standards Board in the second quarter of calendar 2004 and will
be effective July 1, 2005. We are currently analyzing the potential impact
of this Statement of Position on our financial position and results of
operations.
(9) Delta's note receivable from an officer on the accompanying balance sheet
relates to a $160,000 loan made to Glenn R. Jennings, our President & Chief
Executive Officer. The loan, secured by real estate owned by Jennings,
bears interest at 6%, which Jennings pays monthly. Delta forgives $2,000 of
the principal amount for each month of service Jennings completes. The
outstanding balance on this loan was $122,000 as of December 31, 2003. In
the event Jennings terminates his employment with Delta other than due to a
change in control, or Jennings' employment is terminated for cause or as a
result of his disability or death, the loan will become immediately due and
payable.
(10) Because of the seasonal nature of our sales, we generate the smallest
proportion of cash from operations during the warmer months, when sales
volumes decrease considerably. Most construction activity and gas storage
injections take place during these warmer months. As a result, we meet our
cash needs for operations and construction during the warmer non-heating
months partially through short-term borrowings, classified as notes payable
in the accompanying balance sheets.
(11) The current available line of credit with Branch Banking and Trust Company
is $40,000,000, of which $17,708,000, $1,031,000 and $29,038,000 was
borrowed having a weighted average interest rate of 2.17%, 2.32% and 2.44%
as of December 31, 2003, June 30, 2003 and December 31, 2002, respectively.
Our line of credit agreement and the indentures relating to all of our
publicly held Debentures contain defined "events of default" which, among
other things, can make the obligation immediately due and payable. Of
these, we consider the following covenants to be most significant:
o Dividend payments cannot be made unless consolidated shareholders' equity
of the Company, less intangible assets, exceeds $25,800,000 (thus no
retained earnings were restricted); and
o We may not assume any additional mortgage indebtedness in excess of
$2,000,000 without effectively securing all Debentures equally to such
additional indebtedness.
Furthermore, a default on the performance on any single obligation incurred
in connection with our borrowings simultaneously creates an event of
default with the line of credit and all of the Debentures. We were not in
default on any of our line of credit or debenture agreements during any
period presented.
(12) We are not a party to any legal proceedings that are expected to have a
materially adverse impact on our liquidity, financial condition or results
of operations.
(13) During July, 2001, the Kentucky Public Service Commission required an
independent audit of our gas procurement activities and the gas procurement
activities of 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 reliable
supplies 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. It required the auditors 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
auditors were selected by the Kentucky Public Service Commission. Their
final report
dated November 15, 2002, contains 16 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. Our first status report on the
action plans for the 16 recommendations was filed with the Kentucky Public
Service Commission in September, 2003. On January 8, 2004, the Kentucky
Public Service Commission notified us that four of the sixteen
recommendations are considered as completed and that the next status report
filing date is March 31, 2004. We believe that implementation of the
recommendations will not result in a significant impact on our financial
position or results of operations.
(14) Our company has two segments: (i) a regulated natural gas distribution,
transmission and storage segment, and (ii) a non-regulated segment which
participates in related ventures, consisting of natural gas marketing and
production. The regulated segment serves residential, commercial and
industrial customers in the single geographic area of central and
southeastern Kentucky. Virtually all of the revenue recorded under both
segments comes from the sale or transportation of natural gas. Price risk
for the regulated business is mitigated through our Gas Cost Recovery
filings approved quarterly by the Kentucky Public Service Commission. Price
risk for the non-regulated business is mitigated by efforts to balance
supply and demand. However, there are greater risks in the non-regulated
segment because of the practical limitations on the ability to perfectly
predict our demand. In addition, we are exposed to price risk resulting
from changes in the market price of gas on uncommitted gas volumes of our
non-regulated companies.
The segments follow the same accounting policies as described in the
Summary of Significant Accounting Policies in Note 1 of the Notes to
Consolidated Financial Statements which are included in our Annual Report
on Form 10-K for the year ended June 30, 2003. Intersegment revenues and
expenses consist of intercompany revenues and expenses from intercompany
gas transportation services. Intersegment transportation revenue and
expense is recorded at our tariff rates. Operating expenses, taxes and
interest are allocated to the non-regulated segment.
Segment information is shown below for the periods:
Three Months Ended
December 31, 2003 December 31, 2002
($000)
Revenues
Regulated
External customers 10,432 10,260
Intersegment 880 898
------ ------
Total regulated 11,312 11,158
------ ------
Non-regulated external customers 6,396 5,242
Eliminations for intersegment (880) (898)
------ ------
Total operatiang revenues 16,828 15,502
====== ======
Net Income
Regulated 114 385
Non-regulated 295 308
--- ------
Total net income 409 693
=== ======
Six Months Ended
December 31, 2003 December 31, 2002
($000)
Revenues
Regulated
External customers 14,907 13,726
Intersegment 1,611 1,607
----- ------
Total regulated 16,518 15,333
------ ------
Non-regulated external customers 12,059 8,929
Eliminations for intersegment (1,611) (1,607)
------ ------
Total operating revenues 26,966 22,655
====== ======
Net Income (Loss)
Regulated (907) (730)
Non-regulated 452 432
--- ---
Total net income (loss) (455) (298)
==== ====
Twelve Months Ended
December 31, 2003 December 31, 2002
($000)
Revenues
Regulated
External customers 48,951 42,065
Intersegment 3,135 3,117
----- ------
Total regulated 52,086 45,182
------ ------
Non-regulated external customers 23,741 16,681
Eliminations for intersegment (3,135) (3,117)
------ ------
Total operating revenues 72,692 58,746
====== ======
Net Income
Regulated 2,171 2,619
Non-regulated 1,523 906
----- ---
Total net income 3,694 3,525
===== =====
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, we generate the smallest
proportion of cash from operations during the warmer months, when sales volumes
decrease considerably. Most of our construction activity takes place during
these warmer months. As a result, we meet our cash needs for operations and
construction during the warmer non-heating months partially through short-term
borrowings.
Our capital expenditures for fiscal 2004 are expected to be $8.4 million.
These capital expenditures are being made for system extensions and for the
replacement and improvement of existing transmission, distribution, gathering,
storage and general facilities.
We generate internally only a portion of the cash necessary for our capital
expenditure requirements. We finance the balance of our capital expenditures on
an interim basis through a short-term line of bank credit. Our current available
line of credit is $40,000,000, of which $17,708,000 was borrowed at December 31,
2003, classified as notes payable in the accompanying balance sheets. The line
of credit is with Branch Banking and Trust Company and extends through October
31, 2004.
We periodically repay our short-term borrowings under our line of credit by
using the net proceeds from the sale of long-term debt and equity securities.
For example, during February, 2003, we issued $20,000,000 aggregate principal
amount of 7.00% Debentures due 2023. The net proceeds of the offering were
$19,181,000. We used the net proceeds to redeem $14,806,000 aggregate principal
amount of our 8.30% Debentures due 2026 and to pay down our short-term notes
payable.
During May, 2003, we used the net proceeds of $12,493,000 from our sale of
600,000 shares of common stock to pay down our short-term notes payable. We will
use additional borrowings under our existing line of credit to help meet working
capital and capital expenditure needs as required.
Below, we summarize our primary cash flows during the six and twelve month
periods ending December 31, 2003 and 2002:
($000) Six Months Ended Twelve Months Ended
----------------- --------------------
December 31, December 31,
------------ --------------
2003 2002 2003 2002
---- ---- ---- ----
Provided by (used in) operating $(10,084) $(2,836) $ 7,353 $ 10,376
Activities
Used in investing activities (6,076) (4,727) (9,644) (8,885)
Provided by (used in) financing
Activities 15,070 8,195 1,763 (1,588)
-------- ------- --------- --------
Increase (decrease) in cash
And cash equivalents $ (1,090) $ 632 $ (528) $ (97)
======== ======= ======== ========
For the six months ended December 31, 2003, we had a $1,090,000 decrease in
cash and cash equivalents compared to a $632,000 increase in cash and cash
equivalents for the six months ended December 31, 2002. This additional
$1,722,000 of cash used resulted primarily from increased cash needs of
$8,303,000 for gas stored underground, gas accounts payable and deferred gas
cost due to the increase in volumes stored and the increase of gas prices
between periods. In addition, we used $1,349,000 more cash for capital
expenditures, $375,000 more cash for dividend payments and $369,000 more cash
for tax payments. These increased cash needs were partially met with $1,518,000
of increased customer payments on accounts receivable and $6,994,000 of
increased borrowings on our short-term line of bank credit.
For the twelve months ended December 31, 2003, we had a $528,000 decrease
in cash and cash equivalents compared to a $97,000 decrease in cash and cash
equivalents for the twelve months ended December 31, 2002. This additional
$431,000 of cash used resulted from increased cash needs of $5,649,000 for gas
stored underground, gas accounts payable and deferred gas costs due to the
increase of gas prices between periods. In addition, we used $759,000 more cash
for capital expenditures. These increased cash needs were partially met with
$3,949,000 of additional cash provided by the various financing activities
throughout the year, including the issuance of long-term debt and common equity
and the repayment of short-term debt. In addition, we received $1,944,000 of
increased customer payments on accounts receivable.
Cash provided by operating activities primarily consist of net income
adjusted for noncash items, including depreciation, depletion, amortization,
deferred income taxes and changes in working capital. We expect that internally
generated cash, coupled with short-term borrowings, will be sufficient to
satisfy our operating and normal capital expenditure requirements and to pay
dividends for the foreseeable future.
Our ability to sustain acceptable earnings levels, finance capital
expenditures and pay dividends is contingent on the adequate and timely
adjustment of the regulated sales and transportation prices we charge our
customers. The Kentucky Public Service Commission sets these prices and we
continuously monitor our need to file rate requests with the Kentucky Public
Service Commission for a general rate increase for our regulated services. We
are currently evaluating the need to file such a request for new rates to be
effective for the 2004-2005 heating season. If we deem that filing a rate
request is appropriate, we will likely take that action prior to June 30, 2004.
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
In the following table we set forth certain variations in our revenues for
the three, six and twelve months ended December 31, 2003 with the same periods
in the preceding year:
2003 Compared to 2002
Three Months Six Months Twelve Months
Ended Ended Ended
December 31 December 31 December 31
----------- ----------- -------------
($000)
Increase (decrease) in our regulated
Revenues
Gas rates 1,805 2,726 6,009
Weather normalization adjustment 387 387 (581)
Sales volumes (2,093) (2,154) 1,126
On-system transportation (72) (32) (65)
Off-system transportation 125 250 396
Other 3 8 19
------ ------ ------
Total 155 1,185 6,904
------ ------ ------
Increase (decrease) in non-regulated
Revenues
Gas rates 1,225 2,945 6,372
Sales volumes (83) 171 674
Other 12 14 14
------ ------ ------
Total 1,154 3,130 7,060
------ ------ ------
Decrease (increase) in our 18 (4) (18)
------ ------ ------
intersegment revenues
Increase in our consolidated revenues 1,327 4,311 13,946
====== ====== ======
Percentage increase in our regulated
volumes
Gas sales (21.1)% (16.8)% 2.9%
On-system transportation (6.6)% (0.5)% 3.1%
Off-system transportation 31.2 % 30.7 % 26.5%
Percentage increase (decrease) in our
non-regulated gas sales volumes (1.6)% 1.9 % 4.1%
Heating degree days billed were 55%, 54% and 99% of normal thirty year
average temperatures for the three, six and twelve months ended December 31,
2003, as compared with 74%, 71% and 99% of normal temperatures in 2002,
respectively. A "heating degree day" results from a day during which the average
of the high and low temperature is at least one degree less than 65 degrees
Fahrenheit.
The increase in operating revenues for the three months ended December 31,
2003, of $1,327,000 was primarily due to a 29.2% increase in gas costs reflected
in higher sales prices offset by a 21.1% decrease in regulated volumes due to
the 25% warmer weather in the 2003 period.
The increase in operating revenues for the six months ended December 31,
2003, of $4,311,000 was primarily due to a 38.7% increase in gas costs reflected
in higher sales prices offset by a 16.8% decrease in regulated volumes due to
the 24% warmer weather in the 2003 period.
The increase in operating revenues for the twelve months ended December 31,
2003, of $13,946,000 was primarily due to a 32.4% increase in gas costs
reflected in higher sales prices. In addition, there was a 2.9% increase in
regulated sales volumes and 4.1% increase in non-regulated sales volumes.
Operating Expenses
In the following table we set forth variations in our purchased gas expense
for the three, six, and twelve months ended December 31, 2003 compared with the
same periods in the preceding year:
2003 Compared to 2002
Three Months Six Months Twelve Months
Ended Ended Ended
December 31 December 31 December 31
----------- ------------ -----------
($000)
Increase in regulated gas expense
Gas rates 1,554 2,332 6,231
Purchase volumes (1,137) (1,081) 601
------ ------ ------
Total 417 1,251 6,832
------ ------ ------
Increase in non-regulated gas
expense
Gas rates 1,068 2,779 5,110
Purchase volumes 126 442 1,039
Transportation expenses (18) 4 18
------ ------ ------
Total 1,176 3,225 6,167
------ ------ ------
Decrease (increase) in intersegment
gas expense 18 (4) (18)
------ ------ ------
Increase in consolidated gas
expense 1,611 4,472 12,981
====== ====== ======
Natural gas prices are determined by a deregulated national market.
Therefore, the price that we pay for natural gas fluctuates with national supply
and demand.
The increase in purchased gas expense for the three months ended December
31, 2003, of $1,611,000 was primarily due to a 29.2% increase in gas costs
because of higher prices offset by a 21.1% decrease in regulated volumes.
The increase in purchased gas expense for the six months ended December 31,
2003, of $4,472,000 was primarily due to a 38.7% increase in gas costs because
of higher prices offset by a 16.8% decrease in regulated volumes.
The increase in purchased gas expense for the twelve months ended December
31, 2003, of $12,981,000 was primarily due to a 32.4% increase in gas costs
because of higher prices as well as a 2.9% increase in regulated sales volumes
and 4.1% increase in non-regulated sales volumes.
Basic and Diluted Earnings Per Common Share
For the three, six and twelve months ended December 31, 2003 and 2002, our
basic earnings per common share changed as a result of changes in net income and
an increase in the number of our common shares outstanding. We increased our
number of common shares outstanding as a result of shares issued through our
Dividend Reinvestment Plan and Stock Purchase Plan and Employee Stock Purchase
Plan and our May, 2003 Common Stock Offering of 600,000 shares.
We have no potentially dilutive securities. As a result, our basic earnings
per common share and our diluted earnings per common share are the same.
New Accounting Pronouncements
See notes (3) through (8) of the Notes to Consolidated Financial Statements
(unaudited) for a discussion of these pronouncements.
Sarbanes-Oxley Act
In July, 2002, the U.S. Congress passed the Sarbanes-Oxley Act of 2002.
Although the Act did not substantively change our corporate governance and
internal control practices, we have formalized many of our governance and
internal control related procedures, and are currently completing testing of our
primary internal controls in order to be in the position to issue the required
Statement of Management Responsibility, which must be audited by our external
auditors in conjunction with the June 30, 2004 Financial Report on Form 10-K. We
estimate that our external expenses for complying with the Act by June 30, 2004
will total in the range of approximately $350,000 to $400,000 of which
approximately $225,000 has been recorded as of December 31, 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We purchase our gas supply through 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. The price we pay for our natural gas
supply acquired under our forward gas purchase contracts, however, is fixed
prior to the delivery of the gas. Additionally, we inject some of our gas
purchases into gas storage facilities in the non-heating months and withdraw
this gas from storage for delivery to customers during the heating season. We
have minimal price risk resulting from these forward gas purchase and storage
arrangements because we are permitted to pass these gas costs on to our
regulated customers through the gas cost recovery rate mechanism.
Price risk for the non-regulated business is mitigated by efforts to
balance supply and demand. However, there are greater risks in the non-regulated
segment because of the practical limitations on the ability to perfectly predict
demand. In addition, we are exposed to price risk resulting from changes in the
market price of gas on uncommitted gas volumes of our non-regulated companies.
None of our gas contracts are 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
Statement of Financial Accounting Standards No. 133 entitled Accounting for
Derivative Instruments and Hedging Activities.
We are exposed to risk resulting from changes in interest rates on our
variable rate notes payable. The interest rate on our current short-term line of
credit with Branch Banking and Trust Company is benchmarked to the monthly
London Interbank Offered Rate. The balance on our short-term line of credit was
$17,708,000 on December 31, 2003 and $29,038,000 on December 31, 2002. Based on
the amount of our outstanding short-term line of credit on December 31, 2003, a
one percent (one hundred basis points) increase in our average interest rates
would result in a decrease in our annual pre-tax net income of $177,000.
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, 2003.
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.
(a) The Registrant held its annual meeting of shareholders on November 20,
2003.
(b) Jane H. Green, Michael J. Kistner, Harrison D. Peet and Michael R. Whitley
were elected to Delta's Board of Directors for three-year terms expiring in
2006. Donald R. Crowe, Lanny D. Greer and Billy Joe Hall will continue to
serve on Delta's Board of Directors until the election in 2004. Glenn R.
Jennings, Lewis N. Melton and Arthur E. Walker, Jr. will continue to serve
on Delta's Board of Directors until the election in 2005.
(c) The total shares voted in the election of Directors were 2,770,685. There
were no broker non-votes. The shares voted for each Nominee were:
Jane H. Green For 2,710,341 Withheld 60,343
Michael J. Kistner For 2,726,998 Withheld 43,686
Harrison D. Peet For 2,724,888 Withheld 45,796
Michael R. Whitley For 2,726,232 Withheld 44,452
(d) Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
31.1 Certifications of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certificate of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certificate of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
32.2 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: February 11, 2004 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)
EXHIBIT 31.1
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: February 11, 2004
EXHIBIT 31.2
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: February 11, 2004
EXHIBIT 32.1
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 December 31, 2003 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
February 11, 2004
EXHIBIT 32.2
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 December 31, 2003 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
February 11, 2004