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 March 31, 2004
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 of) (I.R.S. Employer Identification No.)
Kentucky 61-0458329
(Address of Principal Executive Offices) (Zip Code)
3617 LEXINGTON ROAD, WINCHESTER, KENTUCKY 40391
(Registrant's Telephone Number)
859-744-6171
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 registratant 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
3,193,877 Shares Outstanding as of March 31, 2004.
DELTA NATURAL GAS COMPANY, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION 3
ITEM 1 - Financial Statements 3
Consolidated Statements of Income (Unaudited) for the
three, nine and twelve month periods ended March 31,
2004 and 2003 3
Consolidated Balance Sheets (Unaudited) as of
March 31, 2004, June 30, 2003 and March 31, 2003 5
Consolidated Statements of Changes in Shareholders'
Equity (Unaudited) for the nine and twelve month
periods ended March 31, 2004 and 2003 6
Consolidated Statements of Cash Flows (Unaudited)
for the nine and twelve month periods ended
March 31, 2004 and 2003 8
Notes to Consolidated Financial Statements 9
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
ITEM 3 - Quantitative and Qualitative Disclosures
About Market Risk 22
ITEM 4 - Controls and Procedures 23
PART II. OTHER INFORMATION 24
ITEM 1 - Legal Proceedings 24
ITEM 2 - Changes in Securities and Use of Proceeds 24
ITEM 3 - Defaults Upon Senior Securities 24
ITEM 4 - Submission of Matters to a Vote of
Security Holders 24
ITEM 5 - Other Information 24
ITEM 6 - Exhibits and Reports on Form 8-K 24
Signatures 25
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended Twelve Months Ended
------------------ ----------------- -------------------
March 31, March 31, March 31,
--------- --------- ---------
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
OPERATING REVENUES $ 35,587,614 $ 31,217,192 $ 62,553,900 $ 53,872,293 $ 77,061,869 $ 64,804,767
----------------------------- ------------- ------------- --------------- -------------
OPERATING EXPENSES
Purchased gas $ 23,899,055 $ 18,979,635 $ 41,133,843 $ 31,741,933 $ 50,383,581 $ 37,249,552
Operation and maintenance 2,906,667 2,658,023 8,281,776 7,783,744 11,155,584 10,483,174
Depreciation and depletion 1,134,319 1,117,749 3,296,560 3,221,214 4,336,553 4,258,722
Taxes other than income taxes 427,681 398,240 1,180,084 1,120,748 1,569,447 1,483,784
Income tax expense 2,335,600 2,585,400 2,024,800 2,443,957 2,014,200 2,571,057
----------------------------- -------------- -------------- -------------- --------------
Total operating expenses $ 30,703,322 $ 25,739,047 $ 55,917,063 $ 46,311,596 $ 69,459,365 $ 56,046,289
----------------------------- -------------- -------------- --------------- ------------
OPERATING INCOME $ 4,884,292 $ 5,478,145 $ 6,636,837 $ 7,560,697 $ 7,602,504 $ 8,758,478
OTHER INCOME AND DEDUCTIONS, NET 12,586 9,120 34,442 31,813 50,273 30,109
INTEREST CHARGES 1,102,685 1,228,973 3,331,784 3,544,330 4,422,484 4,662,346
----------------------------- -------------- -------------- ------------- --------------
INCOME BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE $ 3,794,193 $ 4,258,292 $ 3,339,495 $ 4,048,180 $ 3,230,293 $ 4,126,241
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE, NET OF INCOME
TAXES OF $55,000 (NOTE 3) - - - (88,370) - (88,370)
----------------------------- -------------- -------------- ------------- --------------
NET INCOME $ 3,794,193 $ 4,258,292 $ 3,339,495 $ 3,959,810 $ 3,230,293 $ 4,037,871
============================= ============== ============== =============== ============
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 (continued)
(UNAUDITED)
Three Months Ended Nine Months Ended Twelve Months Ended
------------------ ----------------- -------------------
March 31, March 31, March 31,
--------- --------- ---------
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
BASIC AND DILUTED EARNINGS PER
COMMON SHARE BEFORE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING PRINCIPLE $ 1.19 $ 1.66 $ 1.05 $ 1.59 $ 1.05 $ 1.62
CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE - - - (.03) - (.03)
-------------------------- ------------- ------------- ------------- ------------
BASIC AND DILUTED EARNINGS
PER COMMON SHARE $ 1.19 $ 1.66 $ 1.05 $ 1.56 $ 1.05 $ 1.59
========================== ============= ============= ============= ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (BASIC AND DILUTED) 3,189,873 2,553,889 3,181,437 2,545,801 3,083,987 2,540,714
DIVIDENDS DECLARED PER COMMON SHARE $ .295 $ .295 $ .885 $ .885 $ 1.18 $ 1.175
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 March 31, 2004 June 30, 2003 March 31, 2003
-------------- ------------- --------------
GAS UTILITY PLANT, at cost $ 169,536,352 $ 163,745,044 $ 160,821,810
Less-Accumulated provisions
for depreciation (54,564,658) (51,670,448) (50,770,596)
---------------------- ----------------------
----------------------
Net gas plant $ 114,971,694 $ 112,074,596 $ 110,051,214
---------------------- ---------------------- ----------------------
CURRENT ASSETS
Cash and cash equivalents $ 281,252 $ 1,420,014 $ 1,602,832
Accounts receivable, less accumulated
provisions for doubtful accounts of
$430,000, $350,000 and $510,000 7,568,209 4,566,777 7,830,610
Gas in storage, at average cost 2,727,780 5,090,440 1,806,639
Deferred gas costs 3,349,505 4,291,824 5,966,068
Materials and supplies, at first-in,
first-out cost 507,054 552,479 518,668
Prepayments 725,001 467,149 607,920
---------------------- ---------------------- ----------------------
Total current assets $ 15,158,801 $ 16,388,683 $ 18,332,737
---------------------- ---------------------- ----------------------
OTHER ASSETS
Cash surrender value of
officers' life insurance $ 356,137 $ 356,137 $ 344,687
Note receivable from officer 116,000 134,000 140,000
Prepaid pension - - 2,726,456
Unamortized debt expense and other 4,238,055 4,333,900 4,343,840
---------------------- ---------------------- ----------------------
Total other assets $ 4,710,192 $ 4,824,037 $ 7,554,983
---------------------- ---------------------- ----------------------
Total assets $ 134,840,687 $ 133,287,316 $ 135,938,934
====================== ====================== ======================
LIABILITIES AND SHAREHOLDERS' EQUITY
CAPITALIZATION (see Consolidated Statements
of Changes in Shareholders' Equity)
Common shareholders' equity
Common shares ($1.00 par value) $ 3,193,877 $ 3,166,940 $ 2,558,635
Premium on common shares 44,079,555 43,462,433 30,916,521
Capital stock expense (2,597,999) (2,598,146) (1,929,205)
Accumulated other comprehensive loss (2,050,636) (2,050,636) -
Retained earnings 4,435,632 3,912,006 4,953,683
---------------------- ---------------------- ----------------------
Total common shareholders' equity $ 47,060,429 $ 45,892,597 $ 36,499,634
Long-term debt 53,133,000 53,373,000 53,408,000
---------------------- ---------------------- ----------------------
Total capitalization $ 100,193,429 $ 99,265,597 $ 89,907,634
---------------------- ---------------------- ----------------------
CURRENT LIABILITIES
Notes payable $ 6,008,349 $ 1,031,099 $ 16,995,293
Current portion of long-term debt 1,650,000 1,650,000 1,650,000
Accounts payable 3,751,534 10,624,087 5,328,428
Accrued taxes 2,059,418 797,224 2,573,926
Customers' deposits 543,797 442,315 554,322
Accrued interest on debt 1,504,457 902,673 1,448,864
Accrued vacation 586,052 576,388 558,066
Other accrued liabilities 539,919 587,158 480,178
---------------------- ---------------------- ----------------------
Total current liabilities $ 16,643,526 $ 16,610,944 $ 29,589,077
---------------------- ---------------------- ----------------------
DEFERRED CREDITS AND OTHER
Deferred income taxes $ 15,628,366 $ 14,844,431 $ 14,589,173
Investment tax credits 335,800 364,600 384,600
Regulatory liability 1,229,583 1,204,852 1,232,692
Pension liability 510,935 716,780 -
Advances for construction and other 299,048 280,112 235,758
---------------------- ---------------------- ----------------------
Total deferred credits and other $ 18,003,732 $ 17,410,775 $ 16,442,223
---------------------- ---------------------- ----------------------
---------------------- ---------------------- ----------------------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
---------------------- ---------------------- ----------------------
Total liabilities and
shareholders' equity $ 134,840,687 $ 133,287,316 $ 135,938,934
====================== ====================== ======================
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)
Nine Months Ended Twelve Months Ended
March 31, March 31,
--------- ---------
2004 2003 2004 2003
---- ---- ---- ----
COMMON SHARES
Balance, beginning of period $ 3,166,940 $ 2,530,079 $ 2,558,635 $ 2,522,750
Common stock offering - - 600,000 -
Dividend reinvestment and
stock purchase plan 22,291 23,416 29,696 29,943
Employee stock purchase plan
and other _ 4,646 5,140 5,546 5,942
------------ ------------ ------------ ------------
Balance, end of period $ 3,193,877 $ 2,558,635 $ 3,193,877 $ 2,558,635
============ ============ ============ ============
PREMIUM ON COMMON SHARES
Balance, beginning of period $ 43,462,433 $ 30,330,330 $ 30,916,521 $ 30,176,380
Common stock offering - - 12,360,000 -
Dividend reinvestment and
stock purchase plan 513,670 479,469 679,107 616,665
Employee stock purchase
plan and other 103,452 106,722 123,927 123,476
------------ ----------- ------------ ------------
Balance, end of period $ 44,079,555 $ 30,916,521 $ 44,079,555 $ 30,916,521
============ ============ ============ ============
CAPITAL STOCK EXPENSE
Balance, beginning of period $ (2,598,146) $ (1,925,431) $ (1,929,205) $ (1,925,431)
Common stock offering - (3,813) - (3,813)
Dividend reinvestment and
stock purchase plan 147 39 (668,794) 39
------------ ------------ ------------ ------------
Balance, end of period $ (2,597,999) $ (1,929,205) $ (2,597,999) $ (1,929,205)
============ ============ ============= ============
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 (continued)
(UNAUDITED)
Nine Months Ended Twelve Months Ended
March 31, March 31,
2004 2003 2004 2003
---- ---- ---- ----
Retained Earnings
Balance, beginning of period $ 3,912,006 $ 3,247,299 $ 4,953,683 $ 3,901,459
Net income 3,339,495 3,959,810 3,230,293 4,037,871
Cash dividends declared on
common shares (See
Consolidated Statements
of Income for rates) (2,815,869) (2,253,426) (3,748,344) (2,985,647)
----------- ----------- ----------- -----------
Balance, end of period $ 4,435,632 $ 4,953,683 $ 4,435,632 $ 4,953,683
=========== =========== =========== ===========
Common Shareholders' Equity
Balance, beginning of period $45,892,597 $34,182,277 $36,499,634 $34,675,158
----------- ----------- ----------- -----------
Comprehensive income
Net income $ 3,339,495 $ 3,959,810 $ 3,230,293 $ 4,037,871
Other comprehensive loss - - (2,050,636) -
----------- ------------ ----------- -----------
Comprehensive income $ 3,339,495 $ 3,959,810 $ 1,179,657 $ 4,037,871
Issuance of common stock 644,206 610,973 13,129,482 772,252
Dividends on common stock (2,815,869) (2,253,426) (3,748,344) (2,985,647)
------------ ----------- ----------- -----------
Balance, end of period $47,060,429 $36,499,634 $47,060,429 $36,499,634
=========== =========== =========== ===========
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)
Nine Months Ended Twelve Months Ended
March 31, March 31,
2004 2003 2004 2003
---- ---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 3,339,495 $ 3,959,810 $ 3,230,293 $ 4,037,871
Adjustments to reconcile net
Income to net cash from
operating activities
Cumulative effect of a
change in accounting
principle - 88,370 - 88,370
Depreciation, depletion
and amortization 3,461,493 3,355,418 4,589,301 4,433,215
Deferred income taxes and
investment tax credits 723,510 458,775 2,255,993 1,147,516
Other, net 526,520 488,779 713,547 645,706
Decrease (increase) in assets 59,197 (3,883,333) 1,813,045 (2,365,211)
Increase (decrease) in
Liabilities (4,382,213) 4,047,379 (2,203,002) 3,244,156
------------------ ----------------- ----------------- -----------------
Net cash provided by
operating activities $ 3,728,002 $ 8,515,198 $ 10,399,177 $ 11,231,623
------------------ ----------------- ----------------- -----------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures $ (7,432,351) $ (6,461,609) $ (9,810,136) $ (8,823,614)
------------------ ----------------- ----------------- -----------------
Net cash used in
investing activities $ (7,432,351) $ (6,461,609) $ (9,810,136) $ (8,823,614)
------------------ ----------------- ----------------- -----------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends on common stock $ (2,815,869) $ (2,253,426) $ (3,748,344) $ (2,985,647)
Issuance of common stock, net 644,206 610,973 13,129,482 772,252
Issuance of long-term debt - 20,000,000 - 20,000,000
Long-term debt issuance expense - (789,593) (29,815) (789,593)
Repayment of long-term debt (240,000) (15,884,240) (275,000) (16,036,240)
Issuance of notes payable 46,722,039 74,961,068 56,316,982 84,411,068
Repayment of notes payable (41,744,789) (77,320,775) (67,303,926) (86,820,775)
------------------ ----------------- ----------------- -----------------
Net cash provided by (used
in) financing activities $ 2,565,587 $ (675,993) $ (1,910,621) $ (1,448,935)
------------------ ----------------- ----------------- -----------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (1,138,762) $ 1,377,596 $ (1,321,580) $ 959,074
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,420,014 225,236 1,602,832 643,758
------------------ ----------------- ----------------- -----------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 281,252 $ 1,602,832 $ 281,252 $ 1,602,832
================== ================= ================= =================
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 2,552,258 $ 3,122,958 $ 4,130,619 $ 4,579,872
Income taxes (net of refunds) $ 122,583 $ 279,308 $ 198,583 $ 1,269,708
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, nine and twelve months ended
March 31, 2004 and 2003, respectively, are included. All such adjustments
are accruals of a normal and recurring nature. The results of operations
for the period ended March 31, 2004 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 2004 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 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 before cumulative effect of a change in accounting principle for the
three, nine and twelve months ended March 31, 2004 and 2003. Pro forma net
income and earnings per share have not been presented for the twelve months
ended March 31, 2003 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. The
obligations, which relate to our gas and oil wells, lines at our storage
facility and our compressor station sites, are not recorded until an
estimated range of potential settlement dates is known in accordance with
Statement No. 143.
As allowed for ratemaking purposes, 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 even though such costs do
not represent legal obligations under Statement No. 143. In accordance with
the provisions of Statement of Financial Accounting Standards No. 71,
entitled Accounting for the Effects of Certain Types of Regulation, we have
recorded approximately $770,000, $714,000 and $703,000 of such accrued cost
of removal as regulatory liabilities on the accompanying balance sheets as
of March 31, 2004, June 30, 2003 and March 31, 2003, respectively.
(4) In January, 2003, the Financial Accounting Standards Board issued
Interpretation No. 46, entitled Consolidation of Variable Interest
Entities, which significantly changed the consolidation requirements for
special purpose entities and certain other entities subject to its scope.
We have no relationships with variable interest 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 improved 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 post-retirement benefit plans to present more information about
the economic resources and obligations of such plans and also require
certain disclosures in the financial statements for interim periods. We
adopted the revised Statement No. 132 effective January 1, 2004. Since the
Statement only addressed disclosure requirements, there was no impact of
implementation on our financial position and results of operations. Net
pension costs for the periods ended March 31 include the following:
Three Months Ended
March 31,
2004 2003
---- ----
Components of Net Periodic Benefit Cost
Service cost $ 165,692 $ 150,402
Interest cost 139,296 159,162
Expected return on plan assets (167,706) (189,182)
Amortization of unrecognized
net gain (loss) (21,545) 15,468
Amortization of net transition asset 65,621 (2,050)
------------ ----------
Net periodic benefit cost $ 181,358 $ 133,800
=========== ==========
Nine Months Ended
March 31,
2004 2003
---- ----
Components of Net Periodic Benefit Cost
Service cost $ 497,077 $ 451,205
Interest cost 417,887 477,487
Expected return on plan assets (503,117) (567,548)
Amortization of unrecognized
net gain (loss) (64,634) 46,405
Amortization of net transition asset 196,862 (6,149)
------------ ----------
Net periodic benefit cost $ 544,075 $ 401,400
=========== ==========
Twelve Months Ended
March 31,
2004 2003
---- ----
Components of Net Periodic Benefit Cost
Service cost $ 647,479 $ 580,829
Interest cost 577,050 641,768
Expected return on plan assets (692,301) (756,375)
Amortization of unrecognized
net gain (loss) (49,166) 55,537
Amortization of net transition asset 194,813 (13,464)
---------- ----------
Net periodic benefit cost $ 677,875 $ 508,295
========== ==========
(8) 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 $116,000 as of March 31, 2004. 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.
(9) 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.
(10) Our current available line of credit with Branch Banking and Trust Company
is $40,000,000, of which $6,008,000, $1,031,000 and $16,995,000 was
borrowed having a weighted average interest rate of 2.10%, 2.32% and 2.34%,
as of March 31, 2004, June 30, 2003, and March 31, 2003, 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 obligations 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.
(11) Commitments and Contingencies - We have entered into individual employment
agreements with our five officers and an agreement with the Chairman of the
Board. The agreements expire or may be terminated at various times. The
agreements provide for continuing monthly payments or lump sum payments and
continuation of specified benefits over varying periods in certain cases
following defined changes in ownership of the Company. In the event all of
these agreements were exercised in the form of lump sum payments,
approximately $2.6 million would be paid in addition to continuation of
specified benefits for up to five years.
(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 impact
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 2000-2001 heating season, 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 completed. Our second status report on the
action plans was filed on March 31, 2004, and in that report we requested
closure of the twelve remaining open recommendations. 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
clause 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 and 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 revenues and
expenses are 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
March 31, 2004 March 31, 2003
($000)
Revenues
Regulated
External customers 27,200 24,910
Intersegment 911 834
-------- --------
Total regulated 28,111 25,744
-------- --------
Non-regulated external customers 8,388 6,307
Eliminations for intersegment (911) (834)
-------- --------
Total operating revenues 35,588 31,217
======== ========
Net Income
Regulated 3,109 3,311
Non-regulated 685 947
-------- --------
Total net income 3,794 4,258
======== ========
Nine Months Ended
March 31, 2004 March 31, 2003
($000)
Revenues
Regulated
External customers 42,108 38,636
Intersegment 2,522 2,441
-------- --------
Total regulated 44,630 41,077
-------- --------
Non-regulated external customers 20,446 15,236
Eliminations for intersegment (2,522) (2,441)
-------- --------
Total operating revenues 62,554 53,872
======== ========
Net Income
Regulated 2,203 2,581
Non-regulated 1,136 1,379
-------- --------
Total net income 3,339 3,960
======== ========
Twelve Months Ended
March 31, 2004 March 31, 2003
($000)
Revenues
Regulated
External customers 51,239 46,211
Intersegment 3,213 3,118
-------- --------
Total regulated 54,452 49,329
-------- --------
Non-regulated external customers 25,823 18,594
Eliminations for intersegment (3,213) (3,118)
-------- --------
Total operating revenues 77,062 64,805
======== ========
Net Income
Regulated 1,970 2,417
Non-regulated 1,260 1,621
-------- --------
Total net income 3,230 4,038
======== ========
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 bank credit is $40,000,000, of which $6,008,000 was borrowed at March
31, 2004, 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 nine and twelve month
periods ending March 31, 2004 and 2003:
Nine Months Twelve Months
($000) Ended March 31, Ended March 31,
----------------- --------------------
2004 2003 2004 2003
---- ---- ---- ----
Provided by operating activities $ 3,728 $ 8,515 $10,399 $11,232
Used in investing activities (7,432) (6,461) (9,810) (8,824)
Provided by (used in) financing
activities 2,565 (676) (1,911) (1,449)
------- ------- ------- -------
Increase (decrease) in cash
and cash equivalents $(1,139) $ 1,378 $(1,322) $ 959
======= ======= ======= =======
For the nine months ended March 31, 2004, we had a $1,139,000 decrease in
cash and cash equivalents compared to a $1,378,000 increase in cash and cash
equivalents for the nine months ended March 31, 2003. This additional $2,517,000
of cash used resulted primarily from increased cash needs of $5,585,000 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 $971,000 more cash for capital expenditures, $562,000 more
cash for dividend payments and $693,000 more cash for tax payments during a
period with a $620,000 reduction in net income. These increased cash needs were
partially met with $1,945,000 of increased customer payments on accounts
receivable and $3,771,000 of increased borrowings.
For the twelve months ended March 31, 2004, we had a $1,322,000 decrease in
cash and cash equivalents compared to a $959,000 increase in cash and cash
equivalents for the twelve months ended March 31, 2003. This additional
$2,281,000 of cash used resulted from increased cash needs of $2,379,000 for gas
stored underground, gas accounts payable and deferred gas costs due to the
increase of gas prices between periods. In addition, we used $987,000 more cash
for capital expenditures during a period with an $808,000 reduction in net
income. These increased cash needs were partially met with $1,723,000 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. On
April 5, 2004, Delta filed a request for increased rates with the Kentucky
Public Service Commission. This general rate case (Case No. 2004-00067)
requested an annual revenue increase of $4,277,000, an increase of 7.4%. The
test year for the case was December 31, 2003. The rates were suspended up to and
including October 4, 2004 by the Kentucky Public Service Commission in an Order
dated April 23, 2004 so that they could investigate and determine the
reasonableness of the proposed rates. A hearing will be scheduled for the
cross-examination of witnesses.
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 variations in our revenues for the
three, nine and twelve months ended March 31, 2004 compared with the same
periods in the preceding year:
2004 Compared to 2003
--------------------------
Three Nine Twelve Months
Months Months Ended Ended
Ended March 31 March 31
March 31 -------- --------
($000) --------
Increase (decrease) in our regulated
revenues
Gas rates 4,044 6,723 8,799
Weather normalization adjustment 483 869 1,133
Sales volumes (2,324) (4,429) (5,272)
On-system transportation (21) (53) (105)
Off-system transportation 184 433 551
Other 1 10 17
------ ------- ------
Total 2,367 3,553 5,123
Increase in our non-regulated
revenues
Gas rates 271 3,602 4,995
Sales volumes 1,794 1,578 2,197
Other 16 30 37
------ ------ ------
Total 2,081 5,210 7,229
Increase in our intersegment revenues (77) (81) (95)
------ ------ ------
Increase in our consolidated revenues 4,371 8,682 12,257
====== ====== ======
Percentage increase (decrease) in our
regulated volumes
Gas sales (9.4) (11.8) (11.8)
On-system transportation (5.5) (2.3) (1.2)
Off-system transportation 47.8 36.4 36.8
Percentage increase in our non-
regulated gas sales volumes 28.5 10.4 11.9
Heating degree days billed were 111%, 87% and 94% of normal thirty year
average temperatures for the three, nine and twelve months ended March 31, 2004,
respectively, as compared with 121%, 100% and 109% of normal temperatures for
the similar periods of 2003. 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 March 31,
2004 of $4,371,000 was primarily due to a 29.1% increase in gas costs reflected
in higher sales prices and a 28.5% increase in non-regulated sales volumes due
to increases in volumes purchased by our off-system customers offset by a 9.4%
decrease in regulated volumes due to the 7% warmer weather in the 2004 period.
The increase in operating revenues for the nine months ended March 31, 2004
of $8,682,000 was primarily due to a 33.1% increase in gas costs reflected in
higher sales prices and a 10.4% increase in non-regulated sales volumes due to
increases in volumes purchased by our off-system customers offset by a 11.8%
decrease in regulated volumes due to the 13% warmer weather in the 2004 period.
The increase in operating revenues for the twelve months ended March 31,
2004 of $12,257,000 was primarily due to a 37.7% increase in gas costs reflected
in higher sales prices and a 11.9% increase in non-regulated sales volumes due
to increases in volumes purchased by our off-system customers offset by a 11.8%
decrease in regulated volumes due to the 13% warmer weather in the 2004 period.
Operating Expenses
In the following table we set forth variations in our purchased gas expense
for the three, nine, and twelve months ended March 31, 2004 compared with the
same periods in the preceding year:
______2004 Compared to 2003__________
-------------------------------
Three Nine Twelve
Months Months Months
Ended Ended Ended
($000) March 31 March 31 March 31
-------- -------- --------
Increase (decrease) in regulated
gas expense
Gas rates 3,893 6,266 8,196
Purchase volumes (1,421) (2,542) (2,960)
-------- -------- --------
Total 2,472 3,724 5,236
Increase in non-regulated gas
expense
Gas rates 1,816 4,651 6,510
Purchase volumes 631 1,017 1,388
Transportation expenses 77 81 95
-------- -------- --------
Total 2,524 5,749 7,993
Increase in intersegment gas
expense (77) (81) (95)
-------- -------- --------
Increase in consolidated
gas expense 4,919 9,392 13,134
======== ======== ========
Natural gas prices are determined in an unregulated 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 March 31,
2004 of $4,919,000 was primarily due to a 29.1% increase in gas costs because of
higher prices and a 28.5% increase in non-regulated sales volumes offset by a
9.4% decrease in regulated volumes.
The increase in purchased gas expense for the nine months ended March 31,
2004 of $9,392,000 was primarily due to a 33.1% increase in gas costs because of
higher prices and a 10.4% increase in non-regulated sales volumes offset by a
11.8% decrease in regulated volumes.
The increase in purchased gas expense for the twelve months ended March 31,
2004 of $13,134,000 was primarily due to a 37.7% increase in gas costs because
of higher prices and a 11.9% increase in non-regulated sales volumes offset by a
11.8% decrease in regulated volumes.
The decreases in income taxes for the three, nine and twelve months ended
March 31, 2004 of $249,000, $419,000 and $557,000, respectively, is attributable
to the decrease in net income before income tax. The decrease in net income is
largely attributable to the decrease in operating income, which decreased 10.8%,
12.2% and 13.2%, respectively, for the three, nine and twelve months ended March
31, 2004.
The decrease in interest charges for the three months ended March 31, 2004
of $126,000 is a result of lower effective interest rates and decreased
borrowings.
Basic and Diluted Earnings Per Common Share
For the three, nine and twelve months ended March 31, 2004 and 2003, 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 (7) 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 working 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, 2005
Annual Report on Form 10-K. We estimate that our external expenses for complying
with the Act by June 30, 2005 will total in the range of approximately $400,000
to $450,000 of which approximately $349,000 has been recorded as of March 31,
2004.
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
$6,008,000, $1,031,000 and $16,995,000 on March 31, 2004, June 30, 2003 and
March 31, 2003, respectively. Based on the amount of our outstanding short-term
line of credit on March 31, 2004, June 30, 2003 and March 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 $60,000, $10,000 and
$170,000 respectively.
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, Jennings and 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.
- ---- -- ---------- -- ------- -- - ---- -- -------- -------
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and
rule 15d-4a of the Securities Exchange Act, as amended.
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and
rule 15d-4a of the Securities Exchange Act, as amended.
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: May 12, 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 and Chief Executive Officer
Date: May 12, 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 and Treasurer
Date: May 12, 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 March 31, 2004 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 and Chief Executive Officer
May 12, 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 March 31, 2004 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 and Treasurer
May 12, 2004