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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, 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 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 ___X___. NO .
-------- -
Common Shares, Par Value $1.00 Per Share
3,218,186 Shares Outstanding as of December 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 (Loss) (Unaudited) for the
three, six and twelve month periods ended December 31,
2004 and 2003 3
Consolidated Balance Sheets (Unaudited) as of
December 31, 2004, June 30, 2004 and December 31, 2003 4
Consolidated Statements of Changes in Shareholders'
Equity (Unaudited) for the six and twelve month
periods ended December 31, 2004 and 2003 5
Consolidated Statements of Cash Flows (Unaudited)
for the six and twelve month periods ended
December 31, 2004 and 2003 6
Notes to Consolidated Financial Statements (Unaudited) 7
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
ITEM 3 - Quantitative and Qualitative Disclosures
About Market Risk 18
ITEM 4 - Controls and Procedures 19
PART II. OTHER INFORMATION 20
ITEM 1 - Legal Proceedings 20
ITEM 2 - Unregistered Sales of Equity Securities and Use of Proceeds 20
ITEM 3 - Defaults Upon Senior Securities 20
ITEM 4 - Submission of Matters to a Vote of
Security Holders 20
ITEM 5 - Other Information 21
ITEM 6 - Exhibits 21
Signatures 22
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED)
Three Months Ended Six Months Ended Twelve Months Ended
December 31, December 31, December 31,
2004 2003 2004 2003 2004 2003
---- ---- ---- ---- ---- ----
OPERATING REVENUES $ 25,778,315 $ 16,828,444 $ 35,589,947 $ 26,966,286 $ 87,817,276 $ 72,691,447
--------------- -------------- ------------- --------------- -------------- ---------------
OPERATING EXPENSES
Purchased gas $ 15,870,632 $ 10,747,374 $ 22,009,520 $ 17,234,788 $ 56,747,403 $ 45,464,160
Operation and maintenance 2,871,371 2,847,033 5,719,213 5,375,109 11,009,443 10,906,942
Depreciation and depletion 1,059,450 1,096,249 2,206,235 2,162,241 4,476,146 4,319,983
Taxes other than income taxes 390,853 374,121 799,219 752,403 1,637,364 1,540,006
Income tax expense (benefit) 1,690,200 229,000 1,000,400 (310,800) 3,670,800 2,264,000
--------------- ------------- -- ------------ --------------- -------------- ---------------
Total operating expenses $ 21,882,506 $ 15,293,777 $ 31,734,587 $ 25,213,741 $ 77,541,156 $ 64,495,091
--------------- ------------- --------------- --------------- -------------- ---------------
OPERATING INCOME $ 3,895,809 $ 1,534,667 $ 3,855,360 1,752,545 $ 10,276,120 $ 8,196,356
OTHER INCOME AND DEDUCTIONS, NET 50,301 10,976 62,579 21,856 101,254 46,806
INTEREST CHARGES 1,157,059 1,136,616 2,249,637 2,229,099 4,416,314 4,548,772
--------------- ------------- --------------- --------------- -------------- ---------------
NET INCOME (LOSS) $ 2,789,051 $ 409,027 $ 1,668,302 $ (454,698) $ 5,961,060 $ 3,694,390
=============== ============= =============== =============== ============== ===============
BASIC AND DILUTED EARNINGS
(LOSS) PER COMMON SHARE $ .87 $ .13 $ .52 $ (.14) $ 1.86 $ 1.26
=============== ============= =============== =============== ============== ===============
=============== ============= =============== =============== ============== ===============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING
(BASIC AND DILUTED) 3,214,339 3,181,806 3,210,512 3,177,417 3,201,926 2,936,639
DIVIDENDS DECLARED PER
COMMON SHARE $ .295 $ .295 $ .59 $ .59 $ 1.18 $ 1.18
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, 2004 June 30, 2004 December 31, 2003
----------------- ------------- -----------------
GAS UTILITY PLANT, AT COST $ 172,243,321 $ 170,337,427 $ 168,590,685
Less-Accumulated provision
for depreciation (56,680,237) (55,121,511) (53,695,018)
------------------- ------------------
------------------
Net gas plant $ 115,563,084 $ 115,215,916 $ 114,895,667
------------------ ------------------- ------------------
CURRENT ASSETS
Cash and cash equivalents $ 245,659 $ 168,834 $ 329,668
Accounts receivable, less accumulated
provisions for doubtful accounts of
$391,000, $300,000 and $300,000,
respectively 14,727,219 4,771,380 5,731,990
Gas in storage, at average cost 12,638,990 7,749,089 10,451,024
Deferred gas costs 7,490,432 1,523,632 7,364,853
Materials and supplies, at first-in,
first-out cost 434,228 352,762 451,043
Prepayments 1,654,618 1,190,818 1,481,013
------------------ ------------------- ------------------
Total current assets $ 37,191,146 $ 15,756,515 $ 25,809,591
------------------ ------------------- ------------------
OTHER ASSETS
Cash surrender value of
officers' life insurance $ 376,930 $ 376,930 $ 356,137
Note receivable from officer 98,000 110,000 122,000
Prepaid pension cost 2,416,373 2,694,151 -
Unamortized debt expense and other 4,262,786 4,218,617 4,236,403
------------------ ------------------- ------------------
Total other assets $ 7,154,089 $ 7,399,698 $ 4,714,540
------------------ ------------------- ------------------
Total assets $ 159,908,319 $ 138,372,129 $ 145,419,798
================== =================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CAPITALIZATION
Common shareholders' equity
Common shares ($1.00 par value) $ 3,218,186 $ 3,200,715 $ 3,187,044
Premium on common shares 44,670,611 44,236,128 43,909,593
Capital stock expense (2,597,999) (2,597,999) (2,598,146)
Accumulated other comprehensive loss - - (2,050,636)
Retained earnings 3,765,184 3,991,317 1,582,466
------------------ ------------------- ------------------
Total common shareholders' equity $ 49,055,982 $ 48,830,161 $ 44,030,321
Long-term debt 52,823,000 53,049,000 53,174,000
------------------ ------------------- ------------------
Total capitalization $ 101,878,982 $ 101,879,161 $ 97,204,321
------------------ ------------------- ------------------
CURRENT LIABILITIES
Notes payable $ 17,838,295 $ 4,738,180 $ 17,707,889
Current portion of long-term debt 1,650,000 1,650,000 1,650,000
Accounts payable 12,985,433 6,609,787 7,129,102
Accrued taxes 1,564,708 1,027,937 811,429
Customers' deposits 623,180 433,809 559,283
Accrued interest on debt 894,347 901,370 896,020
Accrued vacation 538,287 624,604 517,132
Other accrued liabilities 359,455 488,031 432,712
------------------ ------------------- ------------------
Total current liabilities $ 36,453,705 $ 16,473,718 $ 29,703,567
------------------ ------------------- ------------------
DEFERRED CREDITS AND OTHER
Deferred income taxes $ 19,485,535 $ 17,967,611 $ 15,628,366
Investment tax credits 307,200 326,200 345,400
Regulatory liabilities 1,452,137 1,431,600 1,166,075
Pension liability - - 1,079,514
Advances for construction and other 330,760 293,839 292,555
------------------ ------------------- ------------------
------------------ ------------------- ------------------
Total deferred credits and other $ 21,575,632 $ 20,019,250 $ 18,511,910
------------------ ------------------- ------------------
------------------ ------------------- ------------------
COMMITMENTS AND CONTINGENCIES
(NOTES 7 and 8)
Total liabilities and
shareholders' equity $ 159,908,319 $ 138,372,129 $ 145,419,798
================== =================== ==================
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,
2004 2003 2004 2003
---- ---- ---- ----
COMMON SHARES
Balance, beginning of period $ 3,200,715 $ 3,166,940 $ 3,187,044 $ 2,551,377
Common stock offering - - 600,000
Dividend reinvestment and
stock purchase plan 12,645 15,458 26,316 30,121
Employee stock purchase plan
and other 4,826 4,646 4,826 5,546
----------- ----------- ----------- -----------
Balance, end of period $ 3,218,186 $ 3,187,044 $ 3,218,186 $ 3,187,044
=========== =========== =========== ===========
PREMIUM ON COMMON SHARES
Balance, beginning of period $44,236,128 $43,462,433 $43,909,593 $30,760,732
Common stock offering - - 12,360,000
Dividend reinvestment and
stock purchase plan 321,748 343,708 648,283 664,934
Employee stock purchase
plan and other 112,735 103,452 112,735 123,927
----------- ----------- ----------- -----------
Balance, end of period $44,670,611 $43,909,593 $44,670,611 $43,909,593
=========== =========== =========== ===========
CAPITAL STOCK EXPENSE
Balance, beginning of period $(2,597,999) $(2,598,146) $(2,598,146) $(1,925,392)
Common stock offering - - 147 (672,754)
----------- ----------- ----------- ------------
Balance, end of period $(2,597,999) $(2,598,146) $(2,597,999) $(2,598,146)
=========== =========== =========== ===========
Accumulated Other Comprehensive
Income (Loss)
Balance, beginning of period $ - $(2,050,636) $(2,050,636) $ -
Minimum pension liability
adjustment, net of tax
benefit of $1,335,800 __________- _ - 2,050,636 (2,050,636)
-- ------------ ------------ -----------
Balance, end of period $ - $(2,050,636) $ - $(2,050,636)
=========== ============ =========== ===========
Retained Earnings
Balance, beginning of period $ 3,991,317 $ 3,912,006 $ 1,582,466 $ 1,448,636
Net income (loss) 1,668,302 (454,698) 5,961,060 3,694,390
Cash dividends declared on
common shares (See
Consolidated Statements
of Income (Loss) for rates) (1,894,435) (1,874,842) (3,778,342) (3,560,560)
----------- ----------- ----------- -----------
Balance, end of period $ 3,765,184 $ 1,582,466 $ 3,765,184 $ 1,582,466
=========== ============ =========== ===========
Common Shareholders' Equity
Balance, beginning of period $48,830,161 $45,892,597 $44,030,321 $32,835,353
Comprehensive income (loss)
Net income (loss) $ 1,668,302 $ (454,698) $ 5,961,060 $ 3,694,390
Other comprehensive loss - _ - 2,050,636 (2,050,636)
----------- ---------- ----------- -----------
Comprehensive
income (loss) $ 1,668,302 $ (454,698) $ 8,011,696 $ 1,643,754
Issuance of common stock 451,954 467,264 792,307 13,111,774
Dividends on common stock (1,894,435) (1,874,842) (3,778,342) (3,560,560)
----------- ----------- ----------- -----------
Balance, end of period $49,055,982 $44,030,321 $49,055,982 $44,030,321
=========== =========== =========== ===========
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,
2004 2003 2004 2003
---- ---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss) $ 1,668,302 $ (454,698) $ 5,961,060 $ 3,694,390
Adjustments to reconcile net
income (loss) to net cash
from operating activities
Depreciation, depletion
And amortization 2,337,610 2,272,408 4,731,807 4,577,143
Deferred income taxes and
investment tax credits 1,486,149 739,485 2,652,344 2,265,593
Other - net (36,409) 356,582 (36,409) 722,159
Increase in assets (21,242,488) (10,287,743) (8,350,687) (3,979,818)
Increase(decrease) in
liabilities 6,946,059 (2,710,761) 3,287,406 73,452
------------------ --------------------------------------------------------------
Net cash provided by (used
in) operating activities $ (8,840,777) $ (10,084,727) $ 8,245,521 $ 7,352,919
------------------ --------------------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures $ (2,589,032) $ (6,075,831) $ (5,197,901) $ (9,644,076)
Proceeds from sale of property,
plant and equipment 75,000 - 75,000 -
------------------ --------------------------------------------------------------
Net cash used in
investing activities $ (2,514,032) $ (6,075,831) $ (5,122,901) $ (9,644,076)
------------------ --------------------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends on common stock $ (1,894,435) $ (1,874,842) $ (3,778,342) $ (3,560,560)
Issuance of common stock, net 451,954 467,264 792,307 13,111,774
Issuance of long-term debt - - - 20,000,000
Long-term debt issuance expense - - - (778,608)
Repayment of long-term debt (226,000) (199,000) (351,000) (15,679,240)
Issuance of notes payable 32,264,648 33,469,248 56,601,084 67,365,058
Repayment of notes payable (19,164,533) (16,792,458) (56,470,678) (78,695,010)
------------------ --------------------------------------------------------------
Net cash provided by
(used in) financing
activities $ 11,431,634 $ 15,070,212 $ (3,206,629) $ 1,763,414
------------------ --------------------------------------------------------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ 76,825 $ (1,090,346) $ (84,009) $ (527,743)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 168,834 1,420,014 329,668 857,411
------------------ --------------------------------------------------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 245,659 $ 329,668 $ 245,659 $ 329,668
================== ==============================================================
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 2,138,569 $ 2,117,055 $ 4,181,803 $ 4,595,371
Income taxes (net of refunds) $ (490,767) $ 94,868 $ 218,400 $ 178,905
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, 2004 and 2003, respectively, are included. All such
adjustments are accruals of a normal and recurring nature. The results of
operations for the periods ended December 31, 2004 are not necessarily
indicative of the results of operations to be expected for the full fiscal
year. 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. 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, 2004. Certain reclassifications have been made to
prior-period amounts to conform to the 2004 presentation.
(3) We bill our customers on a monthly meter reading cycle. At the end of each
month, gas service which has been rendered from the latest date of each
cycle meter reading to the month-end is unbilled. Prior to November, 2004,
we recorded regulated revenue and gas cost on a billed basis for both
financial reporting and regulatory purposes. In connection with receiving
the rate order discussed in Note 9, we began estimating regulated unbilled
revenues and gas costs as of the end of the month and reflecting those
amounts in our financial statements. Therefore, at December 31, 2004, we
estimated that 584,000 Mcf of the gas consumed by our customers during
December was unbilled. Reflecting the sales of these unbilled volumes in
the accompanying financial statements resulted in a non-recurring increase
to net income of $1,764,000 for the three, six and twelve month periods
ended December 31, 2004. The non-recurring increase in earnings per share
due to the recording of unbilled sales was $.55 for the three, six and
twelve months ended December 31, 2004. We expect that recording unbilled
sales will result in a non-recurring increase in our 2005 fiscal year net
income in the range of $250,000 to $300,000, or in the range of $.08 to
$.09 per share.
(4) Net pension costs for our trusteed, noncontributory defined benefit pension
plan for the periods ended December 31 include the following:
($) Three Months Ended
December 31
2004 2003
---- ----
Service cost 178,700 165,692
Interest cost 153,093 139,296
Expected return on plan assets (215,765) (167,706)
Amortization of unrecognized
net loss 44,407 65,621
Amortization of prior service cost (21,545) (21,545)
------- -------
Net periodic benefit cost 138,890 181,358
======= =======
Six Months Ended
December 31
2004 2003
---- ----
Service cost 357,401 331,385
Interest cost 306,185 278,592
Expected return on plan assets (431,531) (335,412)
Amortization of unrecognized
net loss 88,815 131,242
Amortization of prior service cost (43,090) (43,090)
------- -------
Net periodic benefit cost 277,780 362,717
======= =======
Twelve Months Ended
December 31,
2004 2003
---- ----
Service cost 688,785 632,188
Interest cost 584,777 596,916
Expected return on plan assets (766,942) (713,777)
Amortization of unrecognized
net loss 220,056 162,178
Amortization of prior service cost (86,179) (47,189)
------- -------
Net periodic benefit cost 640,497 630,316
======= =======
(5) 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 $98,000, $110,000 and $122,000 as of
December 31, 2004, June 30, 2004 and December 31, 2003, respectively. 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.
(6) The current available line of credit with Branch Banking and Trust Company
is $40,000,000, of which $17,838,000, $4,738,000 and $17,708,000 was
borrowed having a weighted average interest rate of 3.31%, 2.13% and 2.17%
as of December 31, 2004, June 30, 2004 and December 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 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.
(7) Commitments and Contingencies - We have entered into individual employment
agreements with our five officers. 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 $2.9 million would be paid in
addition to continuation of specified benefits for up to five years.
(8) A lawsuit was filed on January 24, 2005 against us by a former employee,
alleging that we did not pay the appropriate compensation for the
employee's work for us over the period from January, 1982 through December,
2002. Although we believe that the complaint has no merit, and we intend to
vigorously defend against it, we cannot predict the outcome of this action
on our liquidity, financial condition or results of operations.
We are not a party to any other legal proceedings that are expected to have
a materially adverse impact on our liquidity, financial condition or
results of operations.
(9) The Kentucky Public Service Commission exercises regulatory authority over
our retail natural gas distribution and our transportation services. The
Kentucky Public Service Commission regulation of our business includes
setting the rates we are permitted to charge our retail customers and our
transportation customers.
We monitor our need to file requests with the Kentucky Public Service
Commission for a general rate increase for our retail gas and
transportation services. Through these general rate cases, we are able to
adjust the sales prices of our retail gas we sell to and transport for our
customers.
On April 5, 2004, we filed a request for increased base rates with the
Kentucky Public Service Commission. This general rate case (Case No.
2004-00067) requested an annual revenue increase of approximately
$4,277,000, an increase of 7.41%. The test year for the case was the twelve
months ended December 31, 2003. The Public Service Commission approved new
base rates effective October 7, 2004. The approved rates were based upon a
return on equity of 10.5% and provide for additional annual revenues of
approximately $2,756,000.
During July, 2001, the Kentucky Public Service Commission initiated a
management audit of our gas procurement activities and the gas procurement
activities of four other Kentucky gas distribution companies as part of its
investigation of increases in wholesale natural gas prices and their impact
on customers. The final audit report was issued November 15, 2002. On
December 8, 2004, the Kentucky Public Service Commission concluded that we
had fulfilled the intent of all of the audit recommendations and placed all
audit recommendations in a completed status with no further reporting
required.
(10) 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 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, 2004. 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, 2004 December 31, 2003
($000)
Revenues
Regulated
External customers 16,355 10,432
Intersegment 910 880
------ ------
Total regulated 17,265 11,312
------ ------
Non-regulated external customers
9,423 6,396
Eliminations for intersegment (910) (880)
------ ------
Total operating revenues 25,778 16,828
====== ======
Net Income
Regulated 1,864 114
Non-regulated 925 295
------ ------
Total net income 2,789 409
====== ======
Six Months Ended
December 31, 2004 December 31, 2003
($000)
Revenues
Regulated
External customers 20,825 14,907
Intersegment 1,600 1,611
------ ------
Total regulated 22,425 16,518
------ ------
Non-regulated external customers 14,765 12,059
Eliminations for intersegment (1,600) (1,611)
------ ------
Total operating revenues 35,590 26,966
====== ======
Net Income (Loss)
Regulated 551 (907)
Non-regulated 1,117 452
----- ------
Total net income(loss) 1,668 (455)
===== ======
Twelve Months Ended
December 31, 2004 December 31, 2003
($000)
Revenues
Regulated
External customers 58,020 48,950
Intersegment 3,326 3,135
----- ------
Total regulated 61,256 52,085
----- ------
Non-regulated external customers 29,797 23,741
Eliminations for intersegment (3,236) (3,135)
------ ------
Total operating revenues 87,817 72,691
====== =====
Net Income
Regulated 3,802 2,171
Non-regulated 2,159 1,523
----- -----
Total net income 5,961 3,694
===== =====
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provide our primary source of cash. Cash provided by
operating activities consists of net income (loss) adjusted for non-cash items,
including depreciation, depletion, amortization, deferred income taxes and
changes in working capital.
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.
Our ability to maintain liquidity depends on our short-term line of bank
credit, shown as notes payable on the accompanying balance sheet (see Note 6 of
the Notes to Consolidated Financial Statements). Notes payable increased to
$17,838,000 at December 31, 2004, compared with $4,738,000 at June 30, 2004 and
$17,708,000 at December 31, 2003. These increases reflect the seasonal nature of
our sales and cash needs and the fact that we generate internally only a portion
of the cash necessary for our capital expenditure requirements. We made capital
expenditures of $1,332,000, $2,589,000 and $5,198,000 during the three, nine and
twelve months ended December 31, 2004 respectively. We finance the balance of
our capital expenditures on an interim basis through this short-term line of
bank credit. 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.
Long-term debt decreased to $52,823,000 at December 31, 2004, compared with
$53,049,000 and $53,174,000 at June 30, 2004 and December 31, 2003,
respectively. These decreases resulted from provisions in the Debentures
allowing limited redemptions to be made by certain holders and/or their
beneficiaries.
Cash and cash equivalents increased to $246,000 at December 31, 2004,
compared with $169,000 at June 30, 2004, and decreased from $330,000 at December
31, 2003. These changes in cash and cash equivalents for the six and twelve
months ended December 31, 2004 are summarized in the following table:
($000) Six Months Ended Twelve Months Ended
----------------- --------------------
December 31, December 31,
------------ -------------
2004 2003 2004 2003
---- ---- ---- ----
Provided by (used in) operating
activities (8,841) (10,084) 8,246 7,353
Used in investing activities (2,514) (6,076) (5,123) (9,644)
Provided by (used in) financing
activities 11,432 15,070 (3,207) 1,763
------- -------- ------- -------
Increase (decrease) in cash
and cash equivalents 77 (1,090) (84) (528)
======= ======== = ======= =======
For the six months ended December 31, 2004, we had a $77,000 increase in
cash and cash equivalents compared to a $1,090,000 decrease in cash and cash
equivalents for the six months ended December 31, 2003. This additional
$1,167,000 of cash provided resulted primarily from decreased cash needs of
$4,878,000 for gas stored underground, gas accounts payable and deferred gas
cost, $3,562,000 less cash used for capital expenditures, a $2,123,000 increase
in net income and decreases in cash used for general payables and prepayments.
This decrease in cash required was offset by $8,791,000 less collected on
customer accounts and a $3,577,000 decrease in borrowings from the short-term
line of bank credit.
For the twelve months ended December 31, 2004, we had a $84,000 decrease in
cash and cash equivalents compared to a $528,000 decrease in cash and cash
equivalents for the twelve months ended December 31, 2003. This additional
$444,000 of cash provided resulted primarily from decreased cash needs of
$5,008,000 for gas stored underground, gas accounts payable and deferred gas
cost, $4,521,000 less cash used for capital expenditures, a $2,267,000 increase
in net income and decreases in cash used for general payables, taxes payable and
prepayments. This decrease in cash required was offset by $8,831,000 less
collected on customer accounts and a $4,970,000 decrease in borrowings from the
short-term line of bank credit.
Cash Requirements
Our capital expenditures impact our continued need for capital. These
capital expenditures are being made for system extensions and for the
replacement and improvement of existing transmission, distribution, gathering,
storage and general facilities. Our capital expenditures for fiscal 2005 are
expected to be $5 million, a $4 million decrease from fiscal 2004 capital
expenditures. The major reason for this decrease is the completion in 2004 of
certain projects relating to transmission and storage.
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 attested to by our independent registered public accountant in
conjunction with the June 30, 2005 Annual Report on Form 10-K. We estimate that
we will incur $100,000 to $150,000 of external expenses during fiscal 2005 in
complying with the Act by June 30, 2005.
See Note 7 of the Notes to Consolidated Financial Statements for other
commitments and contingencies.
Sufficiency of Future Cash Flows
To the extent that internally generated cash is not sufficient to satisfy
operating and capital expenditure requirements and to pay dividends, we will
rely on our short-term line of credit. Our current available line of credit is
$40,000,000, of which $17,838,000 was borrowed at December 31, 2004 and
classified as notes payable in the accompanying balance sheet. The line of
credit is with Branch Banking and Trust Company, and extends through October 31,
2005.
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 next twelve months and the
foreseeable future. We do not foresee defaulting on any of our line of credit or
Debenture agreements.
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, we 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 approximately $4,277,000, an increase of 7.41%. The
test year for the case was the twelve months ended December 31, 2003. The Public
Service Commission approved new rates effective October 7, 2004. The approved
rates were based upon a return on equity of 10.5% and provide for additional
annual revenues of approximately $2,756,000.
RESULTS OF OPERATIONS
For meaningful analysis of our revenue and expense variations, the
variation amounts and percentages presented in the following tables 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 (loss).
Operating Revenues
In the following table we set forth variations in our revenues for the
three, six and twelve months ended December 31, 2004 compared with the same
periods in the preceding year:
2004 Compared to 2003
Three Six Twelve
Months Ended Months Ended Months Ended
December 31, December 31, December 31,
------------ ------------ -------------
($000)
Increase (decrease) in billed
regulated revenues
Gas rates 808 834 4,570
Weather normalization adjustment 64 64 408
Sales volumes (2,437) (2,429) (3,555)
On-system transportation 117 93 105
Off-system transportation 51 (1) 294
Other (1) (5) (2)
------ ------- ------
Total (1,398) (1,444) 1,820
------ ------- ------
Non-recurring increase in unbilled
regulated revenues 7,351 7,351 7,351
------ ------ ------
Increase in non-regulated revenues
Gas rates 1,585 2,152 3,960
Sales volumes 1,439 532 2,057
Other 3 22 39
------ ------ ------
Total 3,027 2,706 6,056
------ ------ ------
Decrease (increase) in
intersegment revenues (30) 11 (101)
------ ------ ------
Increase in our consolidated revenues 8,950 8,624 15,126
====== ====== ======
---------------------------------------------------------------------------------------------
Percentage increase (decrease) in our
billed regulated volumes
Gas sales (25.3) (18.1) (7.6)
On-system transportation 0.3 (4.5) (4.5)
Off-system transportation 10.3 (0.5) 15.4
Percentage increase in our non-
regulated gas sales volumes 22.6 4.4 8.7
Heating degree days billed were 47%, 46% and 93% of normal thirty year
average temperatures for the three, six and twelve months ended December 31,
2004, as compared with 55%, 54% and 99% of normal temperatures in 2003,
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,
2004, of $8,950,000 was primarily a result of the non-recurring increase of
$7,351,000 due to recording unbilled regulated revenues on 584,000 Mcf of
unbilled regulated volumes as discussed in Note 3 of the Notes to Consolidated
Financial Statements. Also, $2,393,000 of the increase was due to increased gas
rates. Non-regulated gas rates increased to reflect increases in the market
price of natural gas. Also, a portion of this increase in gas rates was caused
by a 5% increase in purchased gas expense for non-regulated customers and a 3%
increase in purchased gas expense for regulated customers. In addition,
regulated gas rates increased due to the implementation of increased regulated
base rates effective October 7, 2004 as discussed in Note 9 of the Notes to
Consolidated Financial Statements. Operating revenues also increased due to a
23% increase in non-regulated sales volumes. These increases were partially
offset by a 25% decrease in regulated sales volumes due to warmer weather in the
2004 period.
The increase in operating revenues for the six months ended December 31,
2004, of $8,624,000 was primarily a result of the non-recurring increase of
$7,351,000 due to recording unbilled regulated revenues on 584,000 Mcf of
unbilled regulated volumes as discussed in Note 3 of the Notes to Consolidated
Financial Statements. Also, $2,986,000 of the increase was due to increased gas
rates. Non-regulated gas rates increased to reflect increases in the market
price of natural gas. In addition, regulated gas rates increased due to the
implementation of increased regulated base rates effective October 7, 2004 as
discussed in Note 9 of the Notes to Consolidated Financial Statements. Operating
revenues also increased due to a 4% increase in non-regulated sales volumes.
These increases were partially offset by an 18% decrease in regulated sales
volumes due to warmer weather in the 2004 period.
The increase in operating revenues for the twelve months ended December 31,
2004, of $15,126,000 was partially a result of the non-recurring increase of
$7,351,000 due to recording unbilled regulated revenues on 584,000 Mcf of
unbilled regulated volumes as discussed in Note 3 of the Notes to Consolidated
Financial Statements. Also, $8,530,000 of the increase was due to increased gas
rates. A portion of this increase in gas rates was caused by a 21% increase in
purchased gas expense for non-regulated customers and a 15% increase in
purchased gas expense for regulated customers. In addition, regulated gas rates
increased due to the implementation of increased regulated base rates effective
October 7, 2004 as discussed in Note 9 of the Notes to Consolidated Financial
Statements. Operating revenues also increased due to a 9% increase in
non-regulated sales volumes. These increases were partially offset by an 8%
decrease in regulated sales volumes due to warmer weather in the 2004 period.
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, 2004 compared with the
same periods in the preceding year:
2004 Compared to 2003
----------------------------
Three Six Twelve
Months Ended Months Ended Months Ended
December 31, December 31, December 31,
------------- ------------ ------------
$000)
Increase in billed regulated
gas expense
Gas rates 107 34 3,870
Purchase volumes (1,468) (1,394) (2,130)
------- ------- -------
Total (1,361) (1,360) 1,740
------- ------- -------
Non-recurring increase in unbilled
regulated gas expense 4,493 4,493 4,493
Increase in non-regulated gas
expense
Gas rates 316 (347) 3,889
Purchase volumes 1,676 1,989 1,161
Transportation expenses 30 (11) 101
------- ------- -------
Total 2,022 1,631 5,151
------- ------- -------
Decrease (increase) in
intersegment gas expense (30) 11 (101)
------- ------- -------
Increase in consolidated gas
expense 5,124 4,775 11,283
======= ======= =======
Natural gas prices are determined by an unregulated national market.
Therefore, the price that we pay for natural gas fluctuates with national supply
and demand. See Item 3 for the impact of forward contracts.
The increase in purchased gas expense for the three months ended December
31, 2004 of $5,124,000 was primarily a result of the non-recurring increase of
$4,493,000 due to the recording of unbilled regulated gas costs on 584,000 Mcf
of unbilled regulated volumes as discussed in Note 3 of the Notes to
Consolidated Financial Statements. Also, there was a $1,676,000 increase due to
a 23% increase in non-regulated sales volumes. These increases were partially
offset by a 25% decrease in regulated volumes.
The increase in purchased gas expense for the six months ended December 31,
2004 of $4,775,000 was primarily a result of the non-recurring increase of
$4,493,000 due to the recording of unbilled regulated gas costs on 584,000 Mcf
of unbilled regulated volumes as discussed in Note 3 of the Notes to
Consolidated Financial Statements. Also, there was a $1,989,000 increase due to
a 4% increase in non-regulated sales volumes. These increases were partially
offset by an 18% decrease in regulated volumes.
The increase in purchased gas expense for the twelve months ended December
31, 2004, of $11,283,000 was partially a result of the non-recurring increase of
$4,493,000 due to the recording of unbilled regulated gas costs on 584,000 Mcf
of unbilled regulated volumes as discussed in Note 3 of the Notes to
Consolidated Financial Statements. Also, there was a $7,759,000 increase due to
a 16% increase in gas cost. Additionally, non-regulated sales volumes increased
by 9%. These increases were partially offset by an 8% decrease in regulated
volumes.
The increases in income taxes for the three, six and twelve months ended
December 31, 2004 of $1,461,000, $1,311,000 and $1,407,000, respectively, are
attributable to the increases in net income before income tax. The increases in
net income before income tax are largely attributable to the recording of
unbilled revenues at December 31, 2004, as is discussed in Note 3 of the Notes
to Consolidated Financial Statements.
Basic and Diluted Earnings Per Common Share
For the three, six and twelve months ended December 31, 2004 and 2003, our
basic earnings per common share changed as a result of increases in net income
and an increase in the number of our common shares outstanding. There was $.55
of increased basic earnings per share for the three, six and twelve month
periods ended December 31, 2004 resulting from the non-recurring increase due to
the recording of unbilled sales as discussed in Note 3 of the Notes to
Consolidated Financial Statements. We expect that the recording of unbilled
sales will result in a non-recurring increase in our 2005 fiscal year basic
earnings per share of $.08 to $.09 per share. 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.
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 and gas sales contracts
meet the definition of a derivative, we have designated these contracts as
"normal purchases" and "normal sales" 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
$17,838,000 on December 31, 2004, $4,738,000 on June 30, 2004 and $17,708,000 on
December 31, 2003. Based on the amount of our outstanding short-term line of
credit on December 31, 2004, June 30, 2004 and 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 $178,000, $47,000 and
$177,000, respectively.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Disclosure controls and procedures are our controls and other procedures
that are designed to provide reasonable assurance that information required
to be disclosed by us in the reports that we file or submit under the
Securities Exchange Act of 1934 (Exchange Act) is recorded, processed,
summarized, and reported within the time periods specified in the
Securities and Exchange Commission's (SEC) rules and forms. Disclosure
controls and procedures include, without limitation, controls and
procedures designed to provide reasonable assurance that information
required to be disclosed by us in the reports that we file under the
Exchange Act is accumulated and communicated to our management, including
our chief executive officer and chief financial officer, as appropriate to
allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, we have
evaluated the effectiveness of our disclosure controls and procedures as of
December 31, 2004, and, based upon this evaluation, our chief executive
officer and chief financial officer have concluded that these controls and
procedures are effective in providing reasonable assurance that information
requiring disclosure is recorded, processed, summarized, and reported
within the timeframe specified by the SEC's rules and forms.
Under the supervision and with the participation of our management,
including our chief executive officer and chief financial officer, we have
evaluated any change in our internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the fiscal quarter ended December 31, 2004 and found no change
that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
A lawsuit was filed on January 24, 2005 against us by a former employee,
alleging that we did not pay the appropriate compensation for the employee's
work for us over the period from January, 1982 through December, 2002. Although
we believe that the complaint has no merit, and we intend to vigorously defend
against it, we cannot predict the outcome of this action on our liquidity,
financial condition or results of operations.
We are not a party to any other legal proceedings that are expected to have
a materially adverse impact on our liquidity, financial condition or results of
operations.
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 18,
2004.
(b) Donald R. Crowe, Lanny D. Greer and Billy Joe Hall were elected to Delta's
Board of Directors for three-year terms expiring in 2007. Jane H. Green,
Michael J. Kistner, Harrison D. Peet and Michael R. Whitley will continue
to serve on Delta's Board of Directors until the election in 2006. 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 2,930,836. There
were no broker non-votes. The shares voted for each Nominee were:
Donald R. Crowe For 2,892,889 Withheld 38,360
Lanny D. Greer For 2,897,729 Withheld 33,521
Billy Joe Hall For 2,901,079 Withheld 30,171
ITEM 5. OTHER INFORMATION.
(a) Reports on Form 8-K. The Registrant filed a Form 8-K dated November 11,
2004, Item 8.01, to report the Kentucky Public Service Commission's Order
dated November 10, 2004 approving increased rates for Delta's regulated
customers.
ITEM 6. EXHIBITS.
(a) Exhibits.
31.1 Certifications of Chief Executive Officer pursuant to Rule 13a-14(a)
and Rule 15d-4a of the Securities Exchange Act, as amended.
31.2 Certifications 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)
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)
/sGlenn R. Jennings------------------
DATE: February 8, 2005 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
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Glenn R. Jennings, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Delta Natural Gas
Company, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the regis-trant's internal
control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's Board of
Directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: February 8, 2005
-/s/Glenn R. Jennins ----------------
Glenn R. Jennings
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John F. Hall, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Delta Natural
Gas Company, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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
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-15(e) and 15d-15(e)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of registrant's Board of
Directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and b) Any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrant's internal control over financial
reporting.
Date: February 8, 2005
/s/John F. Hall-----------------------------
John F. Hall
Vice President - Finance,
Secretary and Treasurer
EXHIBIT 32.1
CERTIFICATION 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, 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, to the best of my knowledge and belief, 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 result of operations of the Company.
February 8, 2005
/s/Glenn R. Jennings------------------------
Glenn R. Jennings
President and Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION 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, 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, to the best of my knowledge and
belief, 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 result of operations of the Company.
February 8, 2005
/s/John F. Hall
-----------------------------------
John F. Hall
Vice-President - Finance,
Secretary and Treasurer