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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 March 31, 2005
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)
Kentucky 61-0458329
(Incorporated in the State of) (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 registratant 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
3,223,994 Shares Outstanding as of March 31, 2005.
DELTA NATURAL GAS COMPANY, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION 3
ITEM 1 - Financial Statements (Unaudited) 3
Consolidated Statements of Income (Unaudited) for the
three, nine and twelve month periods ended March 31,
2005 and 2004 3
Consolidated Balance Sheets (Unaudited) as of
March 31, 2005, June 30, 2004 and March 31, 2004 4
Consolidated Statements of Changes in Shareholders'
Equity (Unaudited) for the nine and twelve month
periods ended March 31, 2005 and 2004 5
Consolidated Statements of Cash Flows (Unaudited)
for the nine and twelve month periods ended
March 31, 2005 and 2004 6
Notes to Consolidated Financial Statements (Unaudited) 7
ITEM 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
ITEM 3 - Quantitative and Qualitative Disclosures
About Market Risk 19
ITEM 4 - Controls and Procedures 20
PART II. OTHER INFORMATION 22
ITEM 1 - Legal Proceedings 22
ITEM 2 - Unregistered Sales of Equity Securities and Use
of Proceeds 22
ITEM 3 - Defaults Upon Senior Securities 22
ITEM 4 - Submission of Matters to a Vote of
Security Holders 22
ITEM 5 - Other Information 22
ITEM 6 - Exhibits 23
Signatures 24
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,
--------- -------- ---------
2005 2004 2005 2004 2005 2004
---- ---- ---- ---- ---- ----
OPERATING REVENUES $ 33,382,247 $35,587,614 $ 68,972,194 $ 62,553,900 $ 85,595,532 $ 77,061,869
---------------------------- -------------- -------------- --------------- -----------------
OPERATING EXPENSES
Purchased gas $ 21,724,341 $23,899,055 $ 43,733,861 $ 41,133,843 $ 54,556,315 $ 50,383,581
Operation and maintenance 3,035,971 2,906,667 8,755,184 8,281,776 11,138,747 11,155,584
Depreciation and depletion 1,017,943 1,134,319 3,224,178 3,296,560 4,359,769 4,336,553
Taxes other than income taxes 453,673 427,681 1,252,892 1,180,084 1,663,356 1,569,447
Income tax expense 2,298,400 2,335,600 3,284,800 2,024,800 3,619,600 2,014,200
---------------------------- -------------- -------------- --------------- -----------------
Total operating expenses $ 28,530,328 $30,703,322 $ 60,250,915 $ 55,917,063 $ 75,337,787 $ 69,459,365
---------------------------- -------------- -------------- --------------- -----------------
OPERATING INCOME $ 4,851,919 $ 4,884,292 $ 8,721,279 $ 6,636,837 $ 10,257,745 $ 7,602,504
OTHER INCOME AND DEDUCTIONS, NET 11,411 12,586 59,990 34,442 86,080 50,273
INTEREST CHARGES 1,137,475 1,102,685 3,387,112 3,331,784 4,451,104 4,422,484
---------------------------- -------------- -------------- --------------- -----------------
NET INCOME $ 3,725,855 $ 3,794,193 $ 5,394,157 $ 3,339,495 $ 5,892,721 $ 3,230,293
============================ ============== ============== =============== =================
BASIC AND DILUTED EARNINGS PER
COMMON SHARE $ 1.16 $ 1.19 $ 1.68 1.05 $ 1.84 1.05
============================ ============== ============== =============== =================
============================ ============== ============== =============== =================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (BASIC
AND DILUTED) 3,220,163 3,189,873 3,213,605 3,181,437 3,209,376 3,083,987
DIVIDENDS DECLARED PER COMMON SHARE $ .295 $ .295 $ .885 $ .885 $ 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 March 31, 2005 June 30, 2004 March 31, 2004
-------------- ------------- --------------
GAS UTILITY PLANT, AT COST $ 173,267,988 $ 170,337,427 $ 169,536,352
Less-Accumulated provisions
for depreciation (57,605,198) (55,121,511) (54,564,658)
------------------- ------------------
-------------------
Net gas plant $ 115,662,790 $ 115,215,916 $ 114,971,694
------------------- ------------------- ------------------
CURRENT ASSETS
Cash and cash equivalents $ 322,073 $ 168,834 $ 281,252
Accounts receivable, less accumulated
provisions for doubtful accounts of
$510,000, $300,000 and $430,000 12,981,276 4,771,380 7,568,209
Gas in storage, at average cost 4,079,993 7,749,089 2,727,780
Deferred gas costs 5,075,104 1,523,632 3,349,505
Materials and supplies, at first-in,
first-out cost 380,512 352,762 507,054
Prepayments 2,211,193 1,190,818 725,001
------------------- ------------------- ------------------
Total current assets $ 25,050,151 $ 15,756,515 $ 15,158,801
------------------- ------------------- ------------------
OTHER ASSETS
Cash surrender value of
officers' life insurance $ 376,930 $ 376,930 $ 356,137
Note receivable from officer 92,000 110,000 116,000
Prepaid pension cost 3,310,138 2,694,151 -
Unamortized debt expense and other 4,184,781 4,218,617 4,238,055
------------------- ------------------- ------------------
Total other assets $ 7,963,849 $ 7,399,698 $ 4,710,192
------------------- ------------------- ------------------
Total assets $ 148,676,790 $ 138,372,129 $ 134,840,687
=================== =================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CAPITALIZATION
Common shareholders' equity
Common shares ($1.00 par value) $ 3,223,994 $ 3,200,715 $ 3,193,877
Premium on common shares 44,818,906 44,236,128 44,079,555
Capital stock expense (2,597,999) (2,597,999) (2,597,999)
Accumulated other comprehensive loss - - (2,050,636)
Retained earnings 6,541,228 3,991,317 4,435,632
------------------- ------------------- ------------------
Total common shareholders' equity $ 51,986,129 $ 48,830,161 $ 47,060,429
Long-term debt 52,738,000 53,049,000 53,133,000
------------------- ------------------- ------------------
Total capitalization $ 104,724,129 $ 101,879,161 $ 100,193,429
------------------- ------------------- ------------------
CURRENT LIABILITIES
Notes payable $ 7,298,300 $ 4,738,180 $ 6,008,349
Current portion of long-term debt 1,650,000 1,650,000 1,650,000
Accounts payable 7,522,242 6,609,787 3,751,534
Accrued taxes 2,801,095 1,027,937 2,059,418
Customers' deposits 581,262 433,809 543,797
Accrued interest on debt 1,497,939 901,370 1,504,457
Accrued vacation 614,576 624,604 586,052
Other accrued liabilities 406,653 488,031 539,919
------------------- ------------------- ------------------
Total current liabilities $ 22,372,067 $ 16,473,718 $ 16,643,526
------------------- ------------------- ------------------
DEFERRED CREDITS AND OTHER
Deferred income taxes $ 19,485,535 $ 17,967,611 $ 15,628,366
Investment tax credits 297,700 326,200 335,800
Regulatory liability 1,464,661 1,431,600 1,229,583
Pension liability - - 510,935
Advances for construction and other 332,698 293,839 299,048
------------------- ------------------- ------------------
Total deferred credits and other $ 21,580,594 $ 20,019,250 $ 18,003,732
------------------- ------------------- ------------------
------------------- ------------------- ------------------
COMMITMENTS AND CONTINGENCIES
(NOTES 7 and 8) $ $ $
------------------- ------------------- ------------------
------------------- ------------------- ------------------
Total liabilities and
shareholders' equity $ 148,676,790 $ 138,372,129 $ 134,840,687
=================== =================== ==================
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,
2005 2004 2005 2004
---- ---- ---- ----
COMMON SHARES
Balance, beginning of period $ 3,200,715 $ 3,166,940 $ 3,193,877 $ 2,558,635
Common stock offering - - - 600,000
Dividend reinvestment and
stock purchase plan 18,453 22,291 25,291 29,696
Employee stock purchase plan
and other 4,826 4,646 4,826 5,546
------------ ------------ ----------- ------------
Balance, end of period $ 3,223,994 $ 3,193,877 $ 3,223,994 $ 3,193,877
============ ============ =========== ============
PREMIUM ON COMMON SHARES
Balance, beginning of period $ 44,236,128 $ 43,462,433 $44,079,555 $ 30,916,521
Common stock offering - - - 12,360,000
Dividend reinvestment and
stock purchase plan 470,043 513,670 626,616 679,107
Employee stock purchase
plan and other 112,735 103,452 112,735 123,927
------------ ------------ ----------- ------------
Balance, end of period $ 44,818,906 $ 44,079,555 $ 44,818,906 $ 44,079,555
============ ============ ============ ============
CAPITAL STOCK EXPENSE
Balance, beginning of period $ (2,597,999) $ (2,598,146) $ (2,597,999) $ (1,929,205)
Dividend reinvestment and
stock purchase plan - 147 - (668,794)
------------ ------------ ----------- ------------
Balance, end of period $ (2,597,999) $ (2,597,999) $ (2,597,999) $ (2,597,999)
============ ============ ============ ============
ACCUMULATED OTHER COMPREHENSIVE LOSS
Balance, beginning of period $ - $ (2,050,636) $ (2,050,636) $ -
Minimum pension liability
adjustment, net of tax expense
(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 $ 4,435,632 $ 4,953,683
Net income 5,394,157 3,339,495 5,892,721 3,230,293
Cash dividends declared on
common shares (See
Consolidated Statements
of Income for rates) (2,844,246) (2,815,869) (3,787,125) (3,748,344)
------------ ------------ ------------ ------------
Balance, end of period $ 6,541,228 $ 4,435,632 $ 6,541,228 $ 4,435,632
============ ============ ============ ============
COMMON SHAREHOLDERS' EQUITY
Balance, beginning of period $ 48,830,161 $ 45,892,597 $ 47,060,429 $ 36,499,634
Comprehensive income
Net income 5,394,157 3,339,495 5,892,721 3,230,293
Other comprehensive
income (loss) - - 2,050,636 (2,050,636)
------------ ------------ ------------ ------------
Comprehensive income $ 5,394,157 $ 3,339,495 $ 7,943,357 $ 1,179,657
Issuance of common stock 606,057 644,206 769,468 13,129,482
Dividends on common stock (2,844,246) (2,815,869) (3,787,125) (3,748,344)
------------ ------------- ------------ ------------
Balance, end of period $ 51,986,129 $ 47,060,429 $ 51,986,129 $ 47,060,429
============ ============ ============ ============
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,
2005 2004 2005 2004
---- ---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 5,394,157 $ 3,339,495 $ 5,892,721 $ 3,230,293
Adjustments to reconcile net
income to net cash from
operating activities
Depreciation, depletion
and amortization 3,440,175 3,461,493 4,650,058 4,589,301
Deferred income taxes and
investment tax credits 1,470,276 723,510 2,652,446 2,255,993
Other, net (36,409) 526,520 (36,409) 713,547
Decrease (increase) in assets (9,912,184) 59,197 (9,984,433) 1,813,045
Increase (decrease) in
liabilities 3,401,006 (4,382,213) 4,022,994 (2,203,002)
----------------- ----------------- ---------------- -----------------
Net cash provided by
operating activities $ 3,757,021 $ 3,728,002 $ 7,197,377 $ 10,399,177
----------------- ----------------- ---------------- -----------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures $ (3,689,713) $ (7,432,351) $ (5,108,850) $ (9,810,136)
Proceeds from sale of
property, plant and
equipment 75,000 - 75,000 -
----------------- ----------------- ---------------- -----------------
----------------- ----------------- ---------------- -----------------
Net cash used in
investing activities $ (3,614,713) $ (7,432,351) $ (5,033,850) $ (9,810,136)
----------------- ----------------- ---------------- -----------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Dividends on common stock $ (2,844,246) $ (2,815,869) $ (3,787,125) $ (3,748,344)
Issuance of common stock, net 606,057 644,206 769,468 13,129,482
Long-term debt issuance expense - - - (29,815)
Repayment of long-term debt (311,000) (240,000) (395,000) (275,000)
Issuance of notes payable 48,186,455 46,722,039 59,270,100 56,316,982
Repayment of notes payable (45,626,335) (41,744,789) (57,980,149) (67,303,926)
----------------- ----------------- ---------------- -----------------
Net cash provided by (used
in) financing activities $ 10,931 $ 2,565,587 $ (2,122,706) $ (1,910,621)
----------------- ----------------- ---------------- -----------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 153,239 $ (1,138,762) $ 40,821 $ (1,321,580)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 168,834 1,420,014 281,252 1,602,832
----------------- ----------------- ---------------- -----------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 322,073 $ 281,252 $ 322,073 $ 281,252
================= ================= ================ =================
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION
Cash paid during the period for
Interest $ 2,613,407 $ 2,552,258 $ 4,221,439 $ 4,130,619
Income taxes (net of refunds) $ (229,421) $ 122,583 $ 452,031 $ 198,583
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, 2005 and 2004, respectively, are included. All such adjustments
are accruals of a normal and recurring nature. The results of operations
for the period ended March 31, 2005 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 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 2005 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 March 31, 2005, we
estimated that 399,000 Mcf of the gas consumed by our customers during
March was unbilled. Reflecting the sales of these unbilled volumes in the
accompanying financial statements resulted in a non-recurring increase to
net income of $1,120,000 for the three, nine and twelve month periods ended
March 31, 2005. The non-recurring increase in earnings per share due to the
recording of unbilled sales was $.35 for the three, nine and twelve months
ended March 31, 2005. We expect that recording unbilled sales will result
in a non-recurring increase in our 2005 fiscal year net income in a range
of $175,000 to $225,000, a range of $.05 to $.07 per share.
(4) Net pension costs for our trusteed, noncontributory defined benefit pension
plan for the periods ended March 31 include the following:
Three Months Ended
March 31,
2005 2004
---- ----
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
========= =========
Nine Months Ended
March 31,
2005 2004
---- ----
Service cost $ 536,100 $ 497,077
Interest cost 459,279 417,887
Expected return on plan assets (647,295) (503,117)
Amortization of unrecognized
net loss 133,221 196,862
Amortization of prior service cost (64,635) (64,634)
--------- ---------
Net periodic benefit cost $ 416,670 $ 544,075
========= =========
Twelve Months Ended
March 31,
2005 2004
---- ----
Service cost $ 701,792 $ 647,479
Interest cost 598,575 577,050
Expected return on plan assets (815,001) (692,301)
Amortization of unrecognized
net loss 198,842 194,813
Amortization of prior service cost (86,180) (49,166)
--------- ---------
Net periodic benefit cost $ 598,028 $ 677,875
========= =========
On February 24, 2005, we adopted a nonqualified defined contribution
supplemental retirement agreement for Glenn R. Jennings, our President and
Chief Executive Officer. We agreed to contribute $60,000 annually into an
irrevocable trust until Jennings' retirement. At retirement, the trustee
will make annual payments of $100,000 to Jennings until the trust is
depleted.
(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 $92,000, $110,000 and $116,000 as of
March 31, 2005, June 30, 2004 and March 31, 2004, 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 $7,298,000, $4,738,000 and $6,008,000 was borrowed
having a weighted average interest rate of 3.72%, 2.13% and 2.10%, as of
March 31, 2005, June 30, 2004 and March 31, 2004, 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.
(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.
(10) Our company has two segments: (i) a regulated natural gas distribution and
transmission 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 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, March 31,
2005 2004
---------- -----------
($000)
Revenues
Regulated
External customers 23,384 27,200
Intersegment 994 905
---------- ---------
Total regulated 24,378 28,105
---------- ---------
Non-regulated external customers 9,998 8,388
Eliminations for intersegment (994) (905)
----------- ----------
Total operating revenues 33,382 35,588
=========== ==========
Net Income
Regulated 2,997 3,109
Non-regulated 729 685
--------- ----------
Total net income 3,726 3,794
========= ==========
Nine Months Ended
March 31, March 31,
2005 2004
---------- -----------
($000)
Revenues
Regulated
External customers 44,208 42,108
Intersegment 2,594 2,522
---------- --------
Total regulated 46,802 44,630
---------- --------
Non-regulated external customers 24,764 20,446
Eliminations for intersegment (2,594) (2,522)
-------- --------
Total operating revenues 68,972 62,554
========= ========
Net Income
Regulated 3,549 2,203
Non-regulated 1,845 1,136
------- -------
Total net income 5,394 3,339
====== ======
Nine Months Ended
March 31, March 31,
2005 2004
---------- -----------
($000)
Revenues
Regulated
External customers 54,187 51,239
Intersegment 3,336 3,213
---------- --------
Total regulated 57,523 54,452
---------- --------
Non-regulated external customers 31,309 25,823
Eliminations for intersegment (3,336) (3,213)
-------- --------
Total operating revenues 85,596 77,062
========= ========
Net Income
Regulated 3,689 1,970
Non-regulated 2,204 1,260
------- -------
Total net income 5,893 3,230
====== ======
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 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
$7,298,000 at March 31, 2005, compared with $4,738,000 at June 30, 2004 and
$6,008,000 at March 31, 2004. 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 $1,101,000, $3,690,000 and $5,109,000 during the three, nine and
twelve months ended March 31, 2005. 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 $52,738,000 at March 31, 2005, compared with
$53,049,000 and $53,133,000 at June 30, 2004 and March 31, 2004, 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 $322,000 at March 31, 2005, compared
with $169,000 at June 30, 2004, and $281,000 at March 31, 2004. These changes in
cash and cash equivalents for the nine and twelve months ended March 31, 2005
and 2004 are summarized in the following table:
($000) Nine Months Ended Twelve Months Ended
------------------ --------------------
March 31, March 31
--------- -----------
2005 2004 2005 2004
---- ---- ---- ----
Provided by operating activities 3,757 3,728 7,197 10,399
Used in investing activities (3,615) (7,432) (5,034) (9,810)
Provided by (used in) financing
activities 11 2,565 (2,122) (1,911)
------- ------- ------- -------
Increase (decrease) in cash
and cash equivalents 153 (1,139) 41 (1,322)
======= ======= ======= =======
For the nine months ended March 31, 2005, we had a $153,000 increase in
cash and cash equivalents compared to a $1,139,000 decrease in cash and cash
equivalents for the nine months ended March 31, 2004. This additional $1,292,000
of cash provided resulted primarily from decreased cash needs of $3,743,000 for
capital expenditures allowing an additional $2,418,000 to be used to repay
short-term notes payable.
For the twelve months ended March 31, 2005, we had an additional $1,363,000
of cash provided resulting from decreased cash needs of $4,701,000 for capital
expenditures. This decrease in cash used was offset by $3,013,000 less cash
being provided by operating activities, primarily caused by a $5,675,000
reduction in customer payments on accounts receivable, offset by a $2,662,000
increase in net income.
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 $6.5 million, and for fiscal 2006 are estimated at $8.3 million.
These expenditures include a 13 mile transmission pipeline project, started in
2005 and to be completed in 2006 at an estimated total cost of $4 million, that
replaces an existing pipeline facility and also accesses additional gas
production areas to enhance our transportation opportunities for the future.
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 an additional $50,000 of external expenses during fiscal 2005 in
complying with the Act by June 30, 2005.
See Notes 7 and 8 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 $7,298,000 was borrowed at March 31, 2005 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
Gross Margins
Our regulated and non-regulated revenues, other than transportation, have
offsetting gas expenses. Thus, gross margins represent operating revenues less
purchased gas expense.
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 variation amounts and percentages presented in the following tables for
regulated and non-regulated gross margins 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.
In the following table we set forth variations in our gross margins for the
three, nine and twelve months ended March 31, 2005 compared with the same
periods in the preceding year:
2005 Compared to 2004
-----------------------------------------------------------
Three Nine Twelve Months
Months Months Ended Ended
Ended March 31 March 31
-------- -------- --------
($000) March 31
Increase (decrease) in regulated
gross margins
Gas rates 1,182 1,906 1,809
Gas volumes (1,074) (2,034) (1,634)
Weather normalization adjustment 567 632 452
Non-recurring unbilled gross margin (1,043) 1,815 1,815
On-system transportation 262 349 382
Off-system transportation 21 19 131
Other 6 1 3
Intersegment elimination (89) (72) (123)
-------- -------- --------
(168) 2,616 2,835
-------- -------- --------
Increase (decrease) in our non-
regulated gross margins
Gas rates (71) 1,127 1,306
Gas volumes 206 51 197
Transportation expenses (89) (72) (123)
Other 2 24 24
Intersegment elimination 89 72 123
-------- -------- --------
137 1,202 1,527
-------- -------- --------
Increase (decrease) in consolidated
gross margins (31) 3,818 4,362
======== ======== ========
--------------------------------------------------------------------------------------------------
Percentage increase (decrease) in our
regulated volumes
Gas sales (12.1) (13.9) (9.1)
On-system transportation 10.5 .7 (.3)
Off-system transportation 4.2 1.2 6.0
Percentage increase in our non-
regulated gas sales volumes 4.7 1.1 3.5
Heating degree days billed were 101%, 78% and 88% of normal thirty year
average temperatures for the three, nine and twelve months ended March 31, 2005,
respectively, as compared with 111%, 87% and 94% of normal temperatures in 2004,
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.
For the three months ended March 31, 2005, regulated gas rates increased by
$1,182,000 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. In addition, the weather normalization adjustment increased gross
margins $567,000 as a result of the warmer weather in the 2005 period.
Offsetting these increases, a 12.1% decrease in regulated gas sales volumes, due
to the 10% warmer weather in the 2005 period, caused a $1,074,000 decrease in
gross margins. Unbilled volumes, as discussed in Note 3 of the Notes to
Consolidated Financial Statements, were 399,000 Mcf at March 31, 2005, compared
to 584,000 Mcf at December 31, 2004. This reduction caused a non-recurring
decrease in gross margin of $1,043,000 for the three months ended March 31,
2005.
The increase in gross margins for the nine months ended March 31, 2005 of
$3,818,000 was due primarily to a $3,033,000 increase in gas rates. 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. Non-regulated gas rates increased to reflect increases in
the market price of natural gas. Due to recording unbilled regulated margins on
399,000 Mcf of unbilled regulated volumes as discussed in Note 3 of the Notes to
Consolidated Financial Statements, $1,815,000 of the increase is non-recurring.
In addition, the weather normalization adjustment increased gross margins
$632,000 as a result of the warmer weather in the 2005 period. Partially
offsetting these increases was a 13.9% decrease in regulated gas sales volumes
due to the 9% warmer weather in the 2005 period, which resulted in a $2,034,000
decrease in gross margins.
The increase in gross margins for the twelve months ended March 31, 2005 of
$4,362,000 was due primarily to a $3,115,000 increase in gas rates. 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. Non-regulated gas rates increased to reflect increases in
the market price of natural gas. Due to recording unbilled regulated margins on
399,000 Mcf of unbilled regulated volumes as discussed in Note 3 of the Notes to
Consolidated Financial Statements, $1,815,000 of the increase is non-recurring.
In addition, the weather normalization adjustment increased gross margins
$452,000 as the result of warmer weather in the 2005 period. Partially
offsetting these increases was a 9.1% decrease in regulated gas sales volumes
due to the 6% warmer weather in the 2005 period, which resulted in a $1,634,000
decrease in gross margins.
Depreciation and Depletion
The decrease in depreciation and depletion expense for the three months
ended March 31, 2005 of $116,000 resulted from the implementation of decreased
regulated depreciation rates effective October 7, 2004 as approved in general
rate case No. 2004-00067.
Income Taxes
The increases in income taxes for the nine and twelve months ended March
31, 2005 of $1,260,000 and $1,606,000, respectively, are attributable to the
increase in net income before income tax. The increase in net income is largely
attributable to the increase in operating income, which increased 31.4%, and
34.9%, respectively, for the nine and twelve months ended March 31, 2005.
Basic and Diluted Earnings Per Common Share
For the three, nine and twelve months ended March 31, 2005 and 2004, 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. There was $.35 of
increased basic earnings per share for the three, nine and twelve month periods
ended March 31, 2005 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 non-recurring increase in our 2005 fiscal year basic earnings per share of
$.05 to $.07 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 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
$7,298,000, $4,738,000 and $6,008,000 on March 31, 2005, June 30, 2004 and March
31, 2004, respectively. Based on the amount of our outstanding short-term line
of credit on March 31, 2005, June 30, 2004 and March 31, 2004, 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 $73,000, $47,000 and $60,000
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.
Underthe 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
March 31, 2005, 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 changes 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 March 31, 2005 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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
ITEM 5. OTHER INFORMATION.
Not Applicable.
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-4(a) of the Securities Exchange Act, as amended.
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and
Rule 15d-4(a) 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)
/s/Glenn R. Jennings
DATE: May 10, 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
CERTIFICATIONS
I, Glenn R. Jennings, certify that:
I have reviewed this quarterly report on Form 10-Q of Delta Natural Gas
Company, Inc.,
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;
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;
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) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) 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 evaluations; and
d) 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
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: May 10, 2005
/s/Glenn R. Jennings
Glenn R. Jennings
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATIONS
I, John F. Hall, certify that:
I have reviewed this quarterly report on Form 10-Q of Delta Natural
Gas Company, Inc.;
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;
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;
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) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) 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
d) 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
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: May 10, 2005
/s/John F. Hall
John F. Hall
Vice President - Finance,
Secretary and Treasurer
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, 2005 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 results of operations of the Company.
May 10, 2005
/s/Glenn R. Jennings
Glenn R. Jennings
President and Chief Executive Officer
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, 2005 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 results of operations of the Company.
May 10, 2005
/s/John F. Hall
John F. Hall
Vice-President - Finance,
Secretary and Treasurer