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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PRUSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1995.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________.
Commission file number 0-8788.
DELTA NATURAL GAS COMPANY, INC.__________
(Exact name of registrant as specified in its charter)
________KENTUCKY_______ ___________61-0458329_____________
(State of Incorporation) (IRS Employer Identification Number)
3617 Lexington Road, Winchester, Kentucky
40391 (Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code 606-
7446171.
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
_______None________ __________None________
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $1 Par Value
(Title of class)
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 (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10K or any amendment to this Form 10-K [X]
As of August 17, 1995, Delta Natural Gas Company, Inc. had
outstanding 1,876,666 shares of common stock $1 Par Value, and the
aggregate market value of the voting stock held by non-affiliates was
approximately $31,903,322.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive proxy statement to be filed with
the Commission not later than 120 days after June 30, 1995, is
incorporated by reference in Part III of this Report.
TABLE OF CONTENTS
Page Number
PART I
Item 1. Business 1
General 1
Gas Operations and Supply 1
Regulatory Matters 5
Capital Expenditures 6
Employees 6
Consolidated Statistics 7
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of
Security Holders 9
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11
Item 8. Financial Statements and Supplementary
Data 15
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosures 15
PART III
Item 10. Directors and Executive Officers of
the Registrant 15
Item 11. Executive Compensation 15
Item 12. Security Ownership of Certain
Beneficial Owners and Management 15
Item 13. Certain Relationships and Related
Transactions 16
Part IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 17
Signatures 20
PART I
Item 1. Business
General
Delta Natural Gas Company, Inc. (Delta or the Company) was
incorporated in 1949 in the State of Kentucky. The Company is
engaged in the distribution, transmission and production of natural gas
in its service area in 17 counties in central and southeastern
Kentucky. In addition to its corporate headquarters in Winchester,
Delta has warehouse facilities in Corbin and Winchester and branch
offices in Barbourville, Berea, Corbin, London, Manchester,
Middlesboro, Nicholasville, Owingsville, Stanton, and Williamsburg,
with which it serves approximately 34,000 residential, commercial,
industrial and transportation customers. The four largest branch offices
are Corbin, Nicholasville, Middlesboro and Berea, where Delta serves
approximately 6,000, 5,700, 3,700 and 3,500 customers, respectively.
The Company purchases and produces gas for distribution to its
retail customers. Additionally, Delta transports gas produced in
southeastern Kentucky to inter-connected pipelines and also transports gas
for others to industrial customers. Delta owns and operates storage
facilities and approximately 1,750 miles of natural gas gathering,
transmission, distribution and service lines.
Delta has four wholly-owned subsidiaries, Delta Resources,
Inc. (Resources), Delgasco, Inc. (Delgasco), Deltran, Inc. (Deltran) and
Enpro, Inc. (Enpro). Resources buys gas and resells it to industrial
customers on Delta's system and to Delta for system supply. Delgasco buys
gas and resells it to Resources and to customers not on Delta's system.
Deltran was formed to engage in potential pipeline and storage projects
under consideration. Enpro owns and operates existing production
properties. Delta and its subsidiaries are managed by the same
officers.
Gas Operations and Supply
The Company's revenues are affected by various factors, including
rates billed to customers, the cost of natural gas, economic conditions
in the areas that the Company serves, weather conditions and
competition. Delta competes for customers and sales with alternate
sources of energy, including electricity, coal, oil, propane and wood.
Gas costs, which the Company is generally able to pass through to
customers under its gas cost recovery clause, may affect Delta's
competitive position or may cause customers to conserve, or, in the case
of industrial customers, to use alternative energy sources. Also,
the potential bypass of Delta's system by industrial
customers and others is a competitive concern that Delta has and
will continue to address. In recent years, regulatory changes at the
federal level and changes in the participants in the natural gas industry
have led to a national spot market for natural gas. The Company's
marketing subsidiaries purchase gas and resell it to various industrial
customers and others in competition with producers and marketers.
Delta's retail sales are seasonal and temperature-sensitive as
the majority of the gas sold by Delta is used for heating. This
seasonality impacts Delta's liquidity position and its management of its
working capital requirements (see "Management's Discussion and
Analysis of Financial Condition and Results of Operations").
Currently, over 99% of Delta's customers are residential and
commercial. Delta's remaining light industrial customers purchased
approximately 6% of the total volume of gas sold by Delta at retail during
1995.
Retail gas sales in 1995 were approximately 3,724,000 thousand
cubic feet (Mcf), as compared to approximately 4,333,000 Mcf in 1994.
Heating degree days for 1995 were approximately 89.6% of the thirty year
average as compared with 106.2% in 1994. As a result of this warmer
weather, sales volumes decreased by 609,000 Mcf, or 14.1% in 1995. The
number of customers served increased by approximately 1,100, or 3.5%,
during 1995 as Delta continued to extend its system to new customers
and to convert customers to natural gas from other fuels. Delta's
service area continued to expand, resulting in growth opportunities
for the Company. Industrial parks have been developed in certain
areas and have resulted in new industrial customers, some of whom
are on-system transportation customers.
A total of $3,049,000 of transportation revenues was earned during
1995 as compared with $2,933,000 during 1994. Total volumes transported
were 3,842,000 Mcf in 1995 as compared to 4,183,000 Mcf in 1994. As of
June 30, 1995, Delta had 43 on-system transportation customers (customers
who purchase their gas from others) and 5 off-system transportation
customers (deliveries made by Delta to other pipelines).
Transportation revenues include $2,588,000 earned during 1995
and $2,310,000 earned during 1994 for transportation of 2,390,000 Mcf
and 2,186,000 Mcf, respectively, on behalf of on-system customers. Delta's
offsystem transportation includes deliveries for interconnected
interstate pipeline systems. During 1995 and 1994, 1,452,000 Mcf and
1,997,000 Mcf, respectively, were transported for off-system deliveries.
The decline in offsystem transportation in 1995 was primarily due to
reduced deliveries from some local production.
Some producers in Delta's service area can access certain
pipeline delivery systems other than Delta, which provides competition from
others for transportation of such gas. Delta will continue its efforts to
purchase or transport any natural gas available that is produced in
reasonable proximity to its facilities.
Recognizing competitive concerns, Delta will continue to maintain
an active gas supply management program that emphasizes long-term
reliability and the pursuit of cost effective sources of gas for its
customers. Delta purchases gas supplies from interstate pipelines,
intrastate suppliers and others. Delta has transportation and storage
capacity available on certain interstate pipelines for deliveries of gas
through those facilities. The Company anticipates an adequate gas supply
for service to existing customers and to provide for growth.
Delta receives a portion of its gas supply (including transportation
gas from others) from its interstate sources, Tennessee Gas Pipeline
Company (Tennessee) and Columbia Gas Transmission Corporation
(Columbia), and Columbia Gulf Transmission Company (Columbia Gulf)
which companies are subject to the Federal Energy Regulatory Commission
(FERC) jurisdiction. A significant portion of Delta's supply comes
from gas producers in southeastern Kentucky. Delta's subsidiary
companies obtain supply from Kentucky producers and others.
During the past few years, the Federal Energy Regulatory
Commission (FERC) has restructured interstate natural gas pipeline
operations, services and rates as a part of its Order 636 proceedings.
This restructuring resulted in Delta's involvement in proceedings with its
interstate pipeline suppliers. Delta contracted for transportation and
storage services with its three pipeline suppliers, with gas supplies
purchased from gas marketers. The FERC approved Tennessee's new rates and
services effective September 1, 1993, and Columbia's and Columbia Gulf's
new rates and services effective November 1, 1993.
Delta's agreements with Tennessee expire in the year 2000 and
thereafter will continue on a year-to-year basis until terminated by
either party. During 1994, Tennessee discontinued sales of gas to Delta and
other wholesale customers upon implementation of FERC Order 636. Delta's
entitlements under those agreements were converted to firm transportation
and storage rights on Tennessee, and Delta entered a three-year contract
with a gas marketer to supply gas for those portions of Delta's system
formerly served by Tennessee. The initial term of the contract extends
through April, 1996, and such purchases are included in Delta's gas cost
recovery filings (see "Regulatory Matters"). During 1995, Delta purchased
approximately 1,062,000 Mcf from the gas marketer.
Delta's entitlements under agreements with Columbia and Columbia
Gulf were also converted to firm transportation and firm storage services
upon implementation of Order 636 by Columbia and Columbia Gulf. The
agreements expire in the year 2008 and thereafter will continue on a year-
to-year basis until terminated by either party. Delta contracted with a
gas marketer to supply gas for those portions of Delta's system formerly
served by Columbia and Columbia Gulf. The initial term of the agreement
with the gas marketer extends through April, 1996, and such purchases are
included in Delta's gas cost recovery filings (see "Regulatory
Matters"). During 1995, Delta purchased approximately 664,000 Mcf from
the gas marketer.
Delta has a contract with The Wiser Oil Company (Wiser) to
purchase natural gas from Wiser through 1999. Delta and Wiser annually
determine the daily deliverability from Wiser and Wiser is committed
to deliver that volume. Under this agreement, Wiser is obligated to
deliver 11,000 Mcf per day to Delta. Delta purchased approximately
1,120,000 Mcf from Wiser during 1995.
Delta has four contracts with Enpro to purchase all the natural
gas produced from Enpro's wells on certain leases in Bell, Knox and
Whitley Counties. These agreements remain in force so long as gas is
produced in commercial quantities from the wells on the leases. Also,
Delta purchases gas from Enpro which is produced from the Flat Lick Field
in Knox County. Remaining proved, developed natural gas reserves
are estimated at approximately 4.7 million Mcf. Delta purchased a
total of approximately 222,000 Mcf from those properties during 1995.
Enpro also produces oil from certain of these leases, but oil production has
not been significant.
Delta receives gas under agreements with various other
marketers, brokers and local producers, most of which are priced as short-
term, or spotmarket, purchases. The combined volumes of gas purchased
from these sources in 1995 was approximately 750,000 Mcf.
Resources and Delgasco purchase gas under agreements with
various marketers, brokers and local producers, most of which are priced
as shortterm, or spot-market, purchases. The gas is resold to
industrial customers on Delta's system, to Delta for system supply and to
others. The combined volumes of gas purchased by Resources and Delgasco
from these sources in 1995 was approximately 1,636,000 Mcf.
Although there are competitors for the acquisition of supplies,
Delta continues to seek additional new gas supplies from all available
sources, including those in the proximity of its facilities in
southeastern Kentucky. Also, Resources and Delgasco continue to pursue
acquisitions of new gas supplies from local producers and others.
As an active participant in many areas of the natural gas
industry, Delta plans to continue its efforts to expand its gas
distribution system. Delta is considering acquisitions of other gas
systems, some of which are contiguous to its existing service areas,
as well as continued expansion within its existing service areas. The
Company also anticipates continuing activity in gas production and
transportation areas and plans to pursue and increase these activities
wherever practicable. The Company will continue to consider the
construction or acquisition of additional transmission, storage and
gathering facilities to provide for increased transportation and enhanced
supply and system flexibility.
Regulatory Matters
Delta is subject to the regulatory authority of the Public
Service Commission of Kentucky (PSC) with respect to various aspects of its
business, including rates and service to retail and transportation
customers. Delta's last rate case was filed in 1990 and settled in May,
1991. Delta currently has no general rate case filed.
On January 29, 1993, the PSC established an administrative proceeding
to investigate the reasonableness of current state regulatory
practices, in particular purchased gas cost recovery mechanisms, in light
of FERC Order 636. Delta is a party to this proceeding. Delta currently
has a Gas Cost Recovery (GCR) clause, which provides for a dollar-
tracker that matches revenues and gas costs and allows eventual full
recovery of gas costs. This clause requires Delta to make quarterly
filings with the PSC, but such procedure does not require a general
rate case. The GCR mechanism provides for any over or under-recovery of
purchased gas costs to be reflected in the rates charged to customers.
In an Order dated December 22, 1993, in its administrative
proceeding, the PSC provided for pipeline transition costs and certain
other components of gas supply costs to appropriately be recovered
through regulated utilities' purchased gas recovery mechanisms. Delta's
quarterly GCR filings include certain pipeline transition costs and
various components of gas supply costs as a result of the FERC Order
636 restructuring. The PSC has approved such filings and Delta has
implemented rates reflecting these increased costs. Other issues,
including those related to the FERC Order 636 restructuring, are currently
the subject of consideration in this continuing administrative proceeding.
In addition to PSC regulation, Delta may obtain non-exclusive
franchises from the cities and communities in which it operates
authorizing it to place its facilities in the streets and public grounds.
However, no utility may obtain a franchise until it has obtained from
the PSC a certificate of convenience and necessity authorizing it to
bid on the franchise. Delta holds franchises in four of the ten
cities in which it maintains a branch office and in six other
communities it serves. In the other cities or communities, either
Delta's franchises have expired, the communities do not have
governmental organizations authorized to grant franchises, or the local
governments have not required, or do not want to offer, a franchise.
Delta attempts to acquire or reacquire franchises whenever the communities
desire or require them.
Without a franchise, a local government could require Delta to cease
its occupation of the streets and public grounds or prohibit Delta from
extending its facilities into any new area of that city or community. To
date, the absence of a franchise has had no adverse effect on Delta's
operations.
Capital Expenditures
Capital expenditures during fiscal 1995 were approximately $8.1
million and for fiscal 1996 are estimated to be approximately $12.4
million. These include planned expenditures for development of
underground gas storage, system extensions, computer system upgrades
and the replacement and improvement of existing transmission,
distribution, gathering and general facilities.
Employees
Delta employed a total of 167 full-time employees on June 30,
1995. Delta considers its relationship with its employees to be
satisfactory.
Consolidated Statistics
For the Years Ended June 30, 1995 1994 1993 1992 1991
Retail Customers Served,
End of Period
Residential .............. 29,029 27,939 27,293 26,488 25,698
Commercial ............... 4,287 4,242 4,093 4,035 4,168
Industrial ............... 72 76 75 66 71
Total ................. 33,388 32,257 31,461 30,589 29,937
Operating Revenues ($000)
Residential sales ........ 14,772 16,597 14,578 13,945 12,453
Commercial sales ......... 8,673 9,663 8,269 7,651 6,294
Industrial sales ......... 1,248 1,671 1,383 1,188 1,299
On-system transportation . 2,588 2,310 2,451 2,348 2,351
Off-system transportation. 461 623 836 1,342 1,377
Subsidiary sales ......... 3,959 3,755 3,532 2,580 2,873
Other .................... 143 228 172 147 131
Total ................. 31,844 34,847 31,221 29,201 26,778
System Throughput
(Million Cu. Ft.)
Residential sales ........ 2,173 2,511 2,341 2,202 2,049
Commercial sales ......... 1,328 1,506 1,368 1,235 1,115
Industrial sales ......... 223 316 281 229 248
Total retail sales .... 3,724 4,333 3,990 3,666 3,412
On-system transportation.. 2,390 2,186 2,248 2,061 1,993
Off-system transportation. 1,452 1,997 2,668 4,580 4,903
Total ................. 7,566 8,516 8,906 10,307 10,308
Average Annual Consumption Per
End of Period Residential
Customer (Thousand Cu. Ft.). 75 90 86 83 80
Lexington, Kentucky Degree Days
Actual .................... 4,217 4,999 4,688 4,370 4,025
Percent of 30 year average
(4,706) ................. 89.6 106.2 99.6 92.9 85.5
Average Revenue Per Mcf Sold
at Retail ($) ............. 6.63 6.44 6.07 6.21 5.88
Average Gas Cost Per Mcf Sold
at Retail ($) ............. 3.37 3.34 2.90 3.01 3.42
Item 2. Properties
Delta owns the land and buildings containing its corporate
headquarters in Winchester. The buildings house executive, administrative
and technical staffs of Delta. In addition, Delta owns buildings
used for branch operations in Barbourville, Berea, Corbin, London,
Manchester, Middlesboro, Nicholasville, Stanton and Williamsburg and
rents an office building in Owingsville for branch operations. Also,
Delta owns a building in Laurel County used for training as well as
equipment and materials storage.
The Company owns approximately 1,750 miles of natural gas
gathering, transmission, distribution and service lines. These lines range
in size up to eight inches in diameter. There are no significant
encumbrances on this property.
Delta owns the rights to any oil and gas underlying approximately
3,500 acres in Bell County. Portions of these properties are used by Delta
for the storage of natural gas. The maximum capacity of the storage
facilities is approximately 550,000 Mcf. These properties otherwise are
currently nonproducing, and no reserve studies have been completed on the
properties.
Enpro owns interests in certain oil and gas leases relating
to approximately 11,000 acres located in Bell, Knox and Whitley Counties.
There presently are 56 gas wells and 7 oil wells producing from these
properties. Remaining proved, developed natural gas reserves are
estimated at approximately 4.7 million Mcf. The gas production from
these properties continues to be purchased by Delta for system supply,
and such purchases amounted to approximately 222,000 Mcf during 1995.
Oil production has not been significant.
Also, Enpro owns the oil and gas underlying approximately
11,500 additional acres in Bell, Clay and Knox Counties. These
properties are currently non-producing, and no reserve studies have been
completed on the properties. During 1994, Enpro entered an agreement
with a producer covering approximately 14,000 acres of Enpro's undeveloped
holdings. Under the terms of the agreement, the producer is conducting
exploration activities on the acreage. Enpro reserved the option to
participate in wells drilled. Enpro also retained certain working and
royalty interests in any production from wells to be drilled.
Item 3. Legal Proceedings
Delta and its subsidiaries are not parties to any legal
proceedings which are expected to have a materially adverse impact on
the financial condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of 1995.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
Delta has paid cash dividends on its common stock each year since
1964. While it is the intention of the Board of Directors to continue to
declare dividends on a quarterly basis, the frequency and amount of future
dividends will depend upon the Company's earnings, financial requirements
and other relevant factors.
The Company's common stock trades on the Nasdaq Stock Market under
the symbol DGAS. The accompanying table reflects the high and low sales
prices during each quarter as reported by Nasdaq and the quarterly
dividends declared per share.
Range of Stock Prices ($) Dividends
Quarter High Low Per Share
Fiscal 1995
First 20 17 1/2 .28
Second 18 15 3/4 .28
Third 18 3/4 16 .28
Fourth 18 1/2 16 3/4 .28
Fiscal 1994
First 22 1/4 18 3/4 .275
Second 23 1/2 21 .275
Third 21 3/4 19 .275
Fourth 20 1/2 17 1/4 .28
There were 2,091 record holders of Delta's common stock as of August 1, 1995.
Item 6. Selected Financial Data
For the Years
Ended June 30, 1995 1994(a) 1993 1992 1991(b)
Summary of Operations ($)
Operating
revenues ........ 31,844,339 34,846,941 31,221,410 29,200,834 26,778,255
Operating
income .......... 4,255,088 4,850,673 4,791,816 4,586,323 3,039,045
Net income ...... 1,917,735 2,671,001 2,620,664 2,453,813 1,162,582
Earnings per
common share .... 1.04 1.50 1.60 1.52 0.73
Dividends
declared per
common share .... 1.12 1.105 1.085 1.08 1.08
Average Number of
Common Shares
Outstanding ........ 1,850,986 1,775,068 1,635,945 1,612,437 1,586,235
Total Assets ($).... 65,948,716 61,932,480 55,129,912 50,478,014 47,816,330
Capitalization ($)..
Common share-
holders' equity . 22,511,513 22,164,791 17,501,045 16,227,158 15,147,551
Long-term debt .. 23,702,200 24,500,000 19,596,401 20,187,826 21,473,431
Total
capitalization .. 46,213,713 46,664,791 37,097,446 36,414,984 36,620,982
Short-Term
Debt ($) (c) ....... 6,732,700 3,205,000 7,729,000 4,029,000 2,616,000
Other Items ($)
Capital
expenditures .... 8,122,838 7,374,747 6,289,508 5,074,483 5,213,319
Total plant ..... 84,944,969 77,882,135 71,187,860 66,032,217 61,757,666
(a) During October 1993, $15 million of debentures and 170,000 shares of Common
Stock were sold, and the proceeds were used to repay short-term debt and to
refinance certain long-term debt.
(b) During May,1991, $10 million of debentures were sold, and the proceeds were used to
repay short-term debt.
(c) Includes current portion of long-term debt.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
Capital expenditures for Delta for 1996 are expected to be
approximately $12.4 million. Delta generates internally only a
portion of the cash necessary for its capital expenditure requirements
and finances the balance of its capital expenditures on an interim
basis through the use of its borrowing capability under its short-
term line of credit. The current available line of credit is $15
million, of which approximately $5.7 million had been borrowed at June
30, 1995 at an interest rate of 6.9%. The maximum amount borrowed during
1995 was $8,430,000. Delta had an average interest rate of 6.5% for
1995. The current line of credit extends until November, 1995. Short-
term borrowings are periodically repaid with the proceeds from the
issuance of long-term debt and equity securities, as was done in October,
1993, when the net proceeds of approximately $17.8 million from the sale
of $15 million of debentures and 170,000 shares of common stock were
used to repay short-term debt and to refinance certain long-term debt.
The amounts and types of future long-term debt and equity financings will
depend upon the Company's capital needs and market conditions.
Delta's sales are seasonal in nature, and the largest proportion of cash
is received during the winter heating months when sales volumes
increase considerably. During non-heating months, cash needs for
operations and construction are partially met through short-term
borrowings. Additionally, most construction activity takes place during
the non-heating season because of more favorable weather conditions, thus
increasing seasonal cash needs.
The primary sources and uses of cash during the last three years
are summarized below:
Sources(Uses) 1995 1994 1993
Provided by operat-
ing activities $ 6,943,183 $ 6,172,019 $ 4,567,023
Capital expenditures $(8,122,838) $ (7,374,747) $(6,289,508)
Dividends on common
stock $(2,073,374) $ (1,972,368) $(1,775,411)
Issuance of common
stock, net $ 502,361 $ 3,965,113 $ 428,634
Issuance of deben-
tures, net $ -- $ 14,246,937 $ --
Repayment of long-
term debt $ (240,100) $(11,330,286) $ (591,425)
Increase (decrease)
in notes payable $ 2,970,000 $ (3,765,000) $ 3,700,000
Cash provided by operating activities consists of net income and
noncash items including depreciation, depletion, amortization and
deferred income taxes. Additionally, changes in working capital are also
included in cash provided by operating activities. The Company
expects that internally generated cash, coupled with seasonal short-term
borrowings, will continue to be sufficient to satisfy its operating,
capital expenditure and dividend requirements over the next year.
Results of Operations
Operating Revenues
The decrease in operating revenues for 1995 of approximately $3,003,000
was due primarily to a decrease in retail sales volumes of approximately
609,000 Mcf as a result of the warmer winter weather in 1995 (89.6% of
thirty year average weather compared to 106.2% for 1994) and an
approximate $162,000 (545,000 Mcf) decrease in off-system transportation
due to reduced deliveries from some local production. The decrease was
partially offset by an increase in on-system transportation of $278,000
due to a 204,000 Mcf increase in volumes transported and an increase
in customers served of approximately 1,100, or 3.5%.
The increase in operating revenues for 1994 of approximately $3,626,000
was due primarily to an increase in retail sales volumes of approximately
343,000 Mcf as a result of the colder winter weather in 1994 (106.2% of
thirty year average weather compared to 99.6% for 1993), and an increase
in customers served of 796, or 2.5%. The increase in operating revenues
was partially offset by an approximate $213,000 decrease in transportation
revenues for offsystem customers resulting from decreased volumes of
approximately 671,000 Mcf due primarily to reduced volumes shipped by
others on a leased pipeline that has been inactive since October, 1992, and
due to certain producers who shipped gas into markets that did not require
the use of Delta's system.
Operating Expenses
The decrease in purchased gas expense of approximately $1,753,000 for
1995 was due primarily to the decreased retail sales volumes.
The increase in purchased gas expense of approximately $3,016,000 for
1994 was due primarily to increases in the cost of gas purchased for retail
sales and to an increase in retail sales volumes.
The decrease in operation and maintenance expenses during 1995
of approximately $380,000 was due primarily to decreases in payroll and
related benefit costs.
The increases in depreciation expense during 1995 and 1994 of
approximately $206,000 and $145,000, respectively, were due primarily
to additional depreciable plant.
The increase in taxes other than income taxes during 1994 of
approximately $78,000 was primarily due to increased property taxes that
resulted from increased plant, and to increased payroll taxes that
resulted from increased wages and payroll tax rates.
Changes in income taxes during the periods of approximately $467,000
and $34,000 for 1995 and 1994, respectively, were primarily due to changes
in net income. The Omnibus Budget Reconciliation Act of 1993 did not
result in additional income taxes for Delta. The Company adopted
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes", effective on July 1, 1993, as required. SFAS No. 109
adopts the liability method of accounting for income taxes, requiring
deferred income tax assets and liabilities to be computed using tax rates
that will be in effect when the book and tax temporary differences
reverse. For regulated companies, the change in tax rates applied to
accumulated deferred income taxes may not be immediately recognized in
operating results because of ratemaking treatment. A regulatory liability
has been established to recognize the future revenue requirement impact
from these deferred taxes. As a result, the adoption of SFAS No. 109 did
not have a material impact on the results of operations or financial
position of the Company.
Interest Charges
The increase in other interest charges for 1995 of approximately $176,000
was due primarily to increased average short-term borrowings and
increased average interest rates for the period.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE PAGE
Management's Statement of Responsibility for
Financial Reporting and Accounting 22
Report of Independent Public Accountants 23
Consolidated Statements of Income for the years
ended June 30, 1995, 1994 and 1993 24
Consolidated Statements of Cash Flows for the years
ended June 30, 1995, 1994 and 1993 25
Consolidated Balance Sheets as of June 30, 1995 and 1994 27
Consolidated Statements of Changes in Shareholders'
Equity for the years ended June 30, 1995, 1994
and 1993 29
Consolidated Statements of Capitalization as of
June 30, 1995 and 1994 30
Notes to Consolidated Financial Statements 31
Schedule II - Valuation and Qualifying Accounts
for the years ended June 30, 1995,
1994 and 1993 40
Schedules other than those listed above are omitted because they are
not required, not applicable or the required information is shown
in the financial statements or notes thereto.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
Registrant intends to file a definitive proxy statement with
the Commission pursuant to Regulation 14A (17 CFR 240.14a) not later
than 120 days after the close of the fiscal year. In accordance
with General Instruction G(3) to Form 10-K, the information called for by
Items 10, 11, 12 and 13 is incorporated herein by reference to the
definitive proxy statement. Neither the report on Executive
Compensation nor the performance graph included in the Company's
definitive proxy statement shall be deemed incorporated herein by
reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
(a) - Financial Statements, Schedules and Exhibits
(1) - Financial Statements
See Index at Item 8
(2) - Financial Statement Schedules
See Index at Item 8
(3) - Exhibits
Exhibit No.
3(a) - Delta's Amended and Restated Articles of
Incorporation are incorporated herein by
reference to Exhibit 3(a) to Delta's Form
10-Q for the period ended March 31, 1990.
3(b) - Delta's By-Laws as amended August 17, 1995.
4(a) - The Indenture dated April 1, 1991 in
respect of 9% Debentures due April 30,
2011, is incorporated herein by reference
to Exhibit 4(e) to Delta's Form S-2 dated
April 23, 1991.
4(b) - The Indenture dated September 1, 1993 in
respect of 6 5/8% Debentures due October
1, 2023, is incorporated herein by
reference to Exhibit 4(e) to Delta's Form
S-2 dated September 2, 1993.
10(a) - Certain of Delta's material natural gas
supply contracts are incorporated herein
by reference to Exhibit 10 to Delta's Form
10 for the year ended June 30, 1978 and by
reference to Exhibits C and D to Delta's
Form 10-K for the year ended
June 30, 1980.
10(b) - Gas Purchase Contract between Delta and
Wiser is incorporated herein by reference
to Exhibit 2(C) to Delta's Form 8-K dated
February 9, 1981.
10(c) - Assignment to Delta by Wiser of its Columbia
Service Agreement, including a copy of
said Service Agreement, is incorporated herein by reference to
Exhibit 2(D) to Delta's Form 8-K dated February 9, 1981.
10(d) - Contract between Tennessee and Delta for the
sale of gas by Tennessee to Delta (amends
earlier contract for Nicholasville and
Wilmore Service Areas) is incorporated
herein by reference to Exhibit 10(d) to
Delta's Form 10-Q for the period ended
September 30, 1990.
10(e) - Contract between Tennessee and Delta for the
sale of gas by Tennessee to Delta (amends
earlier contract for Jeffersonville
Service Area) is incorporated herein by
reference to Exhibit 10(e) to Delta's
Form 10-Q for the period ended September
30, 1990.
10(f) - Contract between Tennessee and Delta for the
sale of gas by Tennessee to Delta (amends
earlier contract for Salt Lick Service
Area) is incorporated herein by reference
to Exhibit 10(f) to Delta's Form 10-Q for
the period ended September 30, 1990.
10(g) - Contract between Tennessee and Delta for the
sale of gas by Tennessee to Delta (amends
earlier contract for Berea Service Area)
is incorporated herein by reference to
Exhibit 10(g) to Delta's Form 10-Q for
the period ended September 30, 1990.
10(h) - Service Agreements between Columbia and Delta
for the sale of gas by Columbia to Delta
(amends earlier service agreements for
Cumberland, Stanton and Owingsville
service areas) are incorporated herein by
reference to Exhibit 10(h) to Delta's Form
10-Q for the period ended September 30,
1990.
10(i) - Amendment to Gas Purchase Contract between
Delta and Wiser is incorporated herein by
reference to Exhibit 10(c) to Delta's Form
10-Q for the period ended December 31,
1988.
10(j) - Second amendment to Gas Purchase Contract
between Delta and Wiser is incorporated
herein by reference to Exhibit 10(j) to
Delta's Form 10-K for the period ended June
30, 1994.
10(k) - Employment agreement between Delta and
Alan L. Heath, an officer, is incorporated
herein by reference to Exhibit 10(k) to
Delta's Form 10-Q for the period ended
December 31, 1985.
10(l) - Employment agreements between Delta and two
officers, those being John F. Hall and
Robert C. Hazelrigg, are incorporated herein
by reference to Exhibit 10(m) to Delta's Form
10-Q for the period ended December 31, 1988.
10(m) - Employment agreement dated May 31, 1995
between Delta and Glenn R. Jennings, an officer.
10(n) - Employment agreement dated June 19, 1995 between
Delta and Johnny L. Caudill, an officer.
12 - Computation of the Consolidated Ratio of
Earnings to Fixed Charges.
21 - Subsidiaries of the Registrant are incorporated
herein by reference to Exhibit 22 to Delta's
Form 10-K for the period ended June 30, 1986.
23 - Consent of Independent Public Accountants.
(b) Reports on 8-K.
No reports on Form 8-K were filed during the three months
ended June 30, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on
the 6th day of September, 1995.
DELTA NATURAL GAS COMPANY, INC.
By __/s/Glenn R. Jennings_______
Glenn R. Jennings, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
(i) Principal Executive Officer:
/s/Glenn R. Jennings_______ President, Chief September 6, 1995
(Glenn R. Jennings) Executive Officer
and Director
(ii) Principal Financial Officer and Principal Accounting Officer:
/s/John F. Hall____________ Vice President - September 6, 1995
(John F. Hall) Finance, Secretary
and Treasurer
(iii) A Majority of the Board of Directors:
/s/H. D. Peet______________ Chairman of the September 6, 1995
(H. D. Peet) Board
/s/Donald R. Crowe_________ Director September 6, 1995
(Donald R. Crowe)
/s/Billy Joe Hall__________ Director September 6, 1995
(Billy Joe Hall)
/s/Jane W. Hylton__________ Director September 6, 1995
(Jane W. Hylton)
/s/Virgil E. Scott_________ Director September 6, 1995
(Virgil E. Scott)
/s/Henry C. Thompson_______ Director September 6, 1995
(Henry C. Thompson)
/s/Arthur E. Walker, Jr.___ Director September 6, 1995
Arthur E. Walker, Jr.)
/s/Robert M. Watt III______ Director September 6, 1995
(Robert M. Watt III)
Management's Statement of Responsibility for Financial Reporting
and Accounting
Management is responsible for the preparation, presentation
and integrity of the financial statements and other financial information
in this report. The statements, which were prepared in accordance with
generally accepted accounting principles, include some amounts which
are based on management's best estimates and judgments.
The Company maintains a system of accounting and internal controls
which management believes provides reasonable assurance that the accounting
records are reliable for purposes of preparing financial statements and
that the assets are properly accounted for and protected.
The Board of Directors pursues its oversight role for these
financial statements through its Audit Committee which consists of
three outside directors. The Audit Committee meets periodically with
management to review the work and monitor the discharge of their
responsibilities. The Audit Committee also meets periodically with the
Company's internal auditor as well as Arthur Andersen LLP, the
independent auditors, who have full and free access to the Audit
Committee, with or without management present, to discuss internal
accounting control, auditing and financial reporting matters. Report of
Independent Public Accountants
To the Board of Directors and Shareholders of Delta Natural Gas
Company, Inc.:
We have audited the accompanying consolidated balance sheets
and statements of capitalization of DELTA NATURAL GAS COMPANY, INC. (a
Kentucky corporation) and subsidiary companies as of June 30, 1995 and
1994, and the related consolidated statements of income, cash flows
and changes in shareholders' equity for each of the three years in the
period ended June 30, 1995.
These consolidated financial statements and the schedule referred to
below are the responsibility of the Company's management. Our
responsibility is to express an opinion of these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of Delta
Natural Gas Company, Inc. and subsidiary companies as of June 30, 1995 and
1994, and the results of their operations and their cash flows for each of
the three years in the period ended June 30, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial
statements, effective July 1, 1993, the Company changed its method of
accounting for income taxes.
Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the
Index to Consolidated Financial Statements and Schedule is presented for
purposes of complying with the Securities and Exchange Commission rules and
is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
Arthur Andersen LLP
Louisville, Kentucky
August 11, 1995
Delta Natural Gas Company, Inc.
and Subsidiary Companies
Consolidated Statements of Income
For the Years Ended June 30, 1995 1994 1993
Operating Revenues ............ $31,844,339 $34,846,941 $31,221,410
Operating Expenses
Purchased gas .............. 15,497,156 $17,250,556 $14,234,258
Operation and maintenance
(Note 1) ................. 8,002,797 8,382,767 8,020,622
Depreciation and depletion
(Note 1) ................. 2,183,558 1,977,868 1,833,072
Taxes other than income
taxes .................... 863,340 875,477 797,942
Income taxes (Note 1) ...... 1,042,400 1,509,600 1,543,700
Total operating expenses. $27,589,251 $29,996,268 $26,429,594
Operating Income .............. 4,255,088 $ 4,850,673 $ 4,791,816
Other Income and Deductions, Net 50,582 34,987 39,681
Income Before Interest Charges. $ 4,305,670 $ 4,885,660 $ 4,831,497
Interest Charges
Interest on long-term debt.. $ 1,879,442 $ 1,879,526 $ 1,875,901
Other interest ............. 419,693 243,729 258,405
Amortization of debt expense 88,800 91,404 76,527
Total interest charges .. $ 2,387,935 $ 2,214,659 $ 2,210,833
Net Income $ 1,917,735 $ 2,671,001 $ 2,620,664
Weighted Average Number of
Common Shares Outstanding ..... 1,850,986 1,775,068 1,635,945
Earnings Per Common Share ..... $ 1.04 $ 1.50 $ 1.60
Dividends Declared Per Common
Share ......................... $ 1.12 $ 1.105 $ 1.085
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
For the Years Ended June 30, 1995 1994 1993
Cash Flows From Operating Activities:
Net income ...................... $ 1,917,735 $ 2,671,001 $ 2,620,664
Adjustments to reconcile net
income to net cash from
operating activities:
Depreciation, depletion and
amortization ............... 2,272,358 2,069,013 1,922,102
Deferred income taxes and
investment tax credits ..... (77,000) 874,800 839,100
Other - net .................. 602,180 446,969 493,848
(Increase) decrease in assets:
Accounts receivable .......... (118,237) 802,197 (707,605)
Materials and supplies ....... 173,319 (229,275) 155,358
Prepayments .................. (105,903) 25,701 8,096
Other assets ................. (209,225) (780) (95,564)
Increase (decrease) in other
liabilities:
Accounts payable ............. (178,609) 513,265 438,897
Refunds due customers ........ 83,572 358,270 37,226
Accrued taxes ................ (72,210) (34,543) (162,982)
Other current liabilities .... 69,742 38,675 16,435
Advance (deferred) recovery
of gas cost ................ 2,583,128 (1,372,030) (993,136)
Advances for construction and
other ...................... 2,333 8,756 (5,416)
Net cash provided by
operating activities .... $ 6,943,183 $ 6,172,019 $4,567,023
Cash Flows From Investing Activities:
Capital expenditures ............ $(8,122,838) $(7,374,747) $(6,289,508)
Net cash used in investing
activities .............. $(8,122,838) $(7,374,747)$(6,289,508)
Delta Natural Gas Company, Inc. and Subsidiary Companies
Consolidated Statements of Cash Flows
(continued)
For the Years Ended June 30, 1995 1994 1993
Cash Flows From Financing Activities:
Dividends on common stock ....... $(2,073,374) $(1,972,368) $(1,775,411)
Issuance of common stock, net.... 502,361 3,965,113 428,634
Issuance of debentures, net...... - 14,246,937
Repayment of long-term debt ..... (240,100) (11,330,286) (591,425)
Increase (decrease) in notes
payable ....................... 2,970,000 (3,765,000) 3,700,000
Net cash provided by
financing activities $ 1,158,887 $ 1,144,396 $1,761,798
Net Increase (Decrease) in Cash and
Cash Equivalents ................... $ (20,768) $ (58,332) $39,313
Cash and Cash Equivalents,
Beginning of Year .................. 156,547 214,879 175,566
Cash and Cash Equivalents,
End of Year ........................ $ 135,779 $ 156,547 $214,879
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest $ 2,253,472 $ 2,141,705 $2,107,168
Income taxes $ 1,264,956 $ 715,000 $ 952,851
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
As of June 30, 1995 1994
Assets
Gas Utility Plant, at cost .............. $84,944,969 $77,882,135
Less - Accumulated provision for
depreciation .......................... (24,588,203) (22,862,469)
Net gas plant $60,356,766 $55,019,666
Current Assets
Cash and cash equivalents ............ $ 135,779 $ 156,547
Accounts receivable, less accumulated
provisions for doubtful accounts of
$81,608 and $131,324 in 1995 and
1994, respectively ................. 1,236,199 1,117,962
Gas in storage, at average cost ...... 490,710 352,572
Deferred gas costs (Note 1) .......... - 1,471,342
Materials and supplies, at first-in,
first-out cost ..................... 527,442 700,761
Prepayments .......................... 423,246 317,343
Total current assets $ 2,813,376 $ 4,116,527
Other Assets
Cash surrender value of officers' life
insurance (face amount of $1,044,355
and $1,031,000 in 1995 and 1994,
respectively) ...................... $ 293,116 $ 269,029
Note receivable from officer ......... 130,000 83,000
Unamortized debt expense and other
(Note 5) ........................... 2,355,458 2,444,258
Total other assets $ 2,778,574 $ 2,796,287
Total assets $65,948,716 $61,932,480
Delta Natural Gas Company, Inc. and Subsidiary Companies
Consolidated Balance Sheets (continued)
As of June 30, 1995 1994
Liabilities and Shareholders' Equity
Capitalization (See Consolidated Statements
of Capitalization)
Common shareholders' equity .......... $22,511,513 $22,164,791
Long-term debt (Note 5) .............. 23,702,200 24,500,000
Total capitalization .............. $46,213,713 $46,664,791
Current Liabilities
Notes payable (Note 4) ............... $ 5,675,000 $2,705,000
Current portion of long-term debt
(Note 5) ........................... 1,057,700 500,000
Accounts payable ..................... 1,955,231 2,133,840
Accrued taxes ........................ 363,948 436,158
Refunds due customers ................ 479,637 396,065
Advance recovery of gas cost.......... 1,111,786 -
Customers' deposits .................. 331,708 342,979
Accrued interest on debt ............. 473,001 427,338
Accrued vacation ..................... 454,728 454,362
Other accrued liabilities ............ 349,872 314,888
Total current liabilities $12,252,611 $7,710,630
Deferred Credits and Other
Deferred income taxes ................ $ 5,510,400 $5,116,400
Investment tax credits ............... 850,400 921,800
Regulatory liability (Note 1) ........ 912,900 1,312,500
Advances for construction and other .. 208,692 206,359
Total deferred credits and other $7,482,392 $7,557,059
Commitments and Contingencies (Note 6) ..
Total liabilities and
shareholders' equity ........... $65,948,716 $61,932,480
The accompanying notes to consolidated financialstatements are an
integral part of these statements.
Delta Natural Gas Company, Inc. and Subsidiary Companies
Consolidated Statements of Changes in
Shareholders' Equity
For the Years Ended June 30, 1995 1994 1993
Common Shares
Balance, beginning of year ............ $ 1,839,340 $ 1,648,485 $ 1,624,878
$1.00 par value of 29,394, 190,855
and 23,607 shares issued in 1995,
1994 and 1993, respectively -
Public issuance of common shares .. - 170,000 -
Dividend reinvestment and stock
purchase plan ................... 25,802 15,355 16,265
Employee stock purchase plan and
other ........................... 3,592 5,500 7,342
Balance, end of year .................. $ 1,868,734 $ 1,839,340 $ 1,648,485
Premium on Common Shares
Balance, beginning of year ............ $19,532,909 $15,562,427 $15,157,400
Premium on issuance of common shares-
Public issuance of common shares .. - 3,570,000 -
Dividend reinvestment and stock
purchase plan ................... 425,357 293,782 281,074
Employee stock purchase plan and
other ........................... 64,377 106,700 123,953
Balance, end of year .................. $20,022,643 $19,532,909 $15,562,427
Capital Stock Expense
Balance, beginning of year ............ $(1,588,025) $(1,391,801) $(1,391,801)
Issuance of common shares (16,767) (196,224) -
Balance, end of year .................. $(1,604,792) $(1,588,025) $(1,391,801)
Retained Earnings
Balance, beginning of year ............ 2,380,567 $ 1,681,934 $ 836,681
Net income .......................... 1,917,735 2,671,001 2,620,664
Cash dividends declared on common
shares - (See Consolidated
Statements of Income for rates) ... (2,073,374) (1,972,368) (1,775,411)
Balance, end of year .................. $ 2,224,928 $ 2,380,567 $ 1,681,934
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Delta Natural Gas Company, Inc. and Subsidiary Companies
Consolidated Statements of Capitalization
As of June 30, 1995 1994
Common Shareholders' Equity
Common shares, par value $1.00 per share
(Notes 2 and 3)
Authorized - 6,000,000 shares
Issued and outstanding -
1,868,734 and 1,839,340 shares in
1995 and 1994, respectively ......... $ 1,868,734 $1,839,340
Premium on common shares ................ 20,022,643 19,532,909
Capital stock expense ................... (1,604,792) (1,588,025)
Retained earnings (Note 5) .............. 2,224,928 2,380,567
Total common shareholders' equity .... $22,511,513 $22,164,791
Long-Term Debt (Note 5)
Debentures, 6 5/8%, due 2023............. $14,561,000 $15,000,000
Debentures, 9%, due 2011 ................ 10,000,000 10,000,000
Capital lease, due 1998 ................. 198,900 -
Total long-term debt ................. $24,759,900 $25,000,000
Less - Amounts due within one year,
included in current liabilities ....... (1,057,700) (500,000)
Net long-term debt ................... $23,702,200 $24,500,000
Total capitalization .............. $46,213,713 $46,664,791
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
(1) Summary of Significant Accounting Policies:
(a) Principles of Consolidation -- Delta Natural Gas Company, Inc. (Delta
or the Company) has four wholly-owned subsidiaries. Delta Resources,
Inc. (Resources) buys gas and resells it to industrial customers on Delta's
system and to Delta for system supply. Delgasco, Inc. buys gas and
resells it to Resources and to customers not on Delta's system.
Deltran, Inc. was formed to engage in potential pipeline and storage
projects under consideration. Enpro,
Inc. owns and operates existing production properties.
All subsidiaries of Delta are included in the consolidated financial
statements. Intercompany balances and transactions have been eliminated.
(b) Cash Equivalents -- For the purposes of the Consolidated Statements
of Cash Flows, all temporary cash investments with a maturity of three months
or less at the date of purchase are considered cash equivalents.
(c) Depreciation -- The Company determines its provision for
depreciation using the straight-line method and by the application of rates to
various classes of utility plant. The rates are based upon the
estimated service lives of the properties and were equivalent to composite
rates of 2.8%, 2.7% and 2.7% of average depreciable plant for 1995, 1994 and
1993, respectively.
(d) Maintenance -- All expenditures for maintenance and repairs of units
of property are charged to the appropriate maintenance expense
accounts. A betterment or replacement of a unit of property is
accounted for as an addition and retirement of utility plant. At the
time of such a retirement, the accumulated provision for depreciation is
charged with the original cost of the property retired and also for the net
cost of removal.
(e) Gas Cost Recovery -- Delta has a Gas Cost Recovery (GCR) clause
which provides for a dollar-tracker that matches revenues and gas costs
and provides eventual dollar-for-dollar recovery of all gas costs incurred.
The Company expenses gas costs based on the amount of gas costs recovered
through revenue. Any differences between actual gas costs and those
estimated costs billed are deferred and reflected in the computation of
future billings to customers using the GCR mechanism.
(f) Revenue Recognition -- The Company records revenues as billed to
its 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.
(g) Revenues and Customer Receivables -- The Company supplies natural gas
to approximately 34,000 customers in central and southeastern
Kentucky. Revenues and customer receivables arise primarily from sales of
natural gas to customers and from transportation services for others.
Provisions for doubtful accounts are recorded to reflect the expected net
realizable value of accounts receivable.
(h) Income Taxes -- The Company provides for income taxes on
temporary differences resulting from the use of alternative methods of income
and expense recognition for financial and tax reporting purposes. The
differences result primarily from the use of accelerated tax
depreciation methods for certain properties versus the straight-line
depreciation method for financial purposes, differences in recognition
of purchased gas cost recoveries and certain other accruals which are
not currently deductible for income tax purposes. Investment tax
credits were deferred for certain periods prior to fiscal 1987 and
are being amortized to income over the estimated useful lives of the
applicable properties.
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes", effective on July 1,
1993, as required. SFAS No. 109, adopts the liability method of
accounting for income taxes, requiring deferred income tax assets and
liabilities to be computed using tax rates that will be in effect
when the book and tax temporary differences reverse. For regulated
companies, the change in tax rates applied
to accumulated deferred income taxes may not be immediately
recognized in operating results because of ratemaking treatment.
A regulatory liability has been established to recognize the future
revenue requirement impact from these deferred taxes. As a result, the
adoption of SFAS No. 109 did not have a material impact on the results of
operations or financial position of the Company. The temporary
differences which gave rise to the net accumulated deferred income tax
liabilities at June 30 are as follows:
1995 1994
Deferred Tax Liabilities
Accelerated depreciation $7,186,700 $6,257,200
Deferred gas cost - 580,400
Debt expense 413,500 29,400
Other 178,900 200,000
Total $7,779,100 $7,067,000
Deferred Tax Assets
Unamortized investment tax
credit $ 335,400 $ 363,600
Regulatory liabilities 360,100 517,700
Alternative minimum tax credits 724,300 667,200
Deferred gas cost 438,500 -
Other 410,400 402,100
Total $2,268,700 $1,950,600
Net accumulated deferred
income tax liability $5,510,400 $5,116,400
The components of the income tax provision are comprised of the following
for the years ended June 30:
1995 1994 1993
Components of income tax expense:
Payable currently:
Federal $ 453,900 $ 306,300 $432,300
State 194,500 100,800 121,900
Total $ 648,400 $ 407,100 $554,200
Deferred to future years from:
Use of accelerated depreciation $ 929,500 $ 675,000 $660,300
Deferred (advance) recovery of (1,018,900) 541,200 418,000
gas cost
Other deferred tax effects, net 483,400 (113,700) (88,800)
Income tax expense $1,042,400 $1,509,600 $1,543,700
Reconciliation of the statutory federal income tax rate to the
effective income tax rate is shown in the table below:
1995 1994 1993
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes net of federal
benefit 5.2 5.2 5.2
Amortization of investment tax
credit (2.4) (1.8) (1.7)
Other differences - net (.9) (.9) -
Effective income tax rate 35.9% 36.5% 37.5%
(2) Employee Benefit Plans:
(a) Defined Benefit Retirement Plan - Delta has a trusteed,
noncontributory, defined benefit pension plan covering all eligible
employees. Retirement income is based on the number of years of
service and annual rates of compensation. The Company makes annual
contributions equal to the amounts necessary to adequately fund the plan.
The funded status of the pension plan and the amounts recognized in the
Company's consolidated balance sheets at June 30 were as follows:
1995 1994 1993
Plan assets at fair value $5,358,108 $5,251,296 $4,931,658
Actuarial present value of benefit
obligation:
Vested benefits $3,605,363 $4,114,517 $4,042,029
Non-vested benefits 21,742 30,562 37,777
Accumulated benefit obligation $3,627,105 $4,145,079 $4,079,806
Additional amounts related
to projected salary increases 1,638,014 1,734,413 1,881,303
Total projected benefit obligation $5,265,119 $5,879,492 $5,961,109
Plan assets in excess of (less than)
projected benefit obligation $ 92,989 $(628,196) $(1,029,451)
Unrecognized net assets at date of
initial application being
amortized over 15 years (296,759) (339,153) (381,547)
Unrecognized net loss 286,557 950,735 1,407,072
Accrued pension asset (liability) $ 82,787 $ (16,614) $ (3,926)
The assets of the plan consist primarily of common stock, bonds and
certificates of deposit. Net pension costs for the years ended
June 30 include the following:
1995 1994 1993
Benefits earned during the year -
service cost $ 432,546 $ 455,097 $401,054
Interest cost on projected benefit
obligation 382,167 357,372 317,897
Actual return on plan assets (623,972) (45,100) (356,971)
Net amortization and deferral 185,660 (353,530) (24,856)
Net periodic pension cost $ 376,401 $ 413,839 $337,124
The weighted average discount rates and the assumed rates of increase
in future compensation levels used in determining the actuarial present
values of the projected benefit obligation at June 30, 1995, 1994 and
1993 were 7.0%, 6.5% and 6.0%, respectively (discount rates), and 4%
(rates of increase). The expected long-term rates of return on plan assets
were 8%.
SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits", and
SFAS No. 112, "Employers' Accounting for Post-Employment Benefits", did not
affect the Company as Delta does not provide benefits for post-retirement
or postemployment other than the pension plan for retired employees.
(b) Employee Savings Plan - The Company has an Employee Savings
Plan (Savings Plan) under which eligible employees may elect to
contribute any whole percentage between 2% and 15% of their annual
compensation. The
Company will match 50% of the employee's contribution up to a maximum
Company contribution of 2% of the employee's annual compensation. For
the years ended June 30, 1995, 1994 and 1993, Delta's Savings Plan
expense was $112,379, $106,863 and $93,749, respectively.
(c) Employee Stock Purchase Plan - The Company has an Employee
Stock Purchase Plan (Stock Plan) under which qualified permanent
employees are eligible to participate. Under the terms of the Stock Plan,
such employees can contribute on a monthly basis 1% of their annual salary
level (as of July 1 of each year) to be used to purchase Delta's common
stock. The Company issues Delta common stock, based upon the fiscal year
contributions, using an average of the last sale price of Delta's stock as
quoted in NASDAQ's national market system at the close of business for the
last five business days in June and matches those shares so purchased.
Therefore, stock equivalent to approximately $99,400 was issued in
July, 1995. The continuation and terms of the Stock Plan are subject to
approval by Delta's Board of Directors on an annual basis.
(3) Dividend Reinvestment and Stock Purchase Plan:
The Company's Dividend Reinvestment and Stock Purchase Plan
(Reinvestment Plan) provides that shareholders of record can reinvest
dividends and also make limited additional investments of up to $50,000
per year in shares of common stock of the Company. Shares purchased
under the Reinvestment Plan are authorized but unissued shares of common
stock of the Company, and 25,802 shares were issued in 1995. Delta
reserved 200,000 shares under the Reinvestment Plan in December, 1994,
and, as of June 30, 1995 there were 182,815 shares still available for
issuance.
(4) Notes Payable and Line of Credit:
Substantially all of the cash balances of Delta are maintained to
compensate the respective banks for banking services and to obtain lines
of credit; however, no specific amounts have been designated as
compensating balances, and Delta has the right of withdrawal of such
funds. At June 30, 1995 and 1994, the available line of credit was
$15,000,000, of which $5,675,000 and $2,705,000 had been borrowed at an
interest rate of 6.935% and 5.5%, respectively. The maximum amount
borrowed during 1995 was $8,430,000. The
interest on this line is either at the daily prime rate or is based
upon certificate of deposit rates. The current line of credit expires on
November 15, 1995.
(5) Long-Term Debt:
On October 18, 1993, Delta issued $15,000,000 of 6 5/8% Debentures
that mature in October, 2023. Commencing in October, 1995, each
holder may require redemption of up to $25,000 of the 6 5/8%
Debentures annually, subject to an annual aggregate limitation of
$500,000. Such redemption will also be made on behalf of deceased
holders within sixty days of notice, subject to the annual aggregate
$500,000 limitation. The 6 5/8% Debentures can be redeemed by the
Company beginning in October, 1998 at a 5% premium, such premium
declining ratably until it ceases in October, 2003. Restrictions
under the indenture agreement covering the 6 5/8% Debentures include,
among other things, a restriction whereby dividend payments cannot be
made unless consolidated shareholders' equity of the company exceeds $12
million. As of June 30, 1995, no retained earnings were restricted under
the provisions of the indenture.
On May 1, 1991, Delta issued $10,000,000 of 9% Debentures that mature
in April, 2011. Each holder may require redemption of up to $25,000 of
the 9% Debentures annually, subject to an annual aggregate limitation of
$500,000. Such redemption will also be made on behalf of deceased holders
within sixty days of notice, subject to the annual aggregate $500,000
limitation. The 9% Debentures can be redeemed by the Company beginning in
April, 1996 at a 5% premium, such premium declining ratably until it
ceases in April, 2001. The Company may not assume any additional mortgage
indebtedness in excess of $1 million without effectively securing the
9% Debentures equally to such additional indebtedness.
Debt issuance expenses are deferred and amortized over the terms of
the related debt. Call premium in 1994 of approximately $475,000 was
deferred and is being amortized over the term of the related debt
consistent with regulatory treatment. A capital lease of computer
equipment, entered into during June, 1995, requires principal payments
of approximately $57,700 in 1996, $66,000 in 1997 and $75,200 in 1998.
(6) Commitments and Contingencies:
The Company has entered into individual employment agreements with its
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 certain benefits over varying periods in
the event employment is altered or terminated following certain changes
in ownership of the Company.
(7) Rates:
Reference is made to "Regulatory Matters" herein with respect to
rate matters.
(8) Quarterly Financial Data (Unaudited):
Earnings
Net (Loss) per
Operating Operating Income Common
Quarter Ended Revenues Income (Loss) Share(a)
Fiscal 1995
September 30 $ 3,634,262 $ (45,141) $ (633,058) $ (.34)
December 31 7,131,698 822,241 228,119 .12
March 31 14,903,281 2,842,418 2,255,994 1.22
June 30 6,175,098 635,570 66,680 .04
Fiscal 1994
September 30 $ 3,585,499 $ 11,056 $ (542,285) $ (.33)
December 31 7,814,638 1,117,871 578,448 .32
March 31 16,494,674 3,270,274 2,713,563 1.48
June 30 6,952,130 451,472 (78,725) (.04)
______________________________________________________________
(a) Quarterly earnings per share may not equal annual earnings per share
due to changes in shares outstanding.
SCHEDULE II
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY
COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1995, 1994 AND 1993
Column A Column B Column C Column D Column E
Additions
Balance Charged to Deductions
at Charged to Other Amounts Balance
Beginning Costs and Accounts- Charged Off at End
Description of Period Expenses Recoveries or Paid of Period
Deducted From the Asset to
Which it Applies - Allowance
for doubtful accounts for
the years ended:
June 30, 1995 $ 131,324 $ 140,800 $ 24,449 $ 214,965 $ 81,608
June 30, 1994 $ 208,182 $ 100,800 $ 25,906 $ 203,564 $ 131,324
June 30, 1993 $ 208,212 $ 100,800 $ 20,018 $ 120,848 $ 208,182