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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999.
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 606-744-6171.
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 10-K or any
amendment to this Form 10-K [ ]
As of August 11, 1999, Delta Natural Gas Company, Inc. had outstanding
2,415,960 shares of common stock $1 Par Value, and the aggregate market
value of the voting stock held by non-affiliates was approximately
$42,279,300.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive proxy statement to be filed with the
Commission not later than 120 days after June 30, 1999, 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 4
Capital Expenditures 5
Employees 5
Consolidated Statistics 6
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of
Security Holders 8
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters 8
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 12
Item 7a. Quantitative and Qualitative
Disclosures About Market Risk 17
Item 8. Financial Statements and
Supplementary Data 18
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 18
PART III
Item 10. Directors and Executive Officers of
the Registrant 18
Item 11. Executive Compensation 18
Item 12. Security Ownership of Certain
Beneficial Owners and Management 18
Item 13. Certain Relationships and Related
Transactions 19
Part IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K 20
Signatures 23
PART I
Item 1. Business
General
Delta Natural Gas Company, Inc. ("Delta" or "the Company"), a regulated
public utility, was organized in 1949. Delta established its first retail
gas distribution system in 1951, which provided service to 300 customers in
Owingsville and Frenchburg, Kentucky. As a result of acquisitions and
expansions of its customer base within its existing service areas, Delta
provides retail gas distribution service to 39,000 customers in central and
southeastern Kentucky and, additionally, provides transportation service to
industrial customers and interconnected pipelines located in the area.
Gas Operations and Supply
The Company purchases, produces and stores gas for distribution to its
retail customers and also provides transportation service to industrial
customers and inter-connected pipelines through facilities located in 21
predominantly rural counties in central and southeastern Kentucky. The
economy of Delta's service area is based principally on light industry,
farming and coal mining. The communities in Delta's service area typically
contain populations of less than 20,000. The four largest service areas are
Nicholasville, Corbin, Berea and Middlesboro, where Delta serves 6,800,
6,500, 3,900 and 3,500 customers, respectively.
The communities served by Delta continue 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 which
are on-system transportation customers.
Currently, over 99% of Delta's customers are residential and commercial.
Delta's remaining, light industrial customers purchased 5% of the total
volume of gas sold by Delta at retail during 1999.
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 alternative sources of energy,
including electricity, coal, oil, propane and wood. The Company's marketing
subsidiaries, which purchase gas and resell it to various industrial
customers and others, also compete for their customers with producers and
marketers of natural gas. Gas costs, which the Company is generally able to
pass through to customers, may influence 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 addressed and will continue to address.
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 during each twelve month period, and changes in the average
temperature during the winter months impacts its revenues year-to-year (see
Management's Discussion and Analysis of Financial Condition and Results of
Operations).
Retail gas sales in 1999 were 3,813,000 Mcf, generating $28,541,000 in
revenues, as compared to 4,112,000 Mcf and $33,435,000 in revenues for 1998.
Heating degree days billed during 1999 were 89.4% of normal as compared with
93.9% in 1998. Sales volumes decreased by 299,000 Mcf, or 7.3%, in 1999 as
compared to 1998.
Delta's transportation of natural gas during 1999 generated revenues of
$4,470,000 as compared with $4,360,000 during 1998. Of the total
transportation in 1999, $4,107,000 (4,434,000 Mcf) and $363,000 (1,144,000
Mcf) were earned for transportation for on-system and off-system customers,
respectively. Of the total transportation for 1998, $3,877,000 (3,467,000
Mcf) and $483,000 (1,489,000 Mcf) were earned for transportation for on-
system and off-system customers, respectively.
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 continues to consider acquisitions of other gas systems, some of which
are contiguous to its existing service areas, as well as expansion within its
existing service areas. During November, 1996, Delta acquired the City of
North Middletown gas system in Bourbon County, consisting of 180 primarily
residential customers. During July, 1997, Delta purchased the gas system of
Annville Gas & Transmission Corporation in Jackson County, which serves
several industrial and residential customers. This system was expanded by
Delta during 1998 to provide gas service to customers in the City of
Annville.
The Company also anticipates continuing activity in gas production and
transportation 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, enhanced supply and system flexibility.
During June, 1997, Delta acquired TranEx Corporation ("TranEx"), which owns
a 43 mile, 8 inch diameter steel pipeline that extends from Clay County to
Madison County. During 1998, the TranEx pipeline was connected to Delta's
system in the Richmond area. It also interconnects with a pipeline of
Columbia Gulf Transmission Company ("Columbia Gulf") in Madison County as
well as Delta's transmission pipeline system in Clay County. Delta is
utilizing the pipeline to deliver natural gas for injection into the
Company's Canada Mountain storage field as well as for system supply and
transportation. TranEx was merged into Delta during 1999.
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.
Delta receives its gas supply from a combination of interstate and
Kentucky sources.
Delta's interstate gas supply is transported and/or stored by Tennessee
Gas Pipeline Company ("Tennessee"), Columbia Gas Transmission Corporation
("Columbia"), Columbia Gulf and Texas Eastern Transmission Corporation .
Delta acquires its interstate gas supply from gas marketers.
Delta's agreements with Tennessee extend until 2000 and thereafter
continue on a year-to-year basis until terminated by either party. The
Company expects to extend the terms of these agreements. Tennessee is
obligated under the agreements to transport up to 17,600 Mcf per day for
Delta. Delta acquires its gas for transportation by Tennessee under an
agreement with a gas marketer. During 1999, Delta purchased 1,167,000 Mcf
from the gas marketer under an agreement that extends through October, 2000.
Delta's agreements with Columbia and Columbia Gulf extend until 2008 and
thereafter continue on a year-to-year basis until terminated by one of the
parties to the particular agreement. Columbia and Columbia Gulf are obligated
under the agreements to transport up to 12,000 Mcf per day and 4,000 Mcf per
day, respectively, for Delta. Delta acquires its gas for transportation by
Columbia and Columbia Gulf under agreements with a gas marketer. During
1999, Delta purchased a total of 671,000 Mcf from the gas marketer under
agreements that extend through April, 2000.
Delta has an agreement with Columbia Natural Resources ("CNR") to
purchase natural gas from CNR through October, 1999. Delta purchased 432,000
Mcf from CNR during 1999.
Delta has agreements with its wholly-owned subsidiary, Enpro, Inc.
("Enpro") to purchase all the natural gas produced from Enpro's wells on
certain leases in Bell, Knox and Whitley Counties, Kentucky. These
agreements remain in force so long as gas is produced in commercial
quantities from the wells on the leases. Remaining proved, developed natural
gas reserves are estimated at 3,700,000 Mcf. Delta purchased a total of
189,000 Mcf from those properties during 1999. Enpro also produces oil from
certain of these leases, but oil production has not been significant.
Delta's wholly-owned subsidiaries, Delta Resources, Inc. ("Resources")
and Delgasco, Inc. ("Delgasco") purchase gas under agreements with various
marketers and Kentucky producers. The gas is resold to industrial customers
on Delta's system, to Delta for system supply and to others.
Delta has completed the development of an underground natural gas
storage field, with an estimated eventual working capacity of 4,000,000 Mcf.
This field has been used to provide a portion of Delta's winter supply needs
since 1996. This storage capability permits Delta to purchase and store gas
during the non-heating months, and then withdraw and sell the gas during the
peak usage months.
Although there are competitors for the acquisition of gas 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 Kentucky producers and others. 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.
Regulatory Matters
Delta is subject to the regulatory authority of the Public Service
Commission of Kentucky ("PSC") with respect to various aspects of Delta's
business, including rates and service to retail and transportation customers.
The company monitors the need to file a general rate case as a way to adjust
its sales prices.
On July 2, 1999, Delta filed a request for increased rates with the PSC.
This general rate case (Case No. 99-176) requested an annual revenue
increase of $2,500,000, an increase of 6.8%. The test year for the case was
December 31, 1998. The rates were suspended by the PSC for a period expiring
December 31, 1999, after which time Delta may bill the proposed rates subject
to refund. The PSC is reviewing and considering the proposed rates. The
proposed changes include a weather normalization tariff whereby Delta would
be permitted to adjust rates for the billing months of November through March
to reflect variations from normal weather, as well as proposed alternative
regulatory tariffs that would provide for annual adjustments in Delta's
rates to reflect budgeted plans and to adjust to a target rate of return. A
public hearing has been scheduled before the PSC on October 28, 1999.
Effective November 30, 1997, Delta received approval from the PSC for an
annual revenue increase of $1,670,000. This resulted from a general rate
case that Delta had filed with the PSC during March, 1997. Effective May 1,
1998, Delta received approval from the PSC for an additional annual revenue
increase of $117,000 in this rate case, resulting from a rehearing of
certain tax-related items.
Delta's rates include a Gas Cost Recovery ("GCR") clause, which permits
changes in Delta's gas costs to be reflected in the rates charged to
customers. The GCR requires Delta to make quarterly filings with the PSC,
but such procedure does not require a general rate case. The PSC is allowing
Delta to recover through its GCR clause its costs in connection with its
storage facilities at Canada Mountain.
During 1997, the PSC established a proceeding to investigate affiliate
transactions. Delta is a party to this proceeding, and has responded to a
PSC data request relating to Delta's subsidiaries. Delta cannot currently
predict the outcome of this proceeding or the impact on Delta's rates, if
any.
The PSC convened proceedings during 1997 with various regulated
utilities and other interested parties to discuss the potential unbundling of
natural gas rates and services in Kentucky. On July 1, 1998 the PSC concluded
the proceedings without requiring further unbundling at this time of prices
and service options for residential and small commercial customers. Delta
participated actively in those meetings and plans to continue to provide
comments in future discussions concerning regulatory and legislative issues
relating to unbundling.
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 branch
offices and in seven other communities it serves. In the other cities and
communities served by the Company, 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 feasible.
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 1999 were $8.0 million and for 2000 are
estimated to be $9.9 million. The Company is planning for expenditures for
system extensions, computer system upgrades and the replacement and
improvement of existing transmission, distribution, gathering and general
facilities.
Employees
Delta employed a total of 183 full-time employees on June 30, 1999.
Delta considers its relationship with its employees to be satisfactory.
Delta's employees are not represented by unions or subject to any collective
bargaining agreements.
Consolidated Statistics
For the Years Ended June 30, 1999 1998 1997 1996 1995
Retail Customers Served,
End of Period
Residential .............. 32,239 31,596 31,380 29,840 29,029
Commercial ............... 4,868 4,753 4,761 4,453 4,287
Industrial ............... 68 70 74 75 72
Total ................. 37,175 36,419 36,215 34,368 33,388
Operating Revenues ($000)
Residential sales ........ 17,329 19,969 19,694 16,540 14,772
Commercial sales ......... 10,039 11,890 11,977 9,788 8,673
Industrial sales ......... 1,173 1,576 1,890 1,483 1,248
On-system transportation . 4,107 3,877 3,214 2,913 2,588
Off-system transportation. 363 483 382 418 461
Subsidiary sales ......... 5,491 6,335 4,904 5,297 3,959
Other .................... 170 128 108 137 143
Total ................. 38,672 44,258 42,169 36,576 31,844
System Throughput
(Million Cu. Ft.)
Residential sales ........ 2,223 2,377 2,464 2,741 2,173
Commercial sales ......... 1,401 1,504 1,557 1,673 1,328
Industrial sales ......... 189 231 278 291 223
Total retail sales .... 3,813 4,112 4,299 4,705 3,724
On-system transportation.. 4,434 3,467 2,863 2,570 2,390
Off-system transportation. 1,144 1,489 1,205 1,134 1,452
Total ................. 9,391 9,068 8,367 8,409 7,566
Average Annual Consumption Per
End of Period Residential
Customer (Thousand Cu. Ft.). 69 75 79 92 75
Lexington, Kentucky Degree Days
Actual .................... 4,188 4,397 4,867 5,280 4,215
Percent of 30 year average
(4,683) ................. 89.4 93.9 103.9 112.7 90.0
For the Years Ended June 30, 1999 1998 1997 1996 1995
Average Revenue Per Mcf Sold
at Retail ($) ............. 7.49 8.13 7.81 5.91 6.63
Average Gas Cost Per Mcf Sold
at Retail ($) ............. 3.69 4.60 4.62 2.81 3.37
Item 2. Properties
Delta owns its corporate headquarters in Winchester, Kentucky. In
addition, Delta owns ten office buildings used for branch operations in the
cities it serves. Also, Delta owns a building in Laurel County used for
training as well as equipment and materials storage.
The Company owns 2,113 miles of natural gas gathering, transmission,
distribution and service lines. These lines range in size up to twelve
inches in diameter. There are no significant encumbrances on these assets.
Delta holds leases for the storage of natural gas under 8,000 acres
located in Bell County, Kentucky. This property was developed for the
underground storage of natural gas and has an estimated eventual capacity to
store 4,000,000 Mcf of gas.
Delta owns the rights to any oil and gas underlying 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 550,000 Mcf.
These properties otherwise are currently non-producing, and no reserve
studies have been undertaken on the properties.
Enpro owns interests in certain oil and gas leases relating to 11,000
acres located in Bell, Knox and Whitley Counties. There presently are 56 gas
wells and 7 oil wells producing from these properties. Enpro's remaining
proved, developed natural gas reserves are estimated at 3,700,000 Mcf. Oil
production from the property has not been significant. Also, Enpro owns
the oil and gas underlying 11,500 additional acres in Bell, Clay and Knox
Counties. These properties are currently non-producing, and no reserve
studies have been performed on the properties.
Under the terms of an agreement with a producer relating to 14,000 acres
of Enpro's undeveloped holdings, the producer is conducting exploration
activities on the acreage. Enpro reserved the option to participate in wells
drilled and also retained certain working and royalty interests in any
production from future wells.
There are no significant encumbrances on the Company's assets.
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 1999.
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, including limitations imposed by the indenture for the
Debentures. There were 2,407 record holders of Delta's common stock as of
August 1, 1999.
Delta's common stock is traded in the National Association of Securities
Dealers Automated Quotation ("NASDAQ") National Market System 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 1999
First 18.00 16.438 .285
Second 19.00 16.75 .285
Third 19.00 17.25 .285
Fourth 17.75 16.438 .285
Fiscal 1998
First 18.25 16.75 .285
Second 19.50 17.75 .285
Third 19.25 16.625 .285
Fourth 18.00 16.75 .285
During July, 1998, Delta distributed 6,298 shares of its common stock to
its employees under its Employee Stock Purchase Plan (see Note 3(c) of the
Notes to Consolidated Financial Statements). Delta received cash
consideration of $17.60 per share for one-half of those shares (3,149
shares), for a total cash consideration of $55,400, while one-half of the
shares (3,149 shares) were provided to the employees without cash
consideration as a part of Delta's compensation and benefits for its
employees. The securities were sold pursuant to the exemption from
registration provided by Rule 147 under the Securities Act of 1933. This
exemption was relied upon in light of the facts that Delta is incorporated
and doing business in Kentucky, and all eligible employees are residents of
Kentucky. Similarly, in July, 1999, Delta distributed 6,726 shares of its
common stock to its employees at $16.80 per share under the same program.
Also, during July, 1997, Delta provided a total of 1,000 shares of its
common stock to its directors (100 shares per director). Delta received no
cash consideration for the shares, which were provided to its directors as a
part of their compensation. This transaction may not involve a "sale" of
securities under the Securities Act of 1933, and in any event, the securities
were sold pursuant to the exemption from registration provided by Rule 147
under the Securities Act of 1933. This exemption was relied upon in light of
the facts that Delta is incorporated and doing business in Kentucky, and all
directors are residents of Kentucky.
No underwriters were engaged in connections with any of the foregoing
transactions, and thus no underwriter discounts or commissions were paid in
connection with any of the foregoing.
Item 6. Selected Financial Data
For the Years Ended June 30,
1999 1998(a) 1997 1996(b) 1995
Summary of Operations ($)
Operating
revenues ............ 38,672,238 44,258,000 42,169,185 36,576,055 31,844,339
Operating
income ............... 6,652,070 6,731,859 5,315,582 5,437,055 4,255,088
Net income ........... 2,150,794 2,451,272 1,724,265 2,661,349 1,917,735
Basic and diluted
earnings per
Common share ......... .90 1.04 .75 1.41 1.04
Dividends
declared per
common share ......... 1.14 1.14 1.14 1.12 1.12
Average Number of
Common Shares
Outstanding ............. 2,394,181 2,359,598 2,294,134 1,886,629 1,850,986
Total Assets ($)...... 107,473,117 102,866,613 96,681,165 81,140,637 65,948,716
Capitalization ($)....
Common share-
holders' equity .... 29,912,007 29,810,294 29,474,569 23,628,323 22,511,513
Long-term debt ..... 51,699,700 52,612,494 38,107,860 24,488,916 23,702,200
Notes payable re-
financed subsequent
to yearend - - - 18,075,000 -
Total
capitalization ..... 81,611,707 82,422,788 67,582,429 66,192,239 46,213,713
Short-Term
Debt ($)(c).......... 8,145,000 3,665,000 12,852,600 1,084,800 6,732,700
For the Years Ended June 30,
1999 1998(a) 1997 1996(b) 1995
Other Items ($)
Capital
expenditures .... 7,982,143 11,193,613 16,648,994 13,373,416 8,122,838
Total plant .... 133,804,954 127,028,159 116,829,158 98,795,623 84,944,969
_____________________
(a) During March, 1998, $25,000,000 of debentures were sold, and the proceeds
Were used to repay short-term debt and to redeem the Company's
$10,000,000 of 9% debentures.
(b) During July, 1996, $15,000,000 of debentures and 400,000 shares of
common stock were sold, and the proceeds were used to repay short-term
debt and for general corporate purposes. The balance of the note
payable at June 30, 1996 ($18,075,000) is included in total
capitalization as a result of the subsequent refinancing.
(c) Includes current portion of long-term debt.
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The Company's utility operations are subject to regulation by the PSC,
which plays a significant role in determining the Company's return on equity.
The PSC approves rates that are intended to permit a specified rate of
return on investment. The Company's rate tariffs allow the cost of gas to be
passed through to customers (see Business - Regulatory Matters).
The Company's business is temperature-sensitive. Accordingly, the
Company's operating results in any given period reflect, in addition to other
factors, the impact of weather, with colder temperatures generally resulting
in increased sales by the Company. The Company anticipates that this
sensitivity to seasonal and other weather conditions will continue to be so
reflected in the Company's operating results in future periods. Delta has
filed in its general rate case (See Business - Regulatory Matters) a weather
normalization tariff whereby it would be permitted to adjust rates for the
billing months of November through March to reflect variations from normal
weather. Delta has also proposed alternative regulatory tariffs that would
provide for annual adjustments in the Company's rates to reflect budgeted
plans and to adjust to a target rate of return.
Liquidity and Capital Resources
Because of the seasonal nature of Delta's sales, the smallest proportion
of cash generated from operations is received during the warmer months when
sales volumes decrease considerably. Additionally, most construction
activity takes place during the non-heating season because of more favorable
weather conditions. During the warmer, non-heating months, therefore, cash
needs for operations and construction are partially met through short-term
borrowings.
Capital expenditures for Delta for fiscal 2000 are expected to be $9.9
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
$25,000,000, of which $5,695,000 was borrowed at June 30, 1999. The line of
credit, which is with Bank One, Kentucky, NA, requires renewal during
November, 1999. These short-term borrowings are periodically repaid with the
net proceeds from the sale of long-term debt and equity securities, as was
done in March, 1998, when the net proceeds of $24,100,000 from the sale of
$25,000,000 of debentures were used to repay short-term debt and to redeem
the Company's 9% debentures, that would have matured in 2011, in the amount
of $10,000,000.
The primary cash flows during the last three years are summarized
below:
1999 1998 1997
Provided by operating
activities
$ 6,680,276 $ 8,922,037 $ 6,209,226
Used in investing
activities (7,982,143) (11,193,613) (16,648,994)
Provided by financing
activities 1,431,919 1,909,689 10,768,558
Net increase
(decrease) in cash
and cash equivalents $ 130,052 $ (361,887) $ 328,790
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 short-term borrowings, will be sufficient to
satisfy its operating, normal capital expenditure and dividend requirements.
Results of Operations
Operating Revenues
The decrease in operating revenues of $5,586,000 for 1999 was due
primarily to decreases in the cost of gas purchased that were reflected in
rates billed to customers through Delta's gas cost recovery clause and to
decreases in sales volumes. Mcf sales decreased 299,000 Mcf, or 7%, as
compared to 1998, resulting from warmer winter weather in 1999. Heating
degree days billed were 89% of normal in 1999, compared with 94% in 1998.
The increase in operating revenues of $2,089,000 for 1998 was due
primarily to the general rate increase effective November 30, 1997 and to the
increases in on-system and off-system transportation volumes of 604,000 Mcf
and 284,000 Mcf, respectively. The increase in operating revenues includes
$200,000 of additional revenue caused by a non-recurring change. These
increases were partially offset by a decrease in retail sales volumes of
187,000 Mcf as a result of the warmer winter weather in 1998. Billed degree
days were 94% of normal for 1998 as compared with 104% for 1997.
Operating Expenses
The decrease in purchased gas expense for 1999 of $6,032,000 was due
primarily to the decreases in the cost of gas purchased for retail sales and
from decreased gas purchases for retail sales resulting from the warmer
winter weather in 1999.
The decrease in purchased gas expense for 1998 of $766,000 was due
primarily to the decreased gas purchases for retail sales resulting from the
warmer winter weather in 1998.
The increases in depreciation expense during 1999 and 1998 of $396,000
and $510,000, respectively, were due primarily to additional depreciable
plant.
The increases in taxes other than income taxes during 1999 and 1998 of
$123,000 and $155,000, respectively, were primarily due to increased property
taxes which resulted from increased plant and property valuations, and to
increased payroll taxes, which resulted from increased wages.
Changes in income taxes during 1999 and 1998 of $162,000 and $436,000,
respectively, were primarily due to changes in net income.
Interest Charges
The increases in interest on long-term debt during 1999 and 1998 of
$586,000 and $329,000, respectively, were due primarily to the issuance of
$25 million of 7.15% Debentures in March, 1998. The decrease in other
interest during 1999 of $436,000 was due primarily to decreased average
short-term debt borrowings. The increase in other interest during 1998 of
$378,000 was due primarily to increased average short-term debt borrowings.
Basic and Diluted Earnings Per Common Share
For the years ended June 30, 1999 and 1998, basic earnings per common
share declined, as compared with previous periods, as a result of lower net
income and the increased average common shares outstanding that resulted from
the common shares issued under Delta's dividend reinvestment plan and shares
issued to employees during the periods. Other than Delta's outstanding
common shares, there are no potentially dilutive securities. Therefore,
basic and diluted earnings per common share are the same.
Factors That May Affect Future Results
Management's Discussion and Analysis of Financial Condition and Results
of Operations and the other sections of this report (including the letter To
Our Shareholders) contain forward-looking statements that are not statements
of historical facts. These forward-looking statements are identified by
their language, which may in some cases include words such as "estimates",
"expects", "plans", "anticipates", "intends", 'will continue", "believes",
and similar expressions. Such forward-looking statements may concern (among
other things) the impact of changes in the cost of gas, projected capital
expenditures, sources of cash to fund expenditures, regulatory recovery
mechanisms, regulatory matters, expansion of the Delta's gas distribution
system, acquisitions of gas customers and systems, activity in gas production
and transportation and acquisition and management of gas supply.
Such forward-looking statements are accordingly subject to important
risks and uncertainties that could cause the Company's actual results to
differ materially from those expressed in any such forward-looking
statements.
Factors that could cause future results to differ materially from those
expressed in or implied by the forward-looking statements or historical
results include the impact or outcome of:
- - The ongoing restructuring of the gas industry and the outcome of the
regulatory proceedings related to that restructuring.
- - The changing regulatory environment generally.
- - A change in the right under present regulatory rules to recover through
rates increased costs of gas supply.
- - Uncertainty as to regulatory approval for full recovery of Delta's costs
and for its expenditures for regulatory assets.
- - Uncertainty as to the outcome of Delta's pending general rate case.
- - Uncertainty in Delta's capital expenditure requirements.
- - Changes in economic conditions, demographic patterns and weather
conditions in Delta's retail service areas.
- - Changes affecting Delta's cost of providing gas service, including
changes in interest rates, changes in the availability of external
sources of financing for Delta's operations, tax laws, environmental
laws, and the general rate of inflation.
- - Changes affecting the cost of competing energy alternatives and
competing gas distributors.
- - Changes in accounting principles or the application of such principles
to Delta.
- - Y2K disruptions resulting from unidentified or unremediated problems for
systems which Delta controls, and Y2K disruptions resulting from systems
or parties which Delta does not control.
The "Year 2000" Issue
The Company is working to determine the potential impact of the Year 2000
on the ability of Delta's computerized information systems to accurately
process information that may be date-sensitive. Any of Delta's programs that
recognize a date using "00" as the Year 1900 rather than the Year 2000 could
result in errors or system failures. The Company uses a number of computer
programs across its entire operation.
In recent years, Delta has replaced virtually all of its financial
computer systems (both hardware and software) with systems from third party
vendors who certify their products as being Year 2000 compliant.
The Company has established a Year 2000 committee, comprised of members
of management, which has coordinated an extensive inventory of all operational
systems, including information technology (IT) hardware and software, as well
as non-IT embedded systems such as process controls for gas delivery and
metering systems and service providers.
The Committee is assessing the likelihood of miscalculations or system
failures as a result of these items, systems or service providers. The
Company has currently assessed and deems compliant approximately 98% of these
inventoried items, systems and service providers. This assessment and
compliance percentage for the items Delta deems as "critical" stands at 98%.
The Company intends to complete all Year 2000 remediation and testing
activities by September 30, 1999.
The costs incurred to date related to its Year 2000 activities have not
been material to the Company, and based upon current estimates, the Company
does not believe that the total cost of its Year 2000 readiness programs will
have a material adverse impact on the Company's results of operations or
financial position.
Like most businesses, the Company relies upon various suppliers and
vendors in order to provide services and supplies to its customers. Delta
understands that even though it is taking steps to prepare it could,
nevertheless, be adversely affected by the failures and/or delays caused by
any non-compliant equipment used by its suppliers or vendors. Therefore,
Delta is currently gathering information regarding the steps its "mission-
critical" suppliers and vendors are taking to become Year 2000 compliant. For
instance, Delta has sent each of these parties a letter inquiring about the
nature and extent of their efforts.
Although the Company has initiated Year 2000 communications with
significant customers, key vendors, service suppliers and other parties
material to the Company's operations, such third parties nonetheless
represent a risk that cannot be assessed with precision or controlled with
certainty.
The major risks to the Company if implementation of the Year 2000
compliance program is not successful are the gas delivery, metering and
billing systems. Potential problems related to these systems include service
interruptions to customers, interrupted revenue data gathering and poor
customer relations resulting from delayed billing.
The Company has prepared contingency plans to address alternatives in the
event that Year 2000 failures of automatic systems and equipment occur. These
plans cover a wide range of possible scenarios and include steps to
remediation. Also, included in the contingency plans are mitigating actions
designed to lessen the chances of problem scenarios being realized.
New Accounting Pronouncements
Delta adopted SFAS No. 128, "Earnings per Share", during fiscal 1998.
The adoption of this standard had no effect upon current or prior period
earnings per common share.
Delta adopted SFAS No. 130, "Comprehensive Income", during fiscal 1999.
SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The adoption of this statement had no impact on the
financial statements of the Company.
Delta adopted SFAS No. 131, "Disclosure About Segments of an Enterprise
and Related Information", and SFAS No. 132, "Employers' Disclosures About
Pensions and Other Postretirement Benefits", during fiscal 1999. These
statements do not affect the accounting recognition or measurements of
transactions, but rather require expanded disclosures regarding financial
results.
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 standardizes the
accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, by requiring that an entity
recognize those items as assets or liabilities in the statement of financial
position and measure them at fair value. This statement is effective for
fiscal years beginning after June 15, 2000. It will be effective for the
Company's fiscal year 2001. Delta is currently not a party to any financial
derivatives for hedging or other purposes. However, Delta is currently
evaluating the terms of its commodity contracts (i.e., primarily gas
purchase, sale and transportation contracts) to determine whether any of
these contracts meet the definition of derivative instruments subject to the
requirements of the new standard. As such, the Company is still evaluating
the impact, if any, this standard will have on its financial statements.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.
As discussed in "Gas Operations and Supply" under Item 1, the Company is
a party to long-term fixed-price gas purchase and transportation contracts.
Therefore, the prices the Company pays under these contracts differs from the
current market prices. However, the Company has minimal price risk resulting
from these contracts as these costs are passed through to customers either
through Delta's gas cost recovery mechanism or specific contracts with
customers. The Company currently is not a party to hedge instruments or
other agreements that represent financial derivatives.
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 25
Report of Independent Public Accountants 26
Consolidated Statements of Income for the years ended June 30,
1999, 1998 and 1997 27
Consolidated Statements of Cash Flows for the years ended June 30,
1999, 1998 and 1997 28
Consolidated Balance Sheets as of June 30, 1999 and 1998 29
Consolidated Statements of Changes in Shareholders' Equity for
th years ended June 30, 1999, 1998 and 1997 32
Consolidated Statements of Capitalization as of June 30, 1999
and 1998 33
Notes to Consolidated Financial Statements 34
Schedule II - Valuation and Qualifying Accounts for the years ended
June 30, 1999, 1998 and 1997 42
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 21, 1996 are incorporated
herein by reference to Exhibit 3(b) to Delta's Form 10-K
for the period ended June 30, 1996.
4(a) - 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.
4(b) - The Indenture dated July 1, 1996 in respect of 8.3%
Debentures due August 1, 2026, is incorporated
herein by reference to Exhibit 4(c) to Delta's Form S-2
dated June 21, 1996.
4(c) - The Indenture dated March 1, 1998 in respect of 7.15%
Debentures due April 1, 2018, is incorporated herein by
reference to Exhibit 4(d) to Delta's Form S-2 dated March 11, 1998.
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 (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 (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 (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 (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 (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 between Delta and Glenn R. Jennings,
an officer, is incorporated herein by reference to
Exhibit 10(m) to Delta's Form 10-K for the period ended
June 30, 1995.
10(n) - Employment agreement between Delta and Johnny L. Caudill,
an officer, is incorporated herein by reference to
Exhibit 10(n) to Delta's Form 10K for the period ended June 30,
1995.
10(o) - Employment agreement dated March 1, 1999 between Delta
and John B. Brown, an officer.
12 - Computation of the Consolidated Ratio of Earnings to Fixed
Charges.
21 - Subsidiaries of the Registrant.
23 - Consent of Independent Public Accountants.
27 - Financial Data Schedule.
(b) Reports on 8-K.
No reports on Form 8-K were filed during the three months ended June 30,
1999.
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 10th day
of September, 1999.
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 Executive September 10, 1999
(Glenn R. Jennings) Officer and Director
(ii) Principal Financial Officer and Principal Accounting Officer:
/s/ John F. Hall Vice President - Finance, September 10, 1999
(John F. Hall) Secretary and Treasurer
(iii) A Majority of the Board of Directors:
/s/ H. D. Peet Chairman of the Board September 10, 1999
(H. D. Peet)
/s/ Donald R. Crowe Director September 10, 1999
(Donald R. Crowe)
/s/ Jane Hylton Green Director September 10, 1999
(Jane Hylton Green)
/s/ Billy Joe Hall Director September 10, 1999
(Billy Joe Hall)
/s/ John D. Harrison Director September 10, 1999
(John D. Harrison)
/s/ Virgil E. Scott Director September 10, 1999
(Virgil E. Scott)
/s/ Henry C. Thompson Director September 10, 1999
(Henry C. Thompson)
/s/ Arthur E. Walker, Jr. Director September 10, 1999
(Arthur E. Walker, Jr.)
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. In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amount of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual
results could differ from these estimates.
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.
Glenn R. Jennings John F. Hall
President & Chief Executive Officer Vice President - Finance,
Secretary & Treasurer
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, 1999 and 1998, 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,
1999. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended June 30, 1999, in conformity with generally accepted
accounting principles.
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 16, 1999
Delta Natural Gas Company, Inc. and Subsidiary Companies
Consolidated Statements of Income
For the Years Ended June 30, 1999 1998 1997
Operating Revenues ............ $ 38,672,238 $ 44,258,000 $ 42,169,185
Operating Expenses
Purchased gas .............. $ 16,467,988 $ 22,499,488 $ 23,265,222
Operation and maintenance
(Note 1) ................. 9,137,107 8,968,213 8,631,635
Depreciation and depletion
(Note 1) ................. 3,840,996 3,445,382 2,935,257
Taxes other than income
taxes .................... 1,334,977 1,212,058 1,056,689
Income taxes (Note 2) ...... 1,239,100 1,401,000 964,800
Total operating expenses. $ 32,020,168 $ 37,526,141 $ 36,853,603
Operating Income .............. $ 6,652,070 $ 6,731,859 $ 5,315,582
Other Income and Deductions, Net 33,660 67,911 40,874
Income Before Interest Charges. $ 6,685,730 $ 6,799,770 $ 5,356,456
Interest Charges
Interest on long-term debt.. $ 3,912,826 $ 3,326,681 $ 2,997,393
Other interest ............. 460,950 897,265 519,432
Amortization of debt expense 161,160 124,552 115,366
Total interest charges .. $ 4,534,936 $ 4,348,498 $ 3,632,191
Net Income $ 2,150,794 $ 2,451,272 $ 1,724,265
Weighted Average Number of
Common Shares Outstanding ... 2,394,181 2,359,598 2,294,134
Basic and Diluted Earnings Per
Common Share. . . . . . . . . . $ .90 $ 1.04 $ .75
Dividends Declared Per Common
Share ....................... $ 1.14 $ 1.14 $ 1.14
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, 1999 1998 1997
Cash Flows From Operating Activities
Net income ...................... $ 2,150,794 $ 2,451,272 $ 1,724,265
Adjustments to reconcile net
income to net cash from
operating activities
Depreciation, depletion and
Amortization ............... 3,941,370 3,755,929 3,049,229
Deferred income taxes and
Investment tax credits ..... 662,880 (29,400) 485,400
Other - net .................. 730,601 698,584 666,798
(Increase) decrease in assets
Accounts receivable .......... 908,917 (124,168) (318,178)
Gas in storage ............... (1,451,177) (840,829) (782,007)
Materials and supplies ....... (144,468) 252,746 (120,969)
Prepayments .................. 53,642 70,648 (346,532)
Other assets ................. (446,988) (55,440) (541,669)
Increase (decrease) in
liabilities
Accounts payable ............. 273,755 (336,089) (439,721)
Refunds due customers ........ (75,774) (460,751) 554,520
Advance recovery of gas cost.. 50,446 3,328,625 495,751
Accrued taxes ................ (131,091) (46,549) 1,038,761
Other current liabilities .... 160,329 257,055 744,054
Advances for construction and
other ...................... (2,960) 404 (476)
Net cash provided by
Operating activities .... $ 6,680,276 $ 8,922,037 $ 6,209,226
Cash Flows From Investing Activities
Capital expenditures ............ $ (7,982,143) $(11,193,613) $(16,648,994)
Net cash used in investing
Activities .............. $ (7,982,143) $(11,193,613) $(16,648,994)
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 (continued)
For the Years Ended June 30, 1999 1998 1997
Cash Flows From Financing
Activities (Note 6)
Dividends on common stock ....... $ (2,728,997) $ (2,690,233) $ (2,651,073)
Issuance of common stock, net.... 679,916 574,686 6,773,054
Issuance of debentures, net...... - 23,837,795 14,334,833
Repayment of long-term debt ..... (339,000) (10,822,559) (478,256)
Issuance of notes payable........ 21,615,000 26,200,000 30,975,000
Repayment of notes payable....... (17,795,000) (35,190,000) (38,185,000)
Net cash provided by
financing activities $ 1,431,919 $ 1,909,689 $ 10,768,558
Net Increase (Decrease) in Cash and
Cash Equivalents ................... $ 130,052 $ (361,887) $ 328,790
Cash and Cash Equivalents,
Beginning of Year .................. 118,536 480,423 151,633
Cash and Cash Equivalents,
End of Year ........................ $ 248,588 $ 118,536 $ 480,423
Supplemental Disclosures of Cash
Flow Information
Cash paid during the year for:
Interest $ 4,685,458 $ 4,291,005 $ 3,019,881
Income taxes (net of refunds) $ 712,023 $ 1,642,964 $ (432,163)
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, 1999 1998
Assets
Gas Utility Plant, at cost ............... $133,804,954 $127,028,159
Less - Accumulated provision for
depreciation ......................... (38,308,798) (34,929,481)
Net gas plant $ 95,496,156 $ 92,098,678
Current Assets
Cash and cash equivalents ............. $ 248,588 $ 118,536
Accounts receivable, less accumulated
provisions for doubtful accounts of
$138,514 and $120,001 in 1999 and
1998, respectively .................. 1,629,883 2,538,800
Gas in storage, at average cost ....... 3,501,177 2,050,000
Materials and supplies, at first-in,
first-out cost ...................... 664,830 520,362
Prepayments ........................... 188,089 241,731
Total current assets $ 6,232,567 $ 5,469,429
Other Assets
Cash surrender value of officers' life
insurance (face amount of $1,236,009). $ 339,450 $ 339,215
Note receivable from officer ........... 122,000 110,000
Unamortized debt expense and other
(Note 6) ............................. 5,282,944 4,849,291
Total other assets $ 5,744,394 $ 5,298,506
Total assets $107,473,117 $102,866,613
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 (continued)
As of June 30, 1999 1998
Liabilities and Shareholders' Equity
Capitalization (See Consolidated Statements
of Capitalization)
Common shareholders' equity .......... $ 29,912,007 $ 29,810,294
Long-term debt (Notes 6 and 7)........ 51,699,700 52,612,494
Total capitalization .............. $ 81,611,707 $ 82,422,788
Current Liabilities
Notes payable (Note 5) ............... $ 5,695,000 $ 1,875,000
Current portion of long-term
debt (Notes 6 and 7)................ 2,450,000 1,790,000
Accounts payable ..................... 2,324,383 2,050,628
Accrued taxes ........................ 954,675 1,085,766
Refunds due customers ................ 41,349 117,123
Advance recovery of gas costs (Note 1) 1,198,465 1,148,019
Customers' deposits .................. 524,263 438,134
Accrued interest on debt ............. 1,225,903 1,215,265
Accrued vacation ..................... 584,014 528,952
Other accrued liabilities ............ 493,518 485,018
Total current liabilities $ 15,491,570 $ 10,733,905
Deferred Credits and Other
Deferred income taxes ................ $ 8,826,655 $ 8,023,475
Investment tax credits ............... 567,800 637,300
Regulatory liability (Note 2) ........ 760,625 831,425
Advances for construction and other .. 214,760 217,720
Total deferred credits and other $ 10,369,840 $ 9,709,920
Commitments and Contingencies (Note 8) .. ____________ ____________
Total liabilities and
shareholders' equity ............ $107,473,117 $102,866,613
The accompanying notes to consolidated financial statements are an
integral part of these statements.
Delta Natural Gas Company, Inc. and Subsidiary Companies
Consolidated Statements of Changes in
Shareholders' Equity
For the Years Ended June 30, 1999 1998 1997
Common Shares
Balance, beginning of year .......$ 2,375,093 $ 2,342,223 $ 1,903,580
$1.00 par value of 38,849,
32,870 and 438,643
shares issued in 1999,
1998 and 1997, respectively
Public issuance of common
shares.................. - - 400,000
Dividend reinvestment and
stock purchase plan ....... 32,551 27,124 31,187
Employee stock purchase plan and
other ...................... 6,298 5,746 7,456
Balance, end of year .... ....... $ 2,413,942 $ 2,375,093 $ 2,342,223
Premium on Common Shares
Balance, beginning of year . .... $ 27,745,127 $ 27,203,311 $ 20,572,132
Premium on issuance of common shares
Public issuance of common shares .. - - 6,000,000
Dividend reinvestment and stock
purchase plan ............ 536,520 446,432 519,478
Employee stock purchase plan and
other ................... 104,547 95,384 111,701
Balance, end of year . ...... .. $ 28,386,194 $ 27,745,127 $ 27,203,311
Capital Stock Expense
Balance, beginning of year .. $ (1,917,020) $ (1,917,020) $ (1,620,252)
Issuance of common shares - - (296,768)
Balance, end of year ...... ... $ (1,917,020) $ (1,917,020) $ (1,917,020)
Retained Earnings
Balance, beginning of year ... $ 1,607,094 $ 1,846,055 $ 2,772,863
Net income ...... ........... 2,150,794 2,451,272 1,724,265
Cash dividends declared on common
shares (See Consolidated
Statements of Income
for rates) .............. (2,728,997) (2,690,233) (2,651,073)
Balance, end of year ... ..... $ 1,028,891 $ 1,607,094 $ 1,846,055
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, 1999 1998
Common Shareholders' Equity
Common shares, par value $1.00 per share
(Notes 3 and 4)
Authorized 6,000,000 shares
Issued and outstanding 2,413,942 and
2,375,093 shares in 1999 and
1998, respectively ................... $ 2,413,942 $ 2,375,093
Premium on common shares .................. 28,386,194 27,745,127
Capital stock expense ..................... (1,917,020) (1,917,020)
Retained earnings (Note 6) ................ 1,028,891 1,607,094
Total common shareholders' equity ...... $29,912,007 $29,810,294
Long-Term Debt (Notes 6 and 7)
Debentures, 8.3%, due 2026 ................ $15,000,000 $15,000,000
Debentures, 6 5/8%, due 2023 .............. 12,886,000 13,170,000
Debentures, 7.15%, due 2018 . . . . . . . . 24,985,000 25,000,000
Promissory note from acquisition of under-
ground storage, non-interest bearing,
due through 2001 (less unamortized
discount of $121,300 and $207,506 in
1999 and 1998, respectively) 1,278,700 1,192,494
Other - 40,000
Total long-term debt ................. $54,149,700 $54,402,494
Less amounts due within one year,
included in current liabilities ....... (2,450,000) (1,790,000)
Net long-term debt ................... $51,699,700 $52,612,494
Total capitalization .............. $81,611,707 $82,422,788
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. operates underground natural gas storage
facilities that it leases from Delta. Enpro, Inc. owns and operates
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 3.2%, 3.1% and 3.0% of average depreciable plant for
1999, 1998, and 1997, 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 has 39,000
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) Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(i) New Accounting Pronouncements -- Delta adopted SFAS No. 128,
"Earnings per Share", during fiscal 1998. The adoption of this standard
had no effect upon current or prior period earnings per common share.
Delta adopted SFAS No. 130, "Comprehensive Income", during fiscal
1999. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. The adoption of this statement had no impact on
the financial statements of the Company.
Delta adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", and SFAS No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits", during
fiscal 1999. These statements do not affect the accounting recognition
or measurements of transactions, but rather require expanded disclosures
regarding financial results.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133
standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, by requiring
that an entity recognize those items as assets or liabilities in the
statement of financial position and measure them at fair value. This
statement is effective for fiscal years beginning after June 15, 2000.
It will be effective for the Company's fiscal year 2001. Delta is
currently not a party to any financial derivatives for hedging or other
purposes. However, Delta is currently evaluating the terms of its
commodity contracts (i.e., primarily gas purchase, sale and
transportation contracts) to determine whether any of these contracts
meet the definition of derivative instruments subject to the
requirements of the new standard. As such, the Company is still
evaluating the impact, if any, this standard will have on its financial
statements.
(2) 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 utilizes the liability method for
accounting for income taxes, which requires that deferred income tax assets
and liabilities are computed using tax rates that will be in effect when the
book and tax temporary differences reverse. 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. The temporary differences which gave rise to the net
accumulated deferred income tax liability for the periods are as follows:
1999 1998
Deferred Tax Liabilities
Accelerated depreciation $10,546,000 $ 9,933,400
Accrued pension 789,700 568,900
Debt expense 467,200 487,400
Total $11,802,900 $10,989,700
Deferred Tax Assets
Alternative minimum tax credits $ 1,521,100 $ 1,274,100
Regulatory liabilities 193,445 486,245
Deferred gas cost/unbilled revenue 718,400 670,100
Investment tax credit 224,000 251,400
Other 319,300 284,380
Total $ 2,976,245 $ 2,966,225
Net accumulated deferred
income tax liability $ 8,826,655 $ 8,023,475
The components of the income tax provision are comprised of the following for
the years ended June 30:
1999 1998 1997
Components of Income Tax Expense
Payable currently
Federal $ 563,400 $ 1,164,800 $ 242,200
State 63,000 265,600 (31,300)
Total $ 626,400 $ 1,430,400 $ 210,900
Deferred 612,700 (29,400) 753,900
Income tax expense $1,239,100 $ 1,401,000 $ 964,800
Reconciliation of the statutory federal income tax rate to the effective
income tax rate is shown in the table below:
1999 1998 1997
Statutory federal income tax rate 34.0 % 34.0 % 34.0 %
State income taxes net of federal benefit 5.2 5.0 5.0
Amortization of investment tax credit (2.0) (1.8) (2.6)
Other differences - net (0.4) (.2) -
Effective income tax rate 36.8 % 37.0 % 36.4 %
(3) 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 fund the plan
adequately.
The following table provides a reconciliation of the changes in the
plans' benefit obligations and fair value of assets over the two-year
period ended March 31, 1999, and a statement of the funded status as of
March 31 of both years, as recognized in the Company's consolidated
balance sheets at June 30.
1999 1998
Change in Benefit Obligation
Benefit obligation at beginning of year $ 6,745,269 $ 6,345,500
Service cost 467,417 445,288
Interest cost 471,939 443,955
Actuarial (loss) gain 711,063 (6,677)
Benefits paid (109,322) (482,797)
Benefit obligation at end of year $ 8,286,366 $ 6,745,269
Change in Plan Assets
Fair value of plan assets at
beginning of year $ 8,637,638 $ 6,835,393
Actual return on plan assets 44,213 1,564,402
Employer contribution 615,921 720,640
Benefits paid (109,322) (482,797)
Fair value of plan assets at end of year $ 9,188,450 $ 8,637,638
Funded status $ 902,084 $ 1,892,369
Unrecognized net actuarial (loss) gain 512,737 (869,909)
Unrecognized prior service cost (127,183) (169,577)
Prepaid benefit cost (included in other
assets in the accompanying balance sheet) $ 1,287,638 $ 852,883
The assets of the plan consist primarily of common stocks, bonds and
certificates of deposit. Net pension costs for the years ended June 30
include the following:
1999 1998 1997
Components of Net Periodic
Benefit Cost
Service cost $ 467,417 $ 445,288 $ 405,386
Interest cost 471,939 443,955 392,539
Expected return on plan assets (715,385) (575,394) (502,414)
Amortization of prior service cost (42,804) (42,394) (42,394)
Net periodic benefit cost $ 181,167 $ 271,455 $ 253,117
Weighted-Average Assumptions as of March 31
Discount rate 6.5% 7% 7%
Expected return on plan assets 8 % 8% 8%
Rate of compensation increase 4 % 4% 4%
SFAS No. 106, "Employers' Accounting for Post-Retirement Benefits",
and SFAS No. 112, "Employers' Accounting for Post-Employment Benefits",
do not affect the Company, as Delta does not provide benefits for post-
retirement or post-employment 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 2.5% of the employee's annual
compensation. For 1999, 1998, and 1997, Delta's Savings Plan expense
was $169,300, $156,000 and $151,000, 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 $113,000 was issued
in July, 1999. The continuation and terms of the Stock Plan are subject
to approval by Delta's Board of Directors on an annual basis. Delta's
Board has continued the Stock Plan through June 30, 2000.
(4) 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 32,551, 27,124, and 31,187 shares were issued in 1999, 1998, and
1997, respectively. Delta reserved 200,000 shares under the Reinvestment
Plan in December, 1994, and as of June 30, 1999, there were 63,929 shares
still available for issuance.
(5) 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,
1999 and 1998, the available line of credit was $25,000,000 of which
$5,695,000 and $1,875,000 had been borrowed at an interest rate of 5.51%, and
6.885% for 1999 and 1998, respectively. The maximum amount borrowed during
1999 and 1998 was $9,435,000 and $20,160,000, respectively. The interest on
this line is, at the option of Delta, either at the daily prime rate or is
based upon certificate of deposit rates. The current line of credit must be
renewed during November, 1999.
Short-term borrowings were repaid in March, 1998, with the net proceeds
of $24,100,000 from the sale of $25,000,000 of debentures. The net proceeds
were also used to redeem the Company's 9% Debentures that would have matured
in April, 2011. The redemption of this debt, the outstanding principal
amount of which was $10,000,000, was completed in April, 1998.
(6) Long-Term Debt
In March, 1998, Delta issued $25,000,000 of 7.15% Debentures that mature
in March, 2018. Redemption of up to $25,000 annually will be made on behalf
of deceased holders within 60 days of notice, subject to an annual aggregate
$750,000 limitation. The 7.15% Debentures can be redeemed by the Company
after April 1, 2003. Restrictions under the indenture agreement covering the
7.15% Debentures include, among other things, a restriction whereby dividend
payments cannot be made unless consolidated shareholders' equity of the
Company exceeds $21,500,000. No retained earnings are restricted under the
provisions of the indenture.
In July, 1996, Delta issued $15,000,000 of 8.3% Debentures that mature
in July, 2026. Redemption on behalf of deceased holders within 60 days of
notice of up to $25,000 per holder will be made annually, subject to an
annual aggregate limitation of $500,000. The 8.3% Debentures can be redeemed
by the Company beginning in August, 2001 at a 5% premium, such premium
declining ratably until it ceases in August, 2006.
In October, 1993, Delta issued $15,000,000 of 6 5/8% Debentures that
mature in October, 2023. Each holder may require redemption of up to $25,000
annually, subject to an annual aggregate limitation of $500,000. Such
redemption will also be made on behalf of deceased holders within 60 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.
The Company may not assume any additional mortgage indebtedness in excess of
$2 million without effectively securing the 6 5/8% Debentures equally to such
additional indebtedness.
Debt issuance expenses are deferred and amortized over the terms of the
related debt. Call premium in 1998 of $300,000 and loss on extinguishment of
debt of $332,000 was deferred and is being amortized over the term of the
related debt consistent with regulatory treatment.
A non-interest bearing promissory note was issued by Delta in November,
1995 in the amount of $1,800,000, and remaining installments are due in the
amounts of $700,000 in 2000 and $700,000 in 2002. The note was issued when
Delta purchased leases and depleted gas wells to develop them for the
underground storage of natural gas. The promissory note installments are
secured by escrow of 80,000 shares of Delta's common stock. These shares
will be issued to the holder of the promissory note only in the event of
default in payment by Delta.
(7) Fair Values of Financial Instruments
The fair value of the Company's debentures is estimated using discounted
cash flow analysis, based on the Company's current incremental borrowing
rates for similar types of borrowing arrangements. The fair value of the
Company's debentures at June 30, 1999 and 1998 was estimated to be
$49,810,000 and $54,387,000, respectively. The carrying amount in the
accompanying consolidated financial statements as of June 30, 1999 and 1998
is $52,871,000 and $53,170,000, respectively.
The carrying amount of the Company's other financial instruments
including cash equivalents, accounts receivable, notes receivable, accounts
payable and the non-interest bearing promissory note approximate their fair
value.
(8) Commitments and Contingencies
The Company has entered into individual employment agreements with its
six 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.
(9) Rates
Reference is made to "Regulatory Matters" herein with respect to rate
matters.
(10) Operating Segments
Delta adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information", during fiscal 1999. SFAS No. 131 established
standards for reporting information about operating segments in annual
financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services in
geographic areas. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and in assessing performance.
Delta's chief operating decision making group is the Company's officers.
The Company has two segments (i) a regulated natural gas distribution,
transmission and storage segment, and (ii) an unregulated segment which
participates in related ventures, consisting of natural gas marketing and
production. The Company operates in a single geographic area of central and
southeastern Kentucky.
The segments follow the same accounting policies as described in the
Summary of Significant Accounting Policies and Principles of Consolidation in
Note 1 of the Notes to Consolidated Financial Statements. Because the
Company earns revenues on the transportation of natural gas in its regulated
segment, management evaluates the performance of the unregulated natural gas
marketing subsidiaries based on the additional margin added from their sales
and their ability to maintain contact with customers who choose to transport
on the regulated system. Inter-segment transportation revenue/expense is
recorded at Delta's tariff rates. Transfer pricing for sales of gas between
segments is at cost. Operating expenses, taxes and interest are allocated to
the unregulated segment.
Segment information is shown below for the periods:
($000) 1999 1998 1997
Revenues
Regulated
External customers 30,000 34,550 34,567
Intersegment 5,496 5,187 3,602
Total regulated 35,496 39,737 38,169
Non-regulated
External customers 8,672 9,708 7,602
Intersegment 15,881 14,467 13,999
Total non-regulated 24,553 24,175 21,601
Eliminations for
intersegment (21,377) (19,654) (17,601)
Total operating
revenues 38,672 44,258 42,169
Expenses
Operating expenses
Regulated
Depreciation 3,804 3,399 2,896
Income taxes 1,001 1,089 772
Other 24,398 28,984 29,438
Total regulated 29,203 33,472 33,106
Non-regulated
Depreciation 37 46 39
Income taxes 238 312 193
Other 23,838 23,277 21,043
Total non-regulated 24,113 23,635 21,275
Eliminations for
intersegment (21,296) (19,581) (17,527)
Total operating
expenses 32,020 37,526 36,854
Other Income and Deductions
Regulated 25 37 41
Non-regulated 9 31 -
Total other income
and deductions 34 68 41
Interest Charges
Regulated 4,552 4,380 3,695
Non-regulated 64 42 11
Eliminations for
intersegment (81) (73) (74)
Total interest charges 4,535 4,349 3,632
Net Income
Regulated 1,766 1,922 1,409
Non-regulated 385 529 315
Total net income 2,151 2,452 1,724
Assets
Regulated 105,716 101,016 94,407
Non-regulated 1,757 1,851 2,274
Total assets 107,473 102,867 96,681
Capital Expenditures
Regulated 7,981 11,192 16,648
Non-regulated 1 2 -
Total capital
expenditures 7,982 11,194 16,648
(11) Quarterly Financial Data
The quarterly data reflects, in the opinion of management, all normal
recurring adjustments necessary to present fairly the results for the interim
periods.
Basic and
Diluted Earnings
Quarter Operating Operating Net Income (Loss) per
Ended Revenues Income (Loss) Common Share(a)
Fiscal 1999
September 30 $ 4,938,135 $ 431,693 $ (693,777) $ (.29)
December 31 8,630,074 1,415,274 252,775 .11
March 31 16,890,711 3,651,078 2,515,336 1.05
June 30 8,213,318 1,154,025 76,460 .03
Fiscal 1998
September 30 $ 5,215,272 $ 181,905 $ (813,982) $ (.35)
December 31 11,787,820 1,726,169 591,812 .25
March 31 18,305,458 3,442,234 2,366,329 1.00
June 30 8,949,450 1,381,551 307,113 .14
(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, 1999, 1998 AND 1997
Column A Column B Column C Column D Column E
Additions Deductions
Balance Charged to
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
sset to Which it
Applies - Allowance
for doubtful accounts
for the years ended:
June 30, 1999 $ 120,001 $ 213,385 $ 48,888 $ 243,760 $ 138,514
June 30, 1998 $ 113,945 $ 369,870 $ 46,013 $ 409,827 $ 120,001
June 30, 1997 $ 105,756 $ 220,000 $ 27,402 $ 239,213 $ 113,945
DELTA NATURAL GAS COMPANY, INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF THE CONSOLIDATED RATIO OF EARNINGS
TO FIXED CHARGES
1999 1998 1997 1996 1995
Earnings:
Net income. . . . . . . $2,150,794 $2,451,272 $1,724,265 $2,661,349 $1,917,735
Provisions for income
taxes . . . . . . . . 1,239,100 1,401,000 964,800 1,559,500 1,042,400
Fixed charges . . . . . 4,534,936 4,348,498 3,632,191 2,808,209 2,387,935
Total $7,924,830 $8,200,770 $6,321,256 $7,029,058 $5,348,070
Fixed Charges:
Interest on debt. . . . $4,373,776 $4,223,946 $3,516,825 $2,719,409 $2,299,135
Amortization of debt
expense. . . . . . . 161,160 124,552 115,366 88,800 88,800
Total $4,534,936 $4,348,498 $3,632,191 $2,808,209 $2,387,935
Ratio of Earnings to
Fixed Charges 1.75x 1.89x 1.74x 2.50x 2.24x
EXHIBIT 21
Subsidiaries of the Registrant
Delgasco, Inc., Deltran, Inc., Enpro, Inc. and Delta Resources, Inc. are
wholly-owned subsidiaries of the Registrant, are incorporated in the state of
Kentucky and do business under their corporate names.
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated August 16, 1999, included in this Form
10-K, into the Company's previously filed Registration Statement No. 33-
56689, relating to the Dividend Reinvestment and Stock Purchase Plan of
the Company.
Arthur Andersen LLP
Louisville, Kentucky
September 10, 1999