YEAR TO DATE MARCH 31, 2009 OVERVIEW AND FUTURE OUTLOOK

For the nine months ended March 31, 2009, consolidated net income per share of $1.74 decreased $0.41 per share as compared to the $2.15 net income per share for the nine months ended March 31, 2008. The decrease is primarily attributable to a non-recurring inventory adjustment for our gas in storage of $1,350,000 ($838,000 net of income tax benefit), as further discussed in Note 12 of the Notes to Consolidated Financial Statements, and decreased gross margins from our non-regulated segment offset by increased gross margins from our regulated segment.

Our regulated segment's contribution to consolidated net income for the remainder of 2009 will be dependent upon the continuing impact the weakened economic environment has on our customers. Our customers may choose to discontinue their natural gas service, be unable to pay for their natural gas service or decrease the volumes purchased from or transported by us on behalf of them.

Future profitability of the non-regulated segment is dependent on the business plans of a few industrial and other large use customers and the market prices of natural gas, all of which are out of our control. For the current quarter ended March 31, 2009, we have experienced a decline in the volumes sold to our non-regulated customers due to a decrease in the non-regulated customers' gas requirements. Although we anticipate our non-regulated segment to continue to contribute to our consolidated net income for the remainder of fiscal 2009, based on the decrease in our non-regulated customer's gas requirements and the contracts currently in place, the non-regulated segment's contribution will be less than in the prior year. Additionally, if natural gas prices increase, we would expect to experience a corresponding increase in our non-regulated segment margins related to our natural gas production activities. However, if natural gas prices decrease, we would expect a decrease in our non-regulated margins related to our natural gas production and marketing activities.

LIQUIDITY AND CAPITAL RESOURCES

Operating activities provide our primary source of cash. Cash provided by operating activities consists of net income adjusted for non-cash items, including depreciation, amortization, deferred income taxes, gains on the sale of assets and changes in working capital.

Our ability to maintain liquidity depends on our bank line of credit, shown as notes payable on the accompanying Consolidated Balance Sheets. Notes payable increased to $10,658,000 at March 31, 2009, compared to $6,829,000 at June 30, 2008 and $3,287,000 at March 31, 2008. These increases reflect the seasonal nature of our sales and cash needs. Our liquidity is impacted by the fact that that we sometimes generate internally only a portion of the cash necessary for our capital expenditure requirements. We made capital expenditures of $6,960,000 and $8,662,000 during the nine and twelve months ended March 31, 2009, respectively. We finance the balance of our capital expenditures on an interim basis through our bank line of credit.

Long-term debt decreased to $57,709,000 at March 31, 2009, compared with $58,318,000 at June 30, 2008 and $58,402,000 at March 31, 2008. These decreases resulted from the redemption of the Debentures and Insured Quarterly Notes, which allow for limited redemptions to be made to certain holders or their beneficiaries.

Cash and cash equivalents were $874,000 at March 31, 2009, as compared with $250,000 at June 30, 2008 and $1,944,000 at March 31, 2008. These changes in cash and cash equivalents for nine and twelve months ended March 31, 2009 are summarized in the following table:

                                           Nine Months Ended      Twelve Months Ended
                                               March 31,               March 31,
($000)                                      2009        2008       2009         2008

Provided by operating activities             6,667       9,163       4,082       10,764
Used in investing activities                (6,502 )    (3,590 )    (8,165 )     (6,100 )
Provided by (used in) financing
activities                                     459      (3,817 )     3,012       (4,335 )
Increase (decrease) in cash and cash
equivalents                                    624       1,756      (1,071 )        329

For the nine months ended March 31, 2009, cash provided by operating activities decreased $2,496,000 (27%) primarily due to the $2,000,000 contribution we made to our pension plan in January, 2009, as further discussed in Note 9 of the Notes to Consolidated Financial Statements.

For the twelve months ended March 31, 2009, cash provided by operating activities decreased $6,682,000 (62%) due to the $2,000,000 contribution we made to our pension plan in January, 2009, as further discussed in Note 9 of the Notes to Consolidated Financial Statements, an additional $1,286,000 paid for property taxes, and increases in cash paid for operating expenses.

Changes in cash used in investing activities result primarily from the changes in capital expenditures between periods.

For the nine and twelve months ended March 31, 2009, cash provided by financing activities increased $4,276,000 and $7,347,000, respectively, due to increased net borrowings on our bank line of credit.

Cash Requirements

Our capital expenditures result in a continued need for capital. These capital expenditures are being made for system extensions and for the replacement and improvement of existing transmission, distribution, gathering, storage and general facilities. We expect our capital expenditures for fiscal 2009 to be approximately $9 million.

Due to volatile conditions in the debt and equity markets we experienced a decline in the value of the assets held by our defined benefit pension plan. Although we are not required to make any minimum contributions during the current year, in January, 2009, we elected to contribute $2,000,000 to the plan. Currently, we do not plan on making any additional contributions to the defined benefit pension plan during the remainder of fiscal 2009. We estimate that this contribution returned the plan to a fully funded status. The decrease in the value of our plan assets could result in an increase in our fiscal 2010 net periodic benefit cost.

Sufficiency of Future Cash Flows

We expect that cash provided by operations, coupled with short and long-term borrowings, will be sufficient to satisfy our operating and normal capital expenditure requirements and to pay dividends for the next twelve months and the foreseeable future.

Current economic conditions have resulted in increased credit risk for us due to the potential for default from our customers. For the nine and twelve months ended March 31, 2009, we have experienced an increase in customer accounts written off, net of recoveries of $39,000 (13%) and $91,000 (24%), respectively. Based on current outstanding receivables and expecting this trend to continue for the remainder of fiscal 2009, our allowance for doubtful accounts has increased to $943,000 from $465,000 at June 30, 2008 and $420,000 at March 31, 2008. However, we are unable to estimate the impact this trend will have in future earnings and liquidity.

To the extent that internally generated cash is not sufficient to satisfy operating and capital expenditure requirements and to pay dividends, we will rely on our bank line of credit. Our current available bank line of credit is $40,000,000, of which $10,658,000 was borrowed at March 31, 2009, and was classified as notes payable on the accompanying Consolidated Balance Sheets. The current bank line of credit is with Branch Banking and Trust Company and extends through October 31, 2009. We intend to extend our bank line of credit prior to October 31,

Our ability to sustain acceptable earnings levels, finance capital expenditures and pay dividends is contingent on the adequate and timely adjustment of the regulated sales and transportation prices we charge our customers. The Kentucky Public Service Commission sets these prices and we monitor our need to file rate requests with the Kentucky Public Service Commission for general rate increases for our regulated services.

On April 20, 2007, we filed a request for increased rates with the Kentucky Public Service commission. This general rate case, Case No. 2007-00089, requested an annual revenue increase of approximately $5,642,000, an increase of 9.3%. This rate case requested a return on common equity of 12.1%. During October 2007, we negotiated a settlement agreement with the Kentucky Attorney General regarding this rate case. The settlement agreement provided for $3,920,000 of additional annual revenues, and stipulated for settlement purposes a 10.5% return on common shareholders' equity. The increase in rates was allocated primarily to the monthly customer charge to partially decouple revenue from volumes of gas sold. An order from the Kentucky Public Service Commission was received on October 19, 2007 approving the terms of the settlement with rates effective on or after October 20, 2007.

RESULTS OF OPERATIONS

Gross Margins

Our regulated and non-regulated revenues, other than transportation, have offsetting gas expenses. Therefore, throughout the following Results of Operations, we refer to "gross margin". With respect to our regulated and non-regulated segments, gross margin refers to operating revenues less purchased gas expense, which can be derived directly from our Consolidated Statements of Income. Operating Income as presented on the Consolidated Statements of Income, is the most directly comparable financial measure calculated and presented in accordance with accounting principles generally accepted in the United States ("GAAP"). "Gross margin" is a "non-GAAP financial measure", as defined in accordance with SEC rules. We view gross margin as an important performance measure of the core profitability of our operations. The measure is a key component of our internal financial reporting and is used by our management in analyzing our business segments. We believe that investors benefit from having access to the same financial measures that our management uses.

Natural gas prices are determined by an unregulated national market. Therefore, the price that we pay for natural gas fluctuates with national supply and demand. See Item 3, Quantitative and Qualitative Disclosures About Market Risk, for the impact of forward contracts.

In the following table we set forth variations in our gross margins for the three, nine and twelve months ended March 31, 2009 compared with the same periods in the preceding year. The variation amounts and percentages presented in the following tables for regulated and non-regulated gross margins include intersegment transactions. These intersegment revenues and expenses are eliminated in the Consolidated Statements of Income.

                                                    2009 compared to 2008
                                          Three Months   Nine Months   Twelve Months
                                             Ended          Ended          Ended
($000)                                     March 31,      March 31,      March 31,

Increase (decrease) in regulated gross
margins                                           (146
Gas sales                                              )         556             775
On-system transportation                          (171 )        (160 )           (72 )
Off-system transportation                         (152 )          43             185
Other                                              257           359             242
Total                                             (212 )         798           1,130

Decrease in non-regulated gross margins
Gas sales                                       (1,725 )      (1,534 )          (865 )
Other                                              (41 )         (40 )           (11 )
Total                                           (1,766 )      (1,574 )          (876 )

Increase (decrease) in consolidated             (1,978               )
gross margins                                          )        (776             254
Percentage increase (decrease) in
regulated volumes
Gas sales                                           (5 )           3               1
On-system transportation                           (18 )         (11 )            (8 )
Off-system transportation                          (15 )           -               6

Percentage decrease in non-regulated               (23 )         (15 )            (8 )
gas sales volumes

Heating degree days were 99%, 101% and 101% of normal thirty year average temperatures for the three, nine and twelve months ended March 31, 2009, respectively, as compared with 102%, 95% and 95% of normal temperatures in the 2008 periods. A "heating degree day" results from a day during which the average of the high and low temperature is at least one degree less than 65 degrees Fahrenheit.

For the three months ended March 31, 2009, consolidated gross margins decreased $1,978,000 (13%) due to decreased regulated and non-regulated gross margins of $212,000 (2%) and $1,766,000 (37%), respectively. Our non-regulated margins decreased $1,766,000 (37%) due to a 23% decrease in volumes sold and lower sales prices. The non-regulated volumes decreased due to a decrease in our non-regulated customers' gas requirements.

For the nine months ended March 31, 2009, consolidated gross margins decreased $776,000 (3%) due to decreased non-regulated gross margins of $1,574,000 (18%) offset by increased regulated gross margins of $798,000 (4%). Our non-regulated gross margins decreased $1,574,000 (18%) due to a 15% decrease in volumes sold attributable to a decrease in our non-regulated customers' gas requirements. Our regulated gross margin for gas sales increased $556,000 (3%) due to a 3% increase in volumes sold due to colder than normal weather.

For the twelve months ended March 31, 2009, consolidated gross margins increased $254,000 (1%) due to increased regulated gross margins of $1,130,000 (5%) offset by decreased non-regulated gross margins of $876,000 (8%). Our regulated gross margin for gas sales increased $775,000 (4%) due to increased base rates which became effective October 20, 2007. Our regulated off-system transportation margins increased $185,000 (5%) due to a 6% increase in volumes transported. Our non-regulated gross margin for gas sales decreased $865,000 (9%) due to an 8% decrease in volumes sold.

Operations and Maintenance

For the nine months ended March 31, 2009, operations and maintenance expense increased $1,845,000 (19%). The increase was primarily due to an inventory adjustment for our gas in storage ($1,350,000, as further discussed in Note 12 of the Notes to Consolidated Financial Statements), increased uncollectible expense ($397,000) and increased employee benefit expense ($286,000).

Depreciation and Amortization

For the nine and twelve months ended March 31, 2009, depreciation and amortization decreased $355,000 (11%) and $686,000 (15%), respectively. The decreases were due to lower depreciation rates approved by the Kentucky Public Service Commission that became effective October 20, 2007. The decreases were partially offset by increases in depreciable plant resulting from capital expenditures which relate to the replacement and improvement of our transmission, distribution, gathering, storage and general facilities.

Other Income and Deductions, Net

For the nine and twelve months ended March 31, 2009, other income and deductions, net decreased $136,000 (378%) and $161,000 (149%), respectively. The decreases were due to decreases in the cash surrender value of officers' life insurance as well as decreases in the fair value of the supplementation retirement plan. The decreases in the fair value of the supplemental retirement plan were offset by reductions in operating expenses resulting from corresponding decreases in the liability of the plan.

Income Tax Expense

For the three, nine and twelve months ended March 31, 2009, income tax expense decreased $728,000 (22%), $866,000 (20%) and $690,000 (17%), respectively, as a result of decreased net income before income taxes.

Basic and Diluted Earnings Per Common Share

For the three, nine and twelve months ended March 31, 2009 and 2008, our basic earnings per common share changed as a result of changes in net income and an increase in the number of our common shares outstanding. We increased our number of common shares outstanding as a result of shares issued through our Dividend Reinvestment and Stock Purchase Plan.

We have no potentially dilutive securities. As a result, our basic earnings per common share and our diluted earnings per common share are the same.