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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 September 30, 1999
[ ] 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 0-29604
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EnergySouth, Inc.
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(Exact name of registrant as specified in its charter)
Alabama 58-2358943
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(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2828 Dauphin Street, Mobile, Alabama 36606
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (334) 450-4774
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
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None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock ($.01 par value)
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(Title of Class)
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.
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 ___
The aggregate market value of Common Stock, Par Value $.01 per share, held
by non-affiliates (based upon the average of the high and low prices as reported
by NASDAQ on December 16, 1999) was approximately $101,489,409.
As of December 16, 1999, there were 4,898,433 shares of Common Stock, Par
Value $.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders on January 28, 2000 are incorporated by reference into Part III.
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PART I
Item 1. Business.
GENERAL
EnergySouth, Inc. (together with its subsidiaries, the "Company" or
"Registrant", and exclusive of its subsidiaries, "EnergySouth") was initially
incorporated under the laws of the State of Alabama on September 5, 1997 for the
primary purpose of becoming the holding company for Mobile Gas Service
Corporation ("Mobile Gas"), a natural gas utility, and its subsidiaries.
Effective February 2, 1998, Mobile Gas and its subsidiaries were reorganized
(the "Reorganization") into the holding company structure whereby Mobile Gas
became a wholly-owned subsidiary of EnergySouth.
Mobile Gas was incorporated under the laws of the State of Alabama in 1933.
Mobile Gas is engaged in the purchase, distribution, sale and transportation of
natural gas to over 100,000 residential, commercial and industrial customers in
Southwest Alabama, including the City of Mobile and adjacent areas. Mobile Gas'
service territory covers approximately 300 square miles. Mobile Gas is also
involved in merchandise sales, specifically sales of natural gas appliances.
EnergySouth Services, Inc. ("Services") was incorporated in March 1983.
Through Services, the Company provides contract and consulting work for
utilities and industrial customers. Services owns a 51% interest in Southern Gas
Transmission Company ("SGT"), an Alabama general partnership which was formed in
November 1991. SGT was established to provide transportation services to the
facilities of Alabama River Pulp Company, Inc. During fiscal year 1992, SGT
constructed and began operating a 50-mile pipeline from the facilities of Koch
Gateway Pipeline Company ("Koch"), formerly United Gas Pipe Line Company, near
Flomaton, Alabama to the facilities of Alabama River Pulp Company, Inc. in
Claiborne, Alabama.
MGS Marketing Services, Inc. ("Marketing") was incorporated on March 5,
1993 to assist existing and potential customers in the purchase of natural gas.
In connection with the Reorganization, Services and Marketing became
wholly-owned subsidiaries of EnergySouth during fiscal year 1998.
MGS Storage Services, Inc. ("Storage"), a wholly-owned subsidiary of Mobile
Gas, was incorporated on December 4, 1991. Storage holds a general partnership
interest of 87 1/2% in Bay Gas Storage Company, Ltd. ("Bay Gas"), an Alabama
limited partnership, and a 12 1/2% limited partnership interest is held by Olin
Corporation. Bay Gas constructed an underground gas storage cavern and related
pipeline facilities which are used to provide storage and delivery of natural
gas for Mobile Gas and other customers.
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BUSINESS SEGMENTS
The Company's operations are classified into the following business
segments:
o Natural Gas Distribution - The Natural Gas Distribution segment is actively
engaged in the distribution and transportation of natural gas to
residential, commercial and industrial customers in Southwest Alabama
through Mobile Gas and SGT.
o Natural Gas Storage - The Natural Gas Storage segment provides for the
underground storage of natural gas and transportation services through the
operations of Bay Gas and Storage. The storage operations are located in
Southwest Alabama.
o Other - Includes marketing, merchandising, and other energy-related
services which are provided through Marketing, Mobile Gas, and Services,
respectively, and are aggregated with the corporate operations of
EnergySouth, the holding company.
For financial information by business segment, including revenues by
segment, for the fiscal years ended September 30, 1999, 1998, and 1997, please
see Note 10 to the Consolidated Financial Statements on pages F-22 and F-23.
CUSTOMERS
Of the approximately 100,000 customers of the Company, approximately 95%
are residential customers. In the fiscal year ended September 30, 1999,
approximately 62% of the Company's gas revenues were derived from residential
sales, 13% from small commercial and industrial sales, 8% from large commercial
and industrial sales, 13% from transportation services, and 4% from storage and
miscellaneous services. Residential sales in 1999 accounted for approximately 9%
of the total volume of gas delivered to the Company's customers, with small
commercial and industrial, large commercial and industrial, and transportation
deliveries accounting for approximately 3%, 3% and 85%, respectively. The ten
largest customers of the Company accounted for approximately 14% of the
Company's gross margin in fiscal 1999, with the largest accounting for
approximately 3%. Gross margin is defined here as Gas Revenue less Cost of Gas,
as shown on the Consolidated Statements of Income at page F-3. For further
information with respect to revenues from and deliveries to the various
categories of the Company's customers, see Item 6, "Selected Financial Data".
EnergySouth is located at the crossroads of the expanding offshore natural
gas production areas of the central gulf coast and the developing gas-fired
electric generation markets in the lower southeast. Bay Gas has already begun
providing transportation services to two new gas-fired electric generating
facilities and has contracted to provide transportation services to another that
is presently under construction. Mobile Gas has also contracted to provide
transportation services to two planned electric generating facilities. During
1999 Bay Gas also entered into storage contracts with electric companies which
fully subscribed the remaining space in its storage cavern. In addition to the
developing local electric generation market for transportation and storage
services, Florida utilities are projected to add in excess of 10,000 megawatts
of gas fueled power generation in the next decade. Management believes that Bay
Gas, with the construction of additional caverns, is well positioned to serve
the storage needs of that market.
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GAS SUPPLY
The Company is directly connected to three natural gas processing plants in
south Mobile County. Mobile Gas has contracted for a portion of its firm supply
directly with these producers. For the fiscal year ended September 30, 1999, the
Company obtained approximately 82% of its gas supply from sources located in the
Mobile Bay area, with the balance being obtained from interstate sources.
Mobile Gas has a current peak day firm requirement of 127,000 MMBtus. Firm
supply needs of 80,000 MMBtu/day are expected to be met through the withdrawal
of gas from the storage facility owned by Bay Gas. The Company also has firm
supply contracts with gas suppliers for 10,000 MMBtu/day until October 31, 2000,
and 13,000 MMBtu/day until June 30, 2000, through the direct connections with
Mobil and Shell's processing plants. Additionally, the Company has contracted
for firm transportation and storage service ("No-Notice Service") for 24,000
MMBtu/day from Koch under an agreement effective through March 31, 2002.
GAS STORAGE
Construction of the Bay Gas storage facility was completed in 1994. At
September 30, 1999, the cavern had the capacity to hold up to 3.2 BCF of natural
gas. Approximately 1.1 BCF of the gas injected into the storage cavern, called
"base gas," remains in the cavern to provide sufficient pressure to maintain
cavern integrity, and the remainder, approximately 2.1 BCF, represents working
storage capacity. Bay Gas has pipeline interconnects with Florida Gas
Transmission and Koch which provide access to interstate markets.
In 1994 Mobile Gas entered into a gas storage agreement with Bay Gas under
which Bay Gas agreed to provide storage of approximately one-third of the
working storage capacity for an initial period of 20 years. Under the Mobile Gas
storage contract, injection and withdrawal capacity of 15,000 MMBtu/day and
80,000 MMBtu/day, respectively, is committed to Mobile Gas. At September 30,
1999, the storage facility's injection capacity ranged from 35,000 to 50,000
MMBtu/day depending upon cavern pressure and the withdrawal capacity was 260,000
MMBtu/day.
Under its agreements with Olin, Bay Gas has notified Olin of its intent to
develop a second cavern on the property leased from Olin. Until Bay Gas makes
certain required payments to Olin prior to commencement of the construction of a
second cavern, Olin has the right to increase its ownership interest in Bay Gas
by an additional 12 1/2%, by purchasing from Storage such additional percentage
at a price based on the book equity of Storage in Bay Gas. During fiscal 1999,
Bay Gas entered into long-term storage contracts that have fully subscribed the
capacity of its existing underground gas storage cavern. With the first cavern
fully contracted and a growing market for storage services, Bay Gas announced on
July 2, 1999 plans to develop a second underground storage facility. The second
cavern is projected to cost approximately $35,000,000 and is targeted for
completion in late 2001.
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COMPETITION
Gas Distribution Competition. The Company is not in significant direct
competition with respect to the retail distribution of natural gas to
residential, small commercial and small industrial customers within its service
area. Electricity competes with natural gas for such uses as cooking, water
heating and space heating.
The Company's large commercial and industrial customers with requirements
of 200 MMBtu per day or more have the right to contract with the Company to
transport customer-owned gas while other commercial and industrial customers buy
natural gas from the Company. Some industrial customers have the capability to
use either fuel oil, coal, wood chips or natural gas, and choose their fuel
depending upon a number of factors, including the availability and price of such
fuels. In recent years, the Company has had adequate supplies so that
interruptible industrial customers that are capable of using alternative fuels
have not had supplies curtailed, and the price of natural gas has remained at
levels such that, in most cases, these industrial customers have chosen to use
natural gas rather than other fuels. The Company's rate tariffs include a
competitive fuel clause which allows the Company to adjust its rates to certain
large commercial and industrial customers in order to compete with alternative
energy sources. However, there can be no assurance that the current competitive
advantage of natural gas over alternative fuels will continue. See "Rates and
Regulation."
Due to the close proximity of various pipelines and gas processing plants
to the Company's service area, there exists the possibility that current or
prospective customers could install their own facilities and connect directly to
a supply source and thereby "bypass" the Company's service. The Company believes
that because it has worked closely with major industrial customers to meet those
customers' needs, and because of its ability to provide competitive pricing
under its rate tariffs, none of the Company's customers have bypassed its
facilities to date. Although there can be no assurance as to future
developments, the Company intends to continue its efforts to reduce the
likelihood of bypass by offering competitive rates and services to such
customers.
Gas Storage Competition. A number of types of competitors may provide
services like or in competition with those of Bay Gas. These include, among
others, natural gas storage facilities, natural gas aggregators, and natural gas
pipelines. Bay Gas believes that its strategic geographic location and its
ability to charge market-based rates for interstate storage services will enable
it to effectively compete with such competitors. See "Rates and Regulation."
RATES AND REGULATION
The natural gas distribution operations of Mobile Gas are under the
jurisdiction of the Alabama Public Service Commission ("APSC"). The APSC
approves rates which are intended to permit the recovery of the cost of service
including a return on investment. Rates are determined by reference to rate
tariffs approved by the APSC in traditional rate proceedings or, for certain
large customers, on a case-by-case basis. In addition, pursuant to APSC order,
rates for a limited number of large industrial customers are determined on a
privately negotiated basis. Beginning December 1, 1995, Mobile Gas also is
allowed to recover costs associated with its replacement of cast iron mains.
This component of rates is adjusted annually through a filing with the APSC. The
rates for service rendered by Mobile Gas are on
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file with the APSC. The APSC also approves the issuance of debt and equity
securities and has supervision and regulatory authority over service, equipment,
accounting, and other matters.
On June 10, 1996, the APSC authorized Mobile Gas to apply a temperature
rate adjustment to customers' gas bills for the months of November through
April. The temperature rate adjustment helps to level out the effects of
temperature extremes on Company earnings by reducing high gas bills to customers
in colder than normal weather and increasing gas revenues received by the
Company in warmer than normal weather. The temperature rate adjustment has been
reflected in customers' gas bills during the months of November through April
since November 1, 1996.
The Mobile Gas tariffs include a purchased gas adjustment clause which
allows it to pass on to certain of its customers increases or decreases in gas
costs from those reflected in its tariff charges. Adjustments under such clauses
require periodic filings with the APSC but do not require a general rate
proceeding. Under the purchased gas adjustment clause, Mobile Gas has a
competitive fuel clause which gives it the right to adjust its rates to certain
large customers in order to compete with alternative energy sources. Any margin
lost as a result of competitive fuel clause adjustments is recoverable from its
other customers.
Gas deliveries to certain industrial customers are subject to regulation by
the APSC through contract approval. The operations of SGT, which consist only of
intrastate transportation of gas, are also regulated by the APSC.
Bay Gas is a regulated utility governed under the jurisdiction of the APSC.
As a regulated utility, Bay Gas' intrastate storage contracts are subject to
APSC approval. Operation of the storage cavern and well-head equipment are
subject to regulation by the Oil and Gas Board of the State of Alabama. Bay Gas
is allowed by Federal Energy Regulatory Commission ("FERC") order to charge
market-based rates for interstate storage services. Market-based rates allow Bay
Gas to respond to market conditions and minimizes regulatory involvement in the
setting of its rates for storage services. Bay Gas filed a petition with the
FERC on November 5, 1998 seeking authority to provide transportation-only
services for both interstate and intrastate shippers. The FERC issued an order
on April 28, 1999 granting authority to Bay Gas to provide transportation-only
services to interstate and intrastate shippers and approved rates for such
services.
Mobile Gas has been granted nonexclusive franchises to construct, maintain
and operate a natural gas distribution system in the areas in which it operates.
Except for the franchise granted by Mobile County, Alabama, which has no stated
expiration date, the franchises have expiration dates, the earliest of which is
in 2007. The Company has no reason to believe that the franchises will not be
renewed upon expiration.
SEASONAL NATURE OF BUSINESS
The nature of the Company's business is highly seasonal and
temperature-sensitive. As a result, the Company's operating results in any given
period have historically reflected, in addition to other matters, the impact of
weather, with colder temperatures resulting in increased sales by the Company.
The substantial impact of this sensitivity to seasonal conditions has been
reflected in the Company's results of operations. As discussed above under
"Rates and
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Regulation" and below under "Management's Discussion and Analysis of Results of
Operations and Financial Condition" the application of a temperature rate
adjustment in customers' bills beginning in November 1996 has helped to level
out the effects of temperature extremes on results of operations.
Due to the seasonality of the Company's business, the generation of working
capital is impaired during the summer months because of reduced gas sales. Cash
needs during this period are met generally through short-term financing
arrangements or the reduction of temporary investments as is common in the
industry.
ENVIRONMENTAL ISSUES
The Company is subject to various federal, state and local laws and
regulations relating to the environment, which have not had a material effect on
the Company's financial position or results of operations.
Like many gas distribution companies, prior to the widespread availability
of natural gas, Mobile Gas manufactured gas for sale to its customers. In
contrast to some other companies which operated multiple manufactured gas
plants, Mobile Gas and its predecessor operated only one such plant, which
discontinued operations in 1933. The process for manufacturing gas produced
by-products and residuals, such as coal tar, and certain remnants of these
residuals are sometimes found at former gas manufacturing sites.
Mobile Gas conducted a preliminary assessment in 1994 of its former gas
plant site and has tested certain waters in the vicinity of the site. The
Company developed and has implemented a plan for the site based on the advice of
its environmental consultants, which involves securing and monitoring the site,
and continued testing. Based on the results of tests to date, the Company does
not believe that the site currently poses any threat to human health or the
environment. While no conclusion can be reached at this time as to whether any
further remedial action might ultimately be required, based on currently
available information, it is believed that any costs with respect to the site
are likely to be immaterial, and the Company has therefore established no
reserve for such costs in its financial statements. The Company intends that,
should further investigation or changes in environmental laws or regulations
require material expenditures for investigation, remediation, or clean-up with
regard to the site, it would apply to the APSC for appropriate rate recovery of
such costs. However, there can be no assurance that the APSC would approve the
recovery of such costs or the amount and timing of any such recovery.
EMPLOYEES
Mobile Gas employed 274 full-time employees as of September 30, 1999. Of
these, approximately 37% are represented by the Oil, Chemical and Atomic Workers
International Union, Local No. 3-541. As of September 30, 1999 Bay Gas employed
six full-time employees. The Company believes that it enjoys generally good
labor relations.
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Item 2. Properties.
The Company's properties consist of distribution, general, transmission,
and storage plant. The distribution plant is located in Mobile County, Alabama
and is used in the distribution of natural gas to the Company's customers. The
distribution plant consists primarily of mains, services, meters and regulating
equipment, all of which are adequate to serve the present customers. The
distribution plant is located on property which the Company is entitled to use
as a result of franchises granted by municipal corporations, or on easements or
rights-of-way.
The general plant consists of land, structures (with aggregate floor space
of approximately 118,000 square feet), office equipment, transportation
equipment and miscellaneous equipment, all located in Mobile County, Alabama.
The transmission plant consists of a pipeline of approximately 50 miles and
related surface equipment which is used in the transmission of natural gas by
SGT and is located primarily in Monroe County, Alabama. The transmission plant
is located on easements or rights-of-way.
The storage plant, consisting of an underground cavern for the storage of
natural gas and related pipeline and surface facilities, is located primarily in
Washington County, Alabama. The storage plant is constructed on a leasehold
estate with an initial term of 50 years, which will expire in 2040, and which
may be renewed at the Company's option for an additional term of 20 years.
Substantially all of the property of the Company is pledged as collateral
for the long-term debt.
Item 3. Legal Proceedings.
The Company is involved in litigation arising in the normal course of
business. Management believes that the ultimate resolution of such litigation
will not have a material adverse effect on the consolidated financial statements
of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
fourth quarter of fiscal year 1999.
Executive Officers of the Registrant
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered Item in Part I of this Report in lieu of being
included in the proxy statement to be filed with the Securities and Exchange
Commission.
Information relating to executive officers who are also directors is
included under the caption "Election of Directors" contained in the Company's
definitive proxy statement with respect to its 2000 Annual Meeting of
Stockholders and is incorporated herein by reference.
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The following is a list of names and ages of all of the executive officers
who are not also directors or nominees for election as directors of the
Registrant indicating all positions and offices with the Registrant held by each
such person and each such person's principal occupations or employment during
the past five years. All such persons have been elected for terms expiring in
January 2000. Officers are appointed by the Board of Directors of the Company.
Business Experience
Name, Age, and Position During Past 5 Years
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W. G. Coffeen, III, 53 Appointed in 1998
Vice President - Corporate Development and Planning -
EnergySouth, Inc.;
Vice President - Corporate Development and Planning - Mobile Gas; Appointed in 1998; Previously:
Director/Vice President - MGS Marketing Services, Inc.; Vice Vice President - Marketing, Mobile Gas Service
President - MGS Storage Services, Inc. Corporation (1986 - 1998)
Charles P. Huffman, 46 Appointed in 1998
Vice President, Chief Financial Officer, and Treasurer -
EnergySouth, Inc.
Vice President, Chief Financial Officer, Appointed in January 1995;
Treasurer, and Assistant Secretary - Mobile Gas Previously: Chief Financial Officer
Service Corporation; Vice President/Treasurer - (1993-1994)
EnergySouth Services, Inc.; Director/Vice
President/Treasurer - MGS Storage Services, Inc.;
Director/Vice President/
Treasurer - MGS Marketing Services, Inc.
G. Edgar Downing, Jr., 43* Appointed in 1998
Vice President, Secretary and General Counsel -
EnergySouth, Inc.;
Secretary, General Counsel and Vice President Appointed in 1998; Previously: Vice
of Administration -Mobile Gas Service President, Secretary and General
Corporation; Director/Vice President/Secretary - Counsel - Mobile Gas Service
EnergySouth Services, Inc.; Director/Vice Corporation (1994-1998)
President/Secretary - MGS Storage Services,
Inc.; Vice President/ Secretary - MGS
Marketing Services, Inc.
* Mr. Downing is the son-in-law of Gaylord C. Lyon, a Director of the Company.
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PART II
Item 5. Market for the Registrant's Common Stock Equity and Related
Stockholder Matters.
As part of the Reorganization, effective February 2, 1998, shareholders of
Mobile Gas automatically became shareholders of EnergySouth with each two shares
of Mobile Gas common stock outstanding on that date being converted into three
shares of EnergySouth common stock. All per share amounts presented below have
been restated to reflect the three-for-two conversion.
The Registrant's Common Stock, $.01 par value, is traded on the NASDAQ-AMEX
National Market under the symbol "ENSI". As of December 16, 1999 there were
1,517 holders of record of the Company's Common Stock. Information regarding
Common Stock dividends and the bid price range for Common Stock during the
periods indicated is as follows:
Per Share
Dividends Declared Closing Price Range
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Fiscal Year
Quarter Ended 1999 1998 1999 1998
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High Low High Low
December 31 $.220 $.200 $23.625 $18.000 $27.250 $23.688
March 31 .220 .200 23.000 20.000 27.500 21.500
June 30 .235 .220 20.250 18.250 24.000 20.125
September 30 .235 .220 21.625 19.500 23.250 18.938
Over-the-counter quotations reflect inter-dealer prices without retail
mark-up, mark-down or commissions and may not necessarily represent actual
transactions.
While the Board of Directors intends to continue the practice of paying
dividends quarterly, amounts and dates of such dividends as may be declared will
be dependent upon the Registrant's future earnings, financial requirements, and
other factors.
The Registrant's long-term debt instruments contain certain debt to equity
ratio requirements and restrictions on the payment of cash dividends and the
purchase of shares of its capital stock. None of these requirements are expected
to have a significant impact on the Registrant's ability to pay dividends in the
future.
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Item 6. Selected Financial Data.
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FINANCIAL SUMMARY
Years Ended September 30, 1999 1998 1997 1996 1995
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SELECTED FINANCIAL DATA
(in thousands, except per share data)
Gas Revenues $ 63,889 $ 70,740 $ 69,622 $ 68,334 $ 56,204
Merchandise Sales 2,827 2,920 2,678 2,674 2,576
Other 1,344 1,329 1,281 1,224 788
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Total Operating Revenues $ 68,060 $ 74,989 $ 73,581 $ 72,232 $ 59,568
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Income Before Cumulative Effect of Changes in Accounting Principles $ 8,624 $ 8,417 $ 8,126 $ 8,631 $ 4,028
Total Cumulative Effect of Changes in Accounting Principles (349) - - - -
-----------------------------------------------------
Net Income $ 8,275 $ 8,417 $ 8,126 $ 8,631 $ 4,028
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Cash Dividends Per Share of Common Stock (1) $ 0.91 $ 0.84 $ 0.78 $ 0.74 $ 0.70
Basic Earnings Per Share of Common Stock (1):
Income Before Cumulative Effect of Changes in Accounting Principles (1) $ 1.77 $ 1.73 $ 1.68 $ 1.79 $ 0.84
Net Income (1) $ 1.70 $ 1.73 $ 1.68 $ 1.79 $ 0.84
Diluted Earnings Per Share of Common Stock (1):
Income Before Cumulative Effect of Changes in Accounting Principles (1) $ 1.75 $ 1.71 $ 1.66 $ 1.78 $ 0.84
Net Income (1) $ 1.68 $ 1.71 $ 1.66 $ 1.78 $ 0.84
Weighted Average Common Shares Outstanding (1):
Basic (1) 4,884 4,865 4,844 4,826 4,812
Diluted (1) 4,933 4,926 4,881 4,838 4,812
Total Assets $173,635 $166,541 $161,867 $150,779 $136,567
Long-Term Debt Obligations $ 58,017 $ 58,979 $ 63,580 $ 54,509 $ 57,328
STATISTICAL
Gas Revenue (in thousands):
Sales:
Residential $ 39,575 $ 44,725 $ 44,330 $ 43,929 $ 36,106
Commercial and Industrial - Small 8,613 9,208 8,948 8,348 6,813
Commercial and Industrial - Large 5,242 6,784 7,638 7,914 6,151
Transportation 8,215 8,210 6,886 6,571 6,172
Storage (other than intercompany) 1,689 1,204 1,176 926 245
Other 555 609 644 646 717
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Total $ 63,889 $ 70,740 $ 69,622 $ 68,334 $ 56,204
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Delivery to Customers (in thousand therms):
Gas Sales:
Residential 39,866 51,493 48,099 59,403 47,992
Commercial and Industrial - Small 11,781 13,231 12,338 14,148 11,669
Commercial and Industrial - Large 11,683 15,169 16,975 23,252 19,536
Transportation 357,183 335,905 284,248 279,798 274,859
-----------------------------------------------------
Total 420,513 415,798 361,660 376,601 354,056
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Customers Billed (peak month):
Residential 95,022 95,443 95,446 95,338 94,822
Commercial and Industrial - Small 5,282 5,305 5,267 5,257 5,235
Commercial and Industrial - Large 92 97 101 105 108
Transportation 37 30 30 30 29
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Total 100,433 100,875 100,844 100,730 100,194
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Degree Days (2) 1,196 1,889 1,487 2,030 1,331
NUMBER OF EMPLOYEES (END OF PERIOD) 280 281 276 276 275
Note: (1) All references to number of shares and per share amounts have been
restated to reflect the three-for-two conversion of Mobile Gas common
stock into EnergySouth, Inc. common stock effective February 2, 1998.
Note: (2) The number of degrees that the daily mean temperature falls below 65
degrees F. The Company's rates were designed assuming annual normal
degree days of 1,640 beginning December 1, 1995 and an annual normal
of 1,695 for prior periods.
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Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
THE COMPANY
The following discussion and analysis encompasses EnergySouth, Inc. and its
direct and indirect subsidiaries (collectively referred to as the "Company").
EnergySouth became the holding company for Mobile Gas Service Corporation
(Mobile Gas) on February 2, 1998, and at that time Mobile Gas became a
wholly-owned subsidiary. The Company, primarily through Mobile Gas, is engaged
principally in the distribution of natural gas to residential, commercial and
industrial customers in Southwest Alabama. Other Company subsidiaries are
engaged in providing gas pipeline transportation, gas storage, gas marketing and
other energy-related services. The Alabama Public Service Commission (APSC)
regulates the Company's gas distribution and storage operations. Mobile Gas'
rate tariffs for gas distribution allow a pass-through to customers of the cost
of gas supplies, certain taxes, and incremental costs associated with the
replacement of cast iron mains. These costs, therefore, have little impact on
the Company's earnings. Other costs, including a return on investment, are
recovered through rates approved in traditional rate proceedings. Interstate gas
storage contracts of Bay Gas Storage Company, Ltd. (Bay Gas) do not require APSC
approval since the Federal Energy Regulatory Commission (FERC), which has
jurisdiction over such contracts, allows them to have market-based rates.
Market-based rates minimize regulatory involvement in the setting of rates for
storage services and allow Bay Gas to respond to market conditions. The FERC
issued an order on April 28, 1999 granting authority to Bay Gas to provide
transportation-only services to interstate and intrastate shippers and approved
rates for such service.
The Company's distribution business is highly seasonal and
temperature-sensitive since residential and commercial customers use more gas
during colder weather for heating. As a result, the Company's operating results
in any given period historically have reflected, in addition to other matters,
the impact of weather, through either increased or decreased sales volumes. The
Company utilizes a temperature rate adjustment rider to mitigate the impact that
unusually cold or warm weather has on customer billings and operating margins by
reducing high gas bills in colder than normal weather and increasing gas
revenues in warmer than normal weather. Normal weather for the Company's service
territory is defined as the 30-year average temperature as determined by the
National Weather Service. In the gas utility industry, heating degree-days are
the benchmark for measuring coldness and represent the number of degrees that
the daily average temperature falls below 65 degrees Fahrenheit.
RESULTS OF OPERATIONS
NET INCOME
Net income before the cumulative effect of changes in accounting principles
for the fiscal years ended September 30, 1999, 1998 and 1997 was $8,624,000 or
$1.75 per share, $8,417,000 or $1.71 per share and $8,126,000 or $1.66 per
share, respectively. All references to earnings per share amounts are computed
on a diluted basis. During fiscal 1999 the Company changed its accounting for
unbilled revenues to be consistent with prevailing industry practice and changed
its accounting for start-up costs to comply with new
11
13
accounting standards. In accordance with accounting rules, the amounts presented
for 1998 and 1997 have not been adjusted. Both accounting changes are discussed
in further detail within Note 1 to the Consolidated Financial Statements. The
cumulative effect on prior years of the accounting changes, reported as a
separate component of net income, decreased 1999 net income $349,000 ($0.07 per
share). Certain operating income components of current year net income were
impacted as a result of the accounting changes increasing net income $32,000
($0.01 per share). Assuming retroactive application of the accounting changes,
earnings per share amounts for fiscal 1999, 1998 and 1997 would have been $1.75,
$1.72 and $1.67, respectively. The increase in pro forma earnings for 1999
compared to 1998 is due primarily to increased revenues from gas storage
operations, decreased operations expenses and decreased interest expense. The
increase in earnings for 1998 compared to 1997 is due primarily to increased
margin on gas transportation revenues and decreased operations expenses.
OPERATING REVENUES
Gas revenues decreased $6,851,000 (10%) in 1999 compared to 1998. Included
within gas revenues for 1999 is the effect of accruing for unbilled gas revenues
at month-end while no such accrual is included within 1998 and 1997 since this
new accounting method was adopted in the first quarter of fiscal 1999. The
effect on gas revenues of the accounting change assuming retroactive application
is not materially different from amounts presented within the Consolidated
Statements of Income. Gas sales revenues to residential and commercial customers
decreased $5,743,000 (11%) due primarily to decreased gas sales volumes of 18%
resulting from weather in Mobile Gas' service area during the heating season
which was 37% warmer than prior year and 27% warmer than normal. The temperature
adjustment rider in rates mitigated the effect on earnings of weather to a large
degree; however, margins from customers whose usage is sensitive to weather were
down slightly from prior year. Margin is a term used to describe gas revenues
less related cost of gas. Revenues from temperature-sensitive customers were
also lower in 1999 compared to 1998 due to lower purchased gas costs passed
through to customers. Large commercial and industrial gas sales revenues
decreased $1,544,000 (23%) primarily due to warm weather, reduced rates related
to the pass-through of gas costs, and several customers changing from sales to
transportation agreements. Gas transportation revenues, excluding Bay Gas,
remained flat in 1999 compared to 1998. Revenues from natural gas storage and
transportation operations at Bay Gas increased $480,000 in 1999 compared to 1998
due primarily to transporting gas to a new electric co-generation plant that
began operations in 1999 and providing new storage services to a major electric
utility's new gas-fired electric generating facilities in the southeast. Bay Gas
has also contracted to transport gas beginning in 2000 to new gas-fired electric
generators located near the Bay Gas pipeline.
Gas revenues increased $1,118,000 (2%) in 1998 compared to 1997. Gas sales
revenues to residential and commercial customers increased $655,000 (1%) due to
a 7% increase in volumes resulting from weather which was 27% colder than prior
year and 15% colder than normal. Gas sales revenues in 1998 from residential and
commercial customers did not increase as much as expected considering the cold
weather since gas revenues were impacted negatively by a decrease in the
customer consumption per heating degree-day as compared to the historical
average. The decline in customer usage appears to be attributed to the
consistent moderate temperatures experienced throughout the fiscal 1998 heating
season even though temperatures were colder than normal in terms of degree-days.
12
14
Additional margins from increased sales volumes attributed to colder weather
were more than offset by the operation of Mobile Gas' temperature adjustment
rider. Large commercial and industrial gas sales revenues decreased $854,000
(11%) primarily due to several customers changing from sales to transportation
agreements while gas transportation revenues increased $1,324,000 (19%) as a
result of this switch in addition to new transportation customers added to the
distribution system.
Merchandise sales revenues decreased $93,000 (3%) in 1999 compared to 1998
and increased $242,000 (9%) in 1998 compared to 1997. The fluctuation for both
years is due primarily to record level of appliances sold in 1998.
Other operating revenues is comprised primarily of interest income from the
financing of merchandise sales and installations that occur at the Company and
through trade programs and also includes revenues from non-utility jobbing work,
engineering consulting, operations training and gas marketing services. Other
operating revenues increased $15,000 (1%) in 1999 due primarily to increased gas
marketing revenues and increased $48,000 (4%) in 1998 due primarily to increased
financing income and gas marketing revenues.
OPERATING EXPENSES
Cost of gas decreased $6,713,000 (29%) in 1999 compared to 1998 due to
decreased gas sales volumes of 19% resulting from weather warmer than the prior
year and decreased average cost of gas per therm sold of 3%. Cost of gas
increased $1,001,000 (5%) in 1998 compared to 1997 due to increased gas sales
volumes of 3% and increased average cost of gas per therm sold of 2%. The
Company passes the actual cost of gas on to customers under the purchased gas
adjustment provision of rate tariffs. The difference between actual gas costs
and the amount collected from its customers is included as a current asset or
liability in the Consolidated Balance Sheets and excluded from the Consolidated
Statements of Income. Because cost of gas is completely recovered from the
Company's customers, fluctuations in the cost of gas have no effect on gas
margins.
Cost of merchandise decreased $24,000 (1%) in 1999 and increased $268,000
(13%) in 1998 due primarily to higher merchandise sales volumes in 1998.
Operations and maintenance expenses decreased $75,000 (0.4%) in 1999
compared to 1998 primarily due to cost control efforts, decreased advertising
and sales promotion expenses, and a lower provision for uncollectible gas
receivables resulting from decreased outstanding receivables due to the warm
weather in 1999. Operations and maintenance expenses decreased $907,000 (5%) in
1998 compared to 1997 primarily due to decreased retirement expenses resulting
from a higher return on plan assets, decreased provision for uncollectible
financed receivables, and decreased other utility expenses.
Increases in depreciation expense in 1999 and 1998 were due to increased
depreciable plant in service.
Taxes, other than income taxes (other taxes), primarily consist of property
taxes and business license taxes that are based on gross revenues and fluctuate
accordingly. Other taxes decreased $230,000 (4%) in 1999 compared to 1998 due
primarily to decreased license taxes resulting from lower revenues. This impact
was offset partially by increased
13
15
property taxes resulting from the growth of plant in service. Other taxes
increased $323,000 (6%) in 1998 compared to 1997. During 1997, the Alabama
Department of Revenue approved the Company's claim for refund of a business
license tax that resulted in a reduction in other tax expense of $246,000.
OTHER INCOME AND EXPENSES
Interest expense decreased $319,000 (6%) in 1999 compared to 1998 primarily
as a result of decreased outstanding long-term debt caused partly by the early
redemption of $2,500,000 of 10.25% First Mortgage Bonds in October 1998. This
impact was offset partially by an increase in interest expense on short-term
debt due to increased average short-term debt outstanding during periods of
interim financing in 1999. Interest expense decreased $178,000 (3%) in 1998
compared to 1997 as a result of decreased outstanding long-term debt.
Allowance for borrowed funds used during construction represents the
capitalization of interest costs to construction work-in-progress. Capitalized
interest costs decreased slightly in 1999 compared to 1998 due to lower
short-term interest rates applied in the computations and lower balances on
significant construction projects. Capitalized interest costs decreased $117,000
in 1998 compared to 1997 due to completion in August 1997 of a significant
construction project to service a large industrial customer.
Interest income decreased $4,000 in 1999 compared to 1998. Interest income
of $73,000 associated with income tax refunds was recorded in 1998 while there
is no such miscellaneous interest income in 1999. This impact in 1999 was offset
partially by increased interest income from short-term investments resulting
from higher average short-term investment balances. Interest income increased
$117,000 in 1998 compared to 1997 due to the interest income associated with
income tax refunds and increased income from short-term investments.
Minority interest reflects the minority partners' share of pre-tax earnings
of the Bay Gas and Southern Gas Transmission Company partnerships, of which
EnergySouth, Inc. subsidiaries hold controlling interests.
Income tax expense fluctuates with the changes in income before income
taxes. The Company's effective tax rate in 1999, 1998 and 1997 was 36.7%, 37.1%
and 36.7%, respectively. The components of income tax expense are reflected in
Note 4 to the Consolidated Financial Statements.
EFFECTS OF INFLATION
Inflation impacts the prices the Company must pay for labor and other goods
and services required for operation, maintenance and capital improvements.
Changes in purchased gas costs are passed through to customers in accordance
with the purchased gas adjustment provision of the Company's rate schedules.
Increases in other utility costs must be recovered through timely filings for
rate relief.
14
16
GAS SUPPLY
A primary goal of the Company is to provide gas at the lowest possible cost
while maintaining a reliable long-term supply. To accomplish this goal the
Company has diversified its gas supply by constructing and purchasing pipelines
to access the vast gas reserves in our area, both offshore and onshore. The
Company has also contracted with certain of these sources for firm supply.
Future minimum payments under third-party contracts for firm gas supply, which
expire at various dates through the year 2002, are as follows: 2000 -
$1,698,000; 2001 - $1,216,000; and 2002 - $842,000. A portion of firm supply
requirements is met through the withdrawal of gas from the storage facility
owned by Bay Gas, EnergySouth's 87.5% owned partnership. Mobile Gas has a gas
storage agreement with Bay Gas to receive storage services for an initial period
of 20 years, which began in September 1994 with the commencement of commercial
operations of the storage facility. The Company's purchased gas adjustment
provision in rate schedules filed with the APSC allows the recovery of demand
and commodity costs of purchased gas from customers. Should the Company's
customer base decline due to deregulation or other reasons, resulting in costs
related to firm gas supply in excess of requirements, Management believes it
would be able to take one or more of the following actions: as part of the
regulatory decision allowing other suppliers to serve current customers, secure
the right to allocate firm gas supply costs to the new company supplying gas;
reduce some excess gas supply costs through a negotiated settlement with
suppliers; flow excess gas supply costs to existing customers through the
purchased gas component of customers rates.
ENVIRONMENTAL
The Company is subject to various federal, state and local laws and
regulations relating to the environment, which have not had a material effect on
the Company's financial position or results of operations. See Note 7 to the
Consolidated Financial Statements for a discussion of certain environmental
issues.
LIQUIDITY AND CAPITAL RESOURCES
The Company generally relies on cash generated from operations and on a
temporary basis, short-term borrowings, to meet working capital requirements and
to finance normal capital expenditures. The Company issues debt and equity for
longer term financing as needed. Cash provided by operating activities was $18.5
million, $14.6 million and $14.9 million in 1999, 1998 and 1997, respectively.
The increase in cash flow from operating activities in 1999 is due to an
increase in net income, adjusted for non-cash components, and the change in
operating assets and liabilities which generally reflects the timing differences
between years of cash receipts and payments on receivables and payables. The
decrease in cash provided by operating activities in 1998 compared to 1997 is
primarily due to a decrease in deferred tax expense.
Financing activities used cash of $4.1 million and $4.7 million in 1999 and
1998, respectively, and provided cash of $1.5 million in 1997. In October 1998,
the Company redeemed early $2,500,000 of 10.25% First Mortgage Bonds. Changes in
short-term borrowings represent interim financing. As of September 30, 1999,
1998 and 1997, the Company had borrowings on its revolving credit agreement of
$17.2 million, $12.7 million and
15
17
$10.7 million, respectively, of which $15.9 million, $12.7 million and $10.7
million, respectively, was related to the purchase of short-term federal
obligations for shares tax planning purposes. These investments matured in early
October of each year and the proceeds were used to repay the short-term debt.
Additional funding for working capital and capital requirements was obtained in
1997 from issuance of $12 million of 7.27% First Mortgage Bonds. A majority of
the funding was used to finance the construction of gas distribution facilities
in order to serve a large industrial customer with whom the Company has a
long-term contract to transport gas.
Cash used in investing activities reflects the capital-intensive nature of
the Company's business. During 1999, 1998 and 1997, the Company used cash for
construction of distribution and storage facilities, purchases of equipment and
other general improvements of $10.0 million, $7.6 million and $12.2 million,
respectively. Capital expenditures related to the gas storage facility were
$1,153,000, $288,000 and $831,000 in 1999, 1998 and 1997, respectively, while
the remaining portion of capital expenditures for each year primarily reflects
gas distribution system improvements and expansion.
The Company expects fiscal 2000 capital expenditures relating to regular
construction activity, equipment purchases and other general improvements to be
approximately $10.2 million. Bay Gas is planning to construct an additional
salt-dome cavern for storing 3.5 Bcf of natural gas with expanded injection and
withdrawal facilities. Bay Gas expects fiscal 2000 costs relating to the
additional cavern and facilities to be approximately $10.5 million. The
expansion of storage facilities is expected to be complete by September 2001 and
to be funded through the debt and/or equity markets. Funds for the Company's
short-term cash needs are expected to come from cash provided by operations and
borrowings under the Company's revolving credit agreement. At September 30,
1999, excluding the borrowings under the credit agreement related to the
purchase of short-term investments for shares tax planning purposes, the Company
had $18.7 million available for borrowing on its revolving credit agreement.
Management believes it has adequate financial flexibility to meet its expected
cash needs in the foreseeable future.
YEAR 2000
The Company has substantially completed its work to resolve the potential
impact of the Year 2000 on the ability of its computerized information systems
to accurately process information that may be date sensitive. Programs that
recognize a date using "00" as the year 1900 rather than 2000 could result in
errors or system failures that could ultimately cause the Company to interrupt
service or become unable to process transactions and could thereby require the
Company to cease operations pending resolution of the problem. Such an
eventuality would materially adversely affect the Company's business, financial
condition and results of operations. Accordingly, management has devoted
significant attention to identifying Year 2000 issues and testing its systems
for Year 2000 compliance.
The identification, assessment, remediation and testing of the Company's
computer systems have been completed. As a result, the Company has made changes
to its computer application programs and tested them accordingly. Personal
computers which are not Year 2000 ready have been identified and will be
replaced or removed from critical functions before the end of calendar 1999. The
state of Year 2000 readiness of hardware and software already evaluated will
continue to be monitored throughout 1999 to maintain this
16
18
readiness and to determine that there have been no subsequent changes,
exclusions or disclaimers by manufacturers resulting in a loss of Year 2000
readiness. Mission critical processes have been identified and contingency plans
have been developed in an effort to ensure the uninterrupted continuation of
customer service. An inventory and assessment of the Company's embedded systems
has been completed. The two systems for which failure of embedded systems would
be critical are responsible for monitoring and controlling 1) the distribution
of gas through the Company's pipeline system and 2) the underground storage
facility. Both systems have been replaced with systems that are certified by the
vendors to be Year 2000 compliant.
In addition to the remediation and testing efforts of the Company's
internal systems, the Company has contacted each of its significant vendors to
obtain a commitment that they are or will be Year 2000 compliant. If such
assurances are not forthcoming, or if management believes for any reason that
any of its significant vendors will not be Year 2000 compliant when required,
management plans to either contract with other vendors that would be able to
provide similar services at similar costs or have plans in place so operations
will not be materially affected.
During March 1999, the Company's Year 2000 project was subjected to a third
party Readiness Review for completeness. The Company has responded to the
recommendations made by the third party review which includes a limited amount
of on-going testing of third party software, continued assessment and inquiry of
significant vendors and finalizing contingency plans for mission critical
processes. Each department within the Company has completed a written
contingency plan which has been compiled into a comprehensive plan for the
Company. A steering committee of the Company's executive management has reviewed
and will continue to review the Year 2000 project progress on a regular basis.
As of September 30, 1999, the Company had incurred approximately $166,000
of remediation costs related to Year 2000 which was expensed and expects to
incur an additional $21,000. The Company has been utilizing working capital to
fund its Year 2000 compliance program and anticipates that it will continue to
do so. The Company's internal costs with respect to the Year 2000 project have
not been separately identified, but management believes that they are
immaterial. Through our Year 2000 project analysis, the system responsible for
monitoring and controlling the underground storage facilities was determined not
to be Year 2000 compliant. The Company incurred and capitalized approximately
$70,000 in fiscal 1999 for the replacement system. The system responsible for
monitoring and controlling the distribution of gas through the Company's
pipeline system was planned and scheduled for replacement as part of the
Company's normal systems upgrade before the Year 2000 project was initiated. The
primary reason for replacing this system was to achieve increased efficiency and
functionality. The cost of this replacement has been appropriately capitalized
and is excluded from the above Year 2000 costs.
The Company has identified what it believes are the most significant worst
case Year 2000 scenarios which would have a material, adverse impact on the
Company. These include the ability to receive gas into our system and deliver
gas to customers, the ability to communicate with customers, and the ability to
bill and process payment collections on a timely basis. The most reasonably
likely worst case scenario associated with the Year 2000 issues would be the
Company's inability to continue to receive and distribute gas to its customers
without interruption. In order to address this worst case scenario, the Company
17
19
has developed contingency plans to continue to deliver gas primarily through
manual intervention and other procedures should it become necessary to do so.
Such procedures include back-up power supply for its critical distribution and
storage operations, and if necessary, curtailment of supply. The Company's
storage capacity would be used to supplement system supply in the event its
suppliers are unable to make deliveries. The Company's contingency plans also
include measures for communicating with emergency services and alternative
methods of communicating with employees stationed at critical locations within
the service territory and with employees scheduled to handle potential service
calls.
Contingency planning, risk mitigation, and testing activities will continue
through the year rollover by the Company. The Company's goal is that Year 2000
issues will be addressed in a manner that will prevent such issues from having a
material effect on the Company's business, financial condition and result of
operations. While the Company has and will continue to pursue Year 2000
compliance, there can be no assurance that the Company and its vendors will be
successful in identifying and addressing all material Year 2000 issues.
FORWARD-LOOKING STATEMENTS
Statements contained in this report which are not historical in nature are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are subject to risks
and uncertainties that may cause actual future results to differ materially.
Such risks and uncertainties with respect to the Company include, but are not
limited to, its ability to successfully achieve internal performance goals,
competition, the effects of state and federal regulation, including rate relief
to recover increased capital and operating costs, general economic conditions,
and specific conditions in the Company's service area. Additional factors that
may impact forward-looking statements include the Company's dependence on
external suppliers, partners, operators, service providers, and governmental
agencies and their ability to upgrade their business systems and measurement and
control systems in order to mitigate the potential adverse effects of the Year
2000 issue.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company does not have any derivative financial instruments such as
futures, forwards, swaps and options. Also, the Company has no market
risk-sensitive instruments held for trading purposes. At September 30, 1999 the
Company had approximately $59.0 million of long-term debt at fixed interest
rates. Interest rates range from 7.27% to 9.00% and the maturity dates of such
debt extend to 2023. See the information provided under the captions "The
Company", "Gas Supply", and "Liquidity and Capital Resources" in this Form 10-K
for the fiscal year ended September 30, 1999 for a discussion of the Company's
risks related to regulation, weather, gas supply, and the capital-intensive
nature of the Company's business.
Item 8. Financial Statements and Supplementary Data.
The financial statements and financial statement schedules and the
Independent Auditors' Report thereon filed as part of this report are listed in
the "EnergySouth, Inc. and
18
20
Subsidiaries Index to Financial Statements and Schedules" at Page F-1, which
follows Part IV hereof.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
There have been no disagreements on accounting and financial disclosure
with the Company's outside auditors which are required to be disclosed.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information under the captions "Election of Directors" and "Information
Regarding the Board of Directors" contained in the Company's definitive proxy
statement with respect to its 2000 Annual Meeting of Stockholders is
incorporated herein by reference.
For information with respect to executive officers of the Registrant, see
"Executive Officers of the Registrant" at the end of Part I of this Report.
Information under the caption "Reports Under Section 16 of the Securities
and Exchange Act" contained in the Company's definitive proxy statement with
respect to its 2000 Annual Meeting of Stockholders is incorporated herein by
reference.
Item 11. Executive Compensation.
Information under the caption "Executive Compensation" contained in the
Company's definitive proxy statement with respect to its 2000 Annual Meeting of
Stockholders is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information under the caption "Security Ownership of Certain Beneficial
Owners and Management" contained in the Company's definitive proxy statement
with respect to its 2000 Annual Meeting of Stockholders is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions.
There were no transactions required to be disclosed pursuant to this item.
19
21
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a), (d) Financial Statements and Financial Statement Schedules
See "EnergySouth, Inc. and Subsidiaries Index to Financial
Statements and Schedules" at page F-1, which follows
Part IV hereof.
(3) Exhibits - See Exhibit Index on pages E-1 through E-5.
(b) No reports on Form 8-K were filed during the last quarter of
the fiscal year ended September 30, 1999.
(c) Exhibits filed with this report are attached hereto.
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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.
ENERGYSOUTH, INC.
-----------------
Registrant
December 29, 1999 By: /s/ Charles P. Huffman
-------------------------
Charles P. Huffman, Vice President,
Chief Financial Officer and Treasurer
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:
Signature Title Date
--------- ----- ----
/s/ William J. Hearin Director, Chairman December 29, 1999
- ------------------------------------------
William J. Hearin
/s/ Walter L. Hovell Director, Vice-Chairman December 29, 1999
- ------------------------------------------
Walter L. Hovell
Director, President and
Chief Executive Officer
/s/ John S. Davis (Principal Executive Officer) December 29, 1999
- ------------------------------------------
John S. Davis
Vice President, Chief Financial
Officer and Treasurer (Principal
Financial and Accounting Officer)
/s/ Charles P. Huffman December 29, 1999
- ------------------------------------------
Charles P. Huffman
/s/ Joseph G. Hollis, Jr. Director December 29, 1999
- ------------------------------------------
Joseph G. Hollis, Jr.
21
23
Signatures (Continued)
/s/ John C. Hope Director December 29, 1999
- ------------------------------------------
John C. Hope
/s/ Gaylord C. Lyon Director December 29, 1999
- ------------------------------------------
Gaylord C. Lyon
/s/ S. Felton Mitchell, Jr. Director December 29, 1999
- ------------------------------------------
S. Felton Mitchell, Jr.
/s/ G. Montgomery Mitchell Director December 29, 1999
- ------------------------------------------
G. Montgomery Mitchell
/s/ F. B. Muhlfeld Director December 29, 1999
- ------------------------------------------
F. B. Muhlfeld
/s/ E. B. Peebles, Jr. Director December 29, 1999
- ------------------------------------------
E. B. Peebles, Jr.
/s/ Thomas B. Van Antwerp Director December 29, 1999
- ------------------------------------------
Thomas B. Van Antwerp
22
24
ENERGYSOUTH, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Independent Auditors' Report F-2
Consolidated Statements of Income for the years ended
September 30, 1999, 1998 and 1997 F-3
Consolidated Balance Sheets, September 30, 1999 and 1998 F-4
Consolidated Statements of Common Stockholders' Equity
for the years ended September 30, 1999, 1998 and 1997 F-6
Consolidated Statements of Cash Flows for the years ended
September 30, 1999, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8
Financial Statement Schedules
II Valuation and Qualifying Accounts and Reserves, Years
Ended September 30, 1999, 1998 and 1997 S-1
Schedules other than that referred to above are omitted and are not applicable
or not required.
F-1
25
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
EnergySouth, Inc.
Mobile, Alabama
We have audited the accompanying consolidated balance sheets of
EnergySouth, Inc. and its subsidiaries as of September 30, 1999 and 1998, and
the related consolidated statements of income, common stockholders' equity, and
cash flows for each of the three years in the period ended September 30, 1999.
Our audits also included the financial statement schedule listed in the Index
referred to in Item 14. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
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, such consolidated financial statements present fairly, in
all material respects, the financial position of EnergySouth, Inc. and its
subsidiaries at September 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended September
30, 1999 in conformity with generally accepted accounting principles. Also, in
our opinion, such financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
- --------------------------
Deloitte & Touche LLP
Atlanta, Georgia
October 29, 1999
F-2
26
CONSOLIDATED
STATEMENTS OF INCOME
- --------------------------------------------------------------------------------------------------------
Years Ended September 30, (in thousands, except per share data) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
Operating Revenues
Gas Revenues $ 63,889 $ 70,740 $ 69,622
Merchandise Sales 2,827 2,920 2,678
Other 1,344 1,329 1,281
-------- -------- --------
Total Operating Revenues 68,060 74,989 73,581
-------- -------- --------
Operating Expenses
Cost of Gas 16,183 22,896 21,895
Cost of Merchandise 2,231 2,255 1,987
Operations 17,250 17,371 18,269
Maintenance 1,579 1,533 1,542
Depreciation 6,467 6,278 5,933
Taxes, Other Than Income Taxes 5,362 5,592 5,269
-------- -------- --------
Total Operating Expenses 49,072 55,925 54,895
-------- -------- --------
Operating Income 18,988 19,064 18,686
-------- -------- --------
Other Income and (Expense)
Interest Expense (5,214) (5,533) (5,711)
Allowance for Borrowed Funds Used During Construction 49 60 177
Interest Income 315 319 202
Minority Interest (511) (526) (516)
-------- -------- --------
Total Other Income (Expense) (5,361) (5,680) (5,848)
-------- -------- --------
Income Before Income Taxes 13,627 13,384 12,838
Income Taxes (Note 4) 5,003 4,967 4,712
-------- -------- --------
Income Before Cumulative Effect of Changes in Accounting Principles 8,624 8,417 8,126
-------- -------- --------
Cumulative Effect on Prior Years of Change in Accounting Method For
Unbilled Revenue (Net of Income Tax Expense of $133)(Note 1) 235 -- --
Cumulative Effect on Prior Years of Change in Accounting Method For
Start-Up Costs (Net of Income Tax Benefit of $331)(Note 1) (584) -- --
-------- -------- --------
Total Cumulative Effect of Accounting Changes (Net of Tax) (349) -- --
-------- -------- --------
Net Income $ 8,275 $ 8,417 $ 8,126
======== ======== ========
Basic Earnings Per Share:
Income Before Cumulative Effect of Changes in Accounting Principles $ 1.77 $ 1.73 $ 1.68
Cumulative Effect of Accounting Changes (0.07) -- --
-------- -------- --------
Net Income $ 1.70 $ 1.73 $ 1.68
======== ======== ========
Diluted Earnings Per Share:
Income Before Cumulative Effect of Changes in Accounting Principles $ 1.75 $ 1.71 $ 1.66
Cumulative Effect of Accounting Changes (0.07) -- --
-------- -------- --------
Net Income $ 1.68 $ 1.71 $ 1.66
======== ======== ========
Pro Forma Amounts Assuming Retroactive Application
of Accounting Changes:
Net Income $ 8,624 $ 8,454 $ 8,150
======== ======== ========
Basic Earnings Per Share $ 1.77 $ 1.74 $ 1.68
======== ======== ========
Diluted Earnings Per Share $ 1.75 $ 1.72 $ 1.67
======== ======== ========
Average Common Shares Outstanding
Basic 4,884 4,865 4,844
Diluted 4,933 4,926 4,881
See Notes to Consolidated Financial Statements.
F-3
27
CONSOLIDATED
BALANCE SHEETS
ASSETS
- -----------------------------------------------------------------------------------
September 30, (in thousands) 1999 1998
- -----------------------------------------------------------------------------------
CURRENT ASSETS
Cash and Cash Equivalents $ 22,875 $ 18,515
Receivables
Gas 4,099 4,468
Unbilled Revenue (Note 1) 886 --
Merchandise 2,921 3,021
Other 687 759
Allowance for Doubtful Accounts (735) (626)
Materials, Supplies, and Merchandise (At Average Cost) 1,357 1,327
Gas Stored Underground For Current Use (At Average Cost) 1,180 1,435
Deferred Gas Costs (Note 1) -- 176
Deferred Income Taxes 1,129 1,430
Prepayments 2,156 1,375
--------- ---------
Total Current Assets 36,555 31,880
--------- ---------
PROPERTY, PLANT, AND EQUIPMENT (NOTE 2) 175,768 170,894
Less: Accumulated Depreciation and Amortization 49,855 44,872
--------- ---------
Property, Plant, and Equipment - Net 125,913 126,022
Construction Work in Progress 3,763 1,106
--------- ---------
Total Property, Plant, and Equipment 129,676 127,128
--------- ---------
OTHER ASSETS
Regulatory Assets (Note 2) 738 909
Merchandise Receivables Due After One Year 5,670 5,371
Deferred Charges 996 1,253
--------- ---------
Total Other Assets 7,404 7,533
--------- ---------
TOTAL $ 173,635 $ 166,541
========= =========
See Notes to Consolidated Financial Statements
F-4
28
LIABILITIES AND CAPITALIZATION
- -------------------------------------------------------------------------
September 30, (in thousands, except share data) 1999 1998
- -------------------------------------------------------------------------
CURRENT LIABILITIES
Current Maturities of Long-Term Debt (Note 3) $ 962 $ 4,600
Notes Payable 17,177 12,665
Accounts Payable 4,368 2,511
Dividends Declared 1,150 1,072
Customer Deposits 1,428 1,461
Taxes Accrued 3,182 3,551
Interest Accrued 1,612 1,794
Deferred Purchased Gas Adjustment 754 592
Other Liabilities 2,851 1,898
-------- --------
Total Current Liabilities 33,484 30,144
-------- --------
OTHER LIABILITIES
Accrued Pension Cost (Note 6) 1,189 1,452
Accrued Postretirement Benefit Cost (Note 6) 1,112 1,332
Deferred Income Taxes 11,705 10,945
Deferred Investment Tax Credits 392 418
-------- --------
Total Other Liabilities 14,398 14,147
-------- --------
Total Liabilities 47,882 44,291
-------- --------
Commitments and Contingencies (Note 7) -- --
-------- --------
CAPITALIZATION
Stockholders' Equity (Note 5)
Common Stock, $.01 Par Value
(Authorized 10,000,000 Shares; Outstanding
1999 - 4,894,000; 1998 - 4,872,000 Shares) 49 49
Capital in Excess of Par Value 18,563 18,135
Retained Earnings 45,542 41,711
-------- --------
Total Stockholders' Equity 64,154 59,895
Minority Interest 3,582 3,376
Long-Term Debt (Less Current Maturities) (Note 3) 58,017 58,979
-------- --------
Total Capitalization 125,753 122,250
-------- --------
Total $173,635 $166,541
======== ========
See Notes to Consolidated Financial Statements
F-5
29
CONSOLIDATED
STATEMENTS OF
COMMON STOCKHOLDERS'
EQUITY
Common Stock
------------------- Capital in
Number of Par Excess of Retained
(In thousands, except per share data) Shares Value Par Value Earnings
- ------------------------------------- --------- ------- ---------- --------
BALANCE AT SEPTEMBER 30, 1996 4,832 $ 49 $ 17,347 $ 33,004
Net Income 8,126
Dividend Reinvestment Plan 22 399
Cash Dividends - Common Stock - $.78 per share (3,748)
------- ------- ---------- --------
BALANCE AT SEPTEMBER 30, 1997 4,854 49 17,746 37,382
Net Income 8,417
Dividend Reinvestment Plan 16 369
Cash Paid in Lieu of Fractional Shares
for Stock Conversion (6)
Exercise of Stock Options 2 26
Cash Dividends - Common Stock - $.84 per share (4,088)
------- ------- ---------- --------
BALANCE AT SEPTEMBER 30, 1998 4,872 49 18,135 41,711
Net Income 8,275
Dividend Reinvestment Plan 19 386
Exercise of Stock Options 3 42
Cash Dividends - Common Stock - $.91 per share (4,444)
------- ------- ---------- --------
BALANCE AT SEPTEMBER 30, 1999 4,894 $ 49 $ 18,563 $ 45,542
======= ======= ========== ========
See Notes to Consolidated Financial Statements
F-6
30
CONSOLIDATED
STATEMENTS OF
CASH FLOWS
- -------------------------------------------------------------------------------------------
Years Ended September 30, (in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 8,275 $ 8,417 $ 8,126
Depreciation and Amortization 6,795 6,596 6,181
Organization and Start-Up Costs Written Off 1,003 -- --
Provision for Losses on Accounts Receivable 473 534 821
Provision for Deferred Income Taxes 1,129 745 1,691
Provision for Deferred Gas Cost 176 55 (45)
Minority Interest 206 391 534
Changes in Operating Assets and Liabilities 433 (2,177) (2,379)
-------- -------- --------
Net Cash Provided by Operating Activities 18,490 14,561 14,929
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (10,026) (7,642) (12,232)
-------- -------- --------
Net Cash Used In Investing Activities (10,026) (7,642) (12,232)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Long-Term Debt (4,600) (2,930) (2,818)
Proceeds from Issuance of Long-Term Debt -- -- 12,000
Changes in Short-Term Borrowings 4,512 1,965 (4,300)
Payment of Dividends, Net of Dividend Reinvestment (4,016) (3,699) (3,349)
-------- -------- --------
Net Cash Provided (Used) by Financing Activities (4,104) (4,664) 1,533
-------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,360 2,255 4,230
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,515 16,260 12,030
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 22,875 $ 18,515 $ 16,260
-------- -------- --------
CASH PAID DURING THE YEAR FOR:
Interest $ 5,216 $ 5,558 $ 5,325
-------- -------- --------
Income Taxes $ 4,153 $ 3,886 $ 3,289
======== ======== ========
See Notes to Consolidated Financial Statements
F-7
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of EnergySouth, Inc. (EnergySouth) and its
subsidiaries (collectively the Company) include the accounts of Mobile Gas
Service Corporation (Mobile Gas); EnergySouth Services, Inc. (Services); MGS
Storage Services, Inc. (Storage); MGS Marketing Services, Inc. (Marketing); an
87.5% owned partnership, Bay Gas Storage Company, Ltd. (Bay Gas), and a 51%
owned partnership, Southern Gas Transmission Company (SGT). Minority interest
represents the respective other owner's proportionate shares of the income and
equity of Bay Gas and SGT. All significant intercompany balances and
transactions have been eliminated. All references to number of shares, per share
amounts, stock option data and market prices presented throughout the financial
statements have been restated to reflect the three-for-two conversion of Mobile
Gas common stock into EnergySouth common stock, effective February 2, 1998.
DESCRIPTION OF BUSINESS
The Company is principally engaged in the distribution and storage of natural
gas. Through Mobile Gas and SGT, the Company is engaged primarily in the
distribution and transportation of natural gas to residential, commercial and
industrial customers in Southwest Alabama. The Alabama Public Service Commission
(APSC) regulates the Company's gas distribution operations. For the major
portion of the Company's business, the APSC approves rates which are intended to
permit the recovery of the cost of service including a return on investment. Gas
deliveries to certain industrial customers are subject to regulation by the APSC
through contract approval.
Through Storage and Bay Gas, the Company provides for the underground storage of
natural gas and transportation services. The APSC regulates intrastate storage
operations through contract approval. Interstate gas storage contracts do not
require APSC approval since the Federal Energy Regulatory Commission (FERC),
which has jurisdiction over such contracts, allows them to have market-based
rates. The FERC issued an order on April 28, 1999 granting authority to Bay Gas
to provide transportation-only services to interstate and intrastate shippers
and approved rates for such services.
The Company also provides natural gas marketing, merchandising, and other
energy-related services through Marketing, Mobile Gas, and Services.
F-8
32
REVENUES AND GAS COSTS
Effective October 1, 1998, the Company changed its method of accounting for
unbilled revenues to be consistent with prevailing industry practice. Prior to
October 1, 1998, the Company recorded revenues as meters were read on a monthly
cycle basis and the commodity cost of purchased gas applicable to gas delivered
but not billed at month-end was deferred and classified as Deferred Gas Costs
within the Company's Balance Sheet. The accrual method adopted records revenues
based upon estimated consumption through the end of the month for all customers
regardless of the meter reading date. The effect of the change for the fiscal
year ended September 30, 1999 was to increase net income by $268,000, or $.055
per share of which $235,000, or $.05 per share, the cumulative effect of the
change as of October 1, 1998, has been reclassified and reported as a separate
component of net income.
Increases or decreases in the cost of gas and certain other costs are passed
through to customers in accordance with provisions in the Company's rate
schedules. Any over or under recoveries of these costs are charged or credited
to cost of gas and included in current assets or liabilities as the Deferred
Purchased Gas Adjustment within the Company's Balance Sheet. Mobile Gas' rates
contain a temperature adjustment rider which is designed to offset the impact of
unusually cold or warm weather on the Company's operating margin. The adjustment
is calculated monthly and applied to customer's bills in the same billing cycle
in which the weather variation occurs. The temperature adjustment rider applies
to substantially all residential, small commercial and small industrial
customers.
PROPERTY, PLANT, AND EQUIPMENT
Substantially all property, plant, and equipment is considered utility plant.
Included in property, plant, and equipment are acquisition adjustments, net of
amortization, of $7,660,000 and $8,039,000 at September 30, 1999 and 1998,
respectively. Such acquisition adjustments are being amortized to cost of
service over the lives of the assets acquired.
The cost of additions includes direct labor and materials, allocable
administrative and general expenses, pension and payroll taxes, and an allowance
for funds used during construction. The cost of depreciable property retired,
plus cost of dismantling, less salvage, is charged to accumulated depreciation.
Estimated interest cost associated with property under construction, based upon
weighted average interest rates for short-term borrowings or the interest rate
on borrowings for specific projects, is capitalized as an allowance for borrowed
funds used during construction. Maintenance, repairs, and minor renewals and
betterment of property are charged to operations.
Provisions for depreciation are computed principally on straight-line rates for
financial statement purposes and on accelerated rates for income tax purposes.
Depreciation for financial statement purposes is provided at an annual rate
averaging approximately 4.0% of depreciable property, excluding the gas storage
facility which is depreciated at an annual rate averaging 2.7%.
F-9
33
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
INCOME TAXES
The Company records deferred tax liabilities and assets, as measured by enacted
tax rates, for all temporary differences caused when the tax basis of an asset
or liability differs from that reported in the financial statements. Investment
tax credits realized after 1980 are deferred and amortized over the average life
of the related property in accordance with regulatory treatment.
EARNINGS PER SHARE
Basic earnings per share are computed based on the weighted average number of
common shares outstanding during each period. Diluted earnings per share are
computed based on the weighted average number of common shares and diluted
potential common shares, using the treasury stock method, outstanding during
each period.
Average common shares used to compute basic earnings per share differed from
average common shares used to compute diluted earnings per share by equivalent
shares of 49,000, 61,000, and 37,000, for the years ended September 30, 1999,
1998, and 1997, respectively. These differences in equivalent shares are from
outstanding stock options.
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.
LONG-LIVED ASSETS
The Company reviews its long-lived assets whenever indications of impairment are
present. If any assets are determined to be impaired, such assets would be
written down to their estimated fair market values. The Company does not believe
it has any assets which are currently impaired.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133) was issued in June 1998 and
establishes accounting and reporting standards for derivative instruments and
hedging activities. In June 1999, Statement of Financial Accounting Standards
No. 137 (SFAS 137)
F-10
34
was issued which defers the effective date of SFAS 133 for the Company until the
first quarter of fiscal 2000. The Company does not anticipate that SFAS 133 will
have a significant impact on the financial statements.
In March 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use" (SOP 98-1). SOP 98-1 established criteria for
accounting for costs as operating expense when incurred, or as a capital
expenditure. It provides that internal and external cost incurred to develop or
obtain new software during the "application development stage" should be
capitalized. Other costs, including preliminary project costs, training, data
conversion, and upgrades and enhancements would be expensed under the provisions
of SOP 98-1. With implementation of SOP 98-1 in fiscal 2000, the Company will
begin to capitalize certain direct payroll and payroll-related costs for
employees directly associated with activities defined within the "application
development stage" which in the past have been expensed. The materiality of this
change is dependent upon the magnitude of the costs of specific software
development or acquisition projects incurred in any period.
Effective October 1, 1998, the Company adopted Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities" (SOP 98-5) and recorded a
cumulative effect of change in accounting method expense of $584,000, or $0.12
per share, net of tax, as a result of expensing organization and start-up costs
previously capitalized. The effect on current and future years operating income
as a result of not expensing the amortization of such costs is not material to
the financial statements.
RECLASSIFICATIONS
Certain amounts in the prior years financial statements have been reclassified
to conform with the 1999 financial statement presentation.
F-11
35
2. PROPERTY AND REGULATORY ASSETS
The functional classifications for the cost of property, plant, and equipment
are as follows at September 30, (in thousands):
1999 1998
-------- --------
Distribution plant $107,714 $103,347
General Plant 17,249 16,219
Storage plant 37,708 38,022
Transmission plant 3,485 3,479
Acquisition adjustment 9,612 9,827
-------- --------
Total property, plant, and equipment $175,768 $170,894
-------- --------
The components of regulatory assets are as follows at September 30, (in
thousands):
1999 1998
-------- --------
Income tax (Note 4) $ 738 $ 897
Other -- 12
-------- --------
Total regulatory assets $ 738 $ 909
-------- --------
3. NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt consists of the following at September 30, (in thousands):
1999 1998
------- -------
Mobile Gas Service Corporation
First Mortgage Bonds
10.25% Series, due October 1, 2001 $ -- $ 3,500
8.75% Series, due July 1, 2022 12,000 12,000
7.48% Series, due July 1, 2023 12,000 12,000
7.27% Series, due November 1, 2006 12,000 12,000
9% Note, due May 13, 2013 3,480 3,603
Bay Gas Storage Company, Ltd.
8.19% Guaranteed Senior Secured Notes
due December 1, 2014 19,499 20,263
Southern Gas Transmission Company
Revenue Note, Series A, due February 1, 1999
(Interest rate of 8.05% for 1998) -- 213
------- -------
Total 58,979 63,579
Less amounts due within one year 962 4,600
------- -------
Long-term debt $58,017 $58,979
======= =======
The 10.25% Series, due October 1, 2001, was called for early redemption on
October 1, 1998 as allowed by the Indenture of Mortgage. As a result of the
early payment of these bonds, the $3,500,000 principal amount due as of
September 30, 1998 was included in current maturities of long-term debt at
September 30, 1998. Other maturities and sinking fund requirements on long-term
debt in each of the five fiscal years subsequent to September 30, 1999 are as
follows: 2000 - $962,000;
F-12
36
2001 - $2,795,000; 2002 - $2,834,000, 2003 - $2,931,000, and 2004 - $4,267,000.
The Company's long-term debt instruments contain certain debt to equity ratio
requirements and restrictions on the payment of cash dividends and the purchase
of shares of its capital stock. None of these requirements and restrictions are
expected to have a significant impact on the Company's ability to pay dividends
in the future. Substantially all of the property of the Company is pledged as
collateral for the long-term debt.
At September 30, 1999, the Company had a $20 million revolving credit agreement
with a group of banks. Borrowings under the agreement may be made as needed
provided that the Company is in compliance with certain covenants in the
revolving credit agreement and other loan agreements. The Company currently is
in compliance with all such covenants. The Company pays a fee for its committed
lines of credit rather than maintain compensating balances. The commitment fee
is 0.125% of the average daily unborrowed amount during the annual period of
calculation. Unused committed lines of credit at September 30, 1999 and 1998
were $2.8 million and $7.3 million, respectively. The weighted average interest
rates on short-term debt outstanding at September 30, 1999 and 1998 were 6.4%
and 6.6%, respectively.
F-13
37
4. INCOME TAXES
The components of income tax expense are as follows for the years ended
September 30, (in thousands):
1999 1998 1997
------- ------- -------
Current
Federal $ 3,473 $ 3,869 $ 2,750
State 256 392 286
------- ------- -------
Total Current Taxes 3,729 4,261 3,036
------- ------- -------
Deferred
Federal 983 662 1,544
State 119 70 158
------- ------- -------
Total Deferred Taxes 1,102 732 1,702
------- ------- -------
Deferred investment tax credit
amortization (26) (26) (26)
------- ------- -------
Total income tax expense 4,805 4,967 4,712
------- ------- -------
Amounts reclassified on the income statement
to cumulative effect of accounting changes 198 -- --
------- ------- -------
Total income tax expense before cumulative
effect of accounting changes $ 5,003 $ 4,967 $ 4,712
======= ======= =======
A reconciliation of income tax expense and the amount computed by multiplying
income before income taxes by the statutory federal income tax rate for the
periods indicated is as follows for the years ended September 30, (in
thousands):
1999 1998 1997
------- ------- -------
Income tax expense at federal
statutory rate $ 4,478 $ 4,550 $ 4,365
Excess of book over tax depreciation on
pre-1981 property additions 127 120 113
State income taxes 284 305 289
Other - net (84) (8) (55)
------- ------- -------
Total income tax expense $ 4,805 $ 4,967 $ 4,712
======= ======= =======
Effective tax rate 36.7% 37.1% 36.7%
======= ======= =======
F-14
38
The tax effect of differences in book and tax depreciation related to pre-1981
property additions was recognized in income for accounting and ratemaking
purposes prior to 1981. With the adoption in fiscal 1994 of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," the
Company recorded deferred taxes related to this temporary difference and a
corresponding regulatory asset expected to be collected in customer rates when
such taxes become payable in accordance with the current ratemaking practices
followed by the APSC. Such future collections included in regulatory assets were
$738,000 and $897,000 at September 30, 1999 and 1998, respectively.
No valuation allowance is deemed necessary, as the Company anticipates
generating adequate future taxable income to realize the benefits of all
deferred tax assets on the balance sheet.
The significant components of the Company's net deferred tax liability as of
September 30, are (in thousands):
1999 1998
------- -------
Deferred tax liabilities
Differences between book and tax
basis of property $12,834 $11,797
Prepaid insurance 348 199
Regulatory assets 267 325
Other 20 87
------- -------
Total deferred tax liabilities 13,469 12,408
------- -------
Deferred tax assets
Pension 430 526
Gross receipts taxes 526 592
Unbilled revenue -- 280
Postretirement benefits 193 223
Purchased gas adjustment 272 214
Bad debts 262 222
Accrued vacation 201 193
Other 1,009 643
------- -------
Total deferred tax assets 2,893 2,893
------- -------
Net deferred tax liability $10,576 $ 9,515
------- -------
5. CAPITAL STOCK
The number of authorized shares of EnergySouth common stock is 10,000,000
shares. Effective February 2, 1998, shareholders of Mobile Gas received three
shares of EnergySouth common stock for each two shares of Mobile Gas common
stock held on that date. Cash was paid to certain shareholders in lieu of
fractional shares. An amount equal to the par value of the incremental shares
issued was transferred from capital in excess of par value. All references to
number of shares and per share amounts have been restated to reflect the
three-for-two conversion.
F-15
39
The Amended and Restated Stock Option Plan of EnergySouth, Inc. (the "Plan")
provides for the granting of incentive stock options, non-qualified stock
options, and stock appreciation rights to key employees. Under the Plan, an
aggregate of 350,000 shares of the Company's authorized but unissued Common
Stock have been reserved for issuance. On January 29, 1999, the stockholders
approved a proposed amendment to the Plan to increase the number of shares
available for issuance from 225,000 to 350,000 shares. Stock options become 25%
exercisable on the first anniversary of the grant date and an additional 25%
become exercisable each succeeding year. No option may be exercised after the
expiration of ten years from the grant date. During the year ended September 30,
1995, 157,500 options were granted at an option price of $14.083, representing
the market price on the date of grant. During the year ended September 30, 1999,
31,500 options were granted at an option price of $22.00, representing the
market price on the date of grant. Transactions under the Plan are summarized
below:
As of September 30, 1999 1998 1997
-------- -------- --------
Outstanding at beginning of year 155,650 157,500 157,500
Exercised (at $14.083) (3,000) (1,850) --
Granted (at $22.00) 31,500 -- --
-------- -------- --------
Outstanding at end of year 184,150 155,650 157,500
-------- -------- --------
Exercisable at end of year 152,650 116,275 78,750
-------- -------- --------
Remaining reserved for issuance at end of year 161,000 67,500 67,500
-------- -------- --------
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS
123). Accordingly, no compensation expense has been recognized for its stock
options granted. For purposes of disclosing pro-forma net income, the fair
market value of the options at the date of grant was estimated to be $7.71 using
a Black-Scholes options pricing model. The following weighted average
assumptions were used for valuing the options granted during fiscal 1999: risk
free interest rate of 4.65%, expected life of 10 years, stock price volatility
of 45.00%, and a dividend yield of 4.20%. Had compensation cost for these
options granted during 1999 been determined in accordance with SFAS 123, the
Company's net income and diluted earnings per share would have been $8,249,000,
or $1.67 per share for the year ended September 30, 1999.
At September 30, 1999, 263,000 shares of the Company's authorized but unissued
Common Stock were reserved for issuance under the Company's Dividend
Reinvestment and Stock Purchase Plan.
F-16
40
6. RETIREMENT PLANS AND OTHER BENEFITS
The Company has a noncontributory, defined benefit retirement plan covering
substantially all of its employees. Benefits are based on the greater of amounts
resulting from two different formulas: years of service and average compensation
during the last five years of employment, or years of service and compensation
during the term of employment. The Company annually contributes to the plan the
amount deductible for federal income tax purposes.
The Company also provides certain health care and life insurance benefits for
retired employees. Substantially all employees may become eligible for such
benefits if they retire under the provisions of the Company's retirement plan.
The Company is accruing the costs over the expected service period of the
employees.
The "projected unit credit" actuarial method was used to determine service cost
and actuarial liability.
The following table sets forth the funded status of the plans and the amounts
recorded in the financial statements at September 30, (in thousands):
Pension Postretirement
Benefits Benefits
-------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of the period $ 18,729 $ 18,009 $ 3,543 $ 3,426
Service cost 696 599 85 82
Interest cost 1,390 1,299 258 249
Benefits paid (1,030) (986) (212) (202)
(Gain)/loss 341 (192) -- (12)
-------- -------- -------- --------
Benefit obligation at the end of the period $ 20,126 $ 18,729 $ 3,674 $ 3,543
-------- -------- -------- --------
CHANGE IN PLAN ASSETS
Fair value of assets at the beginning of the period $ 30,263 $ 29,293 $ 2,687 $ 2,366
Benefits paid (1,030) (986) -- --
Contributions -- -- 137 70
Actual return on plan assets 2,810 1,956 284 251
-------- -------- -------- --------
Fair value of plan assets at the end of the period $ 32,043 $ 30,263 $ 3,108 $ 2,687
-------- -------- -------- --------
FUNDED STATUS
Plan assets in excess of benefit obligation $ 11,917 $ 11,534 $ (566) $ (856)
Unrecognized net (gain)/loss (12,596) (12,334) (131) (23)
Prior service cost not yet recognized 351 391 (415) (453)
Remaining unrecognized transition asset (861) (1,043) -- --
-------- -------- -------- --------
Accrued benefit cost $ (1,189) $ (1,452) $ (1,112) $ (1,332)
-------- -------- -------- --------
F-17
41
Pension Postretirement
Benefits Benefits
------------------------ ----------------------
Weighted average assumptions as of
September 30, 1999 1998 1997 1999 1998 1997
---- ---- ---- ---- ---- ----
Average discount rate 7.5% 7.5% 7.5% 7.5% 7.5% 7.5%
Expected rate of return on plan assets 7.5% 7.5% 7.5% 7.0% 7.0% 7.0%
Rate of compensation increase 6.1% 6.1% 6.1%
The accumulated postretirement benefit obligation at September 30, 1999 and 1998
was determined using an assumed health care cost trend rate of 8.0% in 1999 and
8.7% in 1998, gradually declining to 5.0% in the fiscal year 2004 and
thereafter.
The assumed health care cost trend rates have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effects (in
thousands):
1-Percentage- 1-Percentage-
Point Increase Point Decrease
-------------- --------------
1999 1998 1999 1998
----- ----- ----- -----
Effect on total of service and
interest cost components $ 30 $ 26 $ (25) $ (22)
Effect on postretirement benefit obligations 228 199 (194) (170)
Net periodic benefit cost included the following components for the years ended
September 30, (in thousands):
Pension Benefits Postretirement Benefits
----------------------------- -----------------------------
1999 1998 1997 1999 1998 1997
------- ------- ------- ------- ------- -------
Service cost $ 696 $ 599 $ 574 $ 85 $ 82 $ 83
Interest cost 1,390 1,299 1,248 258 249 240
Amortization of transition asset (183) (183) (183) -- -- --
Amortization of prior service cost 40 40 40 (38) (38) (38)
Amortization of unrecognized (gain)/loss (320) (291) (184) -- -- --
Expected return on plan assets (1,886) (1,731) (1,554) (177) (156) (118)
------- ------- ------- ------- ------- -------
Net periodic benefit cost $ (263) $ (267) $ (59) $ 128 $ 137 $ 167
------- ------- ------- ------- ------- -------
The Company has formed two voluntary employees' beneficiary association (VEBA)
trusts to fund postretirement health and life insurance benefits. The Company's
contributions to these trusts in 1999, 1998, and 1997 were $137,000, $70,000,
and $215,000, respectively.
The Company's eligible employees may participate in the Employee Savings Plan or
the Bargaining Unit Employees Savings Plan, both of which are 401(k) plans. The
Company's contributions for the years ended September 30, 1999, 1998, and 1997
were $239,000, $248,000, and $255,000, respectively.
F-18
42
7. COMMITMENTS AND CONTINGENCIES
The Company has third-party contracts, which expire at various dates through the
year 2002, for the purchase, storage and delivery of gas supplies. Minimum
payments under these contracts in the fiscal years subsequent to September 30,
1999 are as follows: 2000 - $1,698,000; 2001 - $1,216,000; and 2002 - $842,000.
A portion of firm supply requirements is expected to be met through the
withdrawal of gas from the storage facility owned by Bay Gas. Mobile Gas has
entered into a Gas Storage Agreement under which Bay Gas is to provide storage
services for an initial period of 20 years which began in September 1994 with
the commencement of commercial operations of the storage facility. The purchased
gas adjustment provisions of the Company's rate schedules permit the recovery of
gas costs from customers.
The Company is subject to various federal, state and local laws and regulations
relating to the environment, which have not had a material effect on the
Company's financial position or results of operations.
Like many gas distribution companies, prior to the widespread availability of
natural gas, the Company manufactured gas for sale to its customers. In contrast
to some other companies which operated multiple manufactured gas plants, the
Company and its predecessor operated only one such plant, which discontinued
operations in 1933. The process for manufacturing gas produced by-products and
residuals, such as coal tar, and certain remnants of these residuals are
sometimes found at former gas manufacturing sites.
The Company conducted a preliminary assessment in 1994 of its former gas plant
site and has tested certain waters in the vicinity of the site. The Company
developed and has implemented a plan for the site based on the advice of
environmental consultants, which involves securing and monitoring the site, and
continued testing. Based on the results of tests to date, the Company does not
believe that the site currently poses any threat to human health or the
environment. While no conclusion can be reached at this time as to whether any
further remedial action might ultimately be required, based on currently
available information, it is believed that any costs with respect to the site
are likely to be immaterial, and the Company has, therefore, established no
reserve for such costs in its financial statements. The Company intends that,
should further investigation or changes in environmental laws or regulations
require material expenditures for investigation, remediation, or clean-up with
regard to the site, it would apply to the APSC for appropriate rate recovery of
such costs. However, there can be no assurance that the APSC would approve the
recovery of such costs or the amount and timing of any such recovery.
The Company is involved in litigation arising in the normal course of business.
Management believes that the ultimate resolution of such litigation will not
have a material adverse effect on the consolidated financial statements of the
Company.
F-19
43
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of financial instruments have been reported to meet the disclosure
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Values of Financial Instruments", and are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
The carrying amounts for cash and cash equivalents, gas and other receivables,
notes payable, accounts payable and other current liabilities approximate fair
value. The fair value of merchandise receivables is estimated based on market
interest rates for similar receivables at the end of each respective year. The
carrying amount of merchandise receivables, as shown below, is net of the
reserve for uncollectible merchandise receivables of $581,000 and $484,000 for
the years ended September 30, 1999 and 1998, respectively. The fair value of
long-term debt is estimated based on interest rates available to the Company at
the end of each respective year for the issuance of debt with similar terms and
remaining maturities.
The carrying amount and the estimated fair value of such financial instruments
are as follows at September 30, (in thousands):
1999 1998
--------------------- ---------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
Merchandise receivables $ 8,010 $ 8,068 $ 7,908 $ 7,941
Long-term debt 58,979 61,627 63,579 72,860
F-20
44
9. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 1999 and 1998 is summarized as follows (in
thousands, except per share data):
Three Months Ended Dec. 31 Mar. 31 Jun. 30 Sep. 30
1999 ---------- ---------- ---------- ----------
- ----
Total operating revenues $ 19,859 $ 23,327 $ 13,266 $ 11,608
Total operating income 6,130 7,325 3,043 2,490
Income before cumulative effect 2,898 3,759 1,097 870
Cumulative effect of accounting changes (381) -- 32 --
Net income 2,517 3,759 1,129 870
Basic earnings per share
Income before cumulative effect $ 0.60 $ 0.77 $ 0.22 $ 0.18
Cumulative effect of accounting changes (0.08) -- 0.01 --
Net income 0.52 0.77 0.23 0.18
Diluted earnings per share
Income before cumulative effect $ 0.59 $ 0.76 $ 0.22 $ 0.18
Cumulative effect of accounting changes (0.08) -- 0.01 --
Net income 0.51 0.76 0.23 0.18
1998
- ----
Total operating revenues $ 20,328 $ 28,766 $ 14,109 $ 11,786
Total operating income 4,622 9,050 3,268 2,124
Net income 1,989 4,791 1,153 484
Basic earnings per share (1) $ 0.41 $ 0.99 $ 0.24 $ 0.10
Pro forma amounts assuming retroactive
application of accounting changes (1) 0.59 0.86 0.21 0.09
Diluted earnings per share (1) $ 0.40 $ 0.97 $ 0.23 $ 0.10
Pro forma amounts assuming retroactive
application of accounting changes 0.58 0.84 0.21 0.09
The pattern of quarterly earnings reflects a seasonal nature because weather
conditions strongly influence operating results.
(1) The sum of the quarterly amounts does not equal the year's amount due to
rounding of the quarterly amounts or a changing number of average shares.
F-21
45
10. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (SFAS 131)
as required for the year ended September 30, 1999. SFAS 131 requires that
companies disclose segment information based on how management makes decisions
about allocating resources to segments and measuring their performance. The
reportable segments disclosed herein were determined based on such factors as
the regulatory environment and the types of products and services offered.
The Company is principally engaged in two reportable business segments: Natural
Gas Distribution and Natural Gas Storage. The Natural Gas Distribution segment
is actively engaged in the distribution and transportation of natural gas to
residential, commercial and industrial customers through Mobile Gas and SGT. The
Natural Gas Storage segment provides for the underground storage of natural gas
and transportation services through the operations of Bay Gas and Storage. The
Company also provides marketing, merchandising, and other energy-related
services through Marketing, Mobile Gas, and Services which are aggregated with
EnergySouth, the holding company, and included in the Other category. For the
years ended September 30, 1999, 1998, and 1997, all segments were located in
Southwest Alabama.
The accounting policies of the segments are the same as those described in Note
1. Segment earnings information presented in the table below includes
intersegment revenues which are eliminated in consolidation. Such intersegment
revenues are primarily amounts paid by the Natural Gas Distribution segment to
the Natural Gas Storage segment. Segment assets are provided as additional
information and are net of intercompany advances, intercompany notes receivable
and investments in subsidiaries. Certain reclassifications have been made to
conform the prior year to the current year presentation.
F-22
46
(NOTE 10 CONTINUED)
As of and for the year ended Natural Gas Natural Gas
September 30, 1999 (in thousands): Distribution Storage Other Eliminations Consolidated
- -----------------------------------------------------------------------------------------------------------------
Operating revenues $ 62,208 $ 5,842 $ 4,171 $ (4,161) $ 68,060
Operating expenses 47,872 2,203 3,158 (4,161) 49,072
Operating income 14,336 3,639 1,013 -- 18,988
Cumulative effect of accounting changes 176 (399) (126) -- (349)
Depreciation expense 5,446 1,019 2 -- 6,467
Capital expenditures 8,836 1,153 37 -- 10,026
Property, plant, and equipment, net 95,424 34,217 35 -- 129,676
Total assets 107,959 53,882 11,794 -- 173,635
As of and for the year ended Natural Gas Natural Gas
September 30, 1998 (in thousands): Distribution Storage Other Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------
Operating revenues $ 69,430 $ 5,339 $ 4,354 $ (4,134) $ 74,989
Operating expenses 54,504 2,215 3,340 (4,134) 55,925
Operating income 14,926 3,124 1,014 -- 19,064
Depreciation expense 5,284 994 -- -- 6,278
Capital expenditures 7,354 288 -- -- 7,642
Property, plant, and equipment, net 92,402 34,726 -- -- 127,128
Total assets 104,643 52,200 9,698 -- 166,541
As of and for the year ended Natural Gas Natural Gas
September 30, 1997 (in thousands): Distribution Storage Other Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------
Operating revenues $ 68,348 $ 5,323 $ 4,059 $ (4,149) $ 73,581
Operating expenses 53,934 1,848 3,262 (4,149) 54,895
Operating income 14,414 3,475 797 -- 18,686
Depreciation expense 4,974 959 -- -- 5,933
Capital expenditures 11,401 831 -- -- 12,232
Property, plant, and equipment, net 90,463 35,402 -- -- 125,865
Total assets 103,130 50,834 7,903 -- 161,867
F-23
47
SCHEDULE II
ENERGYSOUTH, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED SEPTEMBER 30, 1999, 1998, AND 1997
(in thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
----------- ---------- --------------------- ---------- --------
ADDITIONS
--------------------
CHARGED CHARGED
BALANCE AT TO COSTS TO OTHER BALANCE
BEGINNING AND ACCOUNTS DEDUCTIONS AT END
DESCRIPTION OF YEAR EXPENSES AMOUNT AMOUNT OF YEAR
----------- ---------- -------- -------- ---------- --------
Reserves deducted from assets
to which they apply - Allowance
for doubtful accounts:
September 30, 1999 $ 626 $ 472 $ 363 (1) $ 735
September 30, 1998 $ 536 $ 535 $ 445 (1) $ 626
September 30, 1997 $ 349 $ 821 $ 634 (1) $ 536
NOTES:
(1) Amounts written off - net of recoveries.
S-1
48
EXHIBIT INDEX
Exhibit No. Description (Exhibits prior to February 2, 1998 filed by Mobile Gas)
- ----------- -----------
2 Articles of Merger of MBLE Merger Co., Inc. into Mobile Gas
Service Corporation (incorporated by reference to Exhibit 2 to
Form 10-Q Quarterly Report dated February 13, 1998)
3(i) Articles of Restatement of the Articles of Incorporation of
EnergySouth, Inc. (incorporated by reference to Exhibit 3(i)
to Form 10-Q Quarterly Report dated February 13, 1998)
3(ii) By-laws of EnergySouth, Inc., adopted January 31, 1998
(incorporated by reference to Exhibit 3.2 to Registration
Statement 333-42057)
4(a)-1 Indenture of Mortgage and Deed of Trust of Mobile Gas Service
Corporation dated as of December 1, 1941 (incorporated by
reference to Exhibit B-a to Mobile Gas Registration Statement
No. 2-4887)
Sup. Ind.
Dated as of File Reference Exhibit
----------- -------------- -------
4(a)-2 10/1/44 Reg. No. 2-5493 7-6
4(a)-3 7/1/52 Form 10-K for fiscal year 4(a)-3
ended September 30, 1985
4(a)-4 6/1/54 " 4(a)-4
4(a)-5 4/1/57 " 4(a)-5
4(a)-6 7/1/61 " 4(a)-6
4(a)-7 6/1/63 " 4(a)-7
4(a)-8 10/1/64 " 4(a)-8
4(a)-9 7/1/72 " 4(a)-9
4(a)-10 8/1/75 " 4(a)-10
4(a)-11 7/1/79 " 4(a)-11
4(a)-12 7/1/82 " 4(a)-12
4(a)-13 7/1/86 Form 10-K for fiscal year 4(a)-13
ended September 30, 1986
4(a)-14 10/1/88 Form 10-K for fiscal year 4(a)-14
ended September 30, 1989
4(a)-15 7/1/92 Form 10-K for fiscal year 4(a)-15
ended September 30, 1992
4(a)-16 7/1/93 Form 10-K for fiscal year 4(a)-16
ended September 30, 1993
E-1
49
Sup. Ind.
Dated as of File Reference Exhibit
----------- -------------- -------
4(a)-17 12/3/93 Form 10-K for fiscal year 4(a)-17
ended September 30, 1993
4(a)-18 11/1/96 Form 10-K for fiscal year 4(a)-18
ended September 30, 1997
4(c)-1 Bay Gas Indenture dated as of October 1, 1992 (incorporated by
reference to Exhibit 4(c) to Form 10-K for fiscal year ended
September 30, 1992)
4(c)-2 First Supplemental Indenture dated as of October 1, 1994
supplemental to Bay Gas Indenture (incorporated by reference
to Exhibit 4(c)-2 to Form 10-K for fiscal year ended September
30, 1995)
4(d) Promissory Note to the Utilities Board of the Town of
Citronelle dated May 13, 1993 (incorporated by reference to
Exhibit 4(d) to Form 10-K for fiscal year ended September 30,
1993)
10(d)-5 NNS Settlement Agreement between Koch Gateway Pipeline Company
and Mobile Gas Service Corporation dated March 26, 1998
(incorporated by reference to Exhibit 10(d)-5 to Form 10-K for
fiscal year ended September 30, 1998)
10(e)-3 Gas Sale and Purchase Contract between Coral Energy Resources,
L.P. as Seller and Mobile Gas Service Corporation as Buyer
dated as of January 1, 1997 (incorporated by reference to
Exhibit 10(e)-3 to Form 10-K for fiscal year ended September
30, 1997) (3)
10(f)-1 Agreement for Sale and Purchase of Gas - Mobile Plant dated
August 10, 1995 between Mobil Natural Gas Inc. and Mobile Gas
Service (incorporated by reference to Exhibit 10(f) to Form
10-K for fiscal year ended September 30, 1995) (3)
10(f)-2 Letter dated June 26, 1996 with consent dated July 31, 1996 to
assignment of Agreement for Sale and Purchase of Gas - Mobile
Plant to PanEnergy Trading and Market Services, L.L.C.
(incorporated by reference to Exhibit 10(f)-2 to Form 10-K for
fiscal year ended September 30, 1996)
10(g) Deferred Compensation Agreement with John S. Davis dated
January 26, 1996 (incorporated by reference to Exhibit 10(g)
to Form 8-K Current Report dated February 7, 1996)
10(g)-1 Supplemental Deferred Compensation Agreement with John S.
Davis dated December 10, 1999 (1)(2)
E-2
50
10(h) Transportation Agreement between Mobile Gas and Mobile Energy
LLC dated November 12, 1999 (3)
10(i) Mobile Gas Service Corporation/Bay Gas Storage Company, Ltd.
Gas Storage Agreement dated February 26, 1992 (incorporated by
reference to Exhibit 10(i) to Form 10-K for fiscal year ended
September 30, 1992)
10(j) Directors/Officers Indemnification Agreement (incorporated by
reference to Exhibit 10(j) to Form 10-K for fiscal year ended
September 30, 1992)
10(j)-1 Form of Change of Control Agreement entered into as of
December 8, 1999 by and between EnergySouth, Inc. and the
Executive Officers of EnergySouth, Inc. and/or one or more of
its subsidiaries (1)(2)
10(k)-1 Amended and Restated Supplemental Deferred Compensation
Agreement with Walter L. Hovell, dated December 11, 1992
(incorporated by reference to Exhibit 10(k) to Form 10-K for
fiscal year ended September 30, 1992) (2)
10(k)-2 Amendment to Amended and Restated Supplemental Deferred
Compensation Agreement dated January 27, 1995 between the
Company and Walter L. Hovell (incorporated by reference to
Exhibit 10(k)-2 to Form 8-K Current Report dated January 27,
1995) (2)
10(l)-1 Bay Gas Agreement by and among Mobile Gas Service Corporation,
MGS Storage Services, Inc., MGS Energy Services, Inc. and Olin
Corporation, dated December 5, 1991 (incorporated by reference
to Exhibit 10(l) to Form 10-K for fiscal year ended September
30, 1992)
10(m)-1 Limited Partnership Agreement between MGS Storage Services,
Inc., as General Partner, and MGS Energy Services, Inc., as
Limited Partner (forming Bay Gas Storage Company, Ltd.), dated
December 5, 1991 (incorporated by reference to Exhibit 10(m)
to Form 10-K for fiscal year ended September 30, 1992)
10(m)-2 First Amendment to Limited Partnership Agreement dated as of
April 6, 1992 and Second Amendment to Limited Partnership
Agreement dated as of September 12, 1994 (incorporated by
reference to Exhibit 10(m)-2 to Form 10-K for fiscal year
ended September 30, 1994)
10(n) Cavity Development and Storage Agreement between Olin
Corporation and Bay Gas Storage Company, Ltd., dated January
14, 1992 (incorporated by reference to Exhibit 10(n) to Form
10-K for fiscal year ended September 30, 1992)
10(o)-1 Transportation Agreement between Mobile Gas Service
Corporation and Tuscaloosa Steel Corporation dated as of May
15, 1995 (incorporated by reference to Exhibit 10(o) to Form
10-K for fiscal year ended September 30, 1995) (3)
E-3
51
10(o)-2 Amendment dated August 23, 1996 to Transportation Agreement
between Mobile Gas Service Corporation and Tuscaloosa Steel
Corporation (3)
10(q) Guaranty Agreement by Mobile Gas Service Corporation, dated as
of October 1, 1992, relating to Indenture of Bay Gas Storage
Company, Ltd. (incorporated by reference to Exhibit 10(q) to
Form 10-K for fiscal year ended September 30, 1992)
10(r) Amended and Restated Stock Option Plan of EnergySouth, Inc.
(incorporated by reference to Appendix A to definitive proxy
statement dated December 17, 1998) (2)
10(s) Mobile Gas Service Corporation Incentive Compensation Plan
(incorporated by reference to Exhibit B to definitive proxy
statement dated December 21, 1992) (2)(4)
10(t) Agreement for Purchase and Sale of Assets by and between The
Utilities Board of the Town of Citronelle and Mobile Gas
Service Corporation dated January 28, 1993 (incorporated by
reference to Exhibit 10(t) to Form 10-K for fiscal year ended
September 30, 1993)
10(u) Revolving Credit Agreement dated September 30, 1999 by and
among EnergySouth, Inc. as Borrower, AmSouth Bank, N.A. as
Agent, and AmSouth Bank, N.A., Regions Bank, Whitney National
Bank, South Alabama Bank, Southtrust Bank, N.A., and
Commonwealth National Bank as Lenders (1)
10(x) Letter dated October 7, 1994 from Mobile Gas Service
Corporation to John S. Davis confirming terms of employment
(incorporated by reference to Exhibit A to Form 8-K current
report filed November 2, 1994) (2)
10(z) Mobile Gas Service Corporation Non-Employee Directors Deferred
Fee Plan (incorporated by reference to Exhibit 10(z) to Form
8-K Current Report dated January 27, 1995) (2)(4)
18 Letter regarding change in Accounting Principle (incorporated
by reference to Exhibit 18 to Form 10-Q Quarterly Report dated
February 12, 1999)
21 Subsidiaries of Registrant and Partnerships in which
Registrant Owns an Interest (1)
23 Consent of Deloitte & Touche LLP (1)
27 Financial Data Schedule (1)
E-4
52
(1) Filed herewith.
(2) Management contract or compensatory plan or arrangement.
(3) Confidential portions of this exhibit have been omitted and previously
filed separately with the Securities and Exchange Commission pursuant to a
request for confidential treatment made in accordance with Rule 24b-2
promulgated under the Securities Exchange Act of 1934, as amended.
(4) Amended to use Company Common Stock instead of Mobile Gas common stock
effective February 2, 1998.
E-5