<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1998
--------------
Commission File No. 0-29604
-------
ENERGYSOUTH, INC.
(Successor to Mobile Gas Service Corporation)
-------------------------------------------
(Exact name of registrant as specified in its charter)
Alabama 58-2358943
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2828 Dauphin Street, Mobile, Alabama 36606
----------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 334-450-4774
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock ($.01 par value) outstanding at April 30, 1998 - 4,866,839 shares.
<PAGE> 2
ENERGYSOUTH, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I. Financial Information:
<S> <C>
Consolidated Balance Sheets - March 31,
1998 and 1997 and September 30, 1997 3 - 4
Consolidated Statements of Income - Three, Six and
Twelve Months Ended March 31, 1998 and 1997 5
Consolidated Statements of Retained Earnings - Three,
Six and Twelve Months Ended March 31, 1998
and 1997 6
Consolidated Statements of Cash Flows - Six
Months Ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7 - 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 12
PART II. Other Information 13
Exhibit Index 14
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 31, September 30,
Assets 1998 1997 1997
------------------------ -------------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C> <C>
Cash and Cash Equivalents $ 7,305 $ 7,857 $ 16,260
Receivables:
Gas 7,779 6,351 3,013
Merchandise 2,945 2,743 2,715
Other 733 741 609
Less Allowance for Doubtful Accounts (648) (764) (536)
Materials, Supplies, and Mdse (at average cost) 1,358 1,136 1,241
Gas Stored Underground for Current Use (at average cost) 793 1,329 2,152
Deferred Purchased Gas Adjustment 809
Deferred Gas Costs 591 298 231
Deferred Income Taxes 1,663 2,059 818
Prepayments 1,083 914 1,419
--------- --------- ---------
Total Current Assets 23,602 22,664 28,731
--------- --------- ---------
PROPERTY, PLANT, AND EQUIPMENT:
Property, Plant, and Equipment 166,745 155,507 165,208
Less: Accumulated Depreciation and Amortization 42,876 38,566 40,289
--------- --------- ---------
Property, Plant, and Equipment in Service - Net 123,869 116,941 124,919
Construction Work in Progress 1,656 5,476 946
--------- --------- ---------
Total Property, Plant, and Equipment - Net 125,525 122,417 125,865
--------- --------- ---------
OTHER ASSETS:
Regulatory Asset 1,023 1,253 1,138
Merchandise Receivables Due After One Year 5,015 4,876 4,827
Deferred Charges 1,356 1,455 1,306
--------- --------- ---------
Total Other Assets 7,394 7,584 7,271
--------- --------- ---------
Total $ 156,521 $ 152,665 $ 161,867
========= ========= =========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
3
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
March 31, September 30,
Liabilities and Capitalization 1998 1997 1997
---------------------- -----------
(Unaudited)
CURRENT LIABILITIES:
<S> <C> <C> <C>
Current Maturities of Long-Term Debt $ 2,372 $ 2,117 $ 2,930
Notes Payable 10,700
Accounts Payable 3,558 3,200 4,080
Dividends Declared 973 904 971
Customer Deposits 1,517 1,579 1,556
Taxes Accrued 3,395 2,871 2,827
Interest Accrued 1,926 1,963 1,897
Deferred Purchased Gas Adjustment 1,333 73
Other Liabilities 2,176 1,952 2,168
-------- -------- --------
Total Current Liabilities 17,250 14,659 27,129
-------- -------- --------
OTHER LIABILITIES:
Accrued Pension Cost 1,535 1,849 1,718
Accrued Postretirement Benefit Cost 1,049 1,367 1,087
Deferred Income Taxes 10,854 10,715 9,747
Deferred Investment Tax Credits 432 457 444
-------- -------- --------
Total Other 13,870 14,388 12,996
-------- -------- --------
Total Liabilities 31,120 29,047 40,125
-------- -------- --------
CAPITALIZATION:
Stockholders' Equity (Note 1)
Common Stock, $.01 Par Value
(Authorized 10,000,000 Shares;
Outstanding: March, 1998 -
4,864,000 Shares; March, 1997 -
4,843,000 Shares; September, 1997 -
4,855,000 Shares) 49 49 49
Capital in Excess of Par Value 17,961 17,523 17,746
Retained Earnings 42,217 38,097 37,382
-------- -------- --------
Total Stockholders' Equity 60,227 55,669 55,177
Minority Interest 3,175 2,827 2,985
Long-Term Debt (Less Current Maturities) 61,999 65,122 63,580
-------- -------- --------
Total Capitalization 125,401 123,618 121,742
-------- -------- --------
Total $156,521 $152,665 $161,867
======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Six Months Twelve Months
Ended March 31, Ended March 31, Ended March 31,
---------------------- ---------------------- ----------------------
1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- --------
Operating Revenues
<S> <C> <C> <C> <C> <C> <C>
Gas Revenues $ 27,782 $ 28,711 $ 46,772 $ 45,653 $ 70,744 $ 70,527
Merchandise Sales and Jobbing 729 625 1,814 1,644 3,223 3,108
-------- -------- -------- -------- -------- --------
Total Operating Revenues 28,511 29,336 48,586 47,297 73,967 73,635
-------- -------- -------- -------- -------- --------
Operating Expenses
Cost of Gas 11,008 11,334 18,043 16,582 23,357 22,130
Cost of Merchandise and Jobbing 543 455 1,349 1,201 2,388 2,374
Operations 4,192 4,785 8,583 9,177 17,359 18,022
Maintenance 453 254 852 689 1,705 1,837
Depreciation 1,591 1,451 3,181 2,901 6,116 5,600
Taxes, Other Than Income Taxes 1,923 1,964 3,408 3,115 5,561 5,401
-------- -------- -------- -------- -------- --------
Total Operating Expenses 19,710 20,243 35,416 33,665 56,486 55,364
-------- -------- -------- -------- -------- --------
Operating Income 8,801 9,093 13,170 13,632 17,481 18,271
-------- -------- -------- -------- -------- --------
Other Income and (Expense)
Interest Expense (1,405) (1,450) (2,818) (2,850) (5,719) (5,468)
Allowance for Borrowed Funds Used
During Construction 13 51 23 88 112 115
Interest Income 297 231 628 462 1,151 965
Minority Interest (132) (157) (269) (300) (484) (518)
-------- -------- -------- -------- -------- --------
Total Other Income (Expense) (1,227) (1,325) (2,436) (2,600) (4,940) (4,906)
-------- -------- -------- -------- -------- --------
Income Before Income Taxes 7,574 7,768 10,734 11,032 12,541 13,365
-------- -------- -------- -------- -------- --------
Income Taxes 2,783 2,907 3,955 4,132 4,536 4,953
-------- -------- -------- -------- -------- --------
Net Income $ 4,791 $ 4,861 $ 6,779 $ 6,900 $ 8,005 $ 8,412
======== ======== ======== ======== ======== ========
Earnings Per Share of Common Stock (Note 4):
Basic $ 0.99 $ 1.00 $ 1.39 $ 1.43 $ 1.65 $ 1.74
======== ======== ======== ======== ======== ========
Diluted $ 0.97 $ 1.00 $ 1.38 $ 1.42 $ 1.63 $ 1.73
======== ======== ======== ======== ======== ========
Cash Dividends Declared Per Share of Common
Stock (Note 1) $ 0.20 $ 0.19 $ 0.40 $ 0.37 $ 0.80 $ 0.75
======== ======== ======== ======== ======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Six Months Twelve Months
Ended March 31, Ended March 31, Ended March 31,
1998 1997 1998 1997 1998 1997
------------ ------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Period $38,398 $34,140 $37,382 $33,004 $38,097 $33,295
Net Income 4,791 4,861 6,779 6,900 8,005 8,412
------------ ------------ ------------- ------------- ------------ -------------
Total 43,189 39,001 44,161 39,904 46,102 41,707
Less: Dividends 972 904 1,944 1,807 3,885 3,610
------------ ------------ ------------- ------------- ------------ -------------
Balance at End of Period $42,217 $38,097 $42,217 $38,097 $42,217 $38,097
============ ============ ============= ============= ============ =============
</TABLE>
CONSOLIDATED STATEMENTS
OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Six Months
Ended March 31,
1998 1997
-------- --------
<S> <C> <C>
Cash Flows Provided by Operating Activities $ 8,510 $ 8,431
-------- --------
Cash Flows From Investing Activities -
Capital Expenditures (2,897) (5,884)
-------- --------
Cash Flows From Financing Activities:
Repayment of Long-Term Debt (2,138) (2,089)
Proceeds From Issuance of Long-Term Debt 12,000
Changes in Short-Term Borrowings (10,700) (15,000)
Payment of Dividends, Net of Dividend Reinvestment (1,730) (1,631)
-------- --------
Net Cash Used In Financing Activities (14,568) (6,720)
-------- --------
Net Decrease in Cash and Cash Equivalents (8,955) (4,173)
-------- --------
Cash & Cash Equivalents at Beginning of Period 16,260 12,030
-------- --------
Cash & Cash Equivalents at End of Period $ 7,305 $ 7,857
======== ========
</TABLE>
See Accompanying Notes to Consolidated Financial Statements.
6
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. At the 1998 Annual Meeting of Stockholders of Mobile Gas Service
Corporation ("Mobile Gas") held on January 30, 1998, stockholders approved the
reorganization of Mobile Gas and its subsidiaries into a holding company
structure (the "Reorganization"). As part of the Reorganization, effective
February 2, 1998, Mobile Gas became a subsidiary of EnergySouth, Inc.
("EnergySouth") and 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, $.01
par value per share. All capitalization and per share data presented in this
report have been adjusted to reflect the three-for-two conversion of Mobile Gas
common stock into EnergySouth common stock. The consolidated financial
statements of EnergySouth and its subsidiaries (collectively the "Company")
include the accounts of Mobile Gas; MGS Energy Services, Inc.; MGS Storage
Services, Inc.; MGS Marketing Services, Inc.; 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
owners' proportionate shares of the income and equity of Bay Gas and SGT.
Certain amounts in the prior year period financial statements have been
reclassified to conform with the current year statement presentations. All
significant intercompany balances and transactions have been eliminated.
Note 2. The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. All adjustments, consisting of
normal and recurring accruals, which are, in the opinion of management,
necessary to present fairly the results for the interim periods have been made
and are of a recurring nature. The statements should be read in conjunction with
the summary of accounting policies and notes to financial statements included in
the Annual Report on Form 10-K of Mobile Gas for the fiscal year ended September
30, 1997.
Note 3. Due to the high percentage of customers using gas for heating, the
Company's operations are seasonal in nature. Therefore, the results of
operations for the three and six month periods ended March 31, 1998 and 1997 are
not indicative of the results to be expected for the full year.
Note 4. Statement of Financial Accounting Standards No. 128 "Earnings Per Share"
(SFAS 128), which establishes standards for computing and presenting earnings
per share, was effective for the Company for the three months ended December 31,
1997. SFAS 128 requires presentation of both basic and diluted earnings per
share on the face of the income statement for all periods presented. Basic
earnings per common share are computed based on the weighted average number of
common shares outstanding during each period. Diluted earnings per common share
are computed to reflect the dilutive effect of outstanding stock options.
Earnings per share for each period presented have been restated to reflect the
three shares of EnergySouth, Inc. common stock issued for each two shares of
Mobile Gas common stock, effective February 2, 1998. The restated weighted
average number of common shares outstanding used in computing basic and diluted
earnings per share for each period presented is as follows (in thousands):
7
<PAGE> 8
<TABLE>
<CAPTION>
Three Months Six Months Twelve Months
Ended March 31, Ended March 31, Ended March 31,
1998 1997 1998 1997 1998 1997
----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Weighted average shares outstanding -
Basic Earnings Per Share 4,862 4,842 4,860 4,840 4,856 4,834
Effect of dilutive outstanding stock options 67 39 68 32 56 25
----- ----- ----- ----- ----- -----
Weighted average shares outstanding -
Diluted Earnings Per Share 4,929 4,881 4,928 4,872 4,912 4,859
----- ----- ----- ----- ----- -----
</TABLE>
Note 5. Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" (SFAS 131) is effective for
the Company for the fiscal year ending September 30, 1999. SFAS 131 establishes
standards for reporting operating segments by public business enterprises in
interim and annual financial statements. SFAS 131 also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. Interim disclosures are not required in the year of adoption;
therefore, the Company expects to report the required financial and descriptive
information about its operating segments beginning with the fiscal year ending
September 30, 1999.
Note 6. Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits" (SFAS 132) was
issued in February 1998 and is effective for the Company for the fiscal year
beginning October 1, 1998 with earlier application encouraged. SFAS 132
standardizes the disclosure of information required about pensions and other
postretirement benefits. The Company expects to apply the disclosure
requirements of SFAS 132 for the fiscal year ending September 30, 1998.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis refers to all subsidiaries of EnergySouth,
Inc., (collectively referred to as the "Company"). The Company, primarily
through its wholly-owned subsidiary Mobile Gas Service Corporation, is engaged
principally in the distribution of natural gas to residential, commercial and
industrial customers in Southwest Alabama. Other wholly-owned subsidiaries
participate and own investments in gas pipeline transportation, storage,
marketing and other energy-related services. The Company's gas distribution and
storage operations are regulated by the Alabama Public Service Commission
(APSC). Interstate gas storage contracts do not require APSC approval since the
Federal Energy Regulatory Commission allows these contracts to have market-based
rates. Because of the seasonal nature of the Company's gas distribution
operations, the results for the interim periods are not necessarily indicative
of the results for an entire year.
FINANCIAL CONDITION AND LIQUIDITY
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. Operating activities provided cash of
$8,510,000 and $8,431,000, respectively, for the six months ended March 31, 1998
and 1997. The increase in cash provided by operating activities is attributed
primarily to increased cash flow resulting from the timing of receipts and
payments on operating assets and liabilities and was offset partially by
decreased cash flow from net income and the non-cash components of net income.
Cash used in capital expenditures decreased $2,897,000 for the six months ended
March 31, 1998 primarily due to completion during the fourth quarter of fiscal
1997 of new facilities added to service a large industrial customer.
Cash used by financing activities was $14,568,000 and $6,720,000, respectively,
for the six months ended March 31, 1998 and 1997. During the first quarter of
fiscal 1997, the Company issued $12,000,000 of 7.27% First Mortgage Bonds to
fund on-going capital projects. Payments on short-term borrowings were lower for
the fiscal 1998 six-month period primarily due to a lower short-term debt
balance at fiscal year-end 1997 as compared to fiscal year-end 1996.
The Company's capital needs are due primarily to its on-going construction
program. Capital expenditures related to the Company's construction program for
the remainder of fiscal 1998 are estimated to be $ 3,000,000. Funds for the
Company's cash needs are expected to come from cash provided by operations,
reduction of cash equivalents and, if necessary, borrowings under the Company's
revolving credit agreement. Management believes it has adequate financial
flexibility to meet its expected cash needs in the foreseeable future.
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1998 and 1997 was $4,791,000 or
$.97 per share, and $4,861,000 or $1.00 per share, respectively. Net income for
the six and twelve month periods ended March 31, 1998 was $6,779,000 or $1.38
per share and
9
<PAGE> 10
$8,005,000 or $1.63 per share, respectively, compared to $6,900,000 or $1.42 per
share and $8,412,000 or $1.73 per share, respectively, for the six and twelve
month periods of fiscal 1997. All earnings per share amounts above are computed
on a diluted basis.
As a result of colder weather in terms of degree days, volumes delivered by
Mobile Gas to its temperature-sensitive customers increased during current year
periods. Customer consumption per degree day, however, was less than historical
usage which is believed to be due to the consistent moderate temperatures
experienced throughout the winter season. Therefore, additional margins from
increased sales were more than offset by the operation of Mobile Gas'
temperature adjustment rider which reduces customer bills when degree days
exceed historical norms.
The decrease in earnings for the six and twelve months ended March 31, 1998 was
impacted also by a refund of a business license tax which was received in
December 1996 by Bay Gas Storage Company, Ltd. (Bay Gas), an affiliated company.
Additionally, an unusually cold April 1996, a month during which billings were
not subject to temperature adjustment since it was not implemented until
November 1996, increased earnings per share $.07 compared to weather-normalized
earnings for April 1997. The decreases in earnings were offset partially by an
increase in interest income during the three, six and twelve months ended March
31, 1998. The Company has also been successful in its cost control efforts,
reducing certain operating expenses during the current periods.
Gas revenues decreased 3% for the three months ended March 31, 1998 compared to
the same period in fiscal 1997. Excluding the effect of lower billed gas costs
under the purchased gas adjustment (PGA) component of customer rates, gas
revenues decreased $355,000 or 1%. Bay Gas revenues decreased $143,000 for the
fiscal 1998 second quarter due to less profit sharing revenues from storage
customers resulting from relatively stable gas prices compared to the previous
year. The remainder of the decrease in gas revenues is attributed to a decrease
in the gas consumption per degree day for the 1998 second quarter compared to
the 1997 second quarter.
Gas revenues increased 2% for the six months ended March 31, 1998. Excluding the
effect of PGA billings for the six-month periods, gas revenues increased
$565,000 or 1%. Increased gas revenues of $195,000 from industrial sales and
transport customers resulted primarily from the start-up during the 1998 first
quarter of two large industrial users of gas. The remainder of the weather
normalized gas revenues increase is attributed to increased gas volumes sold to
temperature-sensitive customers resulting from weather which was 27% colder than
the prior year six month period and 14% colder than normal. Although to a lesser
extent than that experienced during the current second quarter, gas revenues
were impacted negatively by customer usage per degree day which was less than
the fiscal 1997 first quarter.
Gas revenues increased less than 1% for the twelve month period ended March
31,1998 compared to the corresponding period of 1997. Excluding the effect of
PGA billing differences for the two periods, gas revenues decreased $2,075,000
(3%). Gas revenues from temperature-sensitive customers decreased $1,400,000
during the current twelve-month period. Weather, based on billed degree days
during April 1996, a month during which billings were not subject to temperature
adjustment, was 96% colder than normal resulting in $2,600,000 more in gas
revenues from temperature-sensitive customers compared to weather-normalized gas
revenues for April 1997. Increased billings to
10
<PAGE> 11
temperature-sensitive customers during the remaining eleven months of the 1998
twelve-month period partially offset the aforementioned change in gas revenues.
Primarily due to a large industrial sales customer switching from sales to
transport in June 1997, industrial sales and transportation revenues decreased
$609,000 since the commodity cost of gas is no longer included in revenues from
that customer.
Cost of gas decreased 3% for the fiscal 1998 second quarter and increased 9% and
6%, respectively, for the six and twelve months ended March 31, 1998 compared to
the corresponding periods of fiscal 1997. The Company's rate schedules allow a
pass-through to customers of the cost of gas. Any over- or under-recovery of
actual gas costs incurred are charged or credited to cost of gas and included in
current assets or liabilities as deferred purchased gas adjustment. The Company
recoups changes in the actual per unit cost of gas from the amount included in
the base rates through its PGA component of customer rates. Billings under the
PGA component of rates affects revenues and cost of gas in the same amount
thereby creating no net margin for the Company. Excluding the effect of PGA
billing differences between the current and prior year periods, cost of gas
increased 3% and 7%, respectively, for the three and six month periods thus
comparing closely with the 4% and 8% increase in total gas volumes sold to
customers. When excluding PGA billing differences for the twelve-month period,
cost of gas decreased 6% which compares closely with the 4% decrease in gas
volumes sold.
Other operating revenues represent merchandise sales and jobbing revenues. The
increase in other operating revenues and the related cost of merchandise for the
three, six and twelve month periods reflects increased sales quantities compared
to the corresponding periods of the prior year.
Operations expense decreased $593,000 (12%) for the fiscal 1998 second quarter
compared to the fiscal 1997 second quarter. The primary factors causing this
decrease were: lower retirement expense resulting from a higher than expected
return on plan assets, lower uncollectible accounts expense resulting from
improved collections experience, lower payroll and other benefits, and lower
expenses for outside services and general expenses resulting from cost control
efforts. Operations expense decreased $594,000 (6%) and $662,000 (4%),
respectively, for the six and twelve month periods ended March 31, 1998
primarily due to the same factors affecting the second quarter comparison.
Maintenance expenses increased $199,000 and $163,000, respectively, for the
three and six months ended March 31, 1998 compared to the corresponding periods
of 1997. Increased maintenance on mains and services and less costs reimbursed
for such maintenance resulted in the quarterly and six-month increase.
Maintenance expense decreased $132,000 for the twelve months ended March 31,
1998 primarily due to completion in the fourth quarter of fiscal 1996 of certain
non-routine maintenance projects.
The Company has completed an internal evaluation of the Company's computer
information systems and has identified systems which will require program
modifications or new software installations in order to function properly in the
year 2000. The Company expects to incur costs approximating $325,000 to complete
the program modifications and new software installations by October 1998.
Estimated costs of $240,000 to modify existing information systems to be Year
2000 compliant will be expensed as incurred and estimated costs of $85,000
related to new software installation will be capitalized. During the six months
ended March 31, 1998, the Company has incurred approximately $75,000 in expense
related to the year 2000 project.
11
<PAGE> 12
Depreciation expense increased approximately 10% for all three 1998 periods
presented. The increase is attributed primarily to depreciation on new
facilities which were completed during the fourth quarter of fiscal 1997 to
service a large new industrial customer.
Taxes, other than income taxes, for the three months ended March 31, 1998 have
changed primarily in relation to gas revenues upon which certain state and local
taxes are computed. The fiscal 1997 six and twelve month periods reflect a
$246,000 refund of a business license tax which was recorded in December 1996.
Excluding the effects of this refund, the change in other taxes for the six and
twelve month periods is consistent with the change in gas revenues.
Allowance for borrowed funds used during construction represents the
capitalization of interest costs to construction work-in-progress. Construction
activity has decreased for the three and six months ended March 31, 1998 as
compared to the same prior year periods as a result of the aforementioned
completion of new facilities during the fourth quarter of fiscal 1997,
therefore, capitalized interest costs have declined during the current three and
six month periods.
Interest income has increased for each fiscal 1998 period of comparison
primarily due to improved results from the financing of merchandise sales and
installations.
Income tax expense changed primarily in relation to changes in pre-tax income
for the periods ended March 31, 1998.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128), was issued in February 1997 and was effective for the Company for the
quarter ending December 31, 1997. SFAS 128 establishes standards for computing
and presenting earnings per share. The Company has reported earnings per share
in accordance with SFAS 128 for all periods presented.
Statement of Financial Accounting Standards No. 131, "Disclosure about Segments
of an Enterprise and Related Information" (SFAS 131) is effective for the
Company for the fiscal year ending September 30, 1999. SFAS 131 establishes
standards for reporting operating segments by public business enterprises in
interim and annual financial statements. SFAS 131 also establishes standards for
related disclosures about products and services, geographic areas, and major
customers. Interim disclosures are not required in the year of adoption;
therefore, the Company expects to report the required financial and descriptive
information about its operating segments beginning with the fiscal year ending
September 30, 1999.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits" (SFAS 132) was issued in
February 1998 and is effective for the Company for the fiscal year beginning
October 1, 1998 with earlier application encouraged. SFAS 132 standardizes the
disclosure of information required about pensions and other postretirement
benefits. The Company expects to apply the disclosure requirements of SFAS 132
for the fiscal year ending September 30, 1998.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. Description
---------- -----------
11 Computation of Earnings Per Share
27 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K
During the quarter for which this report is filed, the Company
filed one report on Form 8-K.
<TABLE>
<CAPTION>
Date of Report Items Reported Under Item 5 Financial Statement
-------------- --------------------------- -------------------
<S> <C> <C>
January 30, 1998 i) Approval of an Agreement None
(filed February 2, 1998) and Plan of Merger as part of
a reorganization into a holding
company structure
ii) Election of Directors of the
Company
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
MOBILE GAS SERVICE CORPORATION
(Registrant)
<S> <C>
Date: May 14, 1998 /s/ John S. Davis
------------------------- ---------------------------------------
John S. Davis
President and
Chief Executive Officer
Date: May 14, 1998 /s/ Charles P. Huffman
------------------------- ---------------------------------------
Charles P. Huffman
Vice President, Chief Financial
Officer, and Treasurer
</TABLE>
13
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ------------- ----------- --------
<S> <C> <C>
11 Computation of Earnings Per Share 15
27 Financial Data Schedule (EDGAR version only)
</TABLE>
14
<PAGE> 1
EXHIBIT 11
ENERGYSOUTH, INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS TWELVE MONTHS
ENDED MARCH 31, ENDED MARCH 31, ENDED MARCH 31,
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
BASIC EARNINGS PER SHARE: (1)
<S> <C> <C> <C> <C> <C> <C>
Earnings applicable to common stock $ 4,791 $ 4,861 $ 6,779 $ 6,900 $ 8,005 $ 8,412
Weighted average common shares
outstanding 4,862 4,842 4,860 4,840 4,856 4,834
Basic earnings per share $ 0.99 $ 1.00 $ 1.39 $ 1.43 $ 1.65 $ 1.74
DILUTED EARNINGS PER SHARE: (1)
Earnings applicable to common stock $ 4,791 $ 4,861 $ 6,779 $ 6,900 $ 8,005 $ 8,412
Weighted average common shares
outstanding 4,862 4,842 4,860 4,840 4,856 4,834
Incremental shares resulting from
assumed exercise of stock options 67 39 68 32 56 25
Weighted average common shares
outstanding, assuming dilution 4,929 4,881 4,928 4,872 4,912 4,859
Diluted earnings per share $ 0.97 $ 1.00 $ 1.38 $ 1.42 $ 1.63 $ 1.73
</TABLE>
(1) Restated to reflect three-for-two conversion of Mobile Gas common stock
into EnergySouth common stock effective February 2, 1998. See Note 1 of
Notes to Consolidated Financial Statements included in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998.
15
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT FOR THE COMPANY FOR THE SIX MONTHS ENDED MARCH 31,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE COMPANY'S FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 123,869
<OTHER-PROPERTY-AND-INVEST> 1,656
<TOTAL-CURRENT-ASSETS> 23,602
<TOTAL-DEFERRED-CHARGES> 1,356
<OTHER-ASSETS> 6,038
<TOTAL-ASSETS> 156,521
<COMMON> 49
<CAPITAL-SURPLUS-PAID-IN> 17,961
<RETAINED-EARNINGS> 42,217
<TOTAL-COMMON-STOCKHOLDERS-EQ> 60,227
0
0
<LONG-TERM-DEBT-NET> 61,999
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 2,372
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 31,923
<TOT-CAPITALIZATION-AND-LIAB> 156,521
<GROSS-OPERATING-REVENUE> 48,586
<INCOME-TAX-EXPENSE> 3,955
<OTHER-OPERATING-EXPENSES> 35,416
<TOTAL-OPERATING-EXPENSES> 39,371
<OPERATING-INCOME-LOSS> 9,215
<OTHER-INCOME-NET> 359
<INCOME-BEFORE-INTEREST-EXPEN> 9,574
<TOTAL-INTEREST-EXPENSE> 2,795
<NET-INCOME> 6,779
0
<EARNINGS-AVAILABLE-FOR-COMM> 6,779
<COMMON-STOCK-DIVIDENDS> 973
<TOTAL-INTEREST-ON-BONDS> 4,915<F1>
<CASH-FLOW-OPERATIONS> 8,510
<EPS-PRIMARY> 1.39<F2>
<EPS-DILUTED> 1.38<F2>
<FN>
<F1>TOTAL INTEREST ON BONDS REPRESENTS INTEREST EXPENSE RELATED TO LONG-TERM
DEBT OUTSTANDING UNDER FIRST MORTGAGE BONDS AND LONG-TERM SECURED NOTES.
<F2>REPRESENTS BASIC AND DILUTED EARNINGS PER SHARE COMPUTED IN ACCORDANCE WITH
SFAS 128. AMOUNTS HAVE BEEN RESTATED TO REFLECT THREE-FOR-TWO CONVERSION OF
MOBILE GAS COMMON STOCK INTO ENERGYSOUTH COMMON STOCK EFFECTIVE FEBRUARY 2,
1998. SEE NOTE 1 AND NOTE 4 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
INCLUDED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE SIX MONTHS
ENDED MARCH 31, 1998.
</FN>
</TABLE>
