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SECURITIES AND EXCHANGE COMMISSION  Form 10-Q/A  QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended December 31, 2003 Commission File No. 0-29604 ENERGYSOUTH, INC.   Alabama
    
    58-2358943(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 2828 Dauphin Street, Mobile, Alabama
    
    36606(Address of principal executive office)
    
    (Zip Code)
 Registrants telephone number, including area code 251-450-4774 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 o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).    Yes x  No o 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 February 04, 2004  5,145,055
shares.




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EXPLANATORY NOTE This Amendment No. 1 to the Quarterly Report on Form 10-Q of EnergySouth, Inc.
and Subsidiaries for the quarter ended December 31, 2003 is being filed for the
purpose of amending and revising the Unaudited Condensed Consolidated Balance Sheets and
Note 6 to the Unaudited Condensed Consolidated Financial Statements. In accordance with
accounting guidance issued subsequent to the original Form 10-Q filing on
February 13, 2004, the originally filed Quarterly Report on Form 10-Q is being
amended to reflect the reclassification of amounts recorded for the cost of
removal of utility plant, previously recognized within accumulated
depreciation, as a regulatory liability for the periods ended December 31, 2003
and 2002 and September 30, 2003. This amendment does not reflect events
occurring after the original filing of the Form 10-Q or modify or update
disclosures except as stated in the preceding sentence. 2




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ENERGYSOUTH, INC.
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2003 INDEX Page No.PART I: FINANCIAL INFORMATIONItem 1
    
    Financial Statements (Unaudited):(a)
    
    Unaudited Condensed Consolidated Balance Sheets - December 31, 2003 and 2002 and September 30, 2003
    
    
    4 - 5(b)
    
    Unaudited Condensed Consolidated Statements of Income - Three Months Ended December 31, 2003 and 2002
    
    
    6(c)
    
    Unaudited Condensed Consolidated Statements of Cash Flows - Three Months Ended December 31, 2003 and 2002
    
    
    7(d)
    
    Notes to Unaudited
Condensed Consolidated Financial Statements
    
    
    8 - 15Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16 - 22Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    23Item 4
    
    Controls and Procedures
    
    
    23PART II: OTHER INFORMATIONItem 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    24Item 6
    
    Exhibits and Reports on Form 8-K
    
    
    25 - 29Certification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350Certification Pursuant to 18 U.S.C. Section 1350
  3




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PART 1. FINANCIAL INFORMATION 
 ITEM 1: FINANCIAL STATEMENTS 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS EnergySouth, Inc. December 31,
    
    September 30,In Thousands
    
    2003
    
    2002
    
    2003ASSETSCurrent AssetsCash and Cash Equivalents
    
    $
    2,904
    
    
    $
    4,242
    
    
    $
    4,082ReceivablesGas
    
    
    11,519
    
    
    
    11,308
    
    
    
    6,652Unbilled Revenue
    
    
    6,896
    
    
    
    2,742
    
    
    
    1,335Merchandise
    
    
    2,500
    
    
    
    2,738
    
    
    
    2,313Other
    
    
    745
    
    
    
    722
    
    
    
    939Allowance for Doubtful Accounts
    
    
    (1,158
    )
    
    
    (1,218
    )
    
    
    (889
    )Materials, Supplies, and Merchandise, Net (At Average Cost)
    
    
    1,460
    
    
    
    1,424
    
    
    
    1,457Gas Stored Underground (At Average Cost)
    
    
    2,899
    
    
    
    2,749
    
    
    
    3,703Regulatory Assets (Note 4)
    
    
    2,287
    
    
    
    412
    
    
    
    2,945Deferred Income Taxes
    
    
    766
    
    
    
    2,118
    
    
    
    406Prepayments
    
    
    996
    
    
    
    756
    
    
    
    1,166Total Current Assets
    
    
    31,814
    
    
    
    27,993
    
    
    
    24,109Property, Plant, and Equipment
    
    
    267,705
    
    
    
    228,605
    
    
    
    267,047Less: Accumulated Depreciation and Amortization
    
    
    65,027
    
    
    
    58,637
    
    
    
    63,063Property, Plant, and Equipment  Net
    
    
    202,678
    
    
    
    169,968
    
    
    
    203,984Construction Work in Progress
    
    
    2,805
    
    
    
    29,424
    
    
    
    1,208Total Property, Plant, and Equipment
    
    
    205,483
    
    
    
    199,392
    
    
    
    205,192Other AssetsPrepaid Pension Cost
    
    
    938
    
    
    
    449
    
    
    
    856Deferred Charges
    
    
    526
    
    
    
    540
    
    
    
    569Prepayments
    
    
    1,000
    
    
    
    1,053
    
    
    
    1,015Regulatory Assets (Note 4)
    
    
    906
    
    
    
    1,306
    
    
    
    996Merchandise Receivables Due After One Year
    
    
    3,749
    
    
    
    4,467
    
    
    
    3,774Total Other Assets
    
    
    7,119
    
    
    
    7,815
    
    
    
    7,210Total
    
    $
    244,416
    
    
    $
    235,200
    
    
    $
    236,511
 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements 4




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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS EnergySouth, Inc. December 31,
    
    September 30,In Thousands, Except Share Data
    
    2003
    
    2002
    
    2003LIABILITIES AND CAPITALIZATIONCurrent LiabilitiesCurrent Maturities of Long-Term Debt
    
    $
    6,113
    
    
    $
    4,437
    
    
    $
    6,006Notes Payable
    
    
    7,025
    
    
    
    2,550
    
    
    
    250Accounts Payable
    
    
    6,930
    
    
    
    6,863
    
    
    
    6,389Dividends Declared
    
    
    1,465
    
    
    
    1,365
    
    
    
    1,463Customer Deposits
    
    
    1,504
    
    
    
    1,440
    
    
    
    1,469Taxes Accrued
    
    
    4,672
    
    
    
    3,805
    
    
    
    3,500Interest Accrued
    
    
    625
    
    
    
    682
    
    
    
    1,272Regulatory Liabilities (Note 4)
    
    
    905
    
    
    
    2,990
    
    
    
    909Unearned Revenue (Note 8)
    
    
    
    
    
    
    862Other
    
    
    1,029
    
    
    
    1,164
    
    
    
    1,012Total Current Liabilities
    
    
    30,268
    
    
    
    26,158
    
    
    
    22,270Other LiabilitiesAccrued Postretirement Benefit Cost
    
    
    375
    
    
    
    541
    
    
    
    415Deferred Income Taxes
    
    
    19,314
    
    
    
    15,959
    
    
    
    18,484Deferred Investment Tax Credits
    
    
    284
    
    
    
    308
    
    
    
    288Regulatory Liabilities (Note 4)
    
    
    11,212
    
    
    
    10,429
    
    
    
    10,998Other
    
    
    2,715
    
    
    
    2,294
    
    
    
    2,619Total Other Liabilities
    
    
    33,900
    
    
    
    29,531
    
    
    
    32,804Total Liabilities
    
    
    64,168
    
    
    
    55,689
    
    
    
    55,074CapitalizationStockholders EquityCommon Stock, $.01 Par Value(Authorized 10,000,000 Shares; Outstanding
December 2003 - 5,140,000;
December 2002 - 5,054,000;
September 2003 - 5,133,000 Shares)
    
    
    51
    
    
    
    51
    
    
    
    51Capital in Excess of Par Value
    
    
    23,690
    
    
    
    21,756
    
    
    
    23,490Retained Earnings
    
    
    63,717
    
    
    
    57,635
    
    
    
    61,114Total Stockholders Equity
    
    
    87,458
    
    
    
    79,442
    
    
    
    84,655Minority Interest
    
    
    4,302
    
    
    
    3,768
    
    
    
    4,142Long-Term Debt
    
    
    88,488
    
    
    
    96,301
    
    
    
    92,640Total Capitalization
    
    
    180,248
    
    
    
    179,511
    
    
    
    181,437Total
    
    $
    244,416
    
    
    $
    235,200
    
    
    $
    236,511
 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements 5




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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three MonthsEnded December 31,In Thousands, Except Per Share Data
    
    2003
    
    2002Operating RevenuesGas Revenues
    
    $
    31,289
    
    
    $
    24,242Merchandise Sales
    
    
    1,086
    
    
    
    1,107Other
    
    
    341
    
    
    
    364Total Operating Revenues
    
    
    32,716
    
    
    
    25,713Operating ExpensesCost of Gas
    
    
    12,127
    
    
    
    7,628Cost of Merchandise
    
    
    734
    
    
    
    813Operations and Maintenance
    
    
    6,431
    
    
    
    5,983Depreciation
    
    
    2,434
    
    
    
    2,269Taxes, Other Than Income Taxes
    
    
    2,253
    
    
    
    1,896Total Operating Expenses
    
    
    23,979
    
    
    
    18,589Operating Income
    
    
    8,737
    
    
    
    7,124Other Income and (Expense)Interest Expense
    
    
    (2,030
    )
    
    
    (2,112
    )Allowance for Borrowed Funds Used During Construction
    
    
    9
    
    
    
    571Interest Income
    
    
    6
    
    
    
    19Minority Interest
    
    
    (196
    )
    
    
    (190
    )Total Other Income (Expense)
    
    
    (2,211
    )
    
    
    (1,712
    )Income Before Income Taxes
    
    
    6,526
    
    
    
    5,412Income Taxes
    
    
    2,458
    
    
    
    2,038Net Income
    
    $
    4,068
    
    
    $
    3,374Earnings Per ShareBasic
    
    $
    0.79
    
    
    $
    0.67Diluted
    
    $
    0.78
    
    
    $
    0.66Average Common Shares OutstandingBasic
    
    
    5,138
    
    
    
    5,052Diluted
    
    
    5,200
    
    
    
    5,114
 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements 6




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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS EnergySouth, Inc. Three MonthsEnded December 31,In Thousands
    
    2003
    
    2002Cash Flows from Operating ActivitiesNet Income
    
    $
    4,068
    
    
    $
    3,374Adjustments to Reconcile Net Income to Net Cash
Provided by Operating ActivitiesDepreciation and Amortization
    
    
    2,550
    
    
    
    2,377Provision for Losses on Receivables and Inventory
    
    
    243
    
    
    
    160Provision for Deferred Income Taxes
    
    
    484
    
    
    
    1,186Minority Interest
    
    
    196
    
    
    
    190Changes in Operating Assets and Liabilities:Receivables
    
    
    (10,368
    )
    
    
    (8,344
    )Inventory
    
    
    797
    
    
    
    509Payables
    
    
    1,069
    
    
    
    359Deferred Purchased Gas Adjustment
    
    
    647
    
    
    
    (1,262
    )Other
    
    
    317
    
    
    
    (601
    )Net Cash Provided (Used) by Operating Activities
    
    
    3
    
    
    
    (2,052
    )Cash Flows from Investing ActivitesCapital Expenditures
    
    
    (2,596
    )
    
    
    (3,700
    )Net Cash Used by Investing Activities
    
    
    (2,596
    )
    
    
    (3,700
    )Cash Flows from Financing ActivitesRepayment of Long-Term Debt
    
    
    (4,044
    )
    
    
    (1,816
    )Changes in Short-Term Borrowings
    
    
    6,775
    
    
    
    2,550Payment of Dividends
    
    
    (1,465
    )
    
    
    (1,364
    )Dividend Reinvestment
    
    
    87
    
    
    
    85Exercise of Stock Options
    
    
    98
    
    
    
    43Partnership Distributions to Minority Interest Holders
    
    
    (36
    )
    
    
    (66
    )Net Cash Provided (Used) by Financing Activities
    
    
    1,415
    
    
    
    (568
    )Net Decrease in Cash and Cash Equivalents
    
    
    (1,178
    )
    
    
    (6,320
    )Cash and Cash Equivalents at Beginning of Period
    
    
    4,082
    
    
    
    10,562Cash and Cash Equivalents at End of Period
    
    $
    2,904
    
    
    $
    4,242
 See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements 7




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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1. 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); a 90.9% 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. All
significant intercompany balances and transactions have been eliminated. Note 2. Basis of Presentation 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 disclosures required by accounting principles generally
accepted in the United States of America 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. 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 the Company for the fiscal year ended
September 30, 2003. 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-month periods ended December 31, 2003 and 2002 are not indicative of
the results to be expected for the full year. 8




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The table below summarizes operating results for the twelve months ended
December 31, 2003 and 2002: EnergySouth, Inc. Twelve MonthsEnded December 31,In Thousands, Except Per Share Data
    
    2003
    
    2002Operating Revenues
    
    $
    106,619
    
    
    $
    87,980Cost of Gas
    
    
    35,358
    
    
    
    23,630Cost of Merchandise
    
    
    2,394
    
    
    
    3,277Operations and Maintenance Expense
    
    
    24,873
    
    
    
    23,670Depreciation Expense
    
    
    9,088
    
    
    
    8,306Taxes, Other Than Income Taxes
    
    
    7,634
    
    
    
    6,698Operating Income
    
    
    27,272
    
    
    
    22,399Interest Expense
    
    
    (8,287
    )
    
    
    (8,181
    )Allowance for Borrowed Funds Used
During Construction
    
    
    669
    
    
    
    2,061Interest Income
    
    
    58
    
    
    
    91Less: Minority Interest
    
    
    (760
    )
    
    
    (743
    )Income Before Income Taxes
    
    $
    18,952
    
    
    $
    15,627Income Taxes
    
    
    7,122
    
    
    
    5,775Net Income
    
    $
    11,830
    
    
    $
    9,852Earnings Per ShareBasic
    
    $
    2.33
    
    
    $
    1.97Diluted
    
    $
    2.30
    
    
    $
    1.94Average Common Shares OutstandingBasic
    
    
    5,102
    
    
    
    5,011Diluted
    
    
    5,161
    
    
    
    5,089
 Note 3. Stock-Based Compensation The Company accounts for its employee stock option plans under the intrinsic
value recognition and measurement provisions of Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As stock options have been issued with exercise prices equal
to the market value of the underlying shares on the grant date, no compensation
cost has been recognized. Had compensation cost for the plans been determined based on the fair value of
the options on the grant date, consistent with Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, the
Companys net income and earnings per share would have been as follows:  9




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EnergySouth, Inc. Three MonthsEnded December 31,In Thousands, Except per Share Data
    
    2003
    
    2002Net Income, as reported
    
    $
    4,068
    
    
    $
    3,374Deduct:Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    
    46
    
    
    
    42Pro forma net income
    
    $
    4,022
    
    
    $
    3,332Earnings per share:Basic  as reported
    
    $
    0.79
    
    
    $
    0.67Basic  pro forma
    
    $
    0.78
    
    
    $
    0.66Diluted  as reported
    
    $
    0.78
    
    
    $
    0.66Diluted  pro forma
    
    $
    0.77
    
    
    $
    0.65
 Note 4. Rates and Regulatory Matters On June 10, 2002, the APSC approved Mobile Gas request for the Rate
Stabilization and Equalization (RSE) rate setting process to be effective
October 1, 2002 through September 30, 2005, and thereafter unless modified or
discontinued by APSC order. Under RSE, the APSC conducts quarterly reviews to
determine, based on Mobile Gas projections and fiscal year-to-date
performance, whether Mobile Gas return on equity is expected to be within the
allowed range of 13.35% to 13.85%. Reductions in rates can be made quarterly
to bring the projected return within the allowed range; increases, however, are
allowed only once each fiscal year, effective December 1, and cannot exceed
four percent of prior-year revenues. Mobile Gas rate adjustments, which became
effective December 1, 2003 and 2002, were designed to increase annual revenues
by approximately $2.8 million and $2.2 million, respectively. RSE limits the
amount of Mobile Gas equity upon which a return is permitted to 60 percent of
its total capitalization and provides for certain cost control measures
designed to monitor Mobile Gas operations and maintenance (O&M) expense.
Under the inflation-based cost control measurement established by the APSC, if
a change in Mobile Gas O&M expense per customer falls within 1.5 percentage
points above or below the change in the Consumer Price Index for All Urban
Customers (index range), no adjustment is required. If the change in O&M
expense per customer exceeds the index range, three-quarters of the difference
is returned to customers. To the extent the change is less than the index
range, the utility benefits by one-half of the difference through future rate
adjustments. The increase in O&M expenses per customer was within the index
range for the rate year ended September 30, 2003; therefore, no adjustments are
required. In conjunction with the approval of RSE, the APSC approved an Enhanced
Stability Reserve 10




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(ESR), beginning October 1, 2002, to which Mobile Gas may charge the full
amount of: 1) extraordinary O&M expenses resulting from force majeureevents
such as storms, severe weather, and outages, when one such event results in
more than $100,000 of additional O&M expense or a combination of two or more
such events results in more than $150,000 of additional O&M expense during a
fiscal year; or 2) losses of revenue from any individual industrial or
commercial customer in excess of $100,000 during the fiscal year, if such
losses cause Mobile Gas return on equity to fall below 13.35%. An initial ESR
balance of $1.0 million was recorded October 1, 2002 and is being recovered
from customers through rates. Subject to APSC approval, additional funding, up
to a maximum reserve balance of $1.5 million, may be provided by any future
non-recurring revenue should such revenue cause Mobile Gas return on equity
for the fiscal year to exceed 13.85%. During the year ended September 30, 2003,
Mobile Gas charged $146,000 against the ESR due to revenue losses from a large
industrial customer. Following a year in which a charge against the ESR is
made, the APSC provides for accruals to the ESR of no more than $15,000 monthly
until the maximum funding level is achieved. The ESR balance of $854,000 at
December 31, 2003 is included in the Consolidated Financial Statements as part
of Regulatory Liabilities. 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
margins. The adjustment is calculated monthly for the months of November
through April and applied to customers bills in the same billing cycle in
which the weather variation occurs. The temperature adjustment rider applies
to substantially all residential and small commercial customers. The Company is subject to the provisions of Financial Accounting Standards
Board (FASB) Statement No. 71, Accounting for the Effects of Certain Types of
Regulation (SFAS 71). Regulatory assets represent probable future revenues
associated with certain costs that are expected to be recovered from customers
through the ratemaking process. Regulatory liabilities represent probable
future reductions in revenues associated with amounts that are expected to be
credited to customers through the ratemaking process. The following table
presents the significant regulatory assets and liabilities as of the stated
dates (in thousands): 11




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December 31, 2003
    
    December 31, 2002
    
    September 30, 2003Current
    
    Noncurrent
    
    Current
    
    Noncurrent
    
    Current
    
    NoncurrentAssetsProperty, Plant, and Equipment
    
    $
    73
    
    
    
    
    
    
    $
    85
    
    
    $
    74
    
    
    $
    85
    
    
    $
    10Deferred Purchase Gas Adjustment
    
    
    1,886
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,533ESR Fund
    
    
    167
    
    
    
    626
    
    
    
    167
    
    
    
    792
    
    
    
    167
    
    
    
    666Bad Debt Reserve
    
    
    133
    
    
    
    232
    
    
    
    133
    
    
    
    365
    
    
    
    133
    
    
    
    265Other
    
    
    28
    
    
    
    48
    
    
    
    27
    
    
    
    75
    
    
    
    27
    
    
    
    55Regulatory Assets
    
    $
    2,287
    
    
    $
    906
    
    
    $
    412
    
    
    $
    1,306
    
    
    $
    2,945
    
    
    $
    996LiabilitiesBad Debt Reserve
    
    $
    36
    
    
    $
    15
    
    
    $
    55
    
    
    $
    50
    
    
    $
    40
    
    
    $
    20ESR Fund
    
    
    854
    
    
    
    
    
    
    
    1,000
    
    
    
    
    
    
    
    854Asset Retirement Obligations
    
    
    
    
    
    
    11,049
    
    
    
    
    
    
    
    10,215
    
    
    
    
    
    
    
    10,825Deferred Investment Tax Credit
    
    
    15
    
    
    
    148
    
    
    
    15
    
    
    
    164
    
    
    
    15
    
    
    
    153Deferred Purchase Gas Adjustment
    
    
    
    
    
    
    
    
    
    
    1,920Regulatory Liabilities
    
    $
    905
    
    
    $
    11,212
    
    
    $
    2,990
    
    
    $
    10,429
    
    
    $
    909
    
    
    $
    10,998
 In the event that a portion of the Companys operations should no longer be
subject to the provisions of SFAS No. 71, the Company would be required to
write off related regulatory assets and liabilities that are not specifically
addressed through regulated rates. In addition, the Company would be required
to determine if any impairment to other assets exists, including plant, and
write down the assets, if impaired, to their fair market value. Note 5. 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 outstanding 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 62,000 and 62,000 for the three months ended December 31, 2003 and
2002, respectively. These differences in equivalent shares are from outstanding
stock options. Note 6. Accounting Principles In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143, Accounting for Asset Retirement Obligations (SFAS 143). SFAS 143
addresses the recognition and measurement of a liability for an asset
retirement obligation and the associated asset retirement costs. It requires
that an existing legal obligation associated with the retirement of a tangible
long-lived asset be recognized as a liability when incurred and outlines the
method of measuring that liability. Management has determined that the Company
has no material legal obligations for the retirement of its assets. However,
the Company provides a provision, as part 12




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##### Table of Contents



of its depreciation expense, for the
ultimate cost of certain asset retirements and removal. Removal costs are not
a legal obligation as defined by SFAS No. 143 but rather the result of
cost-based regulation and therefore are accounted for under provision of SFAS
No. 71, Accounting for the Effects of Certain Types of Regulation. Upon
adoption of SFAS No. 143 on October 1, 2002, the Company classified removal
costs that do not have an associated legal retirement obligation as a
regulatory liability, in accordance with regulatory treatment. In accordance with guidance that became available subsequent to the Companys
filing of its Quarterly Report on Form 10-Q on February 13, 2004, the Company
has reclassified the estimated costs of removal of utility plant previously
recognized in accumulated depreciation as a regulatory liability for the
periods ended December 31, 2003 and 2002 and September 30, 2003. As a result
of the adoption of SFAS No. 143, these liabilities are reported as regulatory
liabilities. The following table shows how the consolidated total property, plant and
equipment and other liabilities on the balance sheet have been revised. December 31,
    
    December 31,
    
    September 30,In Thousands
    
    2003
    
    2002
    
    2003Total Property, Plant, and Equipment  as reported
    
    
    194,434
    
    
    
    189,177
    
    
    
    194,367Property, Plant, and Equipment  reclassified
    
    
    11,049
    
    
    
    10,215
    
    
    
    10,825Total Property, Plant, and Equipment  as revised
    
    
    205,483
    
    
    
    199,392
    
    
    
    205,192Total Other Liabilities  as reported
    
    
    22,851
    
    
    
    19,316
    
    
    
    21,979Total Other Liabilities  reclassified
    
    
    11,049
    
    
    
    10,215
    
    
    
    10,825Total Other Liabilities  as revised
    
    
    33,900
    
    
    
    29,531
    
    
    
    32,804
 In November 2002, FASB issued FASB Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 addresses the
disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees and clarifies the need for a guarantor to
recognize, at the inception of certain guarantees, a liability for the fair
value of the obligation undertaken in issuing the guarantee. The Company does
not have any guarantees subject to the provisions of FIN 45, thus the adoption
of FIN 45 on October 1, 2003 did not have a material impact on the Companys
financial statements. Note 7. Segment Information 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 13




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##### Table of Contents



operations of Bay Gas and Storage.
Through Mobile Gas and Services, the Company also provides merchandising and
other energy-related services which are aggregated with EnergySouth, the
holding company, and included in the Other segment. 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. For the three months ended
    
    Natural Gas
    
    Natural GasDecember 31, 2003 (in thousands):
    
    Distribution
    
    Storage
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    28,020
    
    
    $
    4,319
    
    
    $
    1,427
    
    
    $
    (1,050
    )
    
    $
    32,716Cost of Gas
    
    
    13,177
    
    
    
    
    
    
    
    
    
    
    
    (1,050
    )
    
    
    12,127Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    734
    
    
    
    
    
    
    
    734Operations and Maintenance Expense
    
    
    5,223
    
    
    
    730
    
    
    
    478
    
    
    
    
    
    
    
    6,431Depreciation Expense
    
    
    1,828
    
    
    
    606
    
    
    
    
    
    
    
    
    
    
    
    2,434Taxes, Other Than Income Taxes
    
    
    2,036
    
    
    
    198
    
    
    
    19
    
    
    
    
    
    
    
    2,253Operating Income
    
    
    5,756
    
    
    
    2,785
    
    
    
    196
    
    
    
    
    
    
    
    8,737Interest Income
    
    
    2
    
    
    
    9
    
    
    
    
    
    
    
    (5
    )
    
    
    6Interest Expense
    
    
    (830
    )
    
    
    (1,138
    )
    
    
    (67
    )
    
    
    5
    
    
    
    (2,030
    )Allow. for Borrowed Funds Used
During Construction
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9Less: Minority Interest
    
    
    (44
    )
    
    
    (152
    )
    
    
    
    
    
    
    
    
    
    
    (196
    )Income Before Income Taxes
    
    $
    4,893
    
    
    $
    1,504
    
    
    $
    129
    
    
    
    
    
    
    $
    6,526
 For the three months ended
    
    Natural Gas
    
    Natural GasDecember 31, 2002 (in thousands):
    
    Distribution
    
    Storage
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    22,270
    
    
    $
    3,030

    
    
    $
    1,468
    
    
    $
    (1,055
    )
    
    $
    25,713Cost of Gas
    
    
    8,673
    
    
    
    
    
    
    
    
    
    
    
    (1,045
    )
    
    
    7,628Cost of Merchandise & Jobbing
    
    
    
    
    
    
    
    
    
    
    813
    
    
    
    
    
    
    
    813Operations and Maintenance Expense
    
    
    5,081
    
    
    
    465
    
    
    
    447
    
    
    
    (10
    )
    
    
    5,983Depreciation Expense
    
    
    1,756
    
    
    
    513
    
    
    
    
    
    
    
    
    
    
    
    2,269Taxes, Other Than Income Taxes
    
    
    1,705
    
    
    
    171
    
    
    
    20
    
    
    
    
    
    
    
    1,896Operating Income
    
    
    5,055
    
    
    
    1,881
    
    
    
    188
    
    
    
    
    
    
    
    7,124Interest Income
    
    
    7
    
    
    
    18
    
    
    
    
    
    
    
    (6
    )
    
    
    19Interest Expense
    
    
    (915
    )
    
    
    (1,175
    )
    
    
    (28
    )
    
    
    6
    
    
    
    (2,112
    )Allow. for Borrowed Funds Used
During Construction
    
    
    7
    
    
    
    564
    
    
    
    
    
    
    
    
    
    
    
    571Less: Minority Interest
    
    
    (73
    )
    
    
    (117
    )
    
    
    
    
    
    
    
    
    
    
    (190
    )Income Before Income Taxes
    
    $
    4,081
    
    
    $
    1,171
    
    
    $
    160
    
    
    
    
    
    
    $
    5,412
 Note 8. Unearned Revenue In November 2001, Bay Gas entered into an agreement which granted a customer a
nineteen-month option to transport additional volumes in excess of the volumes
under long-term contract. During the first quarter of fiscal 2002, Bay Gas
received $3,274,000 in consideration of the option agreement, which was fully
amortized as of the end of May 2003. 14




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##### Table of Contents



Note 9. Subsequent Event As part of a process to continuously evaluate operations in an effort to
increase operational efficiencies and competitiveness, on January 16, 2004,
Mobile Gas eliminated sixteen positions, primarily in its marketing and
operations division. Termination benefits were offered to those employees that
include a lump sum payment based upon their years of service with Mobile Gas,
outplacement services, one-on-one counseling and job search assistance. In
accordance with Statement of Financial Accounting Standards No. 88, Employers
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans
and for Termination Benefits, Mobile Gas estimates that it will recognize
expenses during the quarter ended March 31, 2004 of approximately $280,000
related to the special termination benefits. 15




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##### Table of Contents



Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations The Company EnergySouth, Inc. (EnergySouth) is a holding company for a family of energy
businesses. EnergySouth and its consolidated subsidiaries are collectively
referred to herein as the Company. The Company, through Mobile Gas Service
Corporation (Mobile Gas) and Southern Gas Transmission Company (SGT), is
engaged in the distribution of natural gas to residential, commercial and
industrial customers in southwest Alabama. Through Bay Gas Storage Company,
Ltd. (Bay Gas), the Company provides underground natural gas storage services
and transportation services. Other EnergySouth subsidiaries are engaged in
merchandising, financing, and other energy-related services. Results Of Operations Consolidated Earnings All earnings per share amounts referred to herein are computed on a diluted
basis. Earnings per share for the three months ended December 31, 2003
increased $0.12, or 18%, as compared to the same prior year period due to
increased earnings from Mobile Gas natural gas distribution system and Bay
Gas natural gas storage business. Financial information by business segment is
shown in Note 7 to the unaudited Consolidated Financial Statements above. Earnings from the Companys natural gas distribution business increased $0.08
per share for the three-month period ended December 31, 2003 as compared to the
same prior year period. Mobile Gas earnings were positively impacted by rate
adjustments which became effective December 1, 2003 and 2002 based upon the
guidelines established under the Rate Stabilization and Equalization (RSE)
tariff. For further information on RSE, see Natural Gas Distribution below.
Earnings were also positively impacted by an increase in temperature-sensitive
customers gas consumption, when adjusted for weather, during the first quarter
of fiscal year 2004 as compared to unusually low usages experienced in the
first quarter of fiscal year 2003. Increased margins during the current year
three-month period were partially offset by an increase in operating expenses. The Companys natural gas storage business, operated by Bay Gas, contributed
increased earnings per share of $0.04 for the three-month period ended December
31, 2003 as compared to the same prior year period. The positive earnings
contribution is due primarily to increased storage revenues from its second
storage cavern placed in service on April 1, 2003. Increased revenues were
partially offset by additional operations and maintenance costs, depreciation
expense and property taxes due to the completion of the second storage cavern. 16




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##### Table of Contents



Earnings from other business operations remained flat for the three-month
period ended December 31, 2003. Natural Gas Distribution The natural gas distribution segment of the Company 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. The Alabama Public Service Commission (APSC) regulates the Companys gas
distribution operations. Mobile Gas rate tariffs for gas distribution allow a
pass-through to customers of the cost of gas, certain taxes, and incremental
costs associated with the replacement of cast iron mains. These costs,
therefore, have little direct impact on the Companys margins. In fiscal year 2002, the APSC approved Mobile Gas request for a Rate
Stabilization and Equalization (RSE) tariff, a ratemaking methodology already
used by the APSC to regulate certain other utilities. Rate adjustments,
designed to increase annual gas revenues by approximately $2.8 and $2.2
million, were implemented under the RSE tariff effective December 1, 2003 and
2002, respectively. See Note 4 to the Unaudited Condensed Consolidated
Financial Statements for a more detailed explanation. The Companys distribution business is highly seasonal and
temperature-sensitive since residential and commercial customers use more gas
during colder weather for space heating. As a result, gas revenues, cost of gas
and related taxes in any given period reflect, in addition to other factors,
the impact of weather, through either increased or decreased sales volumes.
The Company utilizes a temperature rate adjustment rider during the months of
November through April to mitigate the impact that unusually cold or warm
weather has on operating margins by reducing the base rate portion of
customers bills in colder than normal weather and increasing the base rate
portion of customers bills 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. Natural gas distribution revenues increased $5,753,000 (26%) during the
three-month period ended December 31, 2003 due primarily to the rate
adjustments to recover increased gas costs paid to suppliers. Fluctuations in
the actual cost of gas are passed on to customers through the purchased gas
adjustment provision of the rate tariffs and do not directly result in any
increases or decreases in margins. Revenues were also increased during the
current year period as a result of the RSE rate adjustments which went into
effect on December 1, 2003 and 2002. These increases in revenues were slightly
offset by a 5% decline in volumes delivered to temperature-sensitive customers
due to temperatures that were 14% warmer than the same period last year. Revenues from the sale of natural gas to large commercial and industrial
customers increased $102,000 (6%) for the three months ended December 31, 2003
due to the increase in the price of natural gas and the RSE adjustments. This
increase was partially offset by a 17




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##### Table of Contents



29% decline in volumes delivered to these customers due to higher
natural gas prices and general economic conditions. The cost of natural gas increased $4,504,000 (52%) for the three-month period
ended December 31, 2003 as compared to the same prior year period due to higher
commodity gas prices. Natural gas distribution margins, defined as natural gas
distribution revenues less the cost of natural gas and related taxes, increased
8% for the three-month period ended December 31, 2003 primarily as a result of
the RSE rate adjustments. Also, consumption by temperature-sensitive customers,
when adjusted for weather, increased during the first quarter of fiscal year
2004 compared to the same prior year period in which usages were unusually low.
Increased margins were partially offset by a slight decline in the number of
temperature-sensitive customers served during the current year period and the
decline in volumes delivered to large commercial and industrial customers
discussed above which are not subject to weather normalization. Revenues from transportation customers declined $78,000 for the three-month
period ended December 31, 2003 with a corresponding decline in volumes of 4%
due primarily to increased gas prices and general economic conditions. In
addition to plant closings in recent years, a chemical company, which was a
customer of the Company, ceased operations of its Mobile plant in June 2003,
and some industrial plants have decreased production or switched to alternative
fuels. As permitted by the APSC, the lost margins for fiscal year 2003
associated with the closure of the chemical plant were charged to the Enhanced
Stability Reserve (ESR) in September 2003 with a corresponding charge to
transportation revenue. Known changes in margin such as this that occur
subsequent to fiscal year 2003, as well as other changes affecting net income,
are reflected in the RSE adjustment on December 1, 2003. See Note 4 to the
Consolidated Financial Statements for information pertaining to ESR and RSE. Operations and maintenance (O&M) expenses increased $142,000 (3%) for the three
months ended December 31, 2003 due to an increase in insurance and benefits
expense and a $91,000 increase in bad debt expense for anticipated
uncollectible gas account balances. Gas receivables at December 31, 2003
increased approximately 31% as compared to the balance at December 31, 2002 as
a result of the increase in natural gas prices. In response to the increase in
gas accounts receivable, Mobile Gas has established additional reserves for
anticipated uncollectible account balances for gas delivered during the
current-year quarter. Depreciation expense increased $72,000 (4%) for the three-month period ended
December 31, 2003 due to Mobile Gas capital expansion projects and increased
investment in property, plant and equipment. Other taxes primarily consist of property taxes and business license taxes that
are based on gross revenues and fluctuate accordingly. Other taxes increased
$331,000 (19%) for the three-month period ended December 31, 2003 due primarily
to the increased revenues discussed above. 18




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##### Table of Contents



Interest expense decreased $85,000 (9%) for the three-month period ended
December 31, 2003 due to a slight decline in short-term borrowing rates. Minority interest reflects the minority partners share of pre-tax earnings of
the SGT partnership, of which EnergySouths subsidiary holds a controlling
interest. Minority interest decreased $29,000 (40%) during the three-month
period ended December 31, 2003 due to a decline in pretax earnings of the
partnership. 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. The APSC
certificated Bay Gas as an Alabama gas storage public utility in 1992. Through
its first storage cavern with 2.3 Bcf of working gas capacity and connected
pipeline, Bay Gas thereafter began providing substantial, long-term services
for Mobile Gas and other customers that include storage and transportation of
natural gas from interstate and intrastate sources. The APSC does not regulate
rates for Bay Gas interstate gas storage and storage-related services. The
Federal Energy Regulatory Commission (FERC), which has jurisdiction over
interstate services, allows Bay Gas to charge market-based rates for such
services. Market-based rates minimize regulatory involvement in the setting of
rates for storage services and allow Bay Gas to respond to market conditions.
Bay Gas also provides interstate transportation-only services. The FERC last
issued orders on October 11, 2001 and June 3, 2002 approving rates for such
services. The construction of natural gas-fired electric generation facilities in the
Southeast has provided opportunities to provide gas storage and transportation
services. Construction of Phase I of Bay Gas second storage cavern was
completed and the cavern was placed into service April 1, 2003. Bay Gas has
entered into a fifteen-year contract with Southern Company Services, Inc.
(Southern), an affiliate of Southern Company, for a substantial portion of the
second cavern capacity. Currently, the second salt-dome storage cavern has a
working capacity of 3.7 Bcf and will provide sufficient capacity to serve the
new long-term contract with Southern as well as other customers. Continuing
cavern development is planned to provide for an additional 1.0 Bcf of working
gas capacity. Together, the two caverns at Bay Gas hold 6.0 Bcf, with injection
and withdrawal capacity of 200 MMcf and 610 MMcf per day, respectively, but are
currently planned to hold 7.0 Bcf, with injection and withdrawal capacity of
300 MMcf and 700 MMcf per day, respectively. The additional cavern development
is projected to continue in fiscal 2004 without interruption of storage
operations. Bay Gas revenues increased $1,288,000 (43%) during the three-month period
ended December 31, 2003 due primarily to additional storage revenues associated
with the commencement of operations of the second cavern and a new storage
agreement which was signed during the first quarter of fiscal year 2004.
Storage revenues were partially offset by the expiration in May 2003 of an
option agreement for transportation services over and above contracted volumes.
Bay Gas entered into an agreement in November 2001 which granted to a customer
an option to order transportation of additional volumes in excess of the
volumes currently under long-term contract. Bay Gas received $3,274,000 in
consideration of the option agreement which was amortized over the
nineteen-month option period. 19




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##### Table of Contents



Operations and maintenance (O&M) expenses increased $265,000 (57%) during the
three months ended December 31, 2003 primarily due to a general increase in
operating costs as a result of the expansion activities of Bay Gas. Depreciation expense increased $93,000 (18%) for the three-month period ended
December 31, 2003 due primarily to the second storage cavern which was placed
in service in April 2003. Other taxes consist primarily of property taxes and those taxes increased
primarily as a result of Bay Gas second storage cavern which was placed in
service April 1, 2003. Allowance for borrowed funds used during construction represents the
capitalization of interest costs to construction work-in-progress. Capitalized
interest costs decreased $564,000 for the three-month period ended December 31,
2003 due to the completion of Bay Gas second storage cavern in April 2003. Interest income declined $9,000 during the three-month period ended December
31, 2003 due to the expenditure of the proceeds from Bay Gas debt issuance
used to finance the second cavern and two pipelines. Minority interest reflects the minority partners share of pre-tax earnings of
the Bay Gas partnership, of which EnergySouths subsidiary holds a controlling
interest. Minority interest increased $35,000 (30%) during the three-month
period ended December 31, 2003 due to increased pretax earnings of the
partnership. Other Through Mobile Gas and EnergySouth Services, Inc., which are aggregated with
EnergySouth, the holding company, the Company provides merchandising,

financing, and other energy-related services to comprise the Other category.
See Note 7 to the Unaudited Condensed Consolidated Financial Statements above
for segment disclosure. Other revenues decreased $41,000 due primarily to a decrease in merchandise and
financing activities, which were partially offset by a decrease in O&M and
other expenses of $9,000. Income Taxes Income taxes fluctuate with the change in income before income taxes. Income
tax expense increased $420,000 (21%) for the three months ended December 31,
2003. 20




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##### Table of Contents



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. Impacts of operating, investing, and
financing activities are shown on the Consolidated Statements of Cash Flows
above. Cash provided by operating activities increased $2.0 million during the
three-month period ended December 31, 2003 as compared to the same period last
year due primarily to collections of increased gas costs from customers. See
the Natural Gas Distribution section above for additional information regarding
the pass-through to customers of the cost of gas. Cash used in investing activities reflects the capital-intensive nature of the
Companys business. During the three months ended December 31, 2003 and 2002,
the Company used cash of $2.6 million and $3.7 million, respectively, for the
construction of distribution and storage facilities, purchases of equipment and
other general improvements. Also included in the $2.6 million is Mobile Gas
acquisition of a natural gas distribution system located in Mt. Vernon, Alabama
located just north of its service territory and costs associated with the
expansion of Bay Gas second cavern. Financing activities provided cash of $1.4 million during the three months
ended December 31, 2003 and used cash of $0.6 million during the first quarter
of fiscal year 2003. The $2.0 million change in financing activities is due
primarily to an increase in short-term borrowings of $4.2 million under the
Companys revolving credit agreement due, in part, to the increased prices of
natural gas supply. Partially offsetting the funds available from short-term
borrowings were repayments of long-term debt, including an additional principal
payment of $1.7 million allowed under Mobile Gas 7.27% Series First Mortgage
Bond Agreement. 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 December 31, 2003 the Company had $13.0 million available for
borrowing on its revolving credit agreement. 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. The Company believes it has adequate financial
flexibility to meet its expected cash needs in the foreseeable future. The table below summarizes the Companys contractual obligations and commercial
commitments as of December 31, 2003: 21




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##### Table of Contents



Remaining
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fiscal YearsType of Contractual
    
    Fiscal Year
    
    Fiscal Year
    
    Fiscal Year
    
    Fiscal Year
    
    Fiscal Year
    
    2009 andObligations (in thousands):
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    thereafterLong-Term Debt
    
    $
    3,661
    
    
    $
    6,248
    
    
    $
    6,463
    
    
    $
    6,769
    
    
    $
    5,300
    
    
    $
    66,160Gas Supply Contracts
    
    
    18,876
    
    
    
    1,169
    
    
    
    1,170
    
    
    
    1,187
    
    
    
    1,187
    
    
    
    3,215
 Critical Accounting Policies See Critical Accounting Policies under Managements Discussion and Analysis
of Financial Condition and Results of Operation included in the Annual Report
on Form 10-K of the Company for the fiscal year ended September 30, 2003. 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. Such forward-looking statements are made as of
the date of this report and involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of EnergySouth or its affiliates, or industry results, to differ
materially from any future results, performance or achievement expressed or
implied by such forward-looking statements. Such risks, uncertainties and
other important factors include, among others, risks associated with
fluctuations in natural gas prices, including changes in the historical
seasonal variances in natural gas prices and changes in historical patterns of
collections of accounts receivable; the prices of alternative fuels; the
relative pricing of natural gas versus other energy sources; the availability
of other natural gas storage capacity; failures or delays in completing the
planned cavern development project; disruption or interruption of pipelines
serving the Bay Gas storage facilities due to accidents or other events; risks
generally associated with the transportation and storage of natural gas; the
possibility that contracts with storage customers could be terminated under
certain circumstances, or not renewed or extended upon expiration; the prices
or terms of any extended or new contracts; possible loss or material change in
the financial condition of one or more major customers; liability for remedial
actions under environmental regulations; liability resulting from litigation;
national and global economic and political conditions; and changes in tax and
other laws applicable to the business. Additional factors that may impact
forward-looking statements include, but are not limited to, the Companys
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, specific
conditions in the Companys service area, and the Companys dependence on
external suppliers, contractors, partners, operators, service providers, and
governmental agencies. 22




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##### Table of Contents



Item 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK At December 31, 2003 the Company had approximately $94.6 million of long-term
debt at fixed interest rates. Interest rates range from 6.9% 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 the Companys Annual Report on Form 10-K for the fiscal year ended September
30, 2003 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 4 CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures As of the end of the period covered by this report, an evaluation (the
Evaluation) was carried out, under the supervision and with the participation
of the Companys President and Chief Executive Officer (CEO) and Chief
Financial Officer (CFO), of the effectiveness of the design and operation of
the Companys disclosure controls and procedures (Disclosure Controls).
Based on the Evaluation, the CEO and CFO concluded that the Companys
Disclosure Controls are effective in timely alerting them to material
information required to be included in the Companys periodic SEC reports. Changes in Internal Control Internal controls for financial reporting were also evaluated and there have
been no significant changes in internal controls or in other factors that could
significantly affect those controls subsequent to the date of their last
evaluation. Limitations on the Effectiveness of Controls A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. 23




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##### Table of Contents



PART II. OTHER INFORMATION 
 Item 4. Submission of Matters to a Vote of Security Holders  (a)
    
    The Annual Meeting of Stockholders of EnergySouth, Inc. was
held on
January 30, 2004.(b)
    
    The following nominees were elected as Directors of the
Company, to serve until the 2007 Annual Meeting of Stockholders, by
the votes indicated: Nominee
    
    For
    
    WithheldJohn S. Davis
    
    
    4,338,698
    
    
    
    326,124Walter L. Hovell
    
    
    4,633,722
    
    
    
    31,100G. Montgomery Mitchell
    
    
    4,632,609
    
    
    
    32,213Robert H. Rouse
    
    
    4,643,310
    
    
    
    21,512
  The other Directors of the Company whose terms of office continued after
the 2004 Annual Meeting are as indicated below: To Serve Until the AnnualDirector
    
    Meeting of Stockholders in the yearWalter A. Bell
    
    
    2005Gaylord C. Lyon
    
    
    2005Harris V. Morrisette
    
    
    2005E.B. Peebles, Jr.
    
    
    2005John C. Hope, III
    
    
    2006Judy A. Marston
    
    
    2006S. Felton Mitchell, Jr.
    
    
    2006Thomas B. Van Antwerp
    
    
    2006
  (c)
    
    The stockholders of the Company approved the proposed amendment
to the restated Articles of Incorporation of the Company to make the
mandatory retirement age applicable to all directors by the following
vote: For
    
    Against
    
    Abstain4,514,846
    
    
    127,132
    
    
    
    22,844
 24




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##### Table of Contents



Item 6. Exhibits and Reports on Form 8-K (a)
    
    Exhibit No.
    
    Description31.1
    
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002  Chief Executive Officer31.2
    
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002  Chief Financial Officer32.1
    
    
    Certification Pursuant to 18 U.S.C. Section 1350,
as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002  Chief Executive Officer32.2
    
    
    Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002  Chief Financial Officer
  (b)
    
    Reports on Form 8-KOn November 12, 2003, EnergySouth, Inc. filed its current report on
Form 8-K reporting earnings for the quarter ended September 30, 2003
and declaration of a dividend. 
 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. ENERGYSOUTH, INC.
(Registrant)Date: May 17, 2004

/s/
John S. DavisJohn S. DavisPresident and
Chief Executive Officer Date: May 17, 2004

/s/
Charles P. HuffmanCharles P. HuffmanSenior Vice President and
Chief Financial Officer 25