##### Table of Contents



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 June 30, 2006
 Commission File No. 0-29604
 ENERGYSOUTH, INC.
  Alabama
    
    58-2358943(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)2828 Dauphin Street, Mobile, Alabama
    
    36606(Address of principal executive office)
    
    (Zip Code)
 251-450-4774
 þ o
  o þ o
 o þ




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##### 



ENERGYSOUTH, INC.
FORM 10-Q FOR THE QUARTER ENDED June 30, 2006
  Page No.PART I: FINANCIAL INFORMATIONItem 1 Financial Statements:(a) Unaudited Condensed Consolidated Balance Sheets June 30, 2006 and 2005 and September 30, 2005
    
    
    3 - 4(b) Unaudited Condensed Consolidated Statements of Income Three and Nine Months Ended June 30, 2006 and 2005
    
    
    5(c) Unaudited Condensed Consolidated Statements of Cash Flows Nine Months Ended June 30, 2006 and 2005
    
    
    6(d) Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    7 - 19Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20 - 27Item 3 Quantitative and Qualitative Disclosures About Market Risk
    
    
    28Item 4 Controls and Procedures
    
    
    28 - 29PART II: OTHER INFORMATIONItem 5 Other Information
    
    
    29Item 6 Exhibits
    
    
    30Storage Service AgreementStorage Service AgreementCertification Pursuant to Section 302 - CEOCertification Pursuant to Section 302 - CFOCertification Pursuant to Section 906 - CEOCertification Pursuant to Section 906 - CFOPress Release
  2




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PART 1. FINANCIAL INFORMATION
 
 ITEM 1: FINANCIAL STATEMENTS
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 EnergySouth, Inc.
    
    June 30,
    
    September 30,In Thousands
    
    2006
    
    2005
    
    2005(Unaudited)ASSETSCurrent AssetsCash and Cash Equivalents
    
    $
    1,176
    
    
    $
    13,585
    
    
    $
    8,052Restricted Cash
    
    
    1,761
    
    
    
    1,599
    
    
    
    1,610ReceivablesGas
    
    
    7,531
    
    
    
    7,824
    
    
    
    7,568Unbilled Revenue
    
    
    1,516
    
    
    
    1,589
    
    
    
    1,777Merchandise
    
    
    2,028
    
    
    
    2,197
    
    
    
    2,123Other
    
    
    1,278
    
    
    
    1,183
    
    
    
    1,468Allowance for Doubtful Accounts
    
    
    (1,505
    )
    
    
    (1,934
    )
    
    
    (1,029
    )Materials, Supplies, and Merchandise, net (At Average Cost)
    
    
    1,345
    
    
    
    1,359
    
    
    
    1,319Gas Stored Underground (At Average Cost)
    
    
    5,104
    
    
    
    5,508
    
    
    
    5,666Regulatory Assets
    
    
    2,449
    
    
    
    323
    
    
    
    323Deferred Income Taxes
    
    
    2,617
    
    
    
    2,285
    
    
    
    3,784Prepayments
    
    
    2,606
    
    
    
    2,089
    
    
    
    1,814Total Current Assets
    
    
    27,906
    
    
    
    37,607
    
    
    
    34,475Property, Plant, and Equipment
    
    
    291,235
    
    
    
    279,534
    
    
    
    283,605Less: Accumulated Depreciation and Amortization
    
    
    83,555
    
    
    
    76,236
    
    
    
    77,982Property, Plant, and Equipment  Net
    
    
    207,680
    
    
    
    203,298
    
    
    
    205,623Construction Work in Progress
    
    
    14,932
    
    
    
    2,933
    
    
    
    6,265Total Property, Plant, and Equipment
    
    
    222,612
    
    
    
    206,231
    
    
    
    211,888Other AssetsPrepaid Pension Cost
    
    
    849
    
    
    
    957
    
    
    
    939Deferred Charges
    
    
    387
    
    
    
    616
    
    
    
    390Prepayments
    
    
    1,265
    
    
    
    913
    
    
    
    1,249Regulatory Assets
    
    
    208
    
    
    
    415
    
    
    
    333Merchandise Receivables Due After One Year
    
    
    3,042
    
    
    
    3,161
    
    
    
    3,185Total Other Assets
    
    
    5,751
    
    
    
    6,062
    
    
    
    6,096Total
    
    $
    256,269
    
    
    $
    249,900
    
    
    $
    252,459
  3




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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 EnergySouth, Inc.
    
    June 30,
    
    September 30,In Thousands, Except Share Data
    
    2006
    
    2005
    
    2005(Unaudited)LIABILITIES AND CAPITALIZATIONCurrent LiabilitiesCurrent Maturities of Long-Term Debt
    
    $
    4,957
    
    
    $
    5,160
    
    
    $
    5,213Accounts Payable
    
    
    7,459
    
    
    
    6,526
    
    
    
    6,235Dividends Declared
    
    
    1,809
    
    
    
    1,676
    
    
    
    1,684Customer Deposits
    
    
    1,159
    
    
    
    1,277
    
    
    
    1,294Taxes Accrued
    
    
    3,745
    
    
    
    3,413
    
    
    
    6,037Interest Accrued
    
    
    420
    
    
    
    463
    
    
    
    970Regulatory Liabilities
    
    
    6,911
    
    
    
    5,894
    
    
    
    6,704Other
    
    
    1,166
    
    
    
    1,302
    
    
    
    1,150Total Current Liabilities
    
    
    27,626
    
    
    
    25,711
    
    
    
    29,287Other LiabilitiesAccrued Postretirement Benefit Cost
    
    
    881
    
    
    
    684
    
    
    
    762Deferred Income Taxes
    
    
    23,615
    
    
    
    23,534
    
    
    
    22,626Deferred Investment Tax Credits
    
    
    221
    
    
    
    247
    
    
    
    236Regulatory Liabilities
    
    
    13,068
    
    
    
    12,380
    
    
    
    12,576Other
    
    
    1,300
    
    
    
    1,570
    
    
    
    1,597Total Other Liabilities
    
    
    39,085
    
    
    
    38,415
    
    
    
    37,79766,711
    
    
    
    64,126
    
    
    
    67,084CapitalizationStockholders EquityCommon Stock, $.01 Par Value(Authorized 20,000,000 Shares; OutstandingJune 2006  7,936,000;June 2005  7,855,000;September 2005  7,898,000 Shares)
    
    
    79
    
    
    
    78
    
    
    
    79Capital in Excess of Par Value
    
    
    28,674
    
    
    
    26,835
    
    
    
    27,457Retained Earnings
    
    
    82,435
    
    
    
    75,377
    
    
    
    74,952Grantor Trust, at cost
    
    
    (1,684
    )
    
    
    (1,485
    )
    
    
    (1,539
    )Deferred Compensation Liability
    
    
    1,684
    
    
    
    1,485
    
    
    
    1,539Total Stockholders Equity
    
    
    111,188
    
    
    
    102,290
    
    
    
    102,488Minority Interest
    
    
    5,507
    
    
    
    5,063
    
    
    
    5,308Long-Term Debt
    
    
    72,863
    
    
    
    78,421
    
    
    
    77,579Total Capitalization
    
    
    189,558
    
    
    
    185,774
    
    
    
    185,375Total
    
    $
    256,269
    
    
    $
    249,900
    
    
    $
    252,459
 
 4




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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Three Months
    
    Nine MonthsENERGYSOUTH, INC.
    
    Ended June 30,
    
    Ended June 30,In Thousands, Except Per Share Data
    
    2006
    
    2005
    
    2006
    
    2005Operating RevenuesGas Revenues
    
    $
    21,729
    
    
    $
    21,362
    
    
    $
    110,003
    
    
    $
    99,224Merchandise Sales
    
    
    1,099
    
    
    
    672
    
    
    
    3,152
    
    
    
    2,558Other
    
    
    298
    
    
    
    316
    
    
    
    874
    
    
    
    1,035Total Operating Revenues
    
    
    23,126
    
    
    
    22,350
    
    
    
    114,029
    
    
    
    102,817Operating ExpensesCost of Gas
    
    
    7,166
    
    
    
    6,984
    
    
    
    51,213
    
    
    
    40,310Cost of Merchandise
    
    
    860
    
    
    
    605
    
    
    
    2,443
    
    
    
    2,174Operations and Maintenance
    
    
    6,583
    
    
    
    6,289
    
    
    
    19,324
    
    
    
    19,485Depreciation
    
    
    2,638
    
    
    
    2,544
    
    
    
    7,931
    
    
    
    7,640Taxes, Other Than Income Taxes
    
    
    1,788
    
    
    
    1,735
    
    
    
    7,630
    
    
    
    7,071Total Operating Expenses
    
    
    19,035
    
    
    
    18,157
    
    
    
    88,541
    
    
    
    76,680Operating Income
    
    
    4,091
    
    
    
    4,193
    
    
    
    25,488
    
    
    
    26,137Other Income and (Expense)Interest Expense
    
    
    (1,669
    )
    
    
    (1,805
    )
    
    
    (5,123
    )
    
    
    (5,518
    )Capitalized Interest
    
    
    280
    
    
    
    49
    
    
    
    701
    
    
    
    62Interest Income
    
    
    41
    
    
    
    103
    
    
    
    159
    
    
    
    177Minority Interest
    
    
    (272
    )
    
    
    (203
    )
    
    
    (795
    )
    
    
    (649
    )Total Other Income (Expense)
    
    
    (1,620
    )
    
    
    (1,856
    )
    
    
    (5,058
    )
    
    
    (5,928
    )Income Before Income Taxes
    
    
    2,471
    
    
    
    2,337
    
    
    
    20,430
    
    
    
    20,209Income Taxes
    
    
    908
    
    
    
    880
    
    
    
    7,722
    
    
    
    7,641Net Income
    
    $
    1,563
    
    
    $
    1,457
    
    
    $
    12,708
    
    
    $
    12,568Earnings Per ShareBasic
    
    $
    0.20
    
    
    $
    0.19
    
    
    $
    1.61
    
    
    $
    1.60Diluted
    
    $
    0.20
    
    
    $
    0.18
    
    
    $
    1.59
    
    
    $
    1.58Average Common Shares OutstandingBasic
    
    
    7,931
    
    
    
    7,854
    
    
    
    7,917
    
    
    
    7,843Diluted
    
    
    7,988
    
    
    
    7,947
    
    
    
    7,970
    
    
    
    7,945
  5




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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine MonthsEnergySouth, Inc.
    
    Ended June 30,In Thousands
    
    2006
    
    2005Cash Flows from Operating ActivitiesNet Income
    
    $
    12,708
    
    
    $
    12,568Adjustments to Reconcile Net Income to Net Cash
Provided by Operating ActivitiesDepreciation and Amortization
    
    
    8,183
    
    
    
    7,915Provision for Losses on Receivables and Inventory
    
    
    1,029
    
    
    
    967Provision for Deferred Income Taxes
    
    
    2,144
    
    
    
    307Minority Interest
    
    
    795
    
    
    
    649Stock-Based Employee Compensation Expense
    
    
    265Changes in Operating Assets and Liabilities:Receivables
    
    
    (110
    )
    
    
    (1,570
    )Inventory
    
    
    612
    
    
    
    (1,091
    )Payables
    
    
    564
    
    
    
    47Taxes
    
    
    (2,293
    )
    
    
    1,100Deferred Purchased Gas Adjustment
    
    
    (3,625
    )
    
    
    4,037Other
    
    
    1,213
    
    
    
    942Net Cash Provided by Operating Activities
    
    
    21,485
    
    
    
    25,871Cash Flows from Investing ActivitesCapital Expenditures
    
    
    (17,770
    )
    
    
    (8,075
    )Restricted Cash
    
    
    (151
    )
    
    
    (122
    )Net Cash Used in Investing Activities
    
    
    (17,921
    )
    
    
    (8,197
    )Cash Flows from Financing ActivitesRepayment of Long-Term Debt
    
    
    (4,972
    )
    
    
    (7,359
    )Payment of Dividends
    
    
    (5,225
    )
    
    
    (4,816
    )Dividend Reinvestment
    
    
    268
    
    
    
    307Exercise of Stock Options
    
    
    423
    
    
    
    147Excess Tax Benefits from Share Based Payments
    
    
    93Partnership Distributions to Minority Interest Holders
    
    
    (595
    )
    
    
    (355
    )Net Cash Used in Financing Activities
    
    
    (10,008
    )
    
    
    (12,076
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (6,444
    )
    
    
    5,598Cash and Cash Equivalents at Beginning of Period
    
    
    8,052
    
    
    
    7,987Cash and Cash Equivalents at End of Period
    
    $
    1,608
    
    
    $
    13,585Noncash Transactions from Investing Activities:Accruals for Capital Expenditures
    
    $
    1,257
    
    
    $
    1,023
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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Principles of Consolidation
  Note 2. Basis of Presentation
   
 7




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Twelve MonthsEnergySouth, Inc.
    
    Ended June 30,In Thousands, Except Per Share Data
    
    2006
    
    2005Operating Revenues
    
    $
    135,819
    
    
    $
    122,231Cost of Gas
    
    
    58,069
    
    
    
    45,854Cost of Merchandise
    
    
    3,035
    
    
    
    2,884Operations and Maintenance Expense
    
    
    25,153
    
    
    
    25,319Depreciation Expense
    
    
    10,414
    
    
    
    10,044Taxes, Other Than Income Taxes
    
    
    9,212
    
    
    
    8,586Operating Income
    
    
    29,936
    
    
    
    29,544Interest Expense
    
    
    (6,886
    )
    
    
    (7,436
    )Allowance for Borrowed Funds Used
During Construction
    
    
    848
    
    
    
    66Interest Income
    
    
    241
    
    
    
    202Less: Minority Interest
    
    
    (1,084
    )
    
    
    (871
    )Income Before Income Taxes
    
    $
    23,055
    
    
    $
    21,505Income Taxes
    
    
    9,073
    
    
    
    8,107Net Income
    
    $
    13,982
    
    
    $
    13,398Earnings Per ShareBasic
    
    $
    1.77
    
    
    $
    1.71Diluted
    
    $
    1.76
    
    
    $
    1.69Average Common Shares OutstandingBasic
    
    
    7,909
    
    
    
    7,837Diluted
    
    
    7,962
    
    
    
    7,936
 Note 3. Stock-Based Compensation
   8




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Three Months
    
    
    Nine MonthsEnergySouth, Inc.
    
    Ended June 30,
    
    
    Ended June 30,In Thousands, Except per Share Data
    
    2005
    
    
    2005Net Income, as reported
    
    $
    1,457
    
    
    $
    12,568Deduct:Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    
    54
    
    
    
    149Pro forma net income
    
    $
    1,403
    
    
    $
    12,419Earnings per share:Basic  as reported
    
    $
    0.19
    
    
    $
    1.60Basic  pro forma
    
    $
    0.18
    
    
    $
    1.58Diluted  as reported
    
    $
    0.18
    
    
    $
    1.58Diluted  pro forma
    
    $
    0.18
    
    
    $
    1.56
   9




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Weighted
    
    Weighted
    
    AggregateAverage
    
    Average
    
    IntrinsicExercise
    
    Remaining
    
    Value (inShares
    
    Price
    
    Life
    
    thousands)Outstanding at September 30, 2005
    
    
    299,589
    
    
    $
    20.979
    
    
    7.44 yearsGranted
    
    
    73,950
    
    
    
    30.445Exercised
    
    
    (23,252
    )
    
    
    18.612Forfeited
    
    
    (12,150
    )
    
    
    25.727Outstanding at June 30, 2006*
    
    
    338,137
    
    
    $
    23.049
    
    
    7.57 years
    
    $
    2,709Exercisable at June 30, 2006
    
    
    158,851
    
    
    $
    18.434
    
    
    6.16 years
    
    $
    2,033Remaining reserved for grant
at June 30, 2006
    
    
    248,000
     Note 4. Retirement Plans and Other Benefits
   10




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Pension
    
    PostretirementBenefits
    
    BenefitsFor the three months ended June 30, (in thousands)
    
    2006
    
    2005
    
    2006
    
    2005Service cost
    
    $
    219
    
    
    $
    215
    
    
    $
    39
    
    
    $
    43Interest cost
    
    
    460
    
    
    
    445
    
    
    
    75
    
    
    
    79Amortization of prior service cost
    
    
    23
    
    
    
    24
    
    
    
    (19
    )
    
    
    (11
    )Amortization of unrecognized gain
    
    
    
    
    
    
    
    
    
    
    17
    
    
    
    15Expected return on plan assets
    
    
    (672
    )
    
    
    (643
    )
    
    
    (71
    )
    
    
    (68
    )Net periodic benefit cost (credit)
    
    $
    30
    
    
    $
    41
    
    
    $
    41
    
    
    $
    58
 Pension
    
    PostretirementBenefits
    
    BenefitsFor the nine months ended June 30, (in thousands)
    
    2006
    
    2005
    
    2006
    
    2005Service cost
    
    $
    656
    
    
    $
    646
    
    
    $
    117
    
    
    $
    128Interest cost
    
    
    1,379
    
    
    
    1,335
    
    
    
    225
    
    
    
    236Amortization of prior service cost
    
    
    70
    
    
    
    71
    
    
    
    (57
    )
    
    
    (33
    )Amortization of unrecognized gain/(loss)
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    44Expected return on plan assets
    
    
    (2,015
    )
    
    
    (1,929
    )
    
    
    (212
    )
    
    
    (204
    )Net periodic benefit cost (credit)
    
    $
    90
    
    
    $
    123
    
    
    $
    123
    
    
    $
    171
   Note 5. Rates and Regulatory Matters
  11




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force majeure
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13




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June 30,
    
    June 30,
    
    September 30,2006
    
    2005
    
    2005Current
    
    Noncurrent
    
    Current
    
    Noncurrent
    
    Current
    
    NoncurrentAssetsDeferred Purchase Gas Adjustment
    
    $
    2,246ESR Fund
    
    
    167
    
    
    $
    208
    
    
    $
    167
    
    
    $
    375
    
    
    $
    167
    
    
    $
    333Other
    
    
    36
    
    
    
    
    
    
    
    156
    
    
    
    40
    
    
    
    156Regulatory Assets
    
    $
    2,449
    
    
    $
    208
    
    
    $
    323
    
    
    $
    415
    
    
    $
    323
    
    
    $
    333LiabilitiesESR Fund
    
    $
    1,000
    
    
    
    
    
    
    
    944
    
    
    
    
    
    
    $
    975Deferred Investment Tax Credit
    
    
    15
    
    
    $
    110
    
    
    
    15
    
    
    $
    125
    
    
    
    15
    
    
    $
    121RSE Adjustment
    
    
    46
    
    
    
    
    
    
    
    16
    
    
    
    
    
    
    
    433Gross Receipt Tax Collections
    
    
    3,495
    
    
    
    
    
    
    
    4,006
    
    
    
    
    
    
    
    3,751Deferred Purchase Gas Adjustment
    
    
    
    
    
    
    
    
    
    
    768
    
    
    
    
    
    
    
    1,379Contract Termination Payment
    
    
    2,172Accrued Dismantling Costs
    
    
    
    
    
    
    12,958
    
    
    
    
    
    
    
    12,255
    
    
    
    
    
    
    
    12,455Other
    
    
    183
    
    
    
    
    
    
    
    145
    
    
    
    
    
    
    
    151Regulatory Liabilities
    
    $
    6,911
    
    
    $
    13,068
    
    
    $
    5,894
    
    
    $
    12,380
    
    
    $
    6,704
    
    
    $
    12,576
   Note 6. Earnings Per Share
  14




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Three Months
    
    Nine MonthsEnergySouth, Inc.
    
    Ended June 30,
    
    Ended June 30,In Thousands
    
    2006
    
    2005
    
    2006
    
    2005Weighted Average Common Shares
    
    
    7,931
    
    
    
    7,854
    
    
    
    7,917
    
    
    
    7,843Effect of Dilutive Securities:Options to Purchase Common Stock
    
    
    57
    
    
    
    93
    
    
    
    53
    
    
    
    102Diluted Average Common Shares
    
    
    7,988
    
    
    
    7,947
    
    
    
    7,970
    
    
    
    7,945
  Note 7. Segment Information
   For the three months ended
    
    Natural Gas
    
    Natural GasJune 30, 2006 (in thousands):
    
    Distribution
    
    Storage
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    17,600
    
    
    $
    5,175
    
    
    $
    1,397
    
    
    $
    (1,046
    )
    
    $
    23,126Cost of Gas
    
    
    8,212
    
    
    
    
    
    
    
    
    
    
    
    (1,046
    )
    
    
    7,166Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    860
    
    
    
    
    
    
    
    860Operations and Maintenance Expense
    
    
    5,368
    
    
    
    877
    
    
    
    338
    
    
    
    
    
    
    
    6,583Depreciation Expense
    
    
    1,995
    
    
    
    643
    
    
    
    
    
    
    
    
    
    
    
    2,638Taxes, Other Than Income Taxes
    
    
    1,558
    
    
    
    215
    
    
    
    15
    
    
    
    
    
    
    
    1,788Operating Income
    
    
    467
    
    
    
    3,440
    
    
    
    184
    
    
    
    
    
    
    
    4,091Interest Income
    
    
    1
    
    
    
    42
    
    
    
    201
    
    
    
    (203
    )
    
    
    41Interest Expense
    
    
    (780
    )
    
    
    (1,007
    )
    
    
    (85
    )
    
    
    203
    
    
    
    (1,669
    )Capitalized Interest
    
    
    13
    
    
    
    267
    
    
    
    
    
    
    
    
    
    
    
    280Less: Minority Interest
    
    
    (24
    )
    
    
    (248
    )
    
    
    
    
    
    
    
    
    
    
    (272
    )Income (Loss) Before Income Taxes
    
    $
    (323
    )
    
    $
    2,494
    
    
    $
    300
    
    
    
    
    
    
    $
    2,471
 15




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##### Table of Contents



For the three months ended
    
    Natural Gas
    
    Natural GasJune 30, 2005 (in thousands):
    
    Distribution
    
    Storage
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    17,950
    
    
    $
    4,476
    
    
    $
    988
    
    
    $
    (1,064
    )
    
    $
    22,350Cost of Gas
    
    
    8,048
    
    
    
    
    
    
    
    
    
    
    
    (1,064
    )
    
    
    6,984Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    605
    
    
    
    
    
    
    
    605Operations and Maintenance Expense
    
    
    5,181
    
    
    
    794
    
    
    
    314
    
    
    
    
    
    
    
    6,289Depreciation Expense
    
    
    1,925
    
    
    
    619
    
    
    
    
    
    
    
    
    
    
    
    2,544Taxes, Other Than Income Taxes
    
    
    1,484
    
    
    
    238
    
    
    
    13
    
    
    
    
    
    
    
    1,735Operating Income
    
    
    1,312
    
    
    
    2,825
    
    
    
    56
    
    
    
    
    
    
    
    4,193Interest Income
    
    
    15
    
    
    
    50
    
    
    
    64
    
    
    
    (26
    )
    
    
    103Interest Expense
    
    
    (702
    )
    
    
    (1,063
    )
    
    
    (66
    )
    
    
    26
    
    
    
    (1,805
    )Capitalized Interest
    
    
    7
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    49Less: Minority Interest
    
    
    (33
    )
    
    
    (170
    )
    
    
    
    
    
    
    
    
    
    
    (203
    )Income Before Income Taxes
    
    $
    599
    
    
    $
    1,684
    
    
    $
    54
    
    
    
    
    
    
    $
    2,337
 For the nine months ended
    
    Natural Gas
    
    Natural GasJune 30, 2006 (in thousands):
    
    Distribution
    
    Storage
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    98,297
    
    
    $
    14,869
    
    
    $
    4,026
    
    
    $
    (3,163
    )
    
    $
    114,029Cost of Gas
    
    
    54,376
    
    
    
    
    
    
    
    
    
    
    
    (3,163
    )
    
    
    51,213Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    2,443
    
    
    
    
    
    
    
    2,443Operations and Maintenance Expense
    
    
    16,062
    
    
    
    2,153
    
    
    
    1,109
    
    
    
    
    
    
    
    19,324Depreciation Expense
    
    
    5,985
    
    
    
    1,946
    
    
    
    
    
    
    
    
    
    
    
    7,931Taxes, Other Than Income Taxes
    
    
    6,922
    
    
    
    645
    
    
    
    63
    
    
    
    
    
    
    
    7,630Operating Income
    
    
    14,952
    
    
    
    10,125
    
    
    
    411
    
    
    
    
    
    
    
    25,488Interest Income
    
    
    16
    
    
    
    146
    
    
    
    489
    
    
    
    (492
    )
    
    
    159Interest Expense
    
    
    (2,304
    )
    
    
    (3,077
    )
    
    
    (234
    )
    
    
    492
    
    
    
    (5,123
    )Capitalized Interest
    
    
    52
    
    
    
    649
    
    
    
    
    
    
    
    
    
    
    
    701Less: Minority Interest
    
    
    (80
    )
    
    
    (715
    )
    
    
    
    
    
    
    
    
    
    
    (795
    )Income Before Income Taxes
    
    $
    12,636
    
    
    $
    7,128
    
    
    $
    666
    
    
    
    
    
    
    $
    20,430
 For the nine months ended
    
    Natural Gas
    
    Natural GasJune 30, 2005 (in thousands):
    
    Distribution
    
    Storage
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    88,391
    
    
    $
    13,984
    
    
    $
    3,593
    
    
    $
    (3,151
    )
    
    $
    102,817Cost of Gas
    
    
    43,461
    
    
    
    
    
    
    
    
    
    
    
    (3,151
    )
    
    
    40,310Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    2,174
    
    
    
    
    
    
    
    2,174Operations and Maintenance Expense
    
    
    16,023
    
    
    
    2,382
    
    
    
    1,080
    
    
    
    
    
    
    
    19,485Depreciation Expense
    
    
    5,777
    
    
    
    1,863
    
    
    
    
    
    
    
    
    
    
    
    7,640Taxes, Other Than Income Taxes
    
    
    6,321
    
    
    
    696
    
    
    
    54
    
    
    
    
    
    
    
    7,071Operating Income
    
    
    16,809
    
    
    
    9,043
    
    
    
    285
    
    
    
    
    
    
    
    26,137Interest Income
    
    
    17
    
    
    
    117
    
    
    
    159
    
    
    
    (116
    )
    
    
    177Interest Expense
    
    
    (2,212
    )
    
    
    (3,225
    )
    
    
    (197
    )
    
    
    116
    
    
    
    (5,518
    )Capitalized Interest
    
    
    11
    
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    62Less: Minority Interest
    
    
    (98
    )
    
    
    (551
    )
    
    
    
    
    
    
    
    
    
    
    (649
    )Income Before Income Taxes
    
    $
    14,527
    
    
    $
    5,435
    
    
    $
    247
    
    
    
    
    
    
    $
    20,209
 16




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##### Table of Contents



Note 8. Commitments and Contingencies
 Normal Purchases and Normal Sales,
     17




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##### Table of Contents



Mobile Gas
    
    Bay GasGas
    
    
    
    
    
    MinimumFiscal
    
    Supply
    
    Implemention of
    
    Payments for
    
    Construction
    
    TotalYear
    
    Contracts
    
    CIS Software
    
    Service Fees
    
    Contracts
    
    Commitmentsremaining 2006
    
    $
    4,732
    
    
    $
    225
    
    
    $
    75
    
    
    $
    2,666
    
    
    $
    7,6982007
    
    
    5,613
    
    
    
    2,150
    
    
    
    333
    
    
    
    6,429
    
    
    
    14,5252008
    
    
    1,187
    
    
    
    613
    
    
    
    378
    
    
    
    
    
    
    
    2,1782009
    
    
    1,187
    
    
    
    
    
    
    
    423
    
    
    
    
    
    
    
    1,6102010  and
thereafter
    
    
    2,028
    
    
    
    
    
    
    
    11,426
    
    
    
    
    
    
    
    13,454Total
    
    $
    14,747
    
    
    $
    2,988
    
    
    $
    12,635
    
    
    $
    9,095
    
    
    $
    39,465
    Note 9. New Accounting Pronouncements
  18




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##### Table of Contents



Note 10. Subsequent Events
   19




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##### Table of Contents



Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
 The Company
  Results Of Operations
 Consolidated Earnings
     20




---



##### Table of Contents



Natural Gas Distribution
      21




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##### Table of Contents



22




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##### Table of Contents



Natural Gas Storage
   23




---



##### Table of Contents



24




---



##### Table of Contents



Other
   Income Taxes
  Liquidity and Capital Resources
     25




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##### Table of Contents



Remaining
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fiscal YearsType of Contractual
    
    Fiscal Year
    
    Fiscal Year
    
    Fiscal Year
    
    Fiscal Year
    
    2010 andObligations (in thousands):
    
    2006
    
    2007
    
    2008
    
    2009
    
    thereafterLong-Term Debt
    
    $
    842
    
    
    $
    5,619
    
    
    $
    5,900
    
    
    $
    6,054
    
    
    $
    59,405Interest Payments
    
    
    1,153
    
    
    
    6,197
    
    
    
    5,732
    
    
    
    5,247
    
    
    
    24,276Estimated Future Minimum Payments for
Bay Gas Service Fees
    
    
    75
    
    
    
    333
    
    
    
    378
    
    
    
    423
    
    
    
    11,426Construction Contracts for Bay Gas
3rd Cavern Development
    
    
    2,666
    
    
    
    6,429Implementation of CIS Software
    
    
    225
    
    
    
    2,150
    
    
    
    613Gas Supply Contracts
    
    
    4,732
    
    
    
    5,613
    
    
    
    1,187
    
    
    
    1,187
    
    
    
    2,028Total
    
    $
    9,693
    
    
    $
    26,341
    
    
    $
    13,810
    
    
    $
    12,911
    
    
    $
    97,135
 Critical Accounting Policies
  26




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##### Table of Contents



Forward-Looking Statements
  27




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##### Table of Contents



Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Normal purchases and Normal
sales,
    
 Item 4 CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  28




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##### Table of Contents



Changes in Internal Control
  
 PART II. OTHER INFORMATION
 
 Item 5. Other Information
  29




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 6. Exhibits
 Exhibit No.
    
    Description10(w)
    
    Storage Service Agreement by and between Bay Gas Storage Company,
Ltd. and Florida Power Corporation d/b/a Progress Energy Florida, Inc. made as of
the 19th day of April, 2006(1)10(y)
    
    Storage Service Agreement by and between Bay Gas Storage Company,
Ltd. and Constellation Energy Commodities Group, Inc. made as of the
23rd day of May, 2006(1)31.1
    
    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
Officer99.1
    
    Press release dated July 28, 2006
 
 (1)
    
    Confidential portions of this exhibit have been omitted and previously filed separately with
the Securities and Exchange Commission pursuant to a request for confidential treatment made in
accordance with Rule 24b-2 promulgated under the Securities and Exchange Act of 1934, as amended. 30




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##### Table of Contents



SIGNATURES
  ENERGYSOUTH, INC.(Registrant)Date: July 31, 2006
    
    /s/ John S. Davis

John S. DavisPresident andChief Executive OfficerDate: July 31, 2006
    
    /s/ Charles P. Huffman

Charles P. HuffmanSenior Vice President andChief Financial Officer
 31