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SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 Form 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For Quarter Ended March 31, 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)
  þ o
  Large accelerated filer o
    
    Accelerated filerþ
    
    Non-accelerated filer o
 o þ




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##### Table of Contents



ENERGYSOUTH, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2006
  Page No.PART I: FINANCIAL INFORMATIONItem 1 Financial Statements:(a) Unaudited Condensed Consolidated Balance Sheets
March 31, 2006 and 2005 and September 30, 2005
    
    
    3 - 4(b) Unaudited Condensed Consolidated Statements of Income
Three and Six Months Ended March 31, 2006 and 2005
    
    
    5(c) Unaudited Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31, 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
    
    
    30Certification Pursuant to Section 302 - Chief Executive OfficerCertification Pursuant to Section 302 - Chief Financial OfficerCertification Pursuant to Section 906 - Chief Executive OfficerCertification Pursuant to Section 906 - Chief Financial OfficerPress Release
 2




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PART 1. FINANCIAL INFORMATION
 
 ITEM 1: FINANCIAL STATEMENTS
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 EnergySouth, Inc.
    
    March 31,
    
    
    September 30,In Thousands
    
    2006
    
    
    2005
    
    
    2005(Unaudited)ASSETSCurrent AssetsCash and Cash Equivalents
    
    $
    4,197
    
    
    $
    14,785
    
    
    $
    9,662ReceivablesGas
    
    
    12,058
    
    
    
    13,358
    
    
    
    7,568Unbilled Revenue
    
    
    3,343
    
    
    
    3,162
    
    
    
    1,777Merchandise
    
    
    2,098
    
    
    
    2,297
    
    
    
    2,123Other
    
    
    1,148
    
    
    
    857
    
    
    
    1,468Allowance for Doubtful Accounts
    
    
    (1,761
    )
    
    
    (1,648
    )
    
    
    (1,029
    )Materials, Supplies, and Merchandise, net (At Average Cost)
    
    
    1,253
    
    
    
    1,394
    
    
    
    1,319Gas Stored Underground (At Average Cost)
    
    
    5,295
    
    
    
    4,088
    
    
    
    5,666Regulatory Assets
    
    
    2,451
    
    
    
    323
    
    
    
    323Deferred Income Taxes
    
    
    2,339
    
    
    
    2,539
    
    
    
    3,784Prepayments
    
    
    2,956
    
    
    
    2,317
    
    
    
    1,814Total Current Assets
    
    
    35,377
    
    
    
    43,472
    
    
    
    34,475Property, Plant, and Equipment
    
    
    288,641
    
    
    
    277,540
    
    
    
    283,605Less: Accumulated Depreciation and Amortization
    
    
    81,652
    
    
    
    74,583
    
    
    
    77,982Property, Plant, and Equipment  Net
    
    
    206,989
    
    
    
    202,957
    
    
    
    205,623Construction Work in Progress
    
    
    12,362
    
    
    
    505
    
    
    
    6,265Total Property, Plant, and Equipment
    
    
    219,351
    
    
    
    203,462
    
    
    
    211,888Other AssetsPrepaid Pension Cost
    
    
    879
    
    
    
    989
    
    
    
    939Deferred Charges
    
    
    587
    
    
    
    641
    
    
    
    390Prepayments
    
    
    1,199
    
    
    
    928
    
    
    
    1,249Regulatory Assets
    
    
    250
    
    
    
    497
    
    
    
    333Merchandise Receivables Due After One Year
    
    
    3,188
    
    
    
    3,305
    
    
    
    3,185Total Other Assets
    
    
    6,103
    
    
    
    6,360
    
    
    
    6,096Total
    
    $
    260,831
    
    
    $
    253,294
    
    
    $
    252,459
  3




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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 EnergySouth, Inc.
    
    March 31,
    
    
    September 30,In Thousands, Except Share Data
    
    2006
    
    
    2005
    
    
    2005(Unaudited)LIABILITIES AND CAPITALIZATIONCurrent LiabilitiesCurrent Maturities of Long-Term Debt
    
    $
    4,876
    
    
    $
    5,089
    
    
    $
    5,213Accounts Payable
    
    
    10,213
    
    
    
    5,874
    
    
    
    6,235Dividends Declared
    
    
    1,619
    
    
    
    1,557
    
    
    
    1,684Customer Deposits
    
    
    1,223
    
    
    
    1,352
    
    
    
    1,294Taxes Accrued
    
    
    4,113
    
    
    
    4,703
    
    
    
    6,037Interest Accrued
    
    
    1,027
    
    
    
    1,103
    
    
    
    970Regulatory Liabilities
    
    
    6,812
    
    
    
    6,622
    
    
    
    6,704Other
    
    
    1,097
    
    
    
    1,094
    
    
    
    1,150Total Current Liabilities
    
    
    30,980
    
    
    
    27,394
    
    
    
    29,287Other LiabilitiesAccrued Postretirement Benefit Cost
    
    
    843
    
    
    
    627
    
    
    
    762Deferred Income Taxes
    
    
    22,540
    
    
    
    22,843
    
    
    
    22,626Deferred Investment Tax Credits
    
    
    226
    
    
    
    252
    
    
    
    236Regulatory Liabilities
    
    
    12,932
    
    
    
    12,225
    
    
    
    12,576Other
    
    
    1,260
    
    
    
    1,426
    
    
    
    1,597Total Other Liabilities
    
    
    37,801
    
    
    
    37,373
    
    
    
    37,79768,781
    
    
    
    64,767
    
    
    
    67,084CapitalizationStockholders EquityCommon Stock, $.01 Par Value
(Authorized 20,000,000 Shares; Outstanding
March 2006 - 7,920,000;
March 2005 - 7,847,000;
September 2005 - 7,898,000 Shares)
    
    
    79
    
    
    
    78
    
    
    
    79Capital in Excess of Par Value
    
    
    28,194
    
    
    
    26,637
    
    
    
    27,457Retained Earnings
    
    
    82,764
    
    
    
    75,608
    
    
    
    74,952Grantor Trust, at cost
    
    
    (1,656
    )
    
    
    (1,456
    )
    
    
    (1,539
    )Deferred Compensation Liability
    
    
    1,656
    
    
    
    1,456
    
    
    
    1,539Total Stockholders Equity
    
    
    111,037
    
    
    
    102,323
    
    
    
    102,488Minority Interest
    
    
    5,175
    
    
    
    4,890
    
    
    
    5,308Long-Term Debt
    
    
    75,838
    
    
    
    81,314
    
    
    
    77,579Total Capitalization
    
    
    192,050
    
    
    
    188,527
    
    
    
    185,375Total
    
    $
    260,831
    
    
    $
    253,294
    
    
    $
    252,459
  4




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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Three Months
    
    
    Six MonthsENERGYSOUTH, INC.
    
    Ended March 31,
    
    
    Ended March 31,In Thousands, Except Per Share Data
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Operating RevenuesGas Revenues
    
    $
    45,063
    
    
    $
    43,059
    
    
    $
    88,274
    
    
    $
    77,862Merchandise Sales
    
    
    761
    
    
    
    701
    
    
    
    2,053
    
    
    
    1,886Other
    
    
    267
    
    
    
    339
    
    
    
    576
    
    
    
    719Total Operating Revenues
    
    
    46,091
    
    
    
    44,099
    
    
    
    90,903
    
    
    
    80,467Operating ExpensesCost of Gas
    
    
    20,988
    
    
    
    18,404
    
    
    
    44,047
    
    
    
    33,326Cost of Merchandise
    
    
    625
    
    
    
    610
    
    
    
    1,583
    
    
    
    1,569Operations and Maintenance
    
    
    6,442
    
    
    
    6,700
    
    
    
    12,741
    
    
    
    13,197Depreciation
    
    
    2,651
    
    
    
    2,545
    
    
    
    5,293
    
    
    
    5,095Taxes, Other Than Income Taxes
    
    
    2,968
    
    
    
    2,885
    
    
    
    5,842
    
    
    
    5,336Total Operating Expenses
    
    
    33,674
    
    
    
    31,144
    
    
    
    69,506
    
    
    
    58,523Operating Income
    
    
    12,417
    
    
    
    12,955
    
    
    
    21,397
    
    
    
    21,944Other Income and (Expense)Interest Expense
    
    
    (1,717
    )
    
    
    (1,842
    )
    
    
    (3,453
    )
    
    
    (3,713
    )Allowance for Borrowed Funds Used During Construction
    
    
    246
    
    
    
    11
    
    
    
    421
    
    
    
    13Interest Income
    
    
    41
    
    
    
    42
    
    
    
    118
    
    
    
    74Minority Interest
    
    
    (285
    )
    
    
    (218
    )
    
    
    (523
    )
    
    
    (446
    )Total Other Income (Expense)
    
    
    (1,715
    )
    
    
    (2,007
    )
    
    
    (3,437
    )
    
    
    (4,072
    )Income Before Income Taxes
    
    
    10,702
    
    
    
    10,948
    
    
    
    17,960
    
    
    
    17,872Income Taxes
    
    
    4,041
    
    
    
    4,153
    
    
    
    6,815
    
    
    
    6,761Net Income
    
    $
    6,661
    
    
    $
    6,795
    
    
    $
    11,145
    
    
    $
    11,111Earnings Per ShareBasic
    
    $
    0.84
    
    
    $
    0.87
    
    
    $
    1.41
    
    
    $
    1.42Diluted
    
    $
    0.84
    
    
    $
    0.85
    
    
    $
    1.40
    
    
    $
    1.40Average Common Shares OutstandingBasic
    
    
    7,915
    
    
    
    7,843
    
    
    
    7,910
    
    
    
    7,838Diluted
    
    
    7,969
    
    
    
    7,949
    
    
    
    7,961
    
    
    
    7,943
  5




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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six MonthsEnergySouth, Inc.
    
    Ended March 31,In Thousands
    
    2006
    
    
    2005Cash Flows from Operating ActivitiesNet Income
    
    $
    11,145
    
    
    $
    11,111Adjustments to Reconcile Net Income to Net Cash
Provided by Operating ActivitiesDepreciation and Amortization
    
    
    5,474
    
    
    
    5,284Provision for Losses on Receivables and Inventory
    
    
    675
    
    
    
    673Provision for Deferred Income Taxes
    
    
    1,351
    
    
    
    (634
    )Minority Interest
    
    
    523
    
    
    
    446Stock-Based Employee Compensation Expense
    
    
    188Changes in Operating Assets and Liabilities:Receivables
    
    
    (5,932
    )
    
    
    (8,590
    )Inventory
    
    
    504
    
    
    
    298Payables
    
    
    3,348
    
    
    
    560Taxes
    
    
    (1,925
    )
    
    
    2,390Deferred Purchased Gas Adjustment
    
    
    (3,588
    )
    
    
    4,446Other
    
    
    (91
    )
    
    
    467Net Cash Provided by Operating Activities
    
    
    11,672
    
    
    
    16,451Cash Flows from Investing ActivitesCapital Expenditures
    
    
    (11,741
    )
    
    
    (3,515
    )Net Cash Used in Investing Activities
    
    
    (11,741
    )
    
    
    (3,515
    )Cash Flows from Financing ActivitesRepayment of Long-Term Debt
    
    
    (2,078
    )
    
    
    (4,536
    )Changes in Short-Term BorrowingsPayment of Dividends
    
    
    (3,194
    )
    
    
    (3,116
    )Dividend Reinvestment
    
    
    181
    
    
    
    209Exercise of Stock Options
    
    
    219
    
    
    
    107Excess Tax Benefits from Share Based Payments
    
    
    32
    
    
    
    47Partnership Distributions to Minority Interest Holders
    
    
    (556
    )
    
    
    (326
    )Net Cash Used by Financing Activities
    
    
    (5,396
    )
    
    
    (7,615
    )Net Increase/(Decrease) in Cash and Cash Equivalents
    
    
    (5,465
    )
    
    
    5,321Cash and Cash Equivalents at Beginning of Period
    
    
    9,662
    
    
    
    9,464Cash and Cash Equivalents at End of Period
    
    $
    4,197
    
    
    $
    14,785Noncash Transactions from Investing and Financing Activities:Accruals for Capital Expenditures
    
    $
    773
    
    
    $
    290Dividend Payments Held in Escrow
    
    $
    1,619
    
    
    $
    1,480
  6




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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 March 31,In Thousands, Except Per Share Data
    
    2006
    
    
    2005Operating Revenues
    
    $
    135,043
    
    
    $
    120,877Cost of Gas
    
    
    57,887
    
    
    
    44,968Cost of Merchandise
    
    
    2,780
    
    
    
    2,801Operations and Maintenance Expense
    
    
    24,859
    
    
    
    25,070Depreciation Expense
    
    
    10,320
    
    
    
    9,939Taxes, Other Than Income Taxes
    
    
    9,159
    
    
    
    8,545Operating Income
    
    
    30,038
    
    
    
    29,554Interest Expense
    
    
    (7,022
    )
    
    
    (7,589
    )Allowance for Borrowed Funds Used
During Construction
    
    
    617
    
    
    
    21Interest Income
    
    
    303
    
    
    
    120Less: Minority Interest
    
    
    (1,015
    )
    
    
    (856
    )Income Before Income Taxes
    
    $
    22,921
    
    
    $
    21,250Income Taxes
    
    
    9,045
    
    
    
    8,011Net Income
    
    $
    13,876
    
    
    $
    13,239Earnings Per ShareBasic
    
    $
    1.76
    
    
    $
    1.69Diluted
    
    $
    1.75
    
    
    $
    1.67Average Common Shares OutstandingBasic
    
    
    7,889
    
    
    
    7,825Diluted
    
    
    7,941
    
    
    
    7,922
 Note 3. Stock-Based Compensation
   8




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Three Months
    
    
    Six MonthsEnergySouth, Inc.
    
    Ended March 31,
    
    
    Ended March 31,In Thousands, Except per Share Data
    
    2005
    
    
    2005Net Income, as reported
    
    $
    6,795
    
    
    $
    11,111Deduct:Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    
    51
    
    
    
    95Pro forma net income
    
    $
    6,744
    
    
    $
    11,016Earnings per share:Basic  as reported
    
    $
    0.87
    
    
    $
    1.42Basic  pro forma
    
    $
    0.86
    
    
    $
    1.41Diluted  as reported
    
    $
    0.85
    
    
    $
    1.40Diluted  pro forma
    
    $
    0.85
    
    
    $
    1.39
   9




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Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    AggregateExercise
    
    
    Remaining
    
    
    IntrinsicShares
    
    
    Price
    
    
    Life
    
    
    ValueOutstanding at September 30, 2005
    
    
    299,589
    
    
    $
    20.979
    
    
    7.44 yearsGranted
    
    
    73,950
    
    
    
    30.445Exercised
    
    
    (10,627
    )
    
    
    20.644Forfeited
    
    
    (9,600
    )
    
    
    24.253Outstanding at March 31, 2006*
    
    
    353,312
    
    
    $
    22.896
    
    
    7.53 years
    
    $
    3,213,468Exercisable at March 31, 2006
    
    
    154,926
    
    
    $
    18.412
    
    
    6.07 years
    
    $
    2,075,716Remaining reserved for grant
at March 31, 2006
    
    
    246,000
 
 *
    
    Includes 88,562 shares outstanding under the 1992 Amended and Restated Stock Option Plan. 
    Note 4. Retirement Plans and Other Benefits
    10




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Pension
    
    
    PostretirementBenefits
    
    
    BenefitsFor the three months ended March 31, (in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    198
    
    
    $
    227
    
    
    $
    23
    
    
    $
    43Interest cost
    
    
    455
    
    
    
    448
    
    
    
    67
    
    
    
    79Amortization of prior service cost
    
    
    24
    
    
    
    24
    
    
    
    (27
    )
    
    
    (11
    )Amortization of unrecognized gain
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    15Expected return on plan assets
    
    
    (672
    )
    
    
    (643
    )
    
    
    (70
    )
    
    
    (68
    )Net periodic benefit cost (credit)
    
    $
    5
    
    
    $
    56
    
    
    $
    8
    
    
    $
    58
 Pension
    
    
    PostretirementBenefits
    
    
    BenefitsFor the six months ended March 31, (in thousands)
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Service cost
    
    $
    438
    
    
    $
    454
    
    
    $
    78
    
    
    $
    85Interest cost
    
    
    919
    
    
    
    897
    
    
    
    150
    
    
    
    158Amortization of transition assetAmortization of prior service cost
    
    
    47
    
    
    
    47
    
    
    
    (38
    )
    
    
    (22
    )Amortization of unrecognized gain/(loss)
    
    
    
    
    
    
    
    
    
    
    33
    
    
    
    29Expected return on plan assets
    
    
    (1,344
    )
    
    
    (1,286
    )
    
    
    (141
    )
    
    
    (136
    )Net periodic benefit cost (credit)
    
    $
    60
    
    
    $
    112
    
    
    $
    82
    
    
    $
    114
   Note 5. Rates and Regulatory Matters
   11




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force majeure
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13




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March 31,
    
    
    March 31,
    
    
    September 30,2006
    
    
    2005
    
    
    2005Current
    
    
    Noncurrent
    
    
    Current
    
    
    Noncurrent
    
    
    Current
    
    
    NoncurrentAssetsDeferred Purchase Gas Adjustment
    
    $
    2,208ESR Fund
    
    
    167
    
    
    $
    250
    
    
    $
    167
    
    
    $
    417
    
    
    $
    167
    
    
    $
    333Bad Debt Reserve
    
    
    66
    
    
    
    
    
    
    
    133
    
    
    
    66
    
    
    
    133Other
    
    
    10
    
    
    
    
    
    
    
    23
    
    
    
    14
    
    
    
    23Regulatory Assets
    
    $
    2,451
    
    
    $
    250
    
    
    $
    323
    
    
    $
    497
    
    
    $
    323
    
    
    $
    333LiabilitiesBad Debt Reserve
    
    
    
    
    
    
    
    
    
    $
    10ESR Fund
    
    $
    1,000
    
    
    
    
    
    
    
    914
    
    
    
    
    
    
    $
    975Deferred Investment Tax Credit
    
    
    15
    
    
    $
    113
    
    
    
    16
    
    
    $
    129
    
    
    
    15
    
    
    $
    121RSE Adjustment
    
    
    118
    
    
    
    
    
    
    
    78
    
    
    
    
    
    
    
    433Gross Receipt Tax Collections
    
    
    4,295
    
    
    
    
    
    
    
    4,287
    
    
    
    
    
    
    
    3,751Deferred Purchase Gas Adjustment
    
    
    
    
    
    
    
    
    
    
    1,177
    
    
    
    
    
    
    
    1,379Contract Termination Payment
    
    
    1,229Accrued Dismantling Costs
    
    
    
    
    
    
    12,819
    
    
    
    
    
    
    
    12,096
    
    
    
    
    
    
    
    12,455Other
    
    
    155
    
    
    
    
    
    
    
    140
    
    
    
    
    
    
    
    151Regulatory Liabilities
    
    $
    6,812
    
    
    $
    12,932
    
    
    $
    6,622
    
    
    $
    12,225
    
    
    $
    6,704
    
    
    $
    12,576
   Note 6. Earnings Per Share
  14




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Three Months
    
    
    Six MonthsEnergySouth, Inc.
    
    Ended March 31,
    
    
    Ended March 31,In Thousands
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Weighted Average Common Shares
    
    
    7,915
    
    
    
    7,843
    
    
    
    7,910
    
    
    
    7,838Effect of Dilutive Securities:Options to Purchase Common Stock
    
    
    54
    
    
    
    106
    
    
    
    51
    
    
    
    105Diluted Average Common Shares
    
    
    7,969
    
    
    
    7,949
    
    
    
    7,961
    
    
    
    7,943
  Note 7. Segment Information
   15




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For the three months ended
    
    Natural Gas
    
    
    Natural GasMarch 31, 2006 (in thousands):
    
    Distribution
    
    
    Storage
    
    
    Other
    
    
    Eliminations
    
    
    ConsolidatedOperating Revenues
    
    $
    41,122
    
    
    $
    5,000
    
    
    $
    1,028
    
    
    $
    (1,059
    )
    
    $
    46,091Cost of Gas
    
    
    22,047
    
    
    
    
    
    
    
    
    
    
    
    (1,059
    )
    
    
    20,988Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    625
    
    
    
    
    
    
    
    625Operations and Maintenance
Expense
    
    
    5,510
    
    
    
    556
    
    
    
    376
    
    
    
    
    
    
    
    6,442Depreciation Expense
    
    
    1,995
    
    
    
    656
    
    
    
    
    
    
    
    
    
    
    
    2,651Taxes, Other Than Income Taxes
    
    
    2,727
    
    
    
    216
    
    
    
    25
    
    
    
    
    
    
    
    2,968Operating Income
    
    
    8,843
    
    
    
    3,572
    
    
    
    2
    
    
    
    
    
    
    
    12,417Interest Income
    
    
    1
    
    
    
    42
    
    
    
    174
    
    
    
    (176
    )
    
    
    41Interest Expense
    
    
    (777
    )
    
    
    (1,021
    )
    
    
    (95
    )
    
    
    176
    
    
    
    (1,717
    )Allowance for Borrowed Funds
Used During Construction
    
    
    18
    
    
    
    228
    
    
    
    
    
    
    
    
    
    
    
    246Less: Minority Interest
    
    
    (26
    )
    
    
    (259
    )
    
    
    
    
    
    
    
    
    
    
    (285
    )Income Before Income Taxes
    
    $
    8,059
    
    
    $
    2,562
    
    
    $
    81
    
    
    
    
    
    
    $
    10,702
 For the three months ended
    
    Natural Gas
    
    
    Natural GasMarch 31, 2005 (in thousands):
    
    Distribution
    
    
    Storage
    
    
    Other
    
    
    Eliminations
    
    
    ConsolidatedOperating Revenues
    
    $
    39,383
    
    
    $
    4,725
    
    
    $
    1,040
    
    
    $
    (1,049
    )
    
    $
    44,099Cost of Gas
    
    
    19,453
    
    
    
    
    
    
    
    
    
    
    
    (1,049
    )
    
    
    18,404Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    610
    
    
    
    
    
    
    
    610Operations and Maintenance
Expense
    
    
    5,546
    
    
    
    810
    
    
    
    344
    
    
    
    
    
    
    
    6,700Depreciation Expense
    
    
    1,925
    
    
    
    620
    
    
    
    
    
    
    
    
    
    
    
    2,545Taxes, Other Than Income Taxes
    
    
    2,627
    
    
    
    236
    
    
    
    22
    
    
    
    
    
    
    
    2,885Operating Income
    
    
    9,832
    
    
    
    3,059
    
    
    
    64
    
    
    
    
    
    
    
    12,955Interest Income
    
    
    1
    
    
    
    38
    
    
    
    93
    
    
    
    (90
    )
    
    
    42Interest Expense
    
    
    (782
    )
    
    
    (1,074
    )
    
    
    (76
    )
    
    
    90
    
    
    
    (1,842
    )Allowance for Borrowed Funds
Used During Construction
    
    
    2
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    11Less: Minority Interest
    
    
    (30
    )
    
    
    (188
    )
    
    
    
    
    
    
    
    
    
    
    (218
    )Income Before Income Taxes
    
    $
    9,023
    
    
    $
    1,844
    
    
    $
    81
    
    
    
    
    
    
    $
    10,948
 For the six months ended
    
    Natural Gas
    
    
    Natural GasMarch 31, 2006 (in thousands):
    
    Distribution
    
    
    Storage
    
    
    Other
    
    
    Eliminations
    
    
    ConsolidatedOperating Revenues
    
    $
    80,697
    
    
    $
    9,694
    
    
    $
    2,629
    
    
    $
    (2,117
    )
    
    $
    90,903Cost of Gas
    
    
    46,164
    
    
    
    
    
    
    
    
    
    
    
    (2,117
    )
    
    
    44,047Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    1,583
    
    
    
    
    
    
    
    1,583Operations and Maintenance
Expense
    
    
    10,694
    
    
    
    1,276
    
    
    
    771
    
    
    
    
    
    
    
    12,741Depreciation Expense
    
    
    3,990
    
    
    
    1,303
    
    
    
    
    
    
    
    
    
    
    
    5,293Taxes, Other Than Income Taxes
    
    
    5,365
    
    
    
    430
    
    
    
    47
    
    
    
    
    
    
    
    5,842Operating Income
    
    
    14,484
    
    
    
    6,685
    
    
    
    228
    
    
    
    
    
    
    
    21,397Interest Income
    
    
    15
    
    
    
    104
    
    
    
    288
    
    
    
    (289
    )
    
    
    118Interest Expense
    
    
    (1,524
    )
    
    
    (2,070
    )
    
    
    (148
    )
    
    
    289
    
    
    
    (3,453
    )Allowance for Borrowed Funds
Used During Construction
    
    
    39
    
    
    
    382
    
    
    
    
    
    
    
    
    
    
    
    421Less: Minority Interest
    
    
    (56
    )
    
    
    (467
    )
    
    
    
    
    
    
    
    
    
    
    (523
    )Income Before Income Taxes
    
    $
    12,958
    
    
    $
    4,634
    
    
    $
    368
    
    
    
    
    
    
    $
    17,960
 16




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For the six months ended
    
    Natural Gas
    
    
    Natural GasMarch 31, 2005 (in thousands):
    
    Distribution
    
    
    Storage
    
    
    Other
    
    
    Eliminations
    
    
    ConsolidatedOperating Revenues
    
    $
    70,441
    
    
    $
    9,508
    
    
    $
    2,605
    
    
    $
    (2,087
    )
    
    $
    80,467Cost of Gas
    
    
    35,413
    
    
    
    
    
    
    
    
    
    
    
    (2,087
    )
    
    
    33,326Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    1,569
    
    
    
    
    
    
    
    1,569Operations and Maintenance
Expense
    
    
    10,843
    
    
    
    1,588
    
    
    
    766
    
    
    
    
    
    
    
    13,197Depreciation Expense
    
    
    3,851
    
    
    
    1,244
    
    
    
    
    
    
    
    
    
    
    
    5,095Taxes, Other Than Income Taxes
    
    
    4,837
    
    
    
    458
    
    
    
    41
    
    
    
    
    
    
    
    5,336Operating Income
    
    
    15,497
    
    
    
    6,218
    
    
    
    229
    
    
    
    
    
    
    
    21,944Interest Income
    
    
    2
    
    
    
    67
    
    
    
    95
    
    
    
    (90
    )
    
    
    74Interest Expense
    
    
    (1,510
    )
    
    
    (2,162
    )
    
    
    (131
    )
    
    
    90
    
    
    
    (3,713
    )Allowance for Borrowed Funds
Used During Construction
    
    
    4
    
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    13Less: Minority Interest
    
    
    (65
    )
    
    
    (381
    )
    
    
    
    
    
    
    
    
    
    
    (446
    )Income Before Income Taxes
    
    $
    13,928
    
    
    $
    3,751
    
    
    $
    193
    
    
    
    
    
    
    $
    17,872
 Note 8. Commitments and Contingencies
 Normal Purchases and Normal Sales,
   17




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Mobile Gas
    
    
    Bay GasGas
    
    
    MinimumFiscal
    
    Supply
    
    
    Payments for
    
    
    Construction
    
    
    TotalYear
    
    Contracts
    
    
    Service Fees
    
    
    Contracts
    
    
    Commitmentsremaining 2006
    
    $
    6,895
    
    
    $
    75
    
    
    $
    8,317
    
    
    $
    15,2872007
    
    
    2,009
    
    
    
    333
    
    
    
    
    
    
    
    2,3422008
    
    
    1,187
    
    
    
    378
    
    
    
    
    
    
    
    1,5652009
    
    
    1,187
    
    
    
    423
    
    
    
    
    
    
    
    1,6102010 - and
thereafter
    
    
    2,028
    
    
    
    11,426
    
    
    
    
    
    
    
    13,454Total
    
    $
    13,306
    
    
    $
    12,635
    
    
    $
    8,317
    
    
    $
    34,258
    18




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Note 9. New Accounting Pronouncements
   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
    Natural Gas Distribution
  20




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21




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22




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##### Table of Contents



Natural Gas Storage
    23




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Other
   24




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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
    
    $
    3,135
    
    
    $
    5,019
    
    
    $
    5,300
    
    
    $
    5,454
    
    
    $
    61,806Interest Payments
    
    
    3,397
    
    
    
    6,242
    
    
    
    5,822
    
    
    
    5,382
    
    
    
    26,340Estimated Future Minimum Payments for
Bay Gas Service Fees
    
    
    75
    
    
    
    333
    
    
    
    378
    
    
    
    423
    
    
    
    11,426Construction Contracts for Bay Gas
    
    
    8,3173rd Cavern DevelopmentGas Supply Contracts
    
    
    6,895
    
    
    
    2,009
    
    
    
    1,187
    
    
    
    1,187
    
    
    
    2,028Total
    
    $
    21,819
    
    
    $
    13,603
    
    
    $
    12,687
    
    
    $
    12,446
    
    
    $
    101,600
 Critical Accounting Policies
  Forward-Looking Statements
  26




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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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Changes in Internal Control
  Limitations on the Effectiveness of Controls
  
 PART II. OTHER INFORMATION
 
 Item 5. Other Information
  29




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PART II. OTHER INFORMATION
 
 Item 6. Exhibits
 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
Officer99.1
    
    Press release dated April 28, 2006
 
 SIGNATURES
  ENERGYSOUTH, INC.(Registrant)Date: May 1, 2006
    
    /s/ John S. DavisJohn S. DavisPresident andChief Executive OfficerDate: May 1, 2006
    
    /s/ Charles P. HuffmanCharles P. HuffmanSenior Vice President andChief Financial Officer
 30