##### 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 March 31, 2008
 Commission File No. 0-29604
 ENERGYSOUTH, INC.
  Delaware
    
    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
  o þ
   ENERGYSOUTH, INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2008




---



##### 



Page No.PART I: FINANCIAL INFORMATIONItem 1
    
    Financial Statements:(a)
    
    Unaudited Condensed Consolidated Balance Sheets
March 31, 2008 and 2007 and September 30, 2007
    
    
    3-4(b)
    
    Unaudited Condensed Consolidated Statements of Income
Three and Six Months Ended March 31, 2008 and 2007
    
    
    5(c)
    
    Unaudited Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31, 2008 and 2007
    
    
    6(d)
    
    Notes to Unaudited Condensed Consolidated
Financial Statements
    
    
    7-22Item 2
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    23-32Item 3
    
    Quantitative and Qualitative Disclosures About
Market Risk
    
    
    32-34Item 4
    
    Controls and Procedures
    
    
    34PART II: OTHER INFORMATIONItem 1A
    
    Risk Factors
    
    
    35Item 5
    
    Other Information
    
    
    35Item 6
    
    Exhibits
    
    
    35Certification 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




---



##### Table of Contents



PART 1. FINANCIAL INFORMATION
 
 ITEM 1: FINANCIAL STATEMENTS
 
 UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 EnergySouth, Inc.
    
    March 31,
    
    September 30,In Thousands
    
    2008
    
    2007
    
    2007(Unaudited)ASSETSCurrent AssetsCash and Cash Equivalents
    
    $
    11,601
    
    
    $
    176
    
    
    $
    336Restricted Cash
    
    
    48,759
    
    
    
    1,751
    
    
    
    47,995Cash Held on Deposit in Margin Account
    
    
    2,065
    
    
    
    
    
    
    
    999ReceivablesGas
    
    
    19,591
    
    
    
    14,183
    
    
    
    10,106Unbilled Revenue
    
    
    3,466
    
    
    
    2,224
    
    
    
    1,499Merchandise
    
    
    1,754
    
    
    
    1,978
    
    
    
    1,926Other
    
    
    704
    
    
    
    1,004
    
    
    
    780Allowance for Doubtful Accounts
    
    
    (1,312
    )
    
    
    (1,916
    )
    
    
    (1,047
    )Materials, Supplies, and Merchandise, net (At Average Cost)
    
    
    1,302
    
    
    
    1,303
    
    
    
    1,376Gas Stored Underground (At Average Cost)
    
    
    7,471
    
    
    
    4,434
    
    
    
    8,069Regulatory Assets
    
    
    7,435
    
    
    
    5,109
    
    
    
    5,015Prepaid Taxes
    
    
    2,218
    
    
    
    498
    
    
    
    2,088Prepayments
    
    
    4,508
    
    
    
    2,852
    
    
    
    3,320Other
    
    
    531
    
    
    
    
    
    
    
    333Total Current Assets
    
    
    110,093
    
    
    
    33,596
    
    
    
    82,795Property, Plant, and Equipment
    
    
    374,842
    
    
    
    300,783
    
    
    
    311,249Less: Accumulated Depreciation and Amortization
    
    
    98,724
    
    
    
    90,244
    
    
    
    94,025Property, Plant, and Equipment  Net
    
    
    276,118
    
    
    
    210,539
    
    
    
    217,224Construction Work in Progress
    
    
    179,076
    
    
    
    31,576
    
    
    
    53,287Total Property, Plant, and Equipment
    
    
    455,194
    
    
    
    242,115
    
    
    
    270,511Other AssetsPrepaid Pension Cost
    
    
    11,989
    
    
    
    783
    
    
    
    11,827Prepaid Postretirement Benefit
    
    
    1,629
    
    
    
    570
    
    
    
    1,587Deferred Charges
    
    
    1,292
    
    
    
    284
    
    
    
    1,093Prepayments
    
    
    1,820
    
    
    
    1,183
    
    
    
    1,568Regulatory Assets
    
    
    27
    
    
    
    109
    
    
    
    27Merchandise Receivables Due After One Year
    
    
    2,436
    
    
    
    2,971
    
    
    
    3,038Other
    
    
    294Total Other Assets
    
    
    19,487
    
    
    
    5,900
    
    
    
    19,140Total
    
    $
    584,774
    
    
    $
    281,611
    
    
    $
    372,446
  3




---



##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 EnergySouth, Inc.
    
    March 31,
    
    September 30,In Thousands, Except Share Data
    
    2008
    
    2007
    
    2007(Unaudited)LIABILITIES AND CAPITALIZATIONCurrent LiabilitiesCurrent Maturities of Long-Term Debt
    
    $
    5,987
    
    
    $
    5,746
    
    
    $
    5,900Notes Payable
    
    
    159,000
    
    
    
    5,975
    
    
    
    12,300Accounts Payable
    
    
    15,763
    
    
    
    14,608
    
    
    
    30,835Dividends Declared
    
    
    2,026
    
    
    
    1,834
    
    
    
    2,010Customer Deposits
    
    
    1,121
    
    
    
    1,326
    
    
    
    1,139Taxes Accrued
    
    
    3,986
    
    
    
    2,484
    
    
    
    3,752Deferred Taxes
    
    
    1,940
    
    
    
    245
    
    
    
    741Interest Accrued
    
    
    1,470
    
    
    
    1,039
    
    
    
    1,031Regulatory Liabilities
    
    
    4,946
    
    
    
    7,296
    
    
    
    6,017Other
    
    
    3,029
    
    
    
    1,229
    
    
    
    1,456Total Current Liabilities
    
    
    199,268
    
    
    
    41,782
    
    
    
    65,181Other LiabilitiesDeferred Income Taxes
    
    
    30,409
    
    
    
    26,716
    
    
    
    28,748Deferred Investment Tax Credits
    
    
    186
    
    
    
    206
    
    
    
    196Regulatory Liabilities
    
    
    22,151
    
    
    
    9,732
    
    
    
    21,892Asset Retirement Obligation
    
    
    6,378
    
    
    
    5,923
    
    
    
    6,188Other
    
    
    2,136
    
    
    
    1,477
    
    
    
    1,566Total Other Liabilities
    
    
    61,260
    
    
    
    44,054
    
    
    
    58,590260,528
    
    
    
    85,836
    
    
    
    123,771CapitalizationStockholders EquityCommon Stock, $.01 Par Value(Authorized
20,000,000 Shares; Outstanding March 2008 - 8,105,000; March 2007 - 7,975,000; September 2007 - 7,986,000 Shares)
    
    
    81
    
    
    
    80
    
    
    
    80Capital in Excess of Par Value
    
    
    35,014
    
    
    
    30,199
    
    
    
    30,852Retained Earnings
    
    
    96,606
    
    
    
    89,700
    
    
    
    90,298Accumulated Other Comprehensive Income (Loss), net of tax
    
    
    (700
    )
    
    
    
    
    
    
    22Grantor Trust, at cost
    
    
    (1,497
    )
    
    
    (1,371
    )
    
    
    (1,362
    )Deferred Compensation Liability
    
    
    1,497
    
    
    
    1,371
    
    
    
    1,362Total Stockholders Equity
    
    
    131,001
    
    
    
    119,979
    
    
    
    121,252Minority Interest
    
    
    74,740
    
    
    
    6,304
    
    
    
    6,962Long-Term Debt
    
    
    118,505
    
    
    
    69,492
    
    
    
    120,461Total Capitalization
    
    
    324,246
    
    
    
    195,775
    
    
    
    248,675Total
    
    $
    584,774
    
    
    $
    281,611
    
    
    $
    372,446
  4




---



##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 Three Months
    
    Six MonthsENERGYSOUTH, INC.
    
    Ended March 31,
    
    Ended March 31,In Thousands, Except Per Share Data
    
    2008
    
    2007
    
    2008
    
    2007Operating RevenuesGas Revenues
    
    $
    46,433
    
    
    $
    45,591
    
    
    $
    81,076
    
    
    $
    83,250Merchandise Sales
    
    
    656
    
    
    
    772
    
    
    
    1,597
    
    
    
    1,731Other
    
    
    283
    
    
    
    299
    
    
    
    571
    
    
    
    610Total Operating Revenues
    
    
    47,372
    
    
    
    46,662
    
    
    
    83,244
    
    
    
    85,591Operating ExpensesCost of Gas
    
    
    19,889
    
    
    
    19,869
    
    
    
    32,898
    
    
    
    36,301Cost of Merchandise
    
    
    577
    
    
    
    633
    
    
    
    1,357
    
    
    
    1,382Operations and Maintenance
    
    
    8,594
    
    
    
    7,980
    
    
    
    17,070
    
    
    
    15,335Depreciation
    
    
    3,113
    
    
    
    2,751
    
    
    
    6,294
    
    
    
    5,513Taxes, Other Than Income Taxes
    
    
    3,153
    
    
    
    2,940
    
    
    
    5,647
    
    
    
    5,573Total Operating Expenses
    
    
    35,326
    
    
    
    34,173
    
    
    
    63,266
    
    
    
    64,104Operating Income
    
    
    12,046
    
    
    
    12,489
    
    
    
    19,978
    
    
    
    21,487Other Income and (Expense)Interest Expense
    
    
    (4,607
    )
    
    
    (1,671
    )
    
    
    (7,955
    )
    
    
    (3,350
    )Interest Capitalized
    
    
    2,259
    
    
    
    466
    
    
    
    3,883
    
    
    
    824Interest Income
    
    
    343
    
    
    
    5
    
    
    
    751
    
    
    
    23Minority Interest
    
    
    43
    
    
    
    (300
    )
    
    
    (1
    )
    
    
    (574
    )Total Other Income (Expense)
    
    
    (1,962
    )
    
    
    (1,500
    )
    
    
    (3,322
    )
    
    
    (3,077
    )Income Before Income Taxes
    
    
    10,084
    
    
    
    10,989
    
    
    
    16,656
    
    
    
    18,410Income Taxes
    
    
    3,813
    
    
    
    4,158
    
    
    
    6,298
    
    
    
    6,965Net Income
    
    $
    6,271
    
    
    $
    6,831
    
    
    $
    10,358
    
    
    $
    11,445Earnings Per ShareBasic
    
    $
    0.77
    
    
    $
    0.86
    
    
    $
    1.28
    
    
    $
    1.44Diluted
    
    $
    0.77
    
    
    $
    0.85
    
    
    $
    1.27
    
    
    $
    1.42Average Common Shares OutstandingBasic
    
    
    8,104
    
    
    
    7,970
    
    
    
    8,097
    
    
    
    7,962Diluted
    
    
    8,183
    
    
    
    8,049
    
    
    
    8,181
    
    
    
    8,040
  5




---



##### Table of Contents



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six MonthsEnergySouth, Inc.
    
    Ended March 31,In Thousands
    
    
    2008
    
    
    
    2007Cash Flows from Operating ActivitiesNet Income
    
    $
    10,358
    
    
    $
    11,445Adjustments to Reconcile Net Income to Net Cash
Provided by Operating ActivitiesDepreciation and Amortization
    
    
    6,449
    
    
    
    5,685Provision for Losses on Receivables and Inventory
    
    
    672
    
    
    
    978Provision for Deferred Income Taxes
    
    
    3,289
    
    
    
    2,152Minority Interest
    
    
    1
    
    
    
    574Stock-Based Employee Compensation Expense
    
    
    291
    
    
    
    276Changes in Operating Assets and Liabilities:Cash Held in Margin Account
    
    
    (1,066
    )Receivables
    
    
    (11,011
    )
    
    
    (9,311
    )Inventory
    
    
    672
    
    
    
    2,389Payables
    
    
    (15,962
    )
    
    
    8,051Taxes
    
    
    103
    
    
    
    1,608Deferred Purchased Gas Adjustment
    
    
    (1,851
    )
    
    
    (2,575
    )Other
    
    
    (1,825
    )
    
    
    780Net Cash Provided (Used) by Operating Activities
    
    
    (9,880
    )
    
    
    22,052Cash Flows from Investing ActivitesCapital Expenditures
    
    
    (189,222
    )
    
    
    (19,058
    )Changes in Restricted Cash
    
    
    (764
    )
    
    
    (9
    )Net Cash Used in Investing Activities
    
    
    (189,986
    )
    
    
    (19,067
    )Cash Flows from Financing ActivitesRepayment of Long-Term Debt
    
    
    (1,867
    )
    
    
    (1,741
    )Debt Issuance Costs
    
    
    (1,137
    )Changes in Short-Term Borrowings
    
    
    146,700
    
    
    
    675Payment of Dividends
    
    
    (4,050
    )
    
    
    (3,664
    )Dividend Reinvestment
    
    
    175
    
    
    
    174Exercise of Stock Options
    
    
    2,435
    
    
    
    417Excess Tax Benefits from Share Based Payments
    
    
    1,098
    
    
    
    122Capital Contribution from Minority Interest Holder
    
    
    67,858Partnership Distributions to Minority Interest Holders
    
    
    (81
    )
    
    
    (64
    )Net Cash Provided (Used) by Financing Activities
    
    
    211,131
    
    
    
    (4,081
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    11,265
    
    
    
    (1,096
    )Cash and Cash Equivalents at Beginning of Period
    
    
    336
    
    
    
    1,272Cash and Cash Equivalents at End of Period
    
    $
    11,601
    
    
    $
    176Noncash Transactions from Investing Activities:Accruals for Capital Expenditures
    
    $
    4,729
    
    
    $
    997
  6




---



##### Table of Contents



NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Principles of Consolidation
  Note 2. Basis of Presentation
   7




---



##### Table of Contents



Twelve MonthsEnergySouth, Inc.
    
    Ended March 31,In Thousands, Except Per Share Data
    
    2008
    
    2007Operating Revenues
    
    $
    132,685
    
    
    $
    130,556Cost of Gas
    
    
    45,770
    
    
    
    49,506Cost of Merchandise
    
    
    2,658
    
    
    
    2,948Operations and Maintenance Expense
    
    
    33,004
    
    
    
    28,626Depreciation Expense
    
    
    11,798
    
    
    
    10,823Taxes, Other Than Income Taxes
    
    
    9,166
    
    
    
    9,079Operating Income
    
    
    30,289
    
    
    
    29,574Interest Expense
    
    
    (11,977
    )
    
    
    (6,709
    )Allowance
for Borrowed Funds Used During Construction
    
    
    5,350
    
    
    
    1,414Interest Income
    
    
    1,029
    
    
    
    73Less: Minority Interest
    
    
    (749
    )
    
    
    (1,164
    )Income Before Income Taxes
    
    $
    23,942
    
    
    $
    23,188Income Taxes
    
    
    8,996
    
    
    
    8,853Net Income
    
    $
    14,946
    
    
    $
    14,335Earnings Per ShareBasic
    
    $
    1.86
    
    
    $
    1.80Diluted
    
    $
    1.84
    
    
    $
    1.79Average Common Shares OutstandingBasic
    
    
    8,039
    
    
    
    7,950Diluted
    
    
    8,114
    
    
    
    8,014
 Note 3. Stock-Based Compensation
   8




---



##### Table of Contents



Stock Options:
     Weighted
    
    Weighted
    
    AggregateAverage
    
    Average
    
    IntrinsicExercise
    
    Remaining
    
    ValueShares
    
    Price
    
    Life
    
    (in thousands)Outstanding at September 30, 2007
    
    
    441,100
    
    
    $
    29.087
    
    
    7.44 years
    
    $
    9,410Granted
    
    
    38,500
    
    
    
    57.120Exercised
    
    
    (112,488
    )
    
    
    21.647Forfeited
    
    
    (3,725
    )
    
    
    34.803Outstanding at March 31, 2008
    
    
    363,387
    
    
    $
    34.301
    
    
    7.578 years
    
    $
    6,501Exercisable at March 31, 2008
    
    
    160,313
    
    
    $
    23.393
    
    
    5.117 years
    
    $
    4,616
 9




---



##### Table of Contents



Performance Shares:
    PerformanceSharesOutstanding at September 30, 2007
    
    
    Granted
    
    
    14,960Exercised
    
    
    Forfeited
    
    
    (340
    )Outstanding at March 31, 2008
    
    
    14,620
  10




---



##### Table of Contents



Note 4. Retirement Plans and Other Benefits
    Pension
    
    PostretirementBenefits
    
    BenefitsFor the three months ended March 31, (in thousands)
    
    2008
    
    2007
    
    2008
    
    2007Service cost
    
    $
    176
    
    
    $
    199
    
    
    $
    40
    
    
    $
    40Interest cost
    
    
    503
    
    
    
    478
    
    
    
    37
    
    
    
    49Amortization of prior service cost
    
    
    22
    
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )Amortization of unrecognized gain
    
    
    (26
    )
    
    
    23
    
    
    
    (3
    )
    
    
    7Expected return on plan assets
    
    
    (779
    )
    
    
    (702
    )
    
    
    (83
    )
    
    
    (73
    )Net periodic benefit cost (credit)
    
    $
    (104
    )
    
    $
    (2
    )
    
    $
    (27
    )
    
    $
    4
 Pension
    
    PostretirementBenefits
    
    BenefitsFor the six months ended March 31, (in thousands)
    
    2008
    
    2007
    
    2008
    
    2007Service cost
    
    $
    387
    
    
    $
    419
    
    
    $
    79
    
    
    $
    79Interest cost
    
    
    1,001
    
    
    
    957
    
    
    
    79
    
    
    
    97Amortization of prior service cost
    
    
    45
    
    
    
    
    
    
    
    (38
    )
    
    
    (38
    )Amortization of unrecognized gain/(loss)
    
    
    (58
    )
    
    
    47
    
    
    
    (3
    )
    
    
    13Expected return on plan assets
    
    
    (1,560
    )
    
    
    (1,405
    )
    
    
    (165
    )
    
    
    (145
    )Net periodic benefit cost (credit)
    
    $
    (185
    )
    
    $
    18
    
    
    $
    (48
    )
    
    $
    6
  Note 5. Rates and Regulatory Matters
  11




---



##### Table of Contents



force majeure
  12




---



##### Table of Contents



13




---



##### Table of Contents



March 31,
    
    March 31,
    
    September 30,2008
    
    2007
    
    2007Current
    
    Noncurrent
    
    Current
    
    Noncurrent
    
    Current
    
    NoncurrentAssetsDeferred Purchase Gas Adjustment
    
    $
    6,587
    
    
    
    
    
    
    $
    4,491
    
    
    
    
    
    
    $
    4,736Weather Normalization Adjustment
    
    
    764
    
    
    
    
    
    
    
    451
    
    
    
    
    
    
    
    112ESR Fund
    
    
    83
    
    
    
    
    
    
    
    167
    
    
    $
    83
    
    
    
    167Asset Retirement Cost
    
    
    
    
    
    $
    27
    
    
    
    
    
    
    
    27
    
    
    
    
    
    
    $
    27OtherRegulatory Assets
    
    $
    7,434
    
    
    $
    27
    
    
    $
    5,109
    
    
    $
    110
    
    
    $
    5,015
    
    
    $
    27LiabilitiesESR Fund
    
    $
    1,000
    
    
    
    
    
    
    $
    1,000
    
    
    
    
    
    
    $
    1,000Contract Buyout
    
    
    1,773
    
    
    
    
    
    
    
    2,702
    
    
    
    
    
    
    
    2,188Gross Receipt Tax Collections
    
    
    1,875
    
    
    
    
    
    
    
    3,254
    
    
    
    
    
    
    
    2,468Accrued Dismantling Costs
    
    
    
    
    
    $
    10,085
    
    
    
    
    
    
    $
    9,634
    
    
    
    
    
    
    $
    9,818Over-funded Pension and PostretirementBenefit Plans
    
    
    
    
    
    
    11,983
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,984Other
    
    
    405
    
    
    
    83
    
    
    
    340
    
    
    
    98
    
    
    
    361
    
    
    
    90Regulatory Liabilities
    
    $
    5,053
    
    
    $
    22,151
    
    
    $
    7,296
    
    
    $
    9,732
    
    
    $
    6,017
    
    
    $
    21,892
   Note 6. Earnings Per Share
  14




---



##### Table of Contents



Three Months
    
    Six MonthsEnergySouth, Inc.
    
    Ended March 31,
    
    Ended March 31,In Thousands
    
    2008
    
    2007
    
    2008
    
    2007Weighted Average Common Shares
    
    
    8,104
    
    
    
    7,970
    
    
    
    8,097
    
    
    
    7,962Effect of Dilutive Securities:Options to Purchase Common Stock
    
    
    79
    
    
    
    79
    
    
    
    84
    
    
    
    78Diluted Average Common Shares
    
    
    8,183
    
    
    
    8,049
    
    
    
    8,181
    
    
    
    8,040
  Note 7. Segment Information
   15




---



##### Table of Contents



For the three months ended
    
    Natural Gas
    
    Natural GasMarch 31, 2008 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    41,146
    
    
    $
    6,466
    
    
    $
    836
    
    
    $
    (1,076
    )
    
    $
    47,372Cost of Gas
    
    
    20,965
    
    
    
    
    
    
    
    
    
    
    
    (1,076
    )
    
    
    19,889Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    577
    
    
    
    
    
    
    
    577Operations and Maintenance Expense
    
    
    5,399
    
    
    
    2,846
    
    
    
    349
    
    
    
    
    
    
    
    8,594Depreciation Expense
    
    
    2,169
    
    
    
    944
    
    
    
    
    
    
    
    
    
    
    
    3,113Taxes, Other Than Income Taxes
    
    
    2,757
    
    
    
    351
    
    
    
    45
    
    
    
    
    
    
    
    3,153Operating Income
    
    
    9,856
    
    
    
    2,325
    
    
    
    (135
    )
    
    
    
    
    
    
    12,046Interest Income
    
    
    1
    
    
    
    811
    
    
    
    2,398
    
    
    
    (2,867
    )
    
    
    343Interest Expense
    
    
    (922
    )
    
    
    (4,297
    )
    
    
    (2,255
    )
    
    
    2,867
    
    
    
    (4,607
    )Interest Capitalized
    
    
    9
    
    
    
    2,250
    
    
    
    
    
    
    
    
    
    
    
    2,259Less: Minority Interest
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    43Income Before Income Taxes
    
    $
    8,944
    
    
    $
    1,132
    
    
    $
    8
    
    
    
    
    
    
    $
    10,084
 For the three months ended
    
    Natural Gas
    
    Natural GasMarch 31, 2007 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    41,304
    
    
    $
    5,376
    
    
    $
    1,058
    
    
    $
    (1,076
    )
    
    $
    46,662Cost of Gas
    
    
    20,945
    
    
    
    
    
    
    
    
    
    
    
    (1,076
    )
    
    
    19,869Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    633
    
    
    
    
    
    
    
    633Operations and Maintenance Expense
    
    
    6,426
    
    
    
    1,101
    
    
    
    453
    
    
    
    
    
    
    
    7,980Depreciation Expense
    
    
    2,098
    
    
    
    653
    
    
    
    
    
    
    
    
    
    
    
    2,751Taxes, Other Than Income Taxes
    
    
    2,682
    
    
    
    243
    
    
    
    15
    
    
    
    
    
    
    
    2,940Operating Income
    
    
    9,153
    
    
    
    3,379
    
    
    
    (43
    )
    
    
    
    
    
    
    12,489Interest Income
    
    
    1
    
    
    
    36
    
    
    
    286
    
    
    
    (318
    )
    
    
    5Interest Expense
    
    
    (878
    )
    
    
    (983
    )
    
    
    (128
    )
    
    
    318
    
    
    
    (1,671
    )Interest Capitalized
    
    
    6
    
    
    
    460
    
    
    
    
    
    
    
    
    
    
    
    466Less: Minority Interest
    
    
    
    
    
    
    (300
    )
    
    
    
    
    
    
    
    
    
    
    (300
    )Income Before Income Taxes
    
    $
    8,282
    
    
    $
    2,592
    
    
    $
    115
    
    
    
    
    
    
    $
    10,989
 For the six months ended
    
    Natural Gas
    
    Natural GasMarch 31, 2008 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    70,529
    
    
    $
    12,804
    
    
    $
    2,045
    
    
    $
    (2,134
    )
    
    $
    83,244Cost of Gas
    
    
    34,860
    
    
    
    172
    
    
    
    
    
    
    
    (2,134
    )
    
    
    32,898Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    1,357
    
    
    
    
    
    
    
    1,357Operations and Maintenance Expense
    
    
    10,884
    
    
    
    5,368
    
    
    
    818
    
    
    
    
    
    
    
    17,070Depreciation Expense
    
    
    4,394
    
    
    
    1,900
    
    
    
    
    
    
    
    
    
    
    
    6,294Taxes, Other Than Income Taxes
    
    
    4,892
    
    
    
    692
    
    
    
    63
    
    
    
    
    
    
    
    5,647Operating Income
    
    
    15,499
    
    
    
    4,672
    
    
    
    (193
    )
    
    
    
    
    
    
    19,978Interest Income
    
    
    1
    
    
    
    1,636
    
    
    
    3,818
    
    
    
    (4,704
    )
    
    
    751Interest Expense
    
    
    (1,899
    )
    
    
    (7,314
    )
    
    
    (3,446
    )
    
    
    4,704
    
    
    
    (7,955
    )Interest Capitalized
    
    
    41
    
    
    
    3,842
    
    
    
    
    
    
    
    
    
    
    
    3,883Less: Minority Interest
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (1
    )Income Before Income Taxes
    
    $
    13,642
    
    
    $
    2,835
    
    
    $
    179
    
    
    
    
    
    
    $
    16,656
 16




---



##### Table of Contents



For the six months ended
    
    Natural Gas
    
    Natural GasMarch 31, 2007 (in thousands):
    
    Distribution
    
    Midstream
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    74,534
    
    
    $
    10,877
    
    
    $
    2,319
    
    
    $
    (2,139
    )
    
    $
    85,591Cost of Gas
    
    
    38,440
    
    
    
    
    
    
    
    
    
    
    
    (2,139
    )
    
    
    36,301Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    1,382
    
    
    
    
    
    
    
    1,382Operations and Maintenance Expense
    
    
    12,143
    
    
    
    2,270
    
    
    
    922
    
    
    
    
    
    
    
    15,335Depreciation Expense
    
    
    4,197
    
    
    
    1,316
    
    
    
    
    
    
    
    
    
    
    
    5,513Taxes, Other Than Income Taxes
    
    
    5,051
    
    
    
    488
    
    
    
    34
    
    
    
    
    
    
    
    5,573Operating Income
    
    
    14,703
    
    
    
    6,803
    
    
    
    (19
    )
    
    
    
    
    
    
    21,487Interest Income
    
    
    1
    
    
    
    80
    
    
    
    564
    
    
    
    (622
    )
    
    
    23Interest Expense
    
    
    (1,688
    )
    
    
    (1,959
    )
    
    
    (325
    )
    
    
    622
    
    
    
    (3,350
    )Interest Capitalized
    
    
    19
    
    
    
    805
    
    
    
    
    
    
    
    
    
    
    
    824Less: Minority Interest
    
    
    
    
    
    
    (574
    )
    
    
    
    
    
    
    
    
    
    
    (574
    )Income Before Income Taxes
    
    $
    13,035
    
    
    $
    5,155
    
    
    $
    220
    
    
    
    
    
    
    $
    18,410
 Note 8. Energy Marketing and Risk Management Activities
    17




---



##### Table of Contents



March 31,
    
    September 30,Fair Value (in thousands)
    
    2008
    
    2007Energy Marketing and Risk Management Assets, current
    
    $
    466
    
    
    $
    117Energy Marketing and Risk Management Assets, long-term
    
    
    295Energy Marketing and Risk Management Liabilities, current
    
    
    (1,753
    )
    
    
    (35
    )Energy Marketing and Risk Management Liabilities, long-term
    
    
    (8
    )Net Assets (Liabilities)
    
    $
    (1,000
    )
    
    $
    82
  Note 9. Other Comprehensive Income (Loss)
  Three
Months EndedMarch 31,(in thousands)
    
    2008
    
    
    2007Net Income
    
    $
    6,271
    
    
    $
    6,831Other Comprehensive Income (Loss):Current period change in fair value of derivative instruments,
net of tax benefit of $664
    
    
    (1,093
    )Reclassification adjustment for derivative instruments, net of
tax of $122
    
    
    201Comprehensive Income (Loss)
    
    $
    5,178
    
    
    $
    6,831
 18




---



##### Table of Contents



Six
Months EndedMarch 31,(in thousands)
    
    2008
    
    
    2007Net Income
    
    $
    10,358
    
    
    $
    11,445Other Comprehensive Income (Loss):Current period change in fair value of derivative instruments,
net of tax benefit of $447
    
    
    (736
    )Reclassification adjustment for derivative instruments, net of
tax of $9
    
    
    14Comprehensive Income (Loss)
    
    $
    9,622
    
    
    $
    11,445
  March 31,
    
    
    September 30,(in thousands)
    
    2008
    
    
    2007Unrealized gain (loss) on hedges,
net of tax of $426 and $13
    
    $
    (700
    )
    
    $
    22
 Note 10. Acquisition of Assets
  Note 11. Commitments and Contingencies
 Normal Purchases and Normal Sales,
 19




---



##### Table of Contents



Mobile Gas
    
    Bay Gas
    
    Mississippi HubGas
    
    
    
    
    
    MinimumFiscal
    
    Supply
    
    Implemention of
    
    Payments for
    
    Construction
    
    Construction
    
    TotalYear
    
    Contracts
    
    CIS Software
    
    Service Fees
    
    Contracts
    
    Contracts
    
    CommitmentsRemaining 2008
    
    $
    4,066
    
    
    $
    1,418
    
    
    $
    319
    
    
    $
    29,755
    
    
    $
    18,862
    
    
    $
    54,4202009
    
    
    1,498
    
    
    
    
    
    
    
    638
    
    
    
    21,603
    
    
    
    4,691
    
    
    
    28,4302010
    
    
    1,141
    
    
    
    
    
    
    
    638
    
    
    
    6
    
    
    
    82
    
    
    
    1,8672011
    
    
    815
    
    
    
    
    
    
    
    638
    
    
    
    
    
    
    
    82
    
    
    
    1,5352012
    
    
    
    
    
    
    
    
    
    
    638
    
    
    
    
    
    
    
    
    
    
    
    6382013 - and thereafter
    
    
    
    
    
    
    
    
    
    
    31,950
    
    
    
    
    
    
    
    
    
    
    
    31,950Total
    
    $
    7,520
    
    
    $
    1,418
    
    
    $
    34,821
    
    
    $
    51,364
    
    
    $
    23,717
    
    
    $
    118,840
 20




---



##### Table of Contents



Note 12. New Accounting Pronouncements
    21




---



##### Table of Contents



22




---



##### Table of Contents



Item 2
    
    Managements Discussion and Analysis

of Financial Condition and Results of Operations
 The Company
  Results Of Operations
 Consolidated Earnings
   23




---



##### Table of Contents



Natural Gas Distribution
      24




---



##### Table of Contents



25




---



##### Table of Contents



Natural Gas Midstream
   26




---



##### Table of Contents



27




---



##### Table of Contents



Other
   Income Taxes
  28




---



##### Table of Contents



Liquidity and Capital Resources
     29




---



##### Table of Contents



30




---



##### Table of Contents



Remaining
    
    Fiscal
    
    Fiscal
    
    Fiscal
    
    Fiscal
    
    Fiscal YearsType of Contractual
    
    Fiscal Year
    
    Year
    
    Year
    
    Year
    
    Year
    
    2013 andObligations (in thousands):
    
    2008
    
    2009
    
    2010
    
    2011
    
    2012
    
    thereafterLong-Term Debt
    
    $
    4,031
    
    
    $
    6,054
    
    
    $
    5,653
    
    
    $
    5,955
    
    
    $
    6,307
    
    
    $
    96,492Interest Payments (1)
    
    
    3,523
    
    
    
    6,457
    
    
    
    5,960
    
    
    
    5,489
    
    
    
    4,990
    
    
    
    41,716Estimated Future Minimum Payments
for Bay Gas Service Fees
    
    
    319
    
    
    
    638
    
    
    
    638
    
    
    
    638
    
    
    
    638
    
    
    
    31,950Construction Contracts for Bay Gas
Storage Facilities
    
    
    29,755
    
    
    
    21,603
    
    
    
    6Construction Contracts for
Mississippi Hub Storage Facilities
    
    
    18,862
    
    
    
    4,691
    
    
    
    82
    
    
    
    82Implementation of CIS Software
    
    
    1,418Gas Supply Contracts
    
    
    4,066
    
    
    
    1,498
    
    
    
    1,141
    
    
    
    815Total
    
    $
    61,974
    
    
    $
    40,941
    
    
    $
    13,480
    
    
    $
    12,979
    
    
    $
    11,935
    
    
    $
    170,158
 (1)
    
    Amounts include estimated interest payments on $55 million Industrial Revenue Bonds and
are based on the effective rate as of March 31, 2008 of 2.20%. Critical Accounting Policies
  Forward-Looking Statements
  31




---



##### Table of Contents



Item 3
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK
 Risk Control Policy and Oversight
  Commodity Price Risk
 Distribution.
  32




---



##### Table of Contents







Midstream.


Three MonthsEnded(in thousands)
    
    March 31, 2008Net fair value of contracts outstanding at December 31, 2007
    
    $
    475Net fair value of new contracts entered into during the period
    
    
    (69
    )Contracts realized or otherwise settled during the period
    
    
    (431
    )Other changes in fair value
    
    
    (975
    )Net fair value of contracts outstanding at March 31, 2008
    
    
    (1,000
    )Less net fair value of contracts outstanding at December 31,
2007
    
    
    (475
    )Unrealized gain (loss) related to changes in the fair value
of derivative instruments
    
    $
    (1,475
    )
 Six MonthsEnded(in thousands)
    
    March 31, 2008Net fair value of contracts outstanding at September 30, 2007
    
    $
    82Net fair value of new contracts entered into during the period
    
    
    (671
    )Contracts realized or otherwise settled during the period
    
    
    (13
    )Other changes in fair value
    
    
    (398
    )Net fair value of contracts outstanding at December 31, 2007
    
    
    (1,000
    )Less net fair value of contracts outstanding at September 30,
2007
    
    
    (82
    )Unrealized gain (loss) related to changes in the fair value
of derivative instruments
    
    $
    (1,082
    )
   Three Months
    
    Six MonthsEnded
    
    EndedVaR (in thousands)
    
    March 31, 2008
    
    March 31, 2008Average
    
    $
    130
    
    
    $
    127High
    
    
    256
    
    
    
    316Low
    
    
    85
    
    
    
    25
  33




---



##### Table of Contents



Item 4 CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control
  34




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
  
 Item 5. 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 May 2, 2008
 35




---



##### Table of Contents



SIGNATURES
  ENERGYSOUTH, INC.(Registrant)Date: May 6, 2008
    
    /s/ C. S. Liollio

C. S. Liollio
President and Chief Executive OfficerDate: May 6, 2008
    
    /s/ Charles P. HuffmanCharles P. Huffman
Senior Vice President and
Chief Financial Officer
 36