##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 Form 10-Q
 
 June 30, 2005
 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(Address of principal executive office)
    
    36606(Zip Code)
 251-450-4774
 þ o
 þ o




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ENERGYSOUTH, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2005
   
 Page No.PART I:      FINANCIAL INFORMATIONItem 1
    
    Financial Statements:(a)
    
    Unaudited Condensed Consolidated Balance Sheets June 30, 2005 and 2004 and September 30, 2004
    
    
    3 - 4(b)
    
    Unaudited Condensed Consolidated Statements of Income Three and Nine Months Ended June 30, 2005 and 2004
    
    
    5(c)
    
    Unaudited Condensed Consolidated Statements of Cash Flows Nine Months Ended June 30, 2005 and 2004
    
    
    6(d)
    
    Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    7 - 17Item 2
    

    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18 - 24Item 3
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    25Item 4
    
    Controls and Procedures
    
    
    25 - 26PART II:      OTHER INFORMATIONItem 5
    
    Other Information
    
    
    27Item 6
    
    Exhibits
    
    
    27Certification Pursuant to Section 302 - CEOCertification Pursuant to Section 302 - CFOCertification Pursuant to Section 906 - CEOCertification Pursuant to Section 906 - CFO
  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
    
    2005
    
    
    2004
    
    
    2004(Unaudited)ASSETSCurrent AssetsCash and Cash Equivalents
    
    $
    15,184
    
    
    $
    10,739
    
    
    $
    9,464ReceivablesGas
    
    
    7,824
    
    
    
    7,671
    
    
    
    6,394Unbilled Revenue
    
    
    1,589
    
    
    
    1,630
    
    
    
    1,143Merchandise
    
    
    2,197
    
    
    
    2,281
    
    
    
    2,249Other
    
    
    1,183
    
    
    
    1,011
    
    
    
    1,273Allowance for Doubtful Accounts
    
    
    (1,934
    )
    
    
    (1,889
    )
    
    
    (856
    )Materials, Supplies, and Merchandise, net (At Average Cost)
    
    
    1,359
    
    
    
    1,229
    
    
    
    1,524Gas Stored Underground (At Average Cost)
    
    
    5,508
    
    
    
    3,330
    
    
    
    4,235Regulatory Assets
    
    
    323
    
    
    
    2,895
    
    
    
    3,606Deferred Income Taxes
    
    
    2,285
    
    
    
    766
    
    
    
    434Prepayments
    
    
    2,089
    
    
    
    2,003
    
    
    
    1,731Total Current Assets
    
    
    37,607
    
    
    
    31,666
    
    
    
    31,197Property, Plant, and Equipment
    
    
    279,534
    
    
    
    272,625
    
    
    
    274,789Less: Accumulated Depreciation and Amortization
    
    
    76,236
    
    
    
    68,678
    
    
    
    70,417Property, Plant, and Equipment  net
    
    
    203,298
    
    
    
    203,947
    
    
    
    204,372Construction Work in Progress
    
    
    2,933
    
    
    
    201
    
    
    
    225Total Property, Plant, and Equipment
    
    
    206,231
    
    
    
    204,148
    
    
    
    204,597Other AssetsPrepaid Pension Cost
    
    
    957
    
    
    
    1,068
    
    
    
    1,102Deferred Charges
    
    
    616
    
    
    
    560
    
    
    
    567Prepayments
    
    
    913
    
    
    
    972
    
    
    
    957Regulatory Assets
    
    
    415
    
    
    
    742
    
    
    
    660Merchandise Receivables Due After One Year
    
    
    3,161
    
    
    
    3,421
    
    
    
    3,374Total Other Assets
    
    
    6,062
    
    
    
    6,763
    
    
    
    6,660Total
    
    $
    249,900
    
    
    $
    242,577
    
    
    $
    242,454
  3




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UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 EnergySouth, Inc.
    
    June 30,
    
    
    September 30,In Thousands, Except Share Data
    
    2005
    
    
    2004
    
    
    2004(Unaudited)LIABILITIES AND CAPITALIZATIONCurrent LiabilitiesCurrent Maturities of Long-Term Debt
    
    $
    5,160
    
    
    $
    6,208
    
    
    $
    6,248Accounts Payable
    
    
    6,666
    
    
    
    5,224
    
    
    
    5,278Dividends Declared
    
    
    1,676
    
    
    
    1,562
    
    
    
    1,561Customer Deposits
    
    
    1,277
    
    
    
    1,469
    
    
    
    1,618Taxes Accrued
    
    
    3,499
    
    
    
    3,121
    
    
    
    2,312Interest Accrued
    
    
    463
    
    
    
    521
    
    
    
    1,122Regulatory Liabilities
    
    
    5,668
    
    
    
    4,457
    
    
    
    4,637Other
    
    
    1,302
    
    
    
    986
    
    
    
    998Total Current Liabilities
    
    
    25,711
    
    
    
    23,548
    
    
    
    23,774Other LiabilitiesAccrued Postretirement Benefit Cost
    
    
    684
    
    
    
    337
    
    
    
    513Deferred Income Taxes
    
    
    23,534
    
    
    
    20,919
    
    
    
    21,378Deferred Investment Tax Credits
    
    
    247
    
    
    
    275
    
    
    
    262Regulatory Liabilities
    
    
    12,380
    
    
    
    11,603
    
    
    
    11,788Other
    
    
    1,570
    
    
    
    1,558
    
    
    
    1,413Total Other Liabilities
    
    
    38,415
    
    
    
    34,692
    
    
    
    35,35464,126
    
    
    
    58,240
    
    
    
    59,128CapitalizationStockholders EquityCommon Stock, $.01 Par Value
(Authorized 20,000,000 Shares; Outstanding
June 2005 - 7,855,000;
June 2004 - 7,811,000;
September 2004 - 7,827,000 Shares)
    
    
    78
    
    
    
    78
    
    
    
    78Capital in Excess of Par Value
    
    
    26,835
    
    
    
    25,818
    
    
    
    26,162Retained Earnings
    
    
    75,377
    
    
    
    68,368
    
    
    
    67,625Grantor Trust, at cost
    
    
    (1,485
    )
    
    
    (1,315
    )
    
    
    (1,355
    )Deferred Compensation Liability
    
    
    1,485
    
    
    
    1,315
    
    
    
    1,355Total Stockholders Equity
    
    
    102,290
    
    
    
    94,264
    
    
    
    93,865Minority Interest
    
    
    5,063
    
    
    
    4,592
    
    
    
    4,769Long-Term Debt
    
    
    78,421
    
    
    
    85,481
    
    
    
    84,692Total Capitalization
    
    
    185,774
    
    
    
    184,337
    
    
    
    183,326Total
    
    $
    249,900
    
    
    $
    242,577
    
    
    $
    242,454
  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
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Operating RevenuesGas Revenues
    
    $
    21,362
    
    
    $
    20,003
    
    
    $
    99,224
    
    
    $
    93,093Merchandise Sales
    
    
    672
    
    
    
    663
    
    
    
    2,558
    
    
    
    2,382Other
    
    
    316
    
    
    
    330
    
    
    
    1,035
    
    
    
    1,083Total Operating Revenues
    
    
    22,350
    
    
    
    20,996
    
    
    
    102,817
    
    
    
    96,558Operating ExpensesCost of Gas
    
    
    6,984
    
    
    
    6,098
    
    
    
    40,310
    
    
    
    35,859Cost of Merchandise
    
    
    605
    
    
    
    522
    
    
    
    2,174
    
    
    
    1,872Operations and Maintenance
    
    

    6,289
    
    
    
    6,040
    
    
    
    19,485
    
    
    
    19,386Depreciation
    
    
    2,544
    
    
    
    2,439
    
    
    
    7,640
    
    
    
    7,308Taxes, Other Than Income Taxes
    
    
    1,735
    
    
    
    1,694
    
    
    
    7,071
    
    
    
    6,744Total Operating Expenses
    
    
    18,157
    
    
    
    16,793
    
    
    
    76,680
    
    
    
    71,169Operating Income
    
    
    4,193
    
    
    
    4,203
    
    
    
    26,137
    
    
    
    25,389Other Income (Expense)Interest Expense
    
    
    (1,805
    )
    
    
    (1,958
    )
    
    
    (5,518
    )
    
    
    (5,979
    )Allowance for Borrowed Funds Used During Construction
    
    
    49
    
    
    
    4
    
    
    
    62
    
    
    
    16Interest Income
    
    
    103
    
    
    
    21
    
    
    
    177
    
    
    
    35Minority Interest
    
    
    (203
    )
    
    
    (188
    )
    
    
    (649
    )
    
    
    (583
    )Total Other Income (Expense)
    
    
    (1,856
    )
    
    
    (2,121
    )
    
    
    (5,928
    )
    
    
    (6,511
    )Income Before Income Taxes
    
    
    2,337
    
    
    
    2,082
    
    
    
    20,209
    
    
    
    18,878Income Taxes
    
    
    880
    
    
    
    784
    
    
    
    7,641
    
    
    
    7,139Net Income
    
    $
    1,457
    
    
    $
    1,298
    
    
    $
    12,568
    
    
    $
    11,739Earnings Per ShareBasic
    
    $
    0.19
    
    
    $
    0.17
    
    
    $
    1.60
    
    
    $
    1.52Diluted
    
    $
    0.18
    
    
    $
    0.16
    
    
    $
    1.58
    
    
    $
    1.50Average Common Shares OutstandingBasic
    
    
    7,854
    
    
    
    7,803
    
    
    
    7,843
    
    
    
    7,745Diluted
    
    
    7,947
    
    
    
    7,896
    
    
    
    7,945
    
    
    
    7,838




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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine MonthsEnergySouth, Inc.
    
    Ended June 30,In Thousands
    
    2005
    
    
    2004Cash Flows from Operating ActivitiesNet Income
    
    $
    12,568
    
    
    $
    11,739Adjustments to Reconcile Net Income to Net Cash
Provided by Operating ActivitiesDepreciation and Amortization
    
    
    7,915
    
    
    
    7,596Provision for Losses on Receivables and Inventory
    
    
    967
    
    
    
    1,096Provision for Deferred Income Taxes
    
    
    307
    
    
    
    2,123Minority Interest
    
    
    649
    
    
    
    583Changes in Operating Assets and Liabilities:Receivables
    
    
    (1,570
    )
    
    
    (1,046
    )Inventory
    
    
    (1,091
    )
    
    
    549Payables
    
    
    842
    
    
    
    (1,817
    )Taxes
    
    
    1,186
    
    
    
    1,932Deferred Purchased Gas Adjustment
    
    
    4,037
    
    
    
    (4
    )Other
    
    
    716
    
    
    
    725Net Cash Provided by Operating Activities
    
    
    26,526
    
    
    
    23,476Cash Flows from Investing ActivitesCapital Expenditures
    
    
    (8,730
    )
    
    
    (5,862
    )Net Cash Used in Investing Activities
    
    
    (8,730
    )
    
    
    (5,862
    )Cash Flows from Financing ActivitesRepayment of Long-Term Debt
    
    
    (7,359
    )
    
    
    (6,956
    )Changes in Short-Term Borrowings
    
    
    
    
    
    
    (250
    )Payment of Dividends
    
    
    (4,816
    )
    
    
    (4,485
    )Dividend Reinvestment
    
    
    307
    
    
    
    274Exercise of Stock Options
    
    
    147
    
    
    
    592Partnership Distributions to Minority Interest Holders
    
    
    (355
    )
    
    
    (132
    )Net Cash Used in Financing Activities
    
    
    (12,076
    )
    
    
    (10,957
    )Net Increase in Cash and Cash Equivalents
    
    
    5,720
    
    
    
    6,657Cash and Cash Equivalents at Beginning of Period
    
    
    9,464
    
    
    
    4,082Cash and Cash Equivalents at End of Period
    
    $
    15,184
    
    
    $
    10,739
  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 June 30,In Thousands, Except Per Share Data
    
    2005
    
    
    2004Operating Revenues
    
    $
    122,231
    
    
    $
    114,273Cost of Gas
    
    
    45,854
    
    
    
    40,080Cost of Merchandise
    
    
    2,884
    
    
    
    2,403Operations and Maintenance Expense
    
    
    25,319
    
    
    
    24,811Depreciation Expense
    
    
    10,044
    
    
    
    9,401Taxes, Other Than Income Taxes
    
    
    8,586
    

    
    
    8,092Operating Income
    
    
    29,544
    
    
    
    29,486Interest Expense
    
    
    (7,436
    )
    
    
    (8,025
    )Allowance for Borrowed Funds Used
During Construction
    
    
    66
    
    
    
    68Interest Income
    
    
    202
    
    
    
    49Less: Minority Interest
    
    
    (871
    )
    
    
    (773
    )Income Before Income Taxes
    
    $
    21,505
    
    
    $
    20,805Income Taxes
    
    
    8,107
    
    
    
    7,850Net Income
    
    $
    13,398
    
    
    $
    12,955Earnings Per ShareBasic
    
    $
    1.71
    
    
    $
    1.68Diluted
    
    $
    1.69
    
    
    $
    1.66Average Common Shares OutstandingBasic
    
    
    7,837
    
    
    
    7,730Diluted
    
    
    7,936
    
    
    
    7,823
 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
    
    
    2004
    
    
    2005
    
    
    2004Net Income, as reported
    
    $
    1,457
    
    
    $
    1,298
    
    
    $
    12,568
    
    
    $
    11,739Deduct:Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    
    55
    
    
    
    47
    
    
    
    149
    
    
    
    134Pro forma net income
    
    $
    1,402
    
    
    $
    1,251
    
    
    $
    12,419
    
    
    $
    11,605Earnings per share:Basic  as reported
    
    $
    0.19
    
    
    $
    0.17
    
    
    $
    1.60
    

    
    $
    1.52Basic  pro forma
    
    $
    0.18
    
    
    $
    0.16
    
    
    $
    1.58
    
    
    $
    1.50Diluted  as reported
    
    $
    0.18
    
    
    $
    0.16
    
    
    $
    1.58
    
    
    $
    1.50Diluted  pro forma
    
    $
    0.18
    
    
    $
    0.16
    
    
    $
    1.56
    
    
    $
    1.48
 Note 4. Retirement Plans and Other Benefits
    Pension
    
    
    PostretirementBenefits
    
    
    BenefitsFor the three months ended June 30, (in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    215
    
    
    $
    214
    
    
    $
    43
    
    
    $
    29Interest cost
    
    
    445
    
    
    
    391
    
    
    
    79
    
    
    
    62Amortization of transition asset
    
    
    
    
    
    
    (32
    )Amortization of prior service cost
    
    
    24
    
    
    
    24

    
    
    
    (11
    )
    
    
    (11
    )Amortization of unrecognized gain/(loss)
    
    
    
    
    
    
    (32
    )
    
    
    15
    
    
    
    3Expected return on plan assets
    
    
    (643
    )
    
    
    (645
    )
    
    
    (68
    )
    
    
    (71
    )Net periodic benefit cost (credit)
    
    $
    41
    
    
    $
    (80
    )
    
    $
    58
    
    
    $
    12
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Pension
    
    
    PostretirementBenefits
    
    
    BenefitsFor the nine months ended June 30, (in thousands)
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Service cost
    
    $
    646
    
    
    $
    643
    
    
    $
    128
    
    
    $
    88Interest cost
    
    
    1,335
    
    
    
    1,172
    
    
    
    236
    
    
    
    187Amortization of transition asset
    
    
    
    
    
    
    (96
    )Amortization of prior service cost
    
    
    71
    
    
    
    71
    
    
    
    (33
    )
    
    
    (33
    )Amortization of unrecognized gain/(loss)
    
    
    
    
    
    
    (96
    )
    
    
    44
    
    
    
    9Expected return on plan assets
    
    
    (1,929
    )
    
    
    (1,934
    )
    
    
    (204
    )
    
    
    (212
    )Net periodic benefit cost (credit)
    
    $
    123
    
    
    $
    (240
    )
    
    $
    171
    
    
    $
    39
  Note 5. Rates and Regulatory Matters
   force majeure
 10




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June 30,
    
    
    June 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2004Current
    
    
    Noncurrent
    
    
    Current
    
    
    Noncurrent
    
    
    Current
    
    
    NoncurrentAssetsDeferred Purchase Gas Adjustment
    
    
    
    
    
    
    
    
    
    $
    2,537
    
    
    
    
    
    
    $
    3,269ESR Fund
    
    $
    167
    
    
    $
    375
    
    
    
    167
    
    
    $
    542
    
    
    
    167
    
    
    $
    500Bad Debt Reserve
    
    
    133
    
    
    
    33
    
    
    
    133
    
    
    
    166
    
    
    
    133
    
    
    
    133Other
    
    
    23
    
    
    
    7
    
    
    
    58
    
    
    
    34
    
    
    
    37
    
    
    
    27Regulatory Assets
    
    $
    323
    
    
    $
    415
    
    
    $
    2,895
    
    
    $
    742
    
    
    $
    3,606
    
    
    $
    660LiabilitiesBad Debt Reserve
    
    $
    5
    
    
    
    
    
    
    $
    25
    
    
    $
    5
    
    
    $
    20ESR Fund
    
    
    944
    
    
    
    
    
    
    
    854
    
    
    
    
    
    
    
    854Deferred Investment Tax Credit
    
    
    15
    
    
    $
    125
    
    
    
    15
    
    
    
    141
    
    
    
    15
    
    
    $
    136RSE Adjustment
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    343Gross Receipt Tax Collections
    
    
    3,920
    
    
    
    
    
    
    
    3,563
    
    
    
    
    
    
    
    3,405Deferred Purchase Gas Adjustment
    
    
    768Asset Retirement Obligations
    
    
    
    
    
    
    12,255
    
    
    
    
    
    
    
    11,457
    
    
    
    
    
    
    
    11,652Regulatory Liabilities
    
    $
    5,668
    
    
    $
    12,380
    
    
    $
    4,457
    
    
    $
    11,603
    
    
    $
    4,637
    
    
    $
    11,788
   Note 6. Earnings Per Share
  12




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Three Months
    
    
    Nine MonthsEnergySouth, Inc.
    
    Ended June 30,
    
    
    Ended June 30,In Thousands
    
    2005
    
    
    2004
    
    
    2005
    
    
    2004Weighted Average Common Shares
    
    
    7,854
    
    
    
    7,803
    
    
    
    7,843
    
    
    
    7,745Effect of Dilutive Securities:Options to Purchase Common Stock
    
    
    93
    
    
    
    93
    
    
    
    102
    
    
    
    93Diluted Average Common Shares
    
    
    7,947
    
    
    
    7,896
    
    
    
    7,945
    
    
    
    7,838
   Note 7. Segment Information
   13




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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
    )Allowance for Borrowed Funds
Used During Construction
    
    
    7
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    49Less: Minority Interest
    
    
    (33
    )
    
    
    (170
    )
    
    
    
    
    
    
    
    
    
    
    (203
    )Income Before Income Taxes
    
    $
    599
    
    
    $
    1,684
    
    
    $
    54
    
    
    
    
    
    
    $
    2,337
 For the three months ended
    
    Natural Gas
    
    
    Natural GasJune 30, 2004 (in thousands):
    
    Distribution
    
    
    Storage
    
    
    Other
    
    
    Eliminations
    
    
    ConsolidatedOperating Revenues
    
    $
    16,667
    
    
    $
    4,372
    
    
    $
    993
    
    
    $
    (1,036
    )
    
    $
    20,996Cost of Gas
    
    
    7,134
    
    
    
    
    
    
    
    
    
    
    
    (1,036
    )
    
    
    6,098Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    522
    
    
    
    
    
    
    
    522Operations and Maintenance Expense
    
    
    4,982
    
    
    
    695
    
    
    
    363
    
    
    
    
    
    
    
    6,040Depreciation Expense
    
    
    1,828
    
    
    
    611
    
    
    
    
    
    
    
    
    
    
    
    2,439Taxes, Other Than Income Taxes
    
    
    1,436
    
    
    
    246
    
    
    
    12
    
    
    
    
    
    
    
    1,694Operating Income
    
    
    1,287
    
    
    
    2,820
    
    
    
    96
    
    
    
    
    
    
    
    4,203Interest Income
    
    
    10
    
    
    
    11
    
    
    
    
    
    
    
    
    
    
    
    21Interest Expense
    
    
    (825
    )
    
    
    (1,114
    )
    
    
    (19
    )
    
    
    
    
    
    
    (1,958
    )Allowance for Borrowed Funds
Used During Construction
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Less: Minority Interest
    
    
    (29
    )
    
    
    (159
    )
    
    
    
    
    
    
    
    
    
    
    (188
    )Income Before Income Taxes
    
    $
    447
    
    
    $
    1,558
    
    
    $
    77
    
    
    
    
    
    
    $
    2,082
 14




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##### Table of Contents



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
    )Allowance for Borrowed Funds
Used During Construction
    
    
    11
    
    
    
    51
    
    
    
    
    
    
    
    
    
    
    
    62Less: Minority Interest
    
    
    (98
    )
    
    
    (551
    )
    
    
    
    
    
    
    
    
    
    
    (649
    )Income Before Income Taxes
    
    $
    14,527
    
    
    $
    5,435
    
    
    $
    247
    
    
    
    
    
    
    $
    20,209
 For the nine months ended
    
    Natural Gas
    
    
    Natural GasJune 30, 2004 (in thousands):
    
    Distribution
    
    
    Storage
    
    
    Other
    
    
    Eliminations
    
    
    ConsolidatedOperating Revenues
    
    $
    83,153
    
    
    $
    13,087
    
    
    $
    3,465
    
    
    $
    (3,147
    )
    
    $
    96,558Cost of Gas
    
    
    39,006
    
    
    
    
    
    
    
    
    
    
    
    (3,147
    )
    
    
    35,859Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    1,872
    
    
    
    
    
    
    
    1,872Operations and Maintenance Expense
    
    
    15,871
    
    
    
    2,223
    
    
    
    1,292
    
    
    
    
    
    
    
    19,386Depreciation Expense
    
    
    5,484
    
    
    
    1,824
    
    
    
    
    
    
    
    
    
    
    
    7,308Taxes, Other Than Income Taxes
    
    
    6,049
    
    
    
    646
    
    
    
    49
    
    
    
    
    
    
    
    6,744Operating Income
    
    
    16,743
    
    
    
    8,394
    
    
    
    252
    
    
    
    
    
    
    
    25,389Interest Income
    
    
    14
    
    
    
    30
    
    
    
    
    
    
    
    (9
    )
    
    
    35Interest Expense
    
    
    (2,457
    )
    
    
    (3,378
    )
    
    
    (153
    )
    
    
    9
    
    
    
    (5,979
    )Allowance for Borrowed Funds
Used During Construction
    
    
    16
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16Less: Minority Interest
    
    
    (117
    )
    
    
    (466
    )
    
    
    
    
    
    
    
    
    
    
    (583
    )Income Before Income Taxes
    
    $
    14,199
    
    
    $
    4,580
    
    
    $
    99
    
    
    
    
    
    
    $
    18,878
 Note 8. Contingencies
   15




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Note 9. New Accounting Pronouncements
    16




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##### Table of Contents



Note 10. Subsequent Event
  17




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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
   18




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19




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20




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Natural Gas Storage
     21




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##### Table of Contents



Other
   Income Taxes
  Liquidity and Capital Resources
  22




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##### Table of Contents



Remaining
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fiscal YearsType of Contractual
    
    Fiscal Year
    
    Fiscal Year
    
    Fiscal Year
    
    Fiscal Year
    
    2009 andObligations (in thousands):
    
    2005
    
    2006
    
    2007
    
    2008
    
    thereafterLong-Term Debt
    
    $
    789
    
    
    $
    5,213
    
    
    $
    5,019
    
    
    $
    5,300
    
    
    $
    67,260Interest Payments
    
    
    1,220
    
    
    
    6,656
    
    
    
    6,242
    
    
    
    5,822
    
    
    
    31,722Gas Supply Contracts
    
    
    3,443
    
    
    
    6,693
    
    
    
    1,187
    
    
    
    1,187
    
    
    
    3,215
 Critical Accounting Policies
  23




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Forward-Looking Statements
  24




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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
  25




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##### Table of Contents



Changes in Internal Control
  Limitations on the Effectiveness of Controls
  26




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##### Table of Contents



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
Officer
 SIGNATURES
  ENERGYSOUTH, INC.
(Registrant)Date: August 9, 2005
    /s/ John S. DavisJohn S. DavisPresident and
Chief Executive Officer ChiefDate: August 9, 2005
    /s/ Charles P. HuffmanCharles P. HuffmanSenior Vice President and
Chief Financial Officer 27