##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
 for the fiscal year ended September 30, 2006
 o
    
    Transition report pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
 for the transition period from  to
 Commission File Number 0-29604
 EnergySouth, Inc.
 (Exact name of registrant as specified in its charter)
 Alabama
    
    58-2358943(State or other Jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 2828 Dauphin Street, Mobile, Alabama
    
    36606(Address of principal executive offices)
    
    (Zip Code)
 (251)450-4774
  Name of each exchangeTitle of each class
    
    on which registeredNone
    
    None
 Common Stock ($.01 par value)
 o þ
 o þ
 þ o
 o
  o þ o
 o þ




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TABLE OF CONTENTS  PART IItem 1 BusinessItem 1A Risk FactorsItem 1B Unresolved Staff CommentsItem 2 PropertiesItem 3 Legal ProceedingsItem 4 Submission of Matters to a Vote of Security HoldersItem 4a Executive Officers of the RegistrantPART IIItem 5 Market for the Registrants Common Stock Equity and Related Stockholder MattersItem 6  EnergySouth, Inc.  Selected Financial DataItem 7 Managements Discussion and Analysis of Results of Financial Condition and Results of OperationItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresPART IIIItem 10. Directors, Executive Officers, and Control Persons of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and ManagementItem 13. Certain Relationships and Related TransactionsItem 14. Principal Accountant Fees and ServicesPART IVItem 15. Exhibits, Financial Statement SchedulesSignaturesEXHIBIT INDEXSubsidiariesConsent of Deloitte & Touche LLPCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906    Table of Contents  
 PART I
 
 Item 1 Business
 General
       Business Segments
  
    
    Natural Gas Distribution  The Natural Gas Distribution segment is
actively engaged in the distribution and transportation of natural
gas to residential, commercial and industrial customers in
Southwest Alabama through Mobile Gas and SGT.
    
    Natural Gas Storage  The Natural Gas Storage segment provides for
the underground storage of natural gas and transportation services
through the operations of Bay Gas and Storage. The storage
operations are located in Southwest Alabama.
 1




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##### Table of Contents




    
    Other  Includes merchandising, financing, and other
energy-related services which are provided through Mobile Gas and
Services, respectively, and are aggregated with the corporate
operations of EnergySouth, the holding company.
  Customers
       2




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Gas Supply
   Gas Storage
     3




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Competition
 Gas Distribution Competition
   Gas Storage Competition
 Rates and Regulation
    4




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force majeure
  5




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Seasonal Nature of Business
  6




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Environmental Issues
    Employees
  Available Information
  
 Item 1A. Risk Factors.
  7




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Third Party Facilities:
 Operations:
 Regulatory Environment:
  Environmental Regulation:
 Volatility of Natural Gas Prices:
 8




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Customer Concentration:
 Mobile Gas Service Territory:
 Competition:
  Access to Credit Markets:
 
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties
   9




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Item 3 Legal Proceedings
  
 Item 4 Submission of Matters to a Vote of Security Holders
  
 Item 4a. Executive Officers of the Registrant
    10




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Business ExperienceName, Age, and Position
    
    During Past 5 YearsW. G. Coffeen, III, 60
Senior Vice President of Corporate
Development  EnergySouth, Inc.
    
    Appointed in December 2004;
Previously: Senior Vice President of
Operations and Marketing -
EnergySouth, Inc. (2000 - 2004);
Vice President of Corporate
Development and Planning -
EnergySouth, Inc. (1998 -2000)Senior Vice President of Corporate Development
 Mobile Gas Service Corporation;
Director and President  EnergySouth Services,
Inc.; Director and President  MGS Marketing
Services, Inc.
    
    Appointed in December 2004;
Previously: Senior Vice President of
Operations and Marketing - Mobile Gas
Service Corporation (2000 - 2004);
Vice President of Corporate Development
and Planning - Mobile Gas Service
Corporation (1998 -2000); Vice President- MGS Marketing Services, Inc.;
Vice President - MGS Storage
Services, Inc. (1998 - 2000)Charles P. Huffman, 53
Senior Vice President and Chief Financial Officer
- EnergySouth, Inc.
    
    Appointed in December 2000;
Previously: Vice President, Chief
Financial Officer, and Treasurer -
EnergySouth, Inc. (1998 - 2001)Senior Vice President and Chief Financial Officer
- Mobile Gas Service Corporation; Vice
President and Chief Financial Officer -
EnergySouth Services, Inc.; Director, Vice
President and Chief Financial Officer - MGS
Marketing Services, Inc.; Director, Vice President
and Chief Financial Officer - MGS Storage
Services, Inc.
    
    Appointed in December 2000;
Previously: Vice President, Chief
Financial Officer, Treasurer, and
Assistant Secretary - Mobile Gas
Service Corporation; Vice
President/Treasurer - EnergySouth
Services, Inc.; Director/Vice
President/Treasurer - MGS Storage
Services, Inc.; Director/Vice
President/Treasurer - MGS
Marketing Services, Inc. (1998 -
2001)
 11




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##### Table of Contents



Business ExperienceName, Age, and Position
    
    During Past 5 YearsG. Edgar Downing, Jr., 50 * 
Senior Vice President, Secretary and
General Counsel - EnergySouth, Inc.;
    
    Appointed in December 2005
Previously: Vice President, Secretary
and General Counsel - EnergySouth, Inc.
(1998 - 2005)Senior Vice President, Secretary and
    
    Appointed in December 2005; Previously:General Counsel - Mobile Gas Service
Corporation; Director, Vice President and
Secretary - EnergySouth Services, Inc,; Director,
Vice President and Secretary - EnergySouth
Services, Inc.; Vice President and Secretary -
MGS Marketing Services, Inc.; Director, Vice
President and Secretary - MGS Storage
Services, Inc.
    
    Secretary, General Counsel and Vice
President of Administration - Mobile Gas
Service Corporation; Director, Vice
President and Secretary - EnergySouth
Services, Inc,; Director, Vice
President and Secretary - EnergySouth
Services, Inc.; Vice President and Secretary - MGS Marketing Services, Inc.; Director, Vice
President and Secretary - MGS Storage
Services, Inc.Susan P. Stringer, 45
Vice President and Controller - EnergySouth,
Inc.
    
    Appointed in December 2000Vice President and Controller - Mobile Gas
Service Corporation
    
    Appointed in December 2000;
Previously: Director - Financial
Reporting - Mobile Gas Service
Corporation (2000); Manager -
Financial Reporting - Mobile Gas
Service Corporation (1999 - 2000);
Accounting Manager - Mobile Gas
Service Corporation (1998 - 1999);LaBarron N. McClendon, 42
Vice President Human Resources -
EnergySouth, Inc.
    
    Appointed in December 2001Vice President Human Resources - Mobile Gas
Service Corporation
    
    Appointed December 2001;
Previously: Director Human
Resources - Mobile Gas Service
Corporation (1999 - 2001); Manager
Human Resources - Mobile Gas
Service Corporation (1998 - 1999);
 12




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##### Table of Contents



Business ExperienceName, Age, and Position
    
    During Past 5 YearsDaniel T. Ford, 40
Treasurer - EnergySouth, Inc.
    
    Appointed in June 2002Treasurer - Mobile Gas Service Corporation;
    
    Appointed June 2002; Previously:Treasurer - EnergySouth Services, Inc.;
Treasurer - MGS Marketing Services, Inc.;
Treasurer - MGS Storage Services, Inc.
    
    Director Rates and Analysis - Mobile
Gas Service Corporation (2000 -
2002); Manager Rates and Analysis
- Mobile Gas Service Corporation
(1997 - 2000)
 
 *
    
    Mr. Downing is the son-in-law of Gaylord C. Lyon, a Director of the Company. 
 PART II
 
 Item 5 Market for the Registrants Common Stock Equity and Related Stockholder Matters
  Per ShareFiscal Year
    
    Dividends Declared
    
    Closing Price RangeQuarter Ended
    
    2006
    
    2005
    
    2006
    
    2005High
    
    Low
    
    High
    
    LowDecember 31
    
    $
    .215
    
    
    $
    .200
    
    
    $
    29.910
    
    
    $
    26.311
    
    
    $
    29.060
    
    
    $
    26.450March 31
    
    
    .215
    
    
    
    .200
    
    
    
    31.810
    
    
    
    26.400
    
    
    
    29.840
    
    
    
    27.070June 30
    
    
    .230
    
    
    
    .215
    
    
    
    34.920
    
    
    
    30.080
    
    
    
    28.660
    
    
    
    24.650September 30
    
    
    .230
    
    
    
    .215
    
    
    
    39.000
    
    
    
    31.090
    
    
    
    28.650
    
    
    
    25.820
   13




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##### Table of Contents



Item 6  EnergySouth, Inc.  Selected Financial Data
 FINANCIAL SUMMARY
 Years Ended September 30,
    
    2006
    
    
    2005SELECTED FINANCIAL DATA(in thousands, except per share data)Gas Revenues
    
    $
    130,686
    
    
    $
    119,987Merchandise Sales
    
    
    4,046
    
    
    
    3,263Other
    
    
    1,135
    
    
    
    1,356Total Operating Revenues
    
    $
    135,867
    
    
    $
    124,606Income Before Cumulative Effect of Changes in Accounting Principles
    
    $
    14,036
    
    
    $
    13,841Cumulative Effect of Changes in Accounting PrinciplesNet Income
    
    $
    14,036
    
    
    $
    13,841Earnings Applicable to Common Stock
    
    $
    14,036
    
    
    $
    13,841Cash Dividends Per Share of Common Stock (1)
    
    $
    0.89
    
    
    $
    0.83Basic Earnings Per Share of Common Stock (1):Income Before Cumulative Effect of Changes in Accounting Principles
    
    $
    1.77
    
    
    $
    1.76Net Income (1)
    
    $
    1.77
    
    
    $
    1.76Diluted Earnings Per Share of Common Stock (1):Income Before Cumulative Effect of Changes in Accounting Principles
    
    $
    1.76
    
    
    $
    1.74Net Income (1)
    
    $
    1.76
    
    
    $
    1.74Average Common Shares Outstanding (1):Basic (1)
    
    
    7,924
    
    
    
    7,854Diluted (1)
    
    
    7,978
    
    
    
    7,950Total Assets
    
    $
    262,680
    
    
    $
    252,459Long-Term Debt
    
    $
    71,361
    
    
    $
    77,579STATISTICALGas Revenue (in thousands):Sales:Residential
    
    $
    70,560
    
    
    $
    66,701Commercial and Industrial  Small
    
    
    23,129
    
    
    
    19,717Commercial and Industrial  Large
    
    
    12,495
    
    
    
    10,502Transportation
    
    
    9,744
    
    
    
    9,920Storage (other than intercompany)
    
    
    13,980
    
    
    
    12,383Other
    
    
    778
    
    
    
    764Total
    
    $
    130,686
    
    
    $
    119,987Delivery to Customers (in thousand therms):Gas Sales:Residential
    
    
    32,976
    
    
    
    36,335Commercial and Industrial  Small
    
    
    13,196
    
    
    
    13,314Commercial and Industrial  Large
    
    
    8,562
    
    
    
    9,165Transportation
    
    
    709,175
    
    
    
    646,564Total
    
    
    763,909
    
    
    
    705,378Customers Billed (peak month):Residential
    
    
    90,373
    
    
    
    91,343Commercial and Industrial  Small
    
    
    4,974
    
    
    
    5,035Commercial and Industrial  Large
    
    
    78
    
    
    
    82Transportation
    
    
    42
    
    
    
    42Total
    
    
    95,467
    
    
    
    96,502Degree Days (2)
    
    
    1,470
    
    
    
    1,400NUMBER OF EMPLOYEES (END OF PERIOD)
    
    
    260
    
    
    
    261
 
 Note: (1)
    
    All references to number of shares and per share amounts have been restated to reflect the three-for-two
conversion of Mobile Gas common stock into EnergySouth, Inc. common stock effective February 2, 1998
and the three-for-two stock split effective September 2, 2004.Note: (2)
    
    The number of degrees that the daily mean temperature falls below 65 degrees F. The Companys rates
were designed assuming annual normal degree days of 1,640 beginning December 1, 1995 and an annual
normal of 1,695 for prior periods. 14




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2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999
    
    
    1998
    
    
    1997$
    111,488
    
    
    $
    95,150
    
    
    $
    81,560
    
    
    $
    103,424
    
    
    $
    69,714
    
    
    $
    63,889
    
    
    $
    70,740
    
    
    $
    69,6223,029
    
    
    
    3,259
    
    
    
    3,499
    
    
    
    2,966
    
    
    
    2,913
    
    
    
    2,827
    
    
    
    2,920
    
    
    
    2,6781,455
    
    
    
    1,206
    
    
    
    1,360
    
    
    
    1,369
    
    
    
    1,470
    
    
    
    1,344
    
    
    
    1,329
    
    
    
    1,281$
    115,972
    
    
    $
    99,615
    
    
    $
    86,419
    
    
    $
    107,759
    
    
    $
    74,097
    
    
    $
    68,060
    
    
    $
    74,989
    
    
    $
    73,581$
    12,568
    
    
    $
    11,135
    
    
    $
    10,231
    
    
    $
    6,138
    
    
    $
    8,792
    
    
    $
    8,624
    
    
    $
    8,417
    
    
    $
    8,126
    
    

    
    
    
    
    
    (349
    )


    
    
    

    
    
    
    $
    12,568
    
    
    $
    11,135
    
    
    $
    10,231
    
    
    $
    6,138
    
    
    $
    8,792
    
    
    $
    8,275
    
    
    $
    8,417
    
    
    $
    8,126$
    12,568
    
    
    $
    11,135
    
    
    $
    10,231
    
    
    $
    6,138
    
    
    $
    8,792
    
    
    $
    8,275
    
    
    $
    8,417
    
    
    $
    8,126$
    0.78
    
    
    $
    0.74
    
    
    $
    0.71
    
    
    $
    0.68
    
    
    $
    0.65
    
    
    $
    0.61
    
    
    $
    0.56
    
    
    $
    0.52$
    1.62
    
    
    $
    1.47
    
    
    $
    1.37
    
    
    $
    0.83
    
    
    $
    1.19
    
    
    $
    1.18
    
    
    $
    1.15
    
    
    $
    1.12$
    1.62
    
    
    $
    1.47
    
    
    $
    1.37
    
    
    $
    0.83
    
    
    $
    1.19
    
    
    $
    1.13
    
    
    $
    1.15
    
    
    $
    1.12$
    1.60
    
    
    $
    1.45
    
    
    $
    1.35
    
    
    $
    0.82
    
    
    $
    1.19
    
    
    $
    1.17
    
    
    $
    1.14
    
    
    $
    1.11$
    1.60
    
    
    $
    1.45
    
    
    $
    1.35
    
    
    $
    0.82
    
    
    $
    1.19
    
    
    $
    1.12
    
    
    $
    1.14
    
    
    $
    1.117,764
    
    
    
    7,599
    
    
    
    7,451
    
    
    
    7,389
    
    
    
    7,356
    
    
    
    7,326
    
    
    
    7,298
    
    
    
    7,2667,860
    
    
    
    7,686
    
    
    
    7,569
    
    
    
    7,481
    
    
    
    7,416
    
    
    
    7,400
    
    
    
    7,389
    
    
    
    7,322$
    242,304
    
    
    $
    236,888
    
    
    $
    232,213
    
    
    $
    232,014
    
    
    $
    175,902
    
    
    $
    181,518
    
    
    $
    173,862
    
    
    $
    168,667$
    84,692
    
    
    $
    92,640
    
    
    $
    98,645
    
    
    $
    90,592
    
    
    $
    55,222
    
    
    $
    58,017
    
    
    $
    58,979
    
    
    $
    63,580$
    64,283
    
    
    $
    54,470
    
    
    $
    47,839
    
    
    $
    65,394
    
    
    $
    41,750
    
    
    $
    39,575
    
    
    $
    44,725
    
    
    $
    44,33017,100
    
    
    
    13,795
    
    
    
    11,105
    
    
    
    15,499
    
    
    
    9,433
    
    
    
    8,613
    
    
    
    9,208
    
    
    
    8,9488,696
    
    
    
    8,101
    
    
    
    6,436
    
    
    
    10,060
    
    
    
    6,316
    
    
    
    5,242
    
    
    
    6,784
    
    
    
    7,6389,799
    
    
    
    10,405
    
    
    
    10,834
    
    
    
    9,594
    
    
    
    9,336
    
    
    
    8,215
    
    
    
    8,210
    
    
    
    6,88610,805
    
    
    
    7,401
    
    
    
    4,383
    
    
    
    2,134
    
    
    
    2,153
    
    
    
    1,689
    
    
    
    1,204
    
    
    
    1,176805
    
    
    
    978
    
    
    
    963
    
    
    
    743
    
    
    
    726
    
    
    
    555
    
    
    
    609
    
    
    
    644$
    111,488
    
    
    $
    95,150
    
    
    $
    81,560
    
    
    $
    103,424
    
    
    $
    69,714
    
    
    $
    63,889
    
    
    $
    70,740
    
    
    $
    69,62242,546
    
    
    
    44,617
    
    
    
    42,651
    
    
    
    51,415
    
    
    
    43,014
    
    
    
    39,866
    
    
    
    51,493
    
    
    
    48,09913,709
    
    
    
    13,664
    
    
    
    12,717
    
    
    
    14,318
    
    
    
    12,590
    
    
    
    11,781
    
    
    
    13,231
    
    
    
    12,3388,943
    
    
    
    10,463
    
    
    
    10,679
    
    
    
    12,570
    
    
    
    12,860
    
    
    
    11,683
    
    
    
    15,169
    
    
    
    16,975695,561
    
    
    
    759,936
    
    
    
    947,515
    
    
    
    790,741
    
    
    
    611,541
    
    
    
    357,183
    
    
    
    335,905
    
    
    
    284,248760,759
    
    
    
    828,680
    
    
    
    1,013,562
    
    
    
    869,044
    
    
    
    680,005
    
    
    
    420,513
    
    
    
    415,798
    
    
    
    361,66092,537
    
    
    
    93,318
    
    
    
    93,563
    
    
    
    94,948
    
    
    
    95,131
    
    
    
    95,022
    
    
    
    95,443
    
    
    
    95,4465,143
    
    
    
    5,111
    
    
    
    5,153
    
    
    
    5,197
    
    
    
    5,256
    
    
    
    5,282
    
    
    
    5,305
    
    
    
    5,26777
    
    
    
    78
    
    
    
    80
    
    
    
    89
    
    
    
    95
    
    
    
    92
    
    
    
    97
    
    
    
    10141
    
    
    
    43
    
    
    
    37
    
    
    
    43
    
    
    
    37
    
    
    
    37
    
    
    
    30
    
    
    
    3097,798
    
    
    
    98,550
    
    
    
    98,833
    
    
    
    100,277
    
    
    
    100,519
    
    
    
    100,433
    
    
    
    100,875
    
    
    
    100,8441,619
    
    
    
    1,773
    
    
    
    1,577
    
    
    
    1,978
    
    
    
    1,379
    
    
    
    1,196
    
    
    
    1,889
    
    
    
    1,487265
    
    
    
    285
    
    
    
    295
    
    
    
    300
    
    
    
    291
    
    
    
    280
    
    
    
    281
    
    
    
    276
 15




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Item 7 Managements Discussion and Analysis of Financial Condition
and Results of Operation
 The Company
  Summary
 Consolidated Net Income
  2006 vs 2005
   2005 vs 2004
   16




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Results Of Operations
 Natural Gas Distribution
      17




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18




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19




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Natural Gas Storage
     20




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Other
   Income Taxes
  21




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Effects of Inflation
  Gas Supply
 Normal Purchases and Normal Sales
 Environmental
  Liquidity and Capital Resources
  22




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23




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FiscalType of Contractual
    
    Fiscal
    
    Fiscal
    
    Fiscal
    
    Fiscal
    
    Fiscal
    
    2012 andObligations (in thousands):
    
    2007
    
    2008
    
    2009
    
    2010
    
    2011
    
    thereafterLong-Term Debt
    
    $
    5,619
    
    
    $
    5,900
    
    
    $
    6,054
    
    
    $
    5,653
    
    
    $
    5,955
    
    
    $
    47,798Interest Payments
    
    
    6,197
    
    
    
    5,732
    
    
    
    5,247
    
    
    
    4,750
    
    
    
    4,279
    
    
    
    15,247Estimated Future Minimum Payments for
Bay Gas Service Fees
    
    
    363
    
    
    
    363
    
    
    
    363
    
    
    
    363
    
    
    
    363
    
    
    
    18,541Construction Contracts for Bay Gas
3rd Cavern Development
    
    
    11,211Implementation of CIS Software
    
    
    2,150
    
    
    
    613Gas Supply Contracts
    
    
    22,572
    
    
    
    1,376
    
    
    
    1,141
    
    
    
    1,141
    
    
    
    815Total
    
    $
    48,112
    
    
    $
    13,984
    
    
    $
    12,805
    
    
    $
    11,907
    
    
    $
    11,412
    
    
    $
    81,586
 Off-Balance Sheet Arrangements
  Critical Accounting Policies
 Regulatory Accounting.
  Revenue Recognition.
 24




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##### Table of Contents



Reserves.
 Employee Benefits.
  Forward-Looking Statements
  25




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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
 Normal purchases and Normal
sales,
    
 Item 8 Financial Statements and Supplementary Data
  
 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  26




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##### Table of Contents



Item 9A Controls and Procedures
 Conclusion Regarding Disclosure Controls and Procedures
  Managements Report On Internal Control Over Financial Reporting
  i.
    
    pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of EnergySouth, Inc.;ii.
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles generally
accepted in the United States of America, and that receipts and expenditures of
EnergySouth, Inc. are being made only in accordance with the authorization of management
and directors of EnergySouth, Inc.; andiii.
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of assets that could have a material effect on the
consolidated financial statements.
   Internal
Control  Integrated Framework
  Changes in Internal Control Over Financial Reporting
  27




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Managements Report on
Internal Control Over Financial Reporting Internal ControlIntegrated Framework
    Internal ControlIntegrated Framework Internal ControlIntegrated Framework
  /s/ Deloitte & Touche LLPDeloitte & Touche LLPAtlanta, GeorgiaDecember 1, 2006
 28




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##### Table of Contents



PART III
 
 Item 10 Directors, Executive Officers, and Control Persons of the Registrant
    Code of Ethics
 www.energysouth.com
 Audit Committee Financial Expert
  
 Item 11 Executive Compensation
  
 Item 12 Security Ownership of Certain Beneficial Owners and Management
  
 Item 13 Certain Relationships and Related Transactions
  29




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##### Table of Contents



Item 14 Principal Accountant Fees and Services.
  
 PART IV
 
 Item 15 Exhibits, Financial Statement Schedules.
  
 (3)
    
    Exhibits - See Exhibit Index on pages E-1 through E-5.(b)
    
    Exhibits filed with this report are attached hereto.
 30




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##### Table of Contents



Signatures
  ENERGYSOUTH, INC.RegistrantDecember 7, 2006
    
    
    
    By:
    
    /s/ Charles P. HuffmanCharles P. Huffman, Senior VicePresident and Chief Financial Officer
  Signature
    
    Title
    
    Date/s/ John C. Hope, III
    
    Director, Chairman
    
    December 7, 2006John C. Hope, III/s/ Walter L. Hovell
    
    Director, Vice Chairman
    
    December 7, 2006Walter L. Hovell/s/ C. S. Liollio
    
    Director, President and
    
    December 7, 2006C. S. Liollio
    
    Chief Executive Officer (PrincipalExecutive Officer)/s/ John S. Davis
    
    Director, Vice Chairman
    
    December 7, 2006John S. Davis
    
    of the Company/s/ Charles P. Huffman
    
    Senior Vice President and
    
    December 7, 2006Charles P. Huffman
    
    Chief Financial Officer (PrincipalFinancial and Accounting Officer)
 31




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##### Table of Contents



Signatures (Continued)
 Signature
    
    Title
    
    Date/s/ Walter A. Bell
Walter A. Bell
    
    Director
    
    December 7, 2006/s/ Gaylord C. Lyon
Gaylord C. Lyon
    
    Director
    
    December 7, 2006/s/ Judy A. Marston
Judy A. Marston
    
    Director
    
    December 7, 2006/s/ G. Montgomery Mitchell
G. Montgomery Mitchell
    
    Director
    
    December 7, 2006/s/ Harris V. Morrissette
Harris V. Morrissette
    
    Director
    
    December 7, 2006/s/ S. Felton Mitchell
S. Felton Mitchell
    
    Director
    
    December 7, 2006/s/ Robert H. Rouse
Robert H. Rouse
    
    Director
    
    December 7, 2006/s/ Thomas B. Van Antwerp
Thomas B. Van Antwerp
    
    Director
    
    December 7, 2006
 32




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Statements of Income for the years ended
September 30, 2006, 2005 and 2004
    
    
    F-3Consolidated Balance Sheets, September 30, 2006 and 2005
    
    
    F-4Consolidated Statements of Common Stockholders Equity
for the years ended September 30, 2006, 2005 and 2004
    
    
    F-6Consolidated Statements of Cash Flows for the years ended
September 30, 2006, 2005 and 2004
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8Financial
Statement SchedulesSchedule II Valuation and Qualifying Accounts and Reserves, Years Ended September 30, 2006, 2005 and 2004
    
    
    S-1
  F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal ControlIntegrated
Framework
 /s/ Deloitte & Touche LLPDeloitte & Touche LLPAtlanta, GeorgiaDecember 1, 2006
 F-2




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##### Table of Contents



CONSOLIDATED STATEMENTS OF INCOME
 EnergySouth, Inc.
 Years Ended September 30, (in thousands, except per share data)
    
    2006
    
    
    2005
    
    
    2004Operating RevenuesGas Revenues
    
    $
    130,686
    
    
    $
    119,987
    
    
    $
    111,488Merchandise Sales
    
    
    4,046
    
    
    
    3,263
    
    
    
    3,029Other
    
    
    1,135
    
    
    
    1,356
    
    
    
    1,455Total Operating Revenues
    
    
    135,867
    
    
    
    124,606
    
    
    
    115,972Operating ExpensesCost of Gas
    
    
    57,252
    
    
    
    47,166
    
    
    
    41,404Cost of Merchandise
    
    
    3,150
    
    
    
    2,765
    
    
    
    2,582Operations and Maintenance
    
    
    26,025
    
    
    
    25,314
    
    
    
    25,219Depreciation
    
    
    10,603
    
    
    
    10,122
    
    
    
    9,712Taxes, Other Than Income Taxes
    
    
    9,353
    
    
    
    8,655
    
    
    
    8,258Total Operating Expenses
    
    
    106,383
    
    
    
    94,022
    
    
    
    87,175Operating Income
    
    
    29,484
    
    
    
    30,584
    
    
    
    28,797Other Income and (Expense)Interest Expense
    
    
    (6,812
    )
    
    
    (7,283
    )
    
    
    (7,897
    )Capitalized Interest
    
    
    1,011
    
    
    
    210
    
    
    
    20Interest Income
    
    
    168
    
    
    
    259
    
    
    
    60Minority Interest
    
    
    (1,113
    )
    
    
    (938
    )
    
    
    (805
    )Total Other Income (Expense)
    
    
    (6,746
    )
    
    
    (7,752
    )
    
    
    (8,622
    )Income Before Income Taxes
    
    
    22,738
    
    
    
    22,832
    
    
    
    20,175Income Taxes
    
    
    8,702
    
    
    
    8,991
    
    
    
    7,607Net Income
    
    $
    14,036
    
    
    $
    13,841
    
    
    $
    12,568Earnings Per ShareBasic
    
    $
    1.77
    
    
    $
    1.76
    
    
    $
    1.62Diluted
    
    $
    1.76
    
    
    $
    1.74
    
    
    $
    1.60Average Common Shares OutstandingBasic
    
    
    7,924
    
    
    
    7,854
    
    
    
    7,764Diluted
    
    
    7,978
    
    
    
    7,950
    
    
    
    7,860
  F-3




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##### Table of Contents



CONSOLIDATED BALANCE SHEETS
 EnergySouth, Inc.
 September 30, (in thousands):
    
    2006
    
    
    2005ASSETSCurrent AssetsCash and Cash Equivalents
    
    $
    1,272
    
    
    $
    8,052Restricted Cash
    
    
    1,742
    
    
    
    1,610ReceivablesGas
    
    
    5,454
    
    
    
    7,568Unbilled Revenue
    
    
    1,492
    
    
    
    1,777Merchandise
    
    
    2,013
    
    
    
    2,123Other
    
    
    1,522
    
    
    
    1,468Allowance for Doubtful Accounts
    
    
    (1,074
    )
    
    
    (1,029
    )Materials, Supplies, and Merchandise (At Average Cost)
    
    
    1,523
    
    
    
    1,319Gas Stored Underground For Current Use (At Average Cost)
    
    
    6,612
    
    
    
    5,666Regulatory Assets
    
    
    2,083
    
    
    
    323Deferred Income Taxes
    
    
    433
    
    
    
    3,784Prepaid Taxes
    
    
    2,609Prepayments
    
    
    2,265
    
    
    
    1,814Total Current Assets
    
    
    27,946
    
    
    
    34,475Property, Plant, and Equipment
    
    
    295,503
    
    
    
    283,605Less: Accumulated Depreciation and Amortization
    
    
    85,848
    
    
    
    77,982Property, Plant, and Equipment  Net
    
    
    209,655
    
    
    
    205,623Construction Work in Progress
    
    
    18,915
    
    
    
    6,265Total Property, Plant, and Equipment
    
    
    228,570
    
    
    
    211,888Other AssetsPrepaid Pension Cost
    
    
    819
    
    
    
    939Prepaid Postretirement Benefit
    
    
    578Deferred Charges
    
    
    286
    
    
    
    390Prepayments
    
    
    1,233
    
    
    
    1,249Regulatory Assets
    
    
    193
    
    
    
    333Merchandise Receivables Due After One Year
    
    
    3,055
    
    
    
    3,185Total Other Assets
    
    
    6,164
    
    
    
    6,096Total
    
    $
    262,680
    
    
    $
    252,459
 F-4




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##### Table of Contents



September 30, (in thousands, except share data):
    
    2006
    
    
    2005LIABILITIES AND CAPITALIZATIONCurrent LiabilitiesCurrent Maturities of Long-Term Debt
    
    $
    5,619
    
    
    $
    5,213Notes Payable
    
    
    5,300Accounts Payable
    
    
    7,355
    
    
    
    6,235Dividends Declared
    
    
    1,828
    
    
    
    1,684Customer Deposits
    
    
    1,170
    
    
    
    1,294Taxes Accrued
    
    
    2,987
    
    
    
    6,037Interest Accrued
    
    
    900
    
    
    
    970Regulatory Liabilities
    
    
    5,980
    
    
    
    6,704Other
    
    
    1,149
    
    
    
    1,150Total Current Liabilities
    
    
    32,288
    
    
    
    29,287Other LiabilitiesAccrued Postretirement Benefit Cost
    
    
    
    
    
    
    762Deferred Income Taxes
    
    
    25,235
    
    
    
    22,626Deferred Investment Tax Credits
    
    
    216
    
    
    
    236Regulatory Liabilities
    
    
    9,496
    
    
    
    12,576Asset Retirement Obligations
    
    
    5,818Other
    
    
    1,382
    
    
    
    1,597Total Other Liabilities
    
    
    42,147
    
    
    
    37,79774,435
    
    
    
    67,084CapitalizationStockholders EquityCommon Stock, $.01 Par Value
(Authorized 20,000,000 Shares; Outstanding
2006 - 7,947,000 Shares; 2005 - 7,898,000 Shares)
    
    
    79
    
    
    
    79Capital in Excess of Par Value
    
    
    29,092
    
    
    
    27,457Retained Earnings
    
    
    81,919
    
    
    
    74,952Grantor Trust, at cost
    
    
    (1,733
    )
    
    
    (1,539
    )Deferred Compensation Liability
    
    
    1,733
    
    
    
    1,539Total Stockholders Equity
    
    
    111,090
    
    
    
    102,488Minority Interest
    
    
    5,794
    
    
    
    5,308Long-Term Debt
    
    
    71,361
    
    
    
    77,579Total Capitalization
    
    
    188,245
    
    
    
    185,375Total
    
    $
    262,680
    
    
    $
    252,459
  F-5




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##### Table of Contents



CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS EQUITY
 EnergySouth, Inc.
 Common Stock
    
    Capital inNumber of
    
    Par
    
    Excess of
    
    Retained
    
    Grantor
    
    Deferred(In thousands, except per share data)
    
    Shares
    
    Value
    
    Par Value
    
    Earnings
    
    Trust
    
    Compensation
    
    TotalBalance at September 30, 2003
    
    
    7,699
    
    
    $
    77
    
    
    $
    23,463
    
    
    $
    61,114
    
    
    
    
    
    
    
    
    
    
    $
    84,654Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,568
    
    
    
    
    
    
    
    
    
    
    
    12,568Dividend Reinvestment Plan
    
    
    16
    
    
    
    
    
    
    
    370
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    370Stock Options Exercised Including Income
Tax Benefits
    
    
    54
    
    
    
    1
    
    
    
    940
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    941Shares issued to Grantor Trust to fund
Deferred Compensaton Liability
    
    
    58
    
    
    
    
    
    
    
    1,389
    
    
    
    
    
    
    $
    (1,389
    )
    
    $
    1,389
    
    
    
    1,389Distributions from Grantor Trust
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    (34
    )Cash Dividends  $0.78 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,057
    )
    
    
    
    
    
    
    
    
    
    
    (6,057
    )Balance at September 30, 2004
    
    
    7,827
    
    
    
    78
    
    
    
    26,162
    
    
    
    67,625
    
    
    
    (1,355
    )
    
    
    1,355
    
    
    
    93,865Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,841
    
    
    
    
    
    
    
    
    
    
    
    13,841Dividend Reinvestment Plan
    
    
    14
    
    
    
    
    
    
    
    396
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    396Stock Options Exercised Including Income
Tax Benefits
    
    
    49
    
    
    
    1
    
    
    
    680
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    681Shares issued to Grantor Trust to fund
Deferred Compensation Liability
    
    
    8
    
    
    
    
    
    
    
    219
    
    
    
    
    
    
    
    (219
    )
    
    
    219
    
    
    
    219Distributions from Grantor Trust
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35
    
    
    
    (35
    )Cash Dividends  $0.83 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,514
    )
    
    
    
    
    
    
    
    
    
    
    (6,514
    )Balance at September 30, 2005
    
    
    7,898
    
    
    
    79
    
    
    
    27,457
    
    
    
    74,952
    
    
    
    (1,539
    )
    
    
    1,539
    
    
    
    102,488Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,036
    
    
    
    
    
    
    
    
    
    
    
    14,036Dividend Reinvestment Plan
    
    
    12
    
    
    
    
    
    
    
    348
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    348Stock Options Exercised Including Income
Tax Benefits
    
    
    29
    
    
    
    
    
    
    
    660
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    660Stock Based Compensation Expense
    
    
    
    
    
    
    
    
    
    
    407
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    407Shares issued to Grantor Trust to fund
Deferred Compensation Liability
    
    
    8
    
    
    
    
    
    
    
    220
    
    
    
    
    
    
    
    (220
    )
    
    
    220
    
    
    
    220Distributions from Grantor Trust
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    (26
    )Cash Dividends  $0.89 per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,069
    )
    
    
    
    
    
    
    
    
    
    
    (7,069
    )Balance at September 30, 2006
    
    
    7,947
    
    
    $
    79
    
    
    $
    29,092
    
    
    $
    81,919
    
    
    $
    (1,733
    )
    
    $
    1,733
    
    
    $
    111,090
  F-6




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##### Table of Contents



CONSOLIDATED STATEMENTS OF CASH FLOWS
 EnergySouth, Inc.
 Years Ended September 30, (in thousands)
    
    2006
    
    
    2005
    
    
    2004Cash Flows from Operating ActivitiesNet Income
    
    $
    14,036
    
    
    $
    13,841
    
    
    $
    12,568Depreciation and Amortization
    
    
    10,922
    
    
    
    10,454
    
    
    
    10,079Provision for Losses on Receivables
    
    
    991
    
    
    
    869
    
    
    
    1,129Provision for Losses on Inventory
    
    
    (53
    )
    
    
    20
    
    
    
    72Provision for Deferred Income Taxes
    
    
    5,941
    
    
    
    (2,104
    )
    
    
    2,931Minority Interest
    
    
    1,113
    
    
    
    938
    
    
    
    805Stock-Based Employee Compensation Expense
    
    
    407Changes in Operating Assets and Liabilities:Receivables
    
    
    1,821
    
    
    
    (2,273
    )
    
    
    (754
    )Inventory
    
    
    (1,084
    )
    
    
    (1,203
    )
    
    
    (651
    )Payables
    
    
    741
    
    
    
    478
    
    
    
    (1,385
    )Taxes Payable
    
    
    (5,659
    )
    
    
    3,724
    
    
    
    1,061Deferred Purchased Gas Adjustment
    
    
    (3,295
    )
    
    
    4,648
    
    
    
    (736
    )Other
    
    
    (951
    )
    
    
    1,395
    
    
    
    1,826Net Cash Provided by Operating Activities
    
    
    24,930
    
    
    
    30,787
    
    
    
    26,945Cash Flows from Investing ActivitiesCapital Expenditures
    
    
    (24,378
    )
    
    
    (16,428
    )
    
    
    (8,491
    )Changes in Restricted Cash
    
    
    (132
    )
    
    
    (208
    )
    
    
    (93
    )Net Cash Used In Investing Activities
    
    
    (24,510
    )
    
    
    (16,636
    )
    
    
    (8,584
    )Cash Flows from Financing ActivitiesRepayment of Long-Term Debt
    
    
    (5,812
    )
    
    
    (8,148
    )
    
    
    (7,706
    )Changes in Short-term Borrowings
    
    
    5,300
    
    
    
    
    
    
    
    (250
    )Payment of Dividends
    
    
    (7,069
    )
    
    
    (6,514
    )
    
    
    (6,057
    )Dividend Reinvestment
    
    
    348
    
    
    
    396
    
    
    
    370Exercise of Stock Options
    
    
    530
    
    
    
    581
    
    
    
    748Excess Tax Benefits from Share Based Payments
    
    
    130Partnership Distributions
    
    
    (627
    )
    
    
    (401
    )
    
    
    (177
    )Net Cash Used In Financing Activities
    
    
    (7,200
    )
    
    
    (14,086
    )
    
    
    (13,072
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (6,780
    )
    
    
    65
    
    
    
    5,289Cash and Cash Equivalents at Beginning of Year
    
    
    8,052
    
    
    
    7,987
    
    
    
    2,698Cash and Cash Equivalents at End of Year
    
    $
    1,272
    
    
    $
    8,052
    
    
    $
    7,987Cash Paid During the Year for:Interest
    
    $
    6,778
    
    
    $
    7,351
    
    
    $
    7,932Income Taxes
    
    $
    8,596
    
    
    $
    7,300
    
    
    $
    3,549Noncash Transactions from Investing and Financing Activities:Accruals for Capital Expenditures
    
    $
    1,649
    
    
    $
    1,198
    
    
    $
    748
  F-7




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##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of Consolidation
  Revenues and Gas Costs
    Property, Plant, and Equipment
    F-8




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##### Table of Contents



Cash Equivalents
  Income Taxes
  Earnings Per Share
  EnergySouth, Inc.In Thousands
    
    2006
    
    
    2005
    
    
    2004Weighted Average Common Shares
    
    
    7,924
    
    
    
    7,854
    
    
    
    7,764Effect of Dilutive Securities:Options to Purchase Common Stock
    
    
    54
    
    
    
    96
    
    
    
    96Diluted Average Common Shares
    
    
    7,978
    
    
    
    7,950
    
    
    
    7,860
  F-9




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##### Table of Contents



Use of Estimates
  Long-lived Assets
  Regulatory Assets and Liabilities
   2006
    
    
    2005Current
    
    
    Noncurrent
    
    
    Current
    
    
    NoncurrentAssetsDeferred Purchased Gas Adjustment
    
    $
    1,916ESR Fund
    
    
    167
    
    
    $
    167
    
    
    $
    167
    
    
    $
    333Bad Debt Reserve
    
    
    
    
    
    
    
    
    
    
    133Asset Retirement Cost
    
    
    
    
    
    
    26Other
    
    
    
    
    
    
    
    
    
    
    23Regulatory Assets
    
    $
    2,083
    
    
    $
    193
    
    
    $
    323
    
    
    $
    333LiabilitiesESR Fund
    
    $
    1,000
    
    
    
    
    
    
    $
    975Contract Buyout
    
    
    1,866Deferred Investment Tax Credit
    
    
    15
    
    
    $
    106
    
    
    
    15
    
    
    $
    121RSE Adjustment
    
    
    
    
    
    
    
    
    
    
    433Gross Receipt Tax Collections
    
    
    2,903
    
    
    
    
    
    
    
    3,751Deferred Purchased Gas Adjustment
    
    
    
    
    
    
    
    
    
    
    1,379Accrued Dismantling Costs
    
    
    
    
    
    
    9,390
    
    
    
    
    
    
    
    12,455Other
    
    
    196
    
    
    
    
    
    
    
    151Regulatory Liabilities
    
    $
    5,980
    
    
    $
    9,496
    
    
    $
    6,704
    
    
    $
    12,576
  F-10




---



##### Table of Contents



Stock-Based Compensation
  EnergySouth, Inc.(In thousands, except per share data)
    
    2005
    
    
    2004Net Income, as reported
    
    $
    13,841
    
    
    $
    12,568Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related
tax effects
    
    
    202
    
    
    
    185Pro forma net income
    
    $
    13,639
    
    
    $
    12,383Earnings per shareBasic  as reported
    
    $
    1.76
    
    
    $
    1.62Basic  pro forma
    
    $
    1.74
    
    
    $
    1.59Diluted  as reported
    
    $
    1.74
    
    
    $
    1.60Diluted  pro forma
    
    $
    1.72
    
    
    $
    1.58
  New Accounting Standards
   F-11




---



##### Table of Contents



Reclassifications
  2. RATES AND REGULATIONS
   F-12




---



##### Table of Contents



force majeure
   F-13




---



##### Table of Contents



3. PROPERTY, PLANT, AND EQUIPMENT
  2006
    
    
    2005Distribution Plant
    
    $
    164,264
    
    
    $
    153,435General Plant
    
    
    25,048
    
    
    
    23,855Storage Plant
    
    
    73,195
    
    
    
    73,218Transmission Plant
    
    
    23,869
    
    
    
    23,829Acquisition Adjustment
    
    
    9,127
    
    
    
    9,268Total Property, Plant, and Equipment
    
    $
    295,503
    
    
    $
    283,605
 4.
ASSET RETIREMENT OBLIGATIONS
   F-14




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##### Table of Contents



5. NOTES PAYABLE AND LONG-TERM DEBT
  2006
    
    
    2005Mobile Gas Service CorporationFirst Mortgage Bonds8.75% Series, due July 1, 2022
    
    $
    10,110
    
    
    $
    10,7407.48% Series, due July 1, 2022
    
    
    9,000
    
    
    
    10,2007.27% Series, due November 1, 2006
    
    
    
    
    
    
    4506.90% Series, due August 20, 2017
    
    
    9,846
    
    
    
    10,4309% Note, due May 13, 2013
    
    
    2,250
    
    
    
    2,475Bay Gas Storage Company, Ltd.8.45% Guaranteed Senior Secured Notes,
due December 1, 2017
    
    
    45,774
    
    
    
    48,497Total
    
    
    76,980
    
    
    
    82,792Less Amounts Due Within One Year
    
    
    5,619
    
    
    
    5,213Long-Term Debt
    
    $
    71,361
    
    
    $
    77,579
   F-15




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##### Table of Contents



6. INCOME TAXES
  2006
    
    
    2005
    
    
    2004CurrentFederal
    
    $
    2,385
    
    
    $
    9,983
    
    
    $
    4,294State
    
    
    307
    
    
    
    1,162
    
    
    
    473Total Current Taxes
    
    
    2,692
    
    
    
    11,145
    
    
    
    4,767DeferredFederal
    
    
    5,342
    
    
    
    (1,985
    )
    
    
    2,425State
    
    
    694
    
    
    
    (143
    )
    
    
    441Total Deferred Taxes
    
    
    6,036
    
    
    
    (2,128
    )
    
    
    2,866Deferred investment tax credit
amortization
    
    
    (26
    )
    
    
    (26
    )
    
    
    (26
    )Total Income Tax Expense
    
    $
    8,702
    
    
    $
    8,991
    
    
    $
    7,607
  2006
    
    
    2005
    
    
    2004Income Tax Expense at Federal
Statutory Rate
    
    $
    7,959
    
    
    $
    7,991
    
    
    $
    7,061State Income Taxes
    
    
    671
    
    
    
    729
    
    
    
    644Other  Net
    
    
    72
    
    
    
    271
    
    
    
    (98
    )Total Income Tax Expense
    
    $
    8,702
    
    
    $
    8,991
    
    
    $
    7,607Effective Tax Rate
    
    
    38.3
    %
    
    
    39.4
    %
    
    
    37.7
    %
 F-16




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##### Table of Contents



2006
    
    
    2005Deferred Tax LiabilitiesDifferences Between Book and Tax
Basis of Property
    
    $
    27,941
    
    
    $
    24,394Post Retirement Benefits
    
    
    316Prepaid Insurance
    
    
    259
    
    
    
    243Purchased Gas Adjustment
    
    
    725Pension
    
    
    312
    
    
    
    353Other
    
    
    72
    
    
    
    73Total Deferred Tax Liabilities
    
    
    29,625
    
    
    
    25,063Deferred Tax AssetsGross Receipts Taxes
    
    
    889
    
    
    
    1,235Regulatory Liabilities
    
    
    1,516
    
    
    
    2,006Purchased Gas Adjustment
    
    
    
    
    
    
    518Post Retirement Benefits
    
    
    
    
    
    
    174Post Employment Benefits
    
    
    
    
    
    
    152Bad Debts
    
    
    538
    
    
    
    528Accrued Vacation
    
    
    233
    
    
    
    234Uniform Capitalization
    
    
    222
    
    
    
    254Deferred Payments
    
    
    1,086
    
    
    
    917Stock Option Expense
    
    
    121Other
    
    
    218
    
    
    
    203Total Deferred Tax Assets
    
    
    4,823
    
    
    
    6,221Net Deferred Tax Liability
    
    $
    24,802
    
    
    $
    18,842
 7. STOCK BASED COMPENSATION AND CAPITAL STOCK
    F-17




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##### Table of Contents



2006
    
    2005
    
    2004Risk Free Interest Rate
    
    
    4.48
    %
    
    
    3.90
    %
    
    
    4.20
    %Expected Life
    
    6 years
    
    

    6 years
    
    
    6.16 yearsStock Price Volatility
    
    
    17.43
    %
    
    
    20.96
    %
    
    
    25.60
    %Dividend Yield
    
    
    2.80
    %
    
    
    3.13
    %
    
    
    3.10
    %
  Weighted
    
    
    Weighted
    
    
    AggregateAverage
    
    
    Average
    
    
    IntrinsicExercise
    
    
    Remaining
    
    
    ValueShares
    
    
    Price
    
    
    Life
    
    
    (in thousands)Outstanding at September 30, 2003
    
    
    262,275
    
    
    $
    14.608
    
    
    6.93 yearsGranted
    
    
    76,950
    
    
    
    24.170Exercised
    
    
    (53,613
    )
    
    
    13.946Forfeited
    
    
    (9,712
    )
    
    
    17.315Outstanding at September 30, 2004
    
    
    275,900
    
    
    
    17.308
    
    
    6.95 years
    
    $
    2,743Granted
    
    
    75,750
    
    
    
    28.365Exercised
    
    
    (49,286
    )
    
    
    11.789Forfeited
    
    
    (2,775
    )
    
    
    20.872Outstanding at September 30, 2005
    
    
    299,589
    
    
    
    20.979
    
    
    7.44 years
    
    $
    1,981Granted
    
    
    73,950
    
    
    
    30.445Exercised
    
    
    (29,052
    )
    
    
    18.268Forfeited
    
    
    (12,150
    )
    
    
    25.727Outstanding at September 30, 2006*
    
    
    332,337
    
    
    $
    23.148
    
    
    6.82 years
    
    $
    3,523Exercisable at September 30, 2004
    
    
    117,725
    
    
    $
    12.788
    
    
    4.57 years
    
    $
    1,703Exercisable at September 30, 2005
    
    
    122,627
    
    
    $
    16.161
    
    
    5.88 years
    
    $
    1,380Exercisable at September 30, 2006
    
    
    158,851
    
    
    $
    18.434
    
    
    5.97 years
    
    $
    2,433Remaining reserved for grant
at September 30, 2006
    
    
    248,000
 *
   F-18




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##### Table of Contents



8. RETIREMENT PLANS AND OTHER BENEFITS
     F-19




---



##### Table of Contents



Pension
    
    
    PostretirementBenefits
    
    
    Benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Change in Benefit ObligationBenefit Obligation at Beginning of the Period
    
    $
    33,004
    
    
    $
    30,559
    
    
    $
    6,191
    
    
    $
    5,396Service Cost
    
    
    875
    
    
    
    861
    
    
    
    154
    
    
    
    180Interest Cost
    
    
    1,838
    
    
    
    1,781
    
    
    
    282
    
    
    
    322Participant Contributions
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    53Plan Amendments
    
    
    
    
    
    
    
    
    
    
    (393
    )Settlement Gains
    
    
    
    
    
    
    
    
    
    
    (1,872
    )Benefits Paid
    
    
    (1,537
    )
    
    
    (1,459
    )
    
    
    (226
    )
    
    
    (209
    )Actuarial (Gain) / Loss
    
    
    (1,444
    )
    
    
    1,262
    
    
    
    (719
    )
    
    
    449Benefit Obligation at the End of the Period
    
    $
    32,736
    
    
    $
    33,004
    
    
    $
    3,479
    
    
    $
    6,191Change in Plan AssetsFair Value of Assets at Beginning of the Period
    
    $
    38,427
    
    
    $
    35,660
    
    
    $
    3,834
    
    
    $
    3,652Benefits Paid
    
    
    (1,537
    )
    
    
    (1,459
    )
    
    
    (226
    )
    
    
    (209
    )Employer Contributions
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    3Participant Contributions
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    52Actual Return on Plan Assets
    
    
    2,927
    
    
    
    4,226
    
    
    
    179
    
    
    
    336Fair Value of Plan Assets at the End of the Period
    
    $
    39,817
    
    
    $
    38,427
    
    
    $
    3,852
    
    
    $
    3,834Reconciliation of Funded StatusPlan Assets in Excess of (Less Than) Benefit Obligation
    
    $
    7,081
    
    
    $
    5,423
    
    
    $
    373
    
    
    $
    (2,357
    )Unrecognized Net (Gain) Loss
    
    
    (6,915
    )
    
    
    (5,231
    )
    
    
    828
    
    
    
    1,901Prior Service Cost Not Yet Recognized
    
    
    653
    
    
    
    747
    
    
    
    (623
    )
    
    
    (306
    )Accrued Benefit Asset (Liability)
    
    $
    819
    
    
    $
    939
    
    
    $
    578
    
    
    $
    (762
    )Accumulated Benefit Obligation
    
    $
    29,664
    
    
    $
    29,593
  Pension BenefitsComponents of Net Periodic Benefit Cost
    
    2006
    
    
    2005
    
    
    2004Service Cost
    
    $
    875
    
    
    $
    861
    
    
    $
    844Interest Cost
    
    
    1,838
    
    
    
    1,780
    
    
    
    1,583Amortization of Transition Asset
    
    
    
    
    
    
    
    
    
    
    (128
    )Amortization of Prior Service Cost
    
    
    
    
    
    
    94
    
    
    
    94Amortization of Unrecognized Gain
    
    
    
    
    
    
    
    
    
    
    (87
    )Recognized Actuarial (Gain) / Loss
    
    
    93Expected return on Plan Assets
    
    
    (2,687
    )
    
    
    (2,572
    )
    
    
    (2,551
    )Net Periodic Benefit Cost (Income)
    
    $
    119
    
    
    $
    163
    
    
    $
    (245
    )
 Postretirement BenefitsComponents of Net Periodic Benefit Cost
    
    2006
    
    
    2005
    
    
    2004Service Cost
    
    $
    154
    
    
    $
    180
    
    
    $
    115Interest Cost
    
    
    282
    
    
    
    322
    
    
    
    268Amortization of Prior Service Cost
    
    
    (76
    )
    
    
    (44
    )
    
    
    (44
    )Recognized Actuarial (Gain) / Loss
    
    
    59
    
    
    
    65
    
    
    
    30Expected return on Plan Assets
    
    
    (283
    )
    
    
    (272
    )
    
    
    (271
    )Net Periodic Benefit Cost
    
    $
    136
    
    
    $
    251
    
    
    $
    98
  F-20




---



##### Table of Contents



Pension
    
    
    PostretirementBenefits
    
    
    Benefits2006
    
    
    2005
    
    
    2006
    
    
    2005Weighted-Average Assumptions to Determine Benefits ObligationsDiscount Rate
    
    
    6.00
    %
    
    
    5.75
    %
    
    
    5.75
    %
    
    
    5.50
    %Rate of Compensation Increase
    
    
    3.75
    %
    
    
    3.75
    %Measurement Date
    
    
    09/30/2006
    
    
    
    09/30/2005
    
    
    
    09/30/2006
    
    
    
    09/30/2005Weighted-Average Assumptions to Determine Net Periodic Benefit CostDiscount Rate
    
    
    5.75
    %
    
    
    6.00
    %
    
    
    5.50%/6.00
    %
    
    
    6.00
    %Expected Long-Term Rate of Return on Plan Assets
    
    
    8.25
    %
    
    
    8.25
    %
    
    
    7.75
    %
    
    
    7.75
    %Rate of Compensation Increase
    
    
    3.75
    %
    
    
    3.75
    %Assumed Health Care Cost Trend Rates at September 30Health Care Cost Trend Rate Assumed for Next Year
    
    
    
    
    
    
    
    
    
    
    9.00
    %
    
    
    10.00
    %Rate to Which the Cost Trend Rate is Assumed to Decline
(the ultimate trend rate)
    
    
    
    
    
    
    
    
    
    
    5.00
    %
    
    
    5.00
    %Year that the Rate Reaches the Ultimate Trend Rate
    
    
    
    
    
    
    
    
    
    
    2010
    
    
    
    2010
  Postretirement BenefitsOne Percentage-Point Increase
    
    2006
    
    2005Effect on Total of Service and Interest Components
    
    $
    52
    
    
    $
    55Effect on Postretirement Benefit Obligations
    
    
    414
    
    
    
    415
 Postretirement BenefitsOne Percentage-Point Decrease
    
    2006
    
    2005Effect on Total of Service and Interest Components
    
    $
    (44
    )
    
    $
    (45
    )Effect on Postretirement Benefit Obligations
    
    
    (353
    )
    
    
    (351
    )
  F-21




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##### Table of Contents



Pension BenefitsCurrent
    
    
    Percentage ofTarget
    
    
    Plan AssetsAllocation
    
    
    September 30,Asset Category
    
    Range
    
    
    2006
    
    
    2005Equity
    
    
    60%-65
    %
    
    
    65
    %
    
    
    65
    %Fixed income
    
    
    35%-40
    %
    
    
    34
    %
    
    
    34
    %Cash and Cash Equivalents
    
    0% to 2%
    
    
    1
    %
    
    
    1
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 Postretirement BenefitsCurrent
    
    
    Percentage ofTarget
    
    
    Plan AssetsAllocation
    
    
    September 30,Asset Category
    
    Range
    
    
    2006
    
    
    2005Equity
    
    
    57%-67
    %
    
    
    66
    %
    
    
    66
    %Fixed income
    
    
    33%-43
    %
    
    
    31
    %
    
    
    31
    %Cash and Cash Equivalents
    
    as needed
    
    
    3
    %
    
    
    3
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
   F-22




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##### Table of Contents



Post-Pension
    
    
    RetirementExpected Benefit Payments
    
    Benefits
    
    
    Benefits
    
    
    TotalFiscal Year Ending9/30/2007
    
    $
    1,524
    
    
    $
    235
    
    
    $
    1,7599/30/2008
    
    
    1,533
    
    
    
    234
    
    
    
    1,7679/30/2009
    
    
    1,605
    
    
    
    248
    
    
    
    1,8539/30/2010
    
    
    1,656
    
    
    
    251
    
    
    
    1,9079/30/2011
    
    
    1,713
    
    
    
    283
    
    
    
    1,996Next Five Years
    
    
    9,688
    
    
    
    1,220
    
    
    
    10,908
    9. COMMITMENTS AND CONTINGENCIES
 Normal Purchases and Normal Sales,
   F-23




---



##### Table of Contents



Mobile Gas
    
    
    Bay GasGas
    
    
    
    
    
    
    MinimumFiscal
    
    Supply
    
    
    Implemention of
    
    
    Payments for
    
    
    Construction
    
    
    TotalYear
    
    Contracts
    
    
    CIS Software
    
    
    Service Fees
    
    
    Contracts
    
    
    Commitments2007
    
    $
    22,572
    
    
    $
    2,150
    
    
    $
    363
    
    
    $
    11,211
    
    
    $
    36,2962008
    
    
    1,376
    
    
    
    613
    
    
    
    363
    
    
    
    
    
    
    
    2,3522009
    
    
    1,141
    
    
    
    
    
    
    
    363
    
    
    
    
    
    
    
    1,5042010
    
    
    1,141
    
    
    
    
    
    
    
    363
    
    
    
    
    
    
    
    1,5042011
    
    
    815
    
    
    
    
    
    
    
    363
    
    
    
    
    
    
    
    1,1782012 - and thereafter
    
    
    
    
    
    
    
    
    
    
    18,541
    
    
    
    
    
    
    
    18,541Total
    
    $
    27,045
    
    
    $
    2,763
    
    
    $
    20,356
    
    
    $
    11,211
    
    
    $
    61,375
   F-24




---



##### Table of Contents



10. FAIR VALUE OF FINANCIAL INSTRUMENTS
    2006
    
    2005Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair ValueLong-term debt
    
    $
    76,980
    
    
    $
    87,818
    
    
    $
    82,792
    
    
    $
    97,127
 11. FINANCIAL INFORMATION BY BUSINESS SEGMENT
    F-25




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##### Table of Contents



As of and for the year ended
    
    Natural Gas
    
    Natural GasSeptember 30, 2006 (in thousands):
    
    Distribution
    
    Storage
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    114,054
    
    
    $
    20,848
    
    
    $
    5,181
    
    
    $
    (4,216
    )
    
    $
    135,867Cost of Gas
    
    
    61,468
    
    
    
    
    
    
    
    
    
    
    
    (4,216
    )
    
    
    57,252Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    3,150
    
    
    
    
    
    
    
    3,150Operations and Maintenance Expense
    
    
    21,345
    
    
    
    3,221
    
    
    
    1,459
    
    
    
    
    
    
    
    26,025Depreciation Expense
    
    
    8,005
    
    
    
    2,598
    
    
    
    
    
    
    
    
    
    
    
    10,603Taxes, Other Than Income Taxes
    
    
    8,362
    
    
    
    910
    
    
    
    81
    
    
    
    
    
    
    
    9,353Operating Income
    
    
    14,874
    
    
    
    14,119
    
    
    
    491
    
    
    
    
    
    
    
    29,484Interest Income (Expense)  Net
    
    
    (3,135
    )
    
    
    (3,914
    )
    
    
    405
    
    
    
    
    
    
    
    (6,644
    )Capitalized Interest
    
    
    61
    
    
    
    950
    
    
    
    
    
    
    
    
    
    
    
    1,011Less: Minority Interest
    
    
    (98
    )
    
    
    (1,015
    )
    
    
    
    
    
    
    
    
    
    
    (1,113
    )Income Before Income Taxes
    
    $
    11,702
    
    
    $
    10,140
    
    
    $
    896
    
    
    
    
    
    
    $
    22,738Capital Expenditures
    
    $
    12,954
    
    
    $
    11,876
    
    
    
    
    
    
    
    
    
    
    $
    24,830Property, Plant, and Equipment, Net
    
    $
    134,368
    
    
    $
    94,202
    
    
    
    
    
    
    
    
    
    
    $
    228,570Total Assets
    
    $
    155,303
    
    
    $
    100,347
    
    
    $
    7,030
    
    
    
    
    
    
    $
    262,680
 As of and for the year ended
    
    Natural Gas
    
    Natural GasSeptember 30, 2005 (in thousands):
    
    Distribution
    
    Storage
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    104,831
    
    
    $
    19,357
    
    
    $
    4,619
    
    
    $
    (4,201
    )
    
    $
    124,606Cost of Gas
    
    
    51,367
    
    
    
    
    
    
    
    
    
    
    
    (4,201
    )
    
    
    47,166Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    2,765
    
    
    
    
    
    
    
    2,765Operations and Maintenance Expense
    
    
    20,614
    
    
    
    3,280
    
    
    
    1,420
    
    
    
    
    
    
    
    25,314Depreciation Expense
    
    
    7,651
    
    
    
    2,471
    
    
    
    
    
    
    
    
    
    
    
    10,122Taxes, Other Than Income Taxes
    
    
    7,703
    
    
    
    883
    
    
    
    69
    
    
    
    
    
    
    
    8,655Operating Income
    
    
    17,496
    
    
    
    12,723
    
    
    
    365
    
    
    
    
    
    
    
    30,584Interest Income (Expense)  Net
    
    
    (2,897
    )
    
    
    (4,099
    )
    
    
    (28
    )
    
    
    
    
    
    
    (7,024
    )Capitalized Interest
    
    
    36
    
    
    
    174
    
    
    
    
    
    
    
    
    
    
    
    210Less: Minority Interest
    
    
    (131
    )
    
    
    (807
    )
    
    
    
    
    
    
    
    
    
    
    (938
    )Income Before Income Taxes
    
    $
    14,504
    
    
    $
    7,991
    
    
    $
    337
    
    
    
    
    
    
    $
    22,832Capital Expenditures
    
    $
    9,571
    
    
    $
    7,307
    
    
    
    
    
    
    
    
    
    
    $
    16,878Property, Plant, and Equipment, Net
    
    $
    127,046
    
    
    $
    84,842
    
    
    
    
    
    
    
    
    
    
    $
    211,888Total Assets
    
    $
    149,417
    
    
    $
    95,529
    
    
    $
    7,513
    
    
    
    
    
    
    $
    252,459
 F-26




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##### Table of Contents



As of and for the year ended
    
    Natural Gas
    
    Natural GasSeptember 30, 2004 (in thousands):
    
    Distribution
    
    Storage
    
    Other
    
    Eliminations
    
    ConsolidatedOperating Revenues
    
    $
    97,910
    
    
    $
    17,767
    
    
    $
    4,484
    
    
    $
    (4,189
    )
    
    $
    115,972Cost of Gas
    
    
    45,593
    
    
    
    
    
    
    
    
    
    
    
    (4,189
    )
    
    
    41,404Cost of Merchandise
    
    
    
    
    
    
    
    
    
    
    2,582
    
    
    
    
    
    
    
    2,582Operations and Maintenance Expense
    
    
    20,694
    
    
    
    2,983
    
    
    
    1,542
    
    
    
    
    
    
    
    25,219Depreciation Expense
    
    
    7,309
    
    
    
    2,403
    
    
    
    
    
    
    
    
    
    
    
    9,712Taxes, Other Than Income Taxes
    
    
    7,337
    
    
    
    859
    
    
    
    62
    
    
    
    
    
    
    
    8,258Operating Income
    
    
    16,977
    
    
    
    11,522
    
    
    
    298
    
    
    
    
    
    
    
    28,797Interest Income (Expense)  Net
    
    
    (3,261
    )
    
    
    (4,434
    )
    
    
    (142
    )
    
    
    
    
    
    
    (7,837
    )Capitalized Interest
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20Less: Minority Interest
    
    
    (152
    )
    
    
    (653
    )
    
    
    
    
    
    
    
    
    
    
    (805
    )Income Before Income Taxes
    
    $
    13,584
    
    
    $
    6,435
    
    
    $
    156
    
    
    
    
    
    
    $
    20,175Capital Expenditures
    
    $
    7,663
    
    
    $
    907
    
    
    
    
    
    
    
    
    
    
    $
    8,570Property, Plant, and Equipment, Net
    
    $
    124,618
    
    
    $
    79,979
    
    
    
    
    
    
    
    
    
    
    $
    204,597Total Assets
    
    $
    141,331
    
    
    $
    91,599
    
    
    $
    9,374
    
    
    
    
    
    
    $
    242,304
  Gas Revenue (in thousands):
    
    Natural Gas
    
    Natural Gas
    
    Intercompany
    
    Natural GasSeptember 30, 2006
    
    Distribution
    
    Storage
    
    Eliminations
    
    TotalSales:Residential
    
    $
    70,560
    
    
    
    
    
    
    
    
    
    
    $
    70,560Commercial and Industrial  Small
    
    
    23,129
    
    
    
    
    
    
    
    
    
    
    
    23,129Commercial and Industrial  Large
    
    
    12,495
    
    
    
    
    
    
    
    
    
    
    
    12,495Transportation
    
    
    7,092
    
    
    $
    2,652
    
    
    
    
    
    
    
    9,744Storage
    
    
    
    
    
    
    18,196
    
    
    $
    (4,216
    )
    
    
    13,980Other Gas
    
    
    778
    
    
    
    
    
    
    
    
    
    
    
    778Operating Revenue per Business Segment
    
    
    114,054
    
    
    
    20,848Intercompany eliminations
    
    
    
    
    
    
    (4,216
    )Total Gas Revenue -
Item 6.  Selected Financial Data
    
    $
    114,054
    
    
    $
    16,632
    
    
    
    
    
    
    $
    130,686
 Gas Revenue (in thousands):
    
    Natural Gas
    
    Natural Gas
    
    Intercompany
    
    Natural GasSeptember 30, 2005
    
    Distribution
    
    Storage
    
    Eliminations
    
    TotalSales:Residential
    
    $
    66,701
    
    
    
    
    
    
    
    
    
    
    $
    66,701Commercial and Industrial  Small
    
    
    19,717
    
    
    
    
    
    
    
    
    
    
    
    19,717Commercial and Industrial  Large
    
    
    10,502
    
    
    
    
    
    
    
    
    
    
    
    10,502Transportation
    
    
    7,147
    
    
    $
    2,773
    
    
    
    
    
    
    
    9,920Storage
    
    
    
    
    
    
    16,584
    
    
    $
    (4,201
    )
    
    
    12,383Other Gas
    
    
    763
    
    
    
    
    
    
    
    
    
    
    
    763Operating Revenue per Business Segment
    
    
    104,830
    
    
    
    19,357Intercompany eliminations
    
    
    
    
    
    
    (4,201
    )Total Gas Revenue -
Item 6.  Selected Financial Data
    
    $
    104,830
    
    
    $
    15,156
    
    
    
    
    
    
    $
    119,986
 F-27




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##### Table of Contents



Gas Revenue (in thousands):
    
    Natural Gas
    
    Natural Gas
    
    Intercompany
    
    Natural GasSeptember 30, 2004
    
    Distribution
    
    Storage
    
    Eliminations
    
    TotalSales:Residential
    
    $
    64,283
    
    
    
    
    
    
    
    
    
    
    $
    64,283Commercial and Industrial  Small
    
    
    17,100
    
    
    
    
    
    
    
    
    
    
    
    17,100Commercial and Industrial  Large
    
    
    8,696
    
    
    
    
    
    
    
    
    
    
    
    8,696Transportation
    
    
    7,026
    
    
    $
    2,773
    
    
    
    
    
    
    
    9,799Storage
    
    
    
    
    
    
    14,994
    
    
    $
    (4,189
    )
    
    
    10,805Other Gas
    
    
    805
    
    
    
    
    
    
    
    
    
    
    
    805Operating Revenue per Business Segment
    
    
    97,910
    
    
    
    17,767Intercompany eliminations
    
    
    
    
    
    
    (4,189
    )Total Gas Revenue -
Item 6.  Selected Financial Data
    
    $
    97,910
    
    
    $
    13,578
    
    
    
    
    
    
    $
    111,488
 12. QUARTERLY FINANCIAL DATA (Unaudited)
 
 Three Months Ended
    
    Dec. 31
    
    Mar. 31
    
    Jun. 30
    
    Sep. 30Fiscal 2006Total Operating Revenues
    
    $
    44,812
    
    
    $
    46,091
    
    
    $
    23,126
    
    
    $
    21,838Total Operating Income
    
    
    8,980
    
    
    
    12,417
    
    
    
    4,091
    
    
    
    3,996Net income
    
    
    4,485
    
    
    
    6,661
    
    
    
    1,563
    
    
    
    1,327Basic Earnings Per Share (1)
    
    $
    0.57
    
    
    $
    0.84
    
    
    $
    0.20
    
    
    $
    0.16Diluted Earnings Per Share (1)
    
    $
    0.56
    
    
    $
    0.84
    
    
    $
    0.20
    
    
    $
    0.16Fiscal 2005Total Operating Revenues
    
    $
    36,367
    
    
    $
    44,099
    
    
    $
    22,350
    
    
    $
    21,790Total Operating Income
    
    
    8,988
    
    
    
    12,955
    
    
    
    4,193
    
    
    
    4,448Net Income
    
    
    4,316
    
    
    
    6,795
    
    
    
    1,457
    
    
    
    1,273Basic Earnings Per Share (1)
    
    $
    0.55
    
    
    $
    0.87
    
    
    $
    0.19
    
    
    $
    0.16Diluted Earnings Per Share (1)
    
    $
    0.54
    
    
    $
    0.85
    
    
    $
    0.18
    
    
    $
    0.16Fiscal 2004Total Operating Revenues
    
    $
    32,716
    
    
    $
    42,845
    
    
    $
    20,996
    
    
    $
    19,415Total Operating Income
    
    
    8,737
    
    
    
    12,449
    
    
    
    4,203
    
    
    
    3,408Net Income
    
    
    4,068
    
    
    
    6,372
    
    
    
    1,298
    
    
    
    830Basic Earnings Per Share
    
    $
    0.53
    
    
    $
    0.82
    
    
    $
    0.17
    
    
    $
    0.10Diluted Earnings Per Share
    
    $
    0.52
    
    
    $
    0.81
    
    
    $
    0.17
    
    
    $
    0.10
  
 (1)
    
    The sum of the quarterly amounts does not equal the years amount due to rounding of the
quarterly amounts or a changing number of average shares. F-28




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##### Table of Contents



COLUMN CCOLUMN B
    
    ADDITIONSBALANCE AT
    
    CHARGED
    
    CHARGED
    
    
    
    
    
    COLUMN EAT
    
    TO COSTS
    
    TO OTHER
    
    COLUMN D
    
    BALANCECOLUMN A
    
    BEGINNING
    
    AND
    
    ACCOUNTS
    
    DEDUCTIONS
    
    AT ENDDESCRIPTION
    
    OF YEAR
    
    EXPENSES
    
    AMOUNT
    
    AMOUNT
    
    OF YEARReserves deducted
from assets to
which they apply:Allowance for
Doubtful AccountsSeptember 30, 2006
    
    $
    1,029
    
    
    $
    991
    
    
    
    
    
    
    $
    946
    (1)
    
    $
    1,074September 30, 2005
    
    $
    856
    
    
    $
    868
    
    
    
    
    
    
    $
    695
    (1)
    
    $
    1,029September 30, 2004
    
    $
    889
    
    
    $
    924
    
    
    
    
    
    
    $
    957
    (1)
    
    $
    856
  
 (1)
    
    Amounts written off  net of recoveries. S-1




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##### Table of Contents



Exhibit No.
    

Description (Exhibits prior to February 2, 1998 filed by Mobile Gas)2
    
    Articles of Merger of MBLE Merger Co., Inc. into Mobile Gas Service Corporation
(incorporated by reference to Exhibit 2 to Form 10-Q Quarterly Report dated February 13,
1998)3(i)
    
    Restated Articles of Incorporation of EnergySouth, Inc. (incorporated by reference to
Exhibit 3(i) to Form 10-Q Quarterly Report dated February 2, 2005)3(ii)
    
    By-laws of EnergySouth, Inc., adopted January 31, 1998 (incorporated by reference to
Exhibit 3.2 to Registration Statement 333-42057)4(a)-1
    
    Indenture of Mortgage and Deed of Trust of Mobile Gas Service Corporation dated as of
December 1, 1941 (incorporated by reference to Exhibit B-a to Mobile Gas Registration
Statement No. 2-4887)
 Sup. Ind.Dated as of
    
    File Reference
    
    Exhibit4(a)-2
    
    10/1/44
    
    Reg. No. 2-5493
    
    7-64(a)-3
    
    7/1/52
    
    Form 10-K for fiscal year ended September 30, 1985
    
    4(a)-34(a)-4
    
    6/1/54
    
    
    
    4(a)-44(a)-5
    
    4/1/57
    
    
    
    4(a)-54(a)-6
    
    7/1/61
    
    
    
    4(a)-64(a)-7
    
    6/1/63
    
    
    
    4(a)-74(a)-8
    
    10/1/64
    
    
    
    4(a)-84(a)-9
    
    7/1/72
    
    
    
    4(a)-94(a)-10
    
    8/1/75
    
    
    
    4(a)-104(a)-11
    
    7/1/79
    
    
    
    4(a)-114(a)-12
    
    7/1/82
    
    
    
    4(a)-124(a)-13
    
    7/1/86
    
    Form 10-K for fiscal year ended September 30, 1986
    
    4(a)-134(a)-14
    
    10/1/88
    
    Form 10-K for fiscal year ended September 30, 1989
    
    4(a)-144(a)-15
    
    7/1/92
    
    Form 10-K for fiscal year ended September 30, 1992
    
    4(a)-154(a)-16
    
    7/1/93
    
    Form 10-K for fiscal year ended September 30, 1993
    
    4(a)-164(a)-17
    
    12/3/93
    
    Form 10-K for fiscal year ended September 30, 1993
    
    4(a)-174(a)-18
    
    11/1/96
    
    Form 10-K for fiscal year ended September 30, 1997
    
    4(a)-184(a)-19
    
    8/1/02
    
    Form 10-K for fiscal year ended September 30, 2002
    
    4(a)-19
 E-1




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##### Table of Contents



Exhibit No.
    

Description (Exhibits prior to February 2, 1998 filed by Mobile Gas)4(c)-3
    
    Trust Indenture and Security Agreement dated as of December 1, 2000 made by Bay Gas
Storage Company, Ltd. (incorporated by reference to Exhibit 4(c)-3 to Form 10-Q for the
quarter ended December 31, 2000)4(d)
    
    Promissory Note to the Utilities Board of the Town of Citronelle dated May 13, 1993
(incorporated by reference to Exhibit 4(d) to Form 10-K for fiscal year ended September 30,
1993)10(a)
    
    Transportation agreement between Mobile Gas Service Corporation and Alabama Power Company
dated February 18, 1999 (incorporated by reference to Exhibit 10(a) to Form 10-Q for the
quarter ended March 31, 1999) (3)10(b)
    
    Agreement for Firm and Interruptible Storage Service between Bay Gas Storage Company, Ltd.
and Southern Company Services, Inc., as agent, dated April 1, 1999 (incorporated by reference
to Exhibit 10(b) to Form 10-Q for the quarter ended March 31, 1999) (3)10(b)-1
    
    Letter agreement dated July 19, 2000, modifying Agreement for Firm and Interruptible
Storage Services between Bay Gas Storage Company, Ltd. and Southern Company Services, Inc., as
agent, dated April 1, 1999 (incorporated by reference to Exhibit 10(b)-1 to Form 10-K for
fiscal year ended September 30, 2000) (3)10(b)-2
    
    Storage Service Agreement between Bay Gas Storage Company, Ltd. and Southern Company
Services, Inc., as agent, dated as of August 1, 2000 (incorporated by reference to Exhibit
10(b)-2 to Form 10-K for fiscal year ended September 30, 2000) (3)10(c)
    
    Agreement for Firm Intrastate Transportation Services between Bay Gas Storage Company, Ltd.
and Alabama Power Company dated April 8, 1999 (incorporated by reference to Exhibit 10(c) to
Form 10-Q for the quarter ended March 31, 1999) (3)10(c)-1
    
    Letter agreement dated July 19, 2000, modifying Agreement for Firm Intrastate
Transportation Services between Bay Gas Storage Company, Ltd. and Alabama Power Company dated
April 8, 1999 (incorporated by reference to Exhibit 10(c)-1 to Form 10-K for fiscal year ended
September 30, 2000)(3)10(d)-5
    
    NNS Settlement Agreement between Koch Gateway Pipeline Company and Mobile Gas Service
Corporation dated March 26, 1998 (incorporated by reference to Exhibit 10(d)-5 to Form 10-K
for fiscal year ended September 30, 1998)10(e)
    
    Storage Service Agreement between Bay Gas Storage Company, Ltd. and Florida Power and Light
Company dated as of July 19, 2005 (incorporated by reference to
Exhibit 10(e) to Form 10-K for fiscal year ended September 30,
2005) (3)10(g)
    
    Deferred Compensation Agreement with John S. Davis dated January 26,
1996 (incorporated by reference to Exhibit 10(g) to Form 8-K Current
Report dated February 7, 1996)10(g)-1
    
    Supplemental Deferred Compensation Agreement with John S. Davis dated December 10, 1999
(incorporated by reference to Exhibit 10(g)-1 to Form 10-K for fiscal year ended September 30,
1999) (2)10(g)-2
    
    Letter Agreement with John S. Davis dated July 6, 2006 (incorporated by reference to
Exhibit 99.1 to Form 8-K filed July 7, 2006)(2)10(h)
    
    Transportation Agreement between Mobile Gas and Mobile Energy LLC dated November 12, 1999
(incorporated by reference to Exhibit 10(h) to Form 10-K for fiscal year ended September 30,
1999) (3)
 E-2




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##### Table of Contents



Exhibit No.
    

Description (Exhibits prior to February 2, 1998 filed by Mobile Gas)10(i)
    
    Mobile Gas Service Corporation/Bay Gas Storage Company, Ltd. Gas Storage Agreement dated
February 26, 1992 (incorporated by reference to Exhibit 10(i) to Form 10-K for fiscal year
ended September 30, 1992)10(j)
    
    Directors/Officers Indemnification Agreement (incorporated by reference to Exhibit 10(j)
to Form 10-K for fiscal year ended September 30, 1992)10(j)-1
    
    Form of Change of Control Agreement entered into as of December 8, 1999 by and between
EnergySouth, Inc. and the Executive Officers of EnergySouth, Inc. and/or one or more of its
subsidiaries (incorporated by reference to Exhibit 10(j)-1 to Form 10-K for fiscal year ended
September 30, 1999) (2)10(k)-1
    
    Amended and Restated Supplemental Deferred Compensation Agreement with Walter L. Hovell,
dated December 11, 1992 (incorporated by reference to Exhibit 10(k) to Form 10-K for fiscal
year ended September 30, 1992)(2)10(k)-2
    
    Amendment to Amended and Restated Supplemental Deferred Compensation Agreement dated
January 27, 1995 between the Company and Walter L. Hovell (incorporated by reference to
Exhibit 10(k)-2 to Form 8-K Current Report dated January 27, 1995)(2)10(l)-1
    
    Bay Gas Agreement by and among Mobile Gas Service Corporation, MGS Storage Services, Inc.,
MGS Energy Services, Inc. and Olin Corporation, dated December 5, 1991 (incorporated by
reference to Exhibit 10(l) to Form 10-K for fiscal year ended September 30, 1992)10(m)-1
    
    Limited Partnership Agreement between MGS Storage Services, Inc., as General Partner, and
MGS Energy Services, Inc., as Limited Partner (forming Bay Gas Storage Company, Ltd.), dated
December 5, 1991 (incorporated by reference to Exhibit 10(m) to Form 10-K for fiscal year
ended September 30, 1992)10(m)-2
    
    First Amendment to Limited Partnership Agreement dated as of April 6, 1992 and Second
Amendment to Limited Partnership Agreement dated as of September 12, 1994 (incorporated by
reference to Exhibit 10(m)-2 to Form 10-K for fiscal year ended September 30, 1994)10(n)-1
    
    Cavity Development and Storage Agreement between Olin Corporation and Bay Gas Storage
Company, Ltd., dated January 14, 1992 (incorporated by reference to Exhibit 10(n) to Form
10-K for fiscal year ended September 30, 1992)10(n)-2
    
    Fourth Amendment to Cavity Development and Storage Agreement between Olin Corporation and
Bay Gas Storage Company, Ltd., dated July 30, 2004 (incorporated
by reference to Exhibit 10(n)-2 to Form 10-K for fiscal
year ended September 30,
2004)(3)10(o)-1
    
    Transportation Agreement between Mobile Gas Service Corporation and Tuscaloosa Steel
Corporation dated as of May 15, 1995 (incorporated by reference to Exhibit 10(o) to Form 10-K
for fiscal year ended September 30, 1995)(3)10(o)-2
    
    Amendment dated August 23, 1996 to Transportation Agreement between Mobile Gas Service
Corporation and Tuscaloosa Steel Corporation (incorporated by reference to Exhibit 10(o)-2 to
Form 10-K for fiscal year ended September 30, 1996) (3)10(o)-3
    
    Termination agreement dated July 28, 2005 between Mobile Gas Service Corporation and
Tuscaloosa Steel Corporation (incorporated
by reference to Exhibit 10(o)-3 to Form 10-K for fiscal
year ended September 30, 2005)10(q)-1
    
    Guaranty Agreement dated as of December 1, 2000 made by EnergySouth, Inc., relating to
Trust Indenture and Security Agreement made by Bay Gas Storage
 E-3




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##### Table of Contents



Exhibit No.
    

Description (Exhibits prior to February 2, 1998 filed by Mobile Gas)Company, Ltd. (incorporated by
reference to Exhibit 10(q)-1 to Form 10-Q for the quarter ended December 31, 2000)10(p)
    
    Employment Agreement between EnergySouth, Inc. and C. S. Liollio dated October 27, 2006
(incorporated by reference to Exhibit 99.1 to Form 8-K filed October 30, 2006)(2)10(r)
    
    Amended and Restated Stock Option Plan of EnergySouth, Inc. (incorporated by reference to
Appendix A to definitive proxy statement dated December 17, 1998)(2)10(r)-2
    
    2003 Stock Option Plan of EnergySouth, Inc. (incorporated by reference to Appendix A to
definitive proxy statement dated December 23, 2003) (2)10(s)
    
    Mobile Gas Service Corporation Incentive Compensation Plan (incorporated by reference to
Exhibit B to definitive proxy statement dated December 21, 1992)(2)(4)10(t)
    
    Agreement for Purchase and Sale of Assets by and between The Utilities Board of the Town
of Citronelle and Mobile Gas Service Corporation dated January 28, 1993 (incorporated by
reference to Exhibit 10(t) to Form 10-K for fiscal year ended September 30, 1993)10(u)
    
    Storage Service Agreement by and between Bay Gas Storage Company, Ltd. and Tampa Electric
Company made as of October 14, 2005 (incorporated by reference to Exhibit 10(u) to Form 10-Q
for the quarter ended December 31, 2005)(3)10(v)-1
    
    Revolving Credit Agreement dated January 31, 2005 by and among EnergySouth, Inc. as
Borrower, Regions Bank as Agent and Regions Bank, AmSouth Bank, and
SouthTrust Bank as Lenders (incorporated by reference to
Exhibit 10(v)-1 to Form 10-K for fiscal year ended
September 30, 2005)10(v)-2
    
    Note for Business and Commercial Loans  Revolving, from EnergySouth, Inc. in favor or
AmSouth Bank, now Regions Bank, in the principal amount of up to $20,000,000, dated November
7, 2006 (incorporated by reference to Exhibit 10.1 to Form 8-K filed November 13, 2006).(3)10(w)
    
    Storage Service Agreement by and between Bay Gas Storage Company, Ltd. and
Florida Power Corporation d/b/a Progress Energy Florida, Inc. made as of April 19, 2006
(incorporated by reference to Exhibit 10(w) to Form 10-Q for the quarter ended June 30,
2006)(3)10(x)
    
    Letter dated October 7, 1994 from Mobile Gas Service Corporation to John S. Davis
confirming terms of employment (incorporated by reference to Exhibit A to Form 8-K current
report filed November 2, 1994)(2)10(y)
    
    Storage Service Agreement by and between Bay Gas Storage Company, Ltd. and Constellation
Energy Commodities Group, Inc. made as of May 23, 2006 (incorporated by reference to Exhibit
10(y) to Form 10-Q for the quarter ended June 30, 2006)(3)10(z)-2
    

2nd Amended and Restated EnergySouth, Inc. Non-Employee Directors Deferred Fee
Plan (incorporated by reference to Exhibit 99.1 to Schedule S-8 filed April 1, 2004)(2)14
    
    Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14 to Form 10-K
for fiscal year ended September 30, 2003)18
    
    Letter regarding change in Accounting Principle (incorporated by reference to Exhibit 18 to
Form 10-Q Quarterly Report dated February 12, 1999)
 E-4




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##### Table of Contents



Exhibit No.
    

Description (Exhibits prior to February 2, 1998 filed by Mobile Gas)21
    
    Subsidiaries of Registrant and Partnerships in which Registrant Owns an
Interest(1)23
    
    Consent of Deloitte & Touche LLP(1)31.1
    
    Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  Chief Executive
Officer (1)31.2
    
    Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  Chief Financial
Officer (1)32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002  Chief Executive Officer (1)32.2
    
    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 (1)99(a)
    
    Report and Order of Alabama Public Service Commission dated October 3, 2001 (incorporated by
reference to Exhibit 99(a) to Form 8-K current report filed October 18, 2001)
 
 (1)
    
    Filed herewith.(2)
    
    Management contract or compensatory plan or arrangement.(3)
    
    Confidential portions of this exhibit have been omitted and previously filed
separately with the Securities and Exchange Commission pursuant to a request for confidential
treatment made in accordance with Rule 24b-2 promulgated under the Securities Exchange Act of
1934, as amended.(4)
    
    Amended to use Company Common Stock instead of Mobile Gas common stock effective
February 2, 1998. E-5