SECURITIES
AND EXCHANGE COMMISSION


Washington,
D. C.








FORM
10-K





ANNUAL
REPORT





For
the Fiscal Year Ended September 30, 2008































Table of Contents





SECURITIES
AND EXCHANGE COMMISSION


Washington,
D. C. 20549


FORM
10-K





[
      X ]
            ANNUAL
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
      EXCHANGE
              ACT
      OF 1934 For the Fiscal Year Ended
    September 30, 2008


OR


[    
      ]
            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
            Registrant
            State
      of Incorporation
            I.R.S.
              Employer
      Identification
              Number1-16681
            The
      Laclede Group, Inc.
            Missouri
            74-29765041-1822
            Laclede
      Gas Company
            Missouri
            43-0368139





720
Olive Street


St.
Louis, MO 63101


314-342-0500





Securities
registered pursuant to Section 12(b) of the Act





Name
      of Registrant
            Title
      of Each Class
            Name
      of Each Exchange On
              Which
      RegisteredThe
      Laclede Group, Inc.
            Common
      Stock $1.00 par value
            New
      York Stock ExchangeThe
      Laclede Group, Inc.
            Preferred
      Share Purchase Rights
            New
      York Stock ExchangeLaclede
      Gas Company
            None





Securities
registered pursuant to Section 12(g) of the Act: None.





Indicate
by check mark if the registrant:





is
a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.





The
      Laclede Group, Inc.:
            Yes
            [
      X ]
            No
            [    
      ]Laclede
      Gas Company:
            Yes
            [    
      ]
            No
            [
      X ]





is
not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.





The
      Laclede Group, Inc.:
            Yes
            [    
      ]
            No
            [
      X ]Laclede
      Gas Company:
            Yes
            [    
      ]
            No
            [
      X ]





(1)
has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such report) and (2) has
been subject to such filing requirements for the past 90 days.





The
      Laclede Group, Inc.:
            Yes
            [
      X ]
            No
            [    
      ]Laclede
      Gas Company:
            Yes
            [
      X ]
            No
            [    
      ]





2
 Table of Contents





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)





Indicate
by check mark whether the registrant:





is
a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,”
“accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act





The Laclede Group,
      Inc.:Large
      accelerated filer
            [
      X ]
            
            Accelerated
      filer
            [    
      ]Non-accelerated
      filer
            [    
      ]
            
            Smaller
      reporting company
            [    
      ]Laclede Gas
      Company:Large
      accelerated filer
            [    
      ]
            
            Accelerated
      filer
            [    
      ]Non-accelerated
      filer
            [
      X ]
            
            Smaller
      reporting company
            [    
      ]





is
a shell company (as defined in Rule 12b-2 of the Exchange Act).





The
      Laclede Group, Inc.:
            Yes
            [    
      ]
            No
            [
      X ]Laclede
      Gas Company:
            Yes
            [    
      ]
            No
            [
      X ]








The
aggregate market value of the voting stock held by non-affiliates of The Laclede
Group, Inc.


amounted
to $727,641,668 as of March 31, 2008.





Number
of shares outstanding of each of the issuer’s classes of common stock as of the
latest practicable date:





Shares
      Outstanding AtRegistrant
            Description of Common
      Stock
            November 20, 2008The
      Laclede Group, Inc.:
            Common
      Stock ($1.00 Par Value)
            22,114,409Laclede
      Gas Company:
            Common
      Stock ($1.00 Par Value)
            11,577*





*  100%
owned by The Laclede Group, Inc.





Document
Incorporated by Reference:


Portions
of Proxy Statement dated December 22, 2008 —Part III


Index
to Exhibits is found on page 89.























3
 Table of
Contents





This
combined Form 10-K is separately filed by The Laclede Group, Inc. and Laclede
Gas Company. Each registrant hereto is filing on its own behalf all of the
information contained in this annual report that relates to such registrant.
Each registrant hereto is not filing any information that does not relate to
such registrant, and therefore makes no representation as to any such
information.





Note:
Laclede Gas Company Selected Financial Data, Management’s Discussion and
Analysis of Financial Condition and Results of Operations, Notes to Financial
Statements, Management Report on Internal Control over Financial Reporting, and
Reports of Independent Registered Public Accounting Firm are included as Exhibit
99.1.








TABLE OF CONTENTS
            Page
      No.PART
      IForward-Looking
      Statements
            5Item
      1
            Business
            5Item
      1A
            Risk Factors
            11Item
      1B
            Unresolved Staff Comments
            15Item
      2
            Properties
            15Item
      3
            Legal Proceedings
            15Item
      4
            Submission of Matters to a Vote of Security
      Holders
            15Executive Officers of the Registrants (Item
      401(b) of Regulation S-K)
            16PART
      IIItem
      5
            Market for Registrant’s Common Equity, Related Stockholder
      Matters
              and Issuer Purchases of Equity
      Securities
            19Item
      6
            Selected Financial Data
            20Item
      7
            Management’s Discussion and Analysis of Financial Condition
      and
              Results of
      Operations
            22Item
      7A
            Quantitative and Qualitative Disclosures About Market
      Risk
            36Item
      8
            Financial Statements and Supplementary
    Data
            37Item
      9
            Changes in and Disagreements with Accountants on Accounting
      and
              Financial
      Disclosure
            81Item
      9A
            Controls and Procedures
            81Item
      9B
            Other Information
            81PART
      IIIItem
      10
            Directors, Executive Officers and Corporate
      Governance
            82Item
      11
            Executive Compensation
            82Item
      12
            Security Ownership of Certain Beneficial Owners and
      Managementand Related Stockholder
      Matters
            82Item
      13
            Certain Relationships and Related Transactions, and
      Director Independence
            83Item
      14
            Principal Accounting Fees and Services
            83PART
      IVItem
      15
            Exhibits, Financial Statement Schedules
            84SIGNATURES
            
            85FINANCIAL STATEMENT SCHEDULES
            87INDEX TO EXHIBITS
            89








4
 Table of Contents


Part
I





FORWARD-LOOKING
STATEMENTS





Certain
matters discussed in this report, excluding historical information, include
forward-looking statements. Certain words, such as “may,” “anticipate,”
“believe,” “estimate,” “expect,” “intend,” “plan,” “seek,” and similar words and
expressions identify forward-looking statements that involve uncertainties and
risks. Future developments may not be in accordance with our expectations or
beliefs and the effect of future developments may not be those anticipated.
Among the factors that may cause results to differ materially from those
contemplated in any forward-looking statement are:





•
            weather
      conditions and catastrophic events, particularly severe weather in the
      natural gas producing areas of the country;•
            volatility
      in gas prices, particularly sudden and sustained spikes or declines in
      natural gas prices, including the related impact on margin deposits
      associated with the use of natural gas financial
    instruments;•
            the
      impact of higher natural gas prices on our competitive position in
      relation to suppliers of alternative heating sources, such as
      electricity;•
            changes
      in gas supply and pipeline availability; particularly those changes that
      impact supply for and access to our market area;•
            legislative,
      regulatory and judicial mandates and decisions, some of which may be
      retroactive, including those affecting•
            allowed
      rates of return•
            incentive
      regulation•
            industry
      structure•
            purchased
      gas adjustment provisions•
            rate
      design structure and implementation•
            franchise
      renewals•
            environmental
      or safety matters•
            taxes•
            pension
      and other postretirement benefit liabilities and funding
      obligations•
            accounting
      standards;•
            the
      results of litigation;•
            retention
      of, ability to attract, ability to collect from, and conservation efforts
      of, customers;•
            capital
      and energy commodity market conditions, including the ability to obtain
      funds with reasonable terms for necessary capital expenditures and general
      operations and the terms and conditions imposed for obtaining sufficient
      gas supply;•
            discovery
      of material weakness in internal controls; and•
            employee
      workforce issues.





Readers
are urged to consider the risks, uncertainties, and other factors that could
affect our business as described in this report. All forward-looking statements
made in this report rely upon the safe harbor protections provided under the
Private Securities Litigation Reform Act of 1995. We do not, by including this
statement, assume any obligation to review or revise any particular
forward-looking statement in light of future events.








Item 1. Business





Overview





The
Laclede Group, Inc. (Laclede Group or the Company) is a public utility holding
company formed through a corporate restructuring that became effective
October 1, 2001. Laclede Group is committed to providing reliable
natural gas service through its regulated core utility operations while engaging
in non-regulated activities that provide sustainable growth. All of Laclede
Group’s subsidiaries are wholly owned. The Regulated Gas Distribution segment
includes Laclede Gas Company (Laclede Gas or the Utility), Laclede Group’s
largest subsidiary and core business unit. Laclede Gas is a public utility
engaged in the retail distribution and sale of natural gas. Laclede Gas is the
largest natural gas distribution utility in Missouri, serving approximately
630,000 residential, commercial, and industrial customers in the City of St.
Louis and parts of ten other counties in eastern Missouri. The Non-Regulated Gas
Marketing segment includes Laclede Energy Resources, Inc. (LER), a wholly-owned
subsidiary engaged in the non-regulated marketing of natural gas and related
activities. LER markets natural gas to both on-system Utility transportation
customers and customers outside of Laclede Gas’ traditional service territory,
including large retail and wholesale customers. As such, LER’s operations and
customer base are subject to fluctuations in market conditions. Other
subsidiaries provide less than 10% of consolidated revenues.


5
 Table of Contents





On
March 31, 2008, the Company completed the sale of 100% of its interest
in its wholly-owned subsidiary SM&P Utility Resources, Inc. (SM&P) to
Stripe Acquisition, Inc. (an affiliate of Kohlberg Management VI, LLC) for $85
million in cash, subject to certain closing and post-closing adjustments.
SM&P is an underground facilities locating and marking business that
comprised Laclede Group’s Non-Regulated Services operating segment. The sales
agreement included representations, warranties, and indemnification provisions
customary for such transactions and was filed as an exhibit to the
March 31, 2008 Form 10-Q. In accordance with generally accepted
accounting principles, the results of operations for SM&P are reported as
discontinued operations in the Consolidated Statements of Income and its
associated assets and liabilities are classified separately in the Consolidated
Balance Sheets.





Operating
Revenues (from continuing operations) contributed by each segment for the last
three fiscal years are presented below. For more detailed financial information
regarding the segments, see Note 14 to the Consolidated Financial
Statements.




(Thousands)
            
            2008
            
            2007
            
            2006Regulated
      Gas Distribution
            
            $
            1,128,287
            
            $
            1,131,554
            
            $
            1,141,011Non-Regulated
      Gas Marketing
            
            
            1,075,845
            
            
            718,704
            
            
            689,572Other
            
            
            4,841
            
            
            5,603
            
            
            4,445Total
      Operating Revenues
            
            $
            2,208,973
            
            $
            1,855,861
            
            $
            1,835,028





The
Consolidated Financial Statements included in this report present the
consolidated financial position, results of operations, and cash flows of
Laclede Group. The financial statements, notes to financial statements, and
management’s discussion and analysis for Laclede Gas are included in this report
as Exhibit 99.1.





The
following chart illustrates the organization structure of The Laclede Group,
Inc. at September 30, 2008:




Organization
      StructureThe
      Laclede
                Group,
      Inc.Laclede
      Gas
                Company
              
              Laclede
                Investment
                LLC
              
              
              Laclede
                Development
                Company
              
              Laclede
                Pipeline
                CompanyLaclede
                Energy
                Resources,
                Inc.
              
              
              Laclede
                Venture
      Corp.Laclede
      Gas
                Family
                Services,
                Inc.




Laclede
Group common stock is listed on The New York Stock Exchange and trades under the
ticker symbol “LG”. Laclede Gas continues to pay dividends on all serial
preferred stock issued.


6
 Table of Contents





During
fiscal year 2008, Laclede Group issued 106,436 shares of common stock under its
Dividend Reinvestment and Stock Purchase Plan and 241,400 shares of common stock
(including 62,650 shares of restricted stock) under its Equity Incentive Plan.
During fiscal year 2007, Laclede Group issued 116,973 shares of common stock
under its Dividend Reinvestment and Stock Purchase Plan and 167,025 shares of
common stock (including 59,000 shares of restricted stock) under its Equity
Incentive Plan.





The
information we file or furnish to the Securities and Exchange Commission (SEC),
including annual reports on Form 10-K, quarterly reports on Form 10-Q, and
current reports on Form 8-K and their amendments, are available on our website,
www.thelacledegroup.com,
in the Investor Services section under SEC Filings as soon as reasonably
practical after the information is filed or furnished to the SEC.








REGULATED
GAS DISTRIBUTION





NATURAL
GAS SUPPLY





The
Utility focuses its gas supply portfolio around a number of large natural gas
suppliers with equity ownership or control of assets strategically situated to
complement Laclede’s regionally diverse firm transportation
arrangements.





Laclede
Gas’ fundamental gas supply strategy is to meet the two-fold objective of 1)
ensuring that the gas supplies it acquires are dependable and will be delivered
when needed and, 2) insofar as is compatible with that dependability, purchasing
gas that is economically priced. In structuring its natural gas supply
portfolio, Laclede Gas continues to focus on natural gas assets that are
strategically positioned to meet the Utility’s primary objectives. Laclede Gas
utilizes both Mid-Continent and Gulf Coast gas sources to provide a level of
supply diversity that facilitates the optimization of pricing differentials as
well as protecting against the potential of regional supply
disruptions.





In
fiscal 2008, Laclede Gas purchased natural gas from 27 different suppliers to
meet current gas sales and storage injection requirements. In addition to
working with major producers, the Utility has entered into agreements with
suppliers that are taking advantage of improved drilling techniques and
advancing technologies, which allow Laclede Gas to be flexible in meeting the
needs of its customers. Natural gas purchased by Laclede Gas for delivery to our
Utility service area through the Mississippi River Transmission Corporation
(MRT) system totaled 60.9 billion cubic feet (Bcf). The Utility also holds firm
transportation on several other interstate pipeline systems that provide access
to gas supplies upstream of MRT. In addition to deliveries from MRT, 10.6 Bcf of
gas was purchased on the Panhandle Eastern Pipe Line Company system, and 11.1
Bcf on the Southern Star Central Pipeline system. Some of the Utility’s
commercial and industrial customers continued to purchase their own gas and
delivered to Laclede Gas 17.3 Bcf for transportation to them through the
Utility’s distribution system.





The
fiscal 2008 peak day sendout of natural gas to Utility customers, including
transportation customers, occurred on January 2, 2008, when the
average temperature was 16 degrees Fahrenheit. On that day, our customers
consumed 0.846 Bcf of natural gas. About 81% of this peak day demand was met
with natural gas transported to St. Louis through the MRT, Panhandle, and
Southern Star transportation systems, and the other 19% was met from the
Utility’s on-system storage and peak shaving resources.








UNDERGROUND
NATURAL GAS STORAGE





Laclede
Gas has a contractual right to store approximately 23.1 Bcf of gas in MRT’s
storage facility located in Unionville, Louisiana. MRT’s tariffs allow
injections into storage from May 16 through November 15 and require
the withdrawal from storage of all but 2.2 Bcf from November 16 through
May 15.





In
addition, Laclede Gas supplements flowing pipeline gas with natural gas
withdrawn from its own underground storage field located in St. Louis and St.
Charles Counties in Missouri. The field is designed to provide 0.357 Bcf of
natural gas withdrawals on a peak day and annual withdrawals of approximately
5.5 Bcf of gas based on the inventory level that Laclede plans to
maintain.





7
 Table of Contents


REGULATORY
MATTERS





There
were several significant regulatory developments over the past year. For more
details, please see the Regulatory Matters discussion in the Management’s
Discussion and Analysis of Financial Condition and Results of Operations, on
page 31 of this Form 10-K.








OTHER
PERTINENT MATTERS





The
business of Laclede Gas has monopoly characteristics in that it is the only
distributor of natural gas within its franchised service area. The principal
competition is the local electric company. Other competitors in Laclede Gas’
service area include suppliers of fuel oil, coal, propane in outlying areas,
natural gas pipelines which can directly connect to large volume customers, and
in a portion of downtown St. Louis, a district steam system.





Laclede
Gas’ residential, commercial, and small industrial markets represent more than
85% of the Utility’s revenue. Given the current adequate level of natural gas
supply and market conditions, Laclede believes that the relative comparison of
natural gas equipment and operating costs with those of competitive fuels will
not change significantly in the foreseeable future, and that these markets will
continue to be supplied by natural gas. In the new multi-family and commercial
rental markets, Laclede Gas’ competitive exposure is presently limited to space
and water heating applications. Certain alternative heating systems can be cost
competitive in traditional markets, but the performance and reliability of
natural gas systems have contained the growth of these
alternatives.





Coal
is price competitive as a fuel source for very large boiler plant loads, but
environmental requirements for coal have shifted the economic advantage to
natural gas. Oil and propane can be used to fuel boiler loads and certain
direct-fired process applications, but these fuels require on-site storage, thus
limiting their competitiveness. In certain cases, district steam has been
competitive with gas for downtown St. Louis area heating users. Laclede Gas
offers gas transportation service to its large user industrial and commercial
customers. The tariff approved for that type of service produces a margin
similar to that which Laclede Gas would have received under its regular sales
rates.





*****





Laclede
Gas is subject to various environmental laws and regulations that, to date, have
not materially affected the Company’s financial position and results of
operations. For a detailed discussion of environmental matters, see Note 15 to
the Consolidated Financial Statements on page 77.





*****





Laclede
Gas has a labor agreement with Locals 11-6 and 11-194 of the United Steel, Paper
and Forestry, Rubber, Manufacturing, Energy, Allied-Industrial and Service
Workers International Union (Union), which represent approximately 65% of
Laclede Gas’ employees. On August 4, 2008, Laclede Gas and Union
representatives reached a new four-year labor agreement, replacing the prior
agreement that expired at midnight, July 31, 2008. The new contract
will expire at midnight on July 31, 2012. The new contract includes
revisions to the defined benefit plan pension formula, changes in wage rates and
work rules, and other modifications that enable the Utility to provide high
quality service to its customers and control operating costs while continuing to
provide competitive wages, pension, and healthcare benefits to its
employees.





The
Missouri Natural Division of Laclede Gas has a labor agreement with Local 11-884
of the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy,
Allied-Industrial and Service Workers International Union, which represents
approximately 5% of Laclede Gas’ employees. The agreement expires on
April 15, 2009.





*****





As
of September 30, 2008, Laclede Gas had 1,807 employees, including 12
part-time employees.





*****





The
business of Laclede Gas is subject to seasonal fluctuations with the peak period
occurring in the winter season.





8
 Table of Contents


Revenues
and customers of Laclede Gas for the last three fiscal years are as
follows:





Regulated
      Gas Distribution Operating Revenues(Thousands)
            
            2008
            
            2007
            
            2006Residential
            
            $
            696,919
            
            $
            675,756
            
            $
            689,347Commercial
      & Industrial
            
            
            267,639
            
            
            271,872
            
            
            284,174Interruptible
            
            
            4,704
            
            
            3,771
            
            
            5,644Transportation
            
            
            16,008
            
            
            15,601
            
            
            15,257Off-System
      and Capacity Release
            
            
            132,145
            
            
            156,103
            
            
            139,501Provision
      for Refunds and Other
            
            
            10,872
            
            
            8,451
            
            
            7,088Total
            
            $
            1,128,287
            
            $
            1,131,554
            
            $
            1,141,011Regulated
      Gas Distribution Customers (End of Period)2008
            
            
            2007
            
            
            2006Residential
            
            
            588,228
            
            
            590,337
            
            
            590,392Commercial
      & Industrial
            
            
            40,801
            
            
            41,062
            
            
            40,909Interruptible
            
            
            17
            
            
            15
            
            
            17Transportation
            
            
            144
            
            
            145
            
            
            148Total
      Customers
            
            
            629,190
            
            
            631,559
            
            
            631,466





*****





Laclede
Gas has franchises in the more than 90 communities where it provides service
with initial terms varying from five years to an indefinite duration. Generally,
a franchise allows Laclede Gas, among other things, to install pipes and
construct other facilities in the community. The Utility has franchises for all
but one of the communities in which it serves. All of the franchises are free
from unduly burdensome restrictions and are adequate for the conduct of Laclede
Gas’ current public utility business in the State of Missouri. The Utility is
currently working with the affected community to renew its expired franchise and
does not anticipate any interruption in service to this community.








NON-REGULATED
GAS MARKETING





LER,
a wholly-owned subsidiary of Laclede Investment, LLC, is engaged in the
non-regulated marketing of natural gas and other services to both on-system
Utility transportation customers and customers outside of Laclede Gas’
traditional service area, and related activities. LER currently utilizes 12
interstate pipelines and 60 suppliers to market natural gas to its customers,
including large retail and wholesale customers in the Midwest. LER currently
serves more than 100 retail customers and approximately 60 wholesale customers.
Through its retail operations, LER offers natural gas marketing services to
large industrial customers, while its wholesale business consists of buying and
selling natural gas to other marketers, producers, local distribution companies,
pipelines, and municipalities. LER’s wholesale business, which continues to
grow, currently represents approximately 85% of LER’s revenues. In fiscal year
2008, LER reported a 15% increase in natural gas sales volumes compared to
fiscal year 2007. In fiscal year 2007, it reported a 30% increase in sales
volumes compared to the previous fiscal year. These increases were primarily
attributable to higher wholesale sales volumes. LER has recently negotiated
several long-term supply, sales, and transportation contracts to facilitate the
growth of its business. LER reported operating revenues of $1.1 billion in
fiscal year 2008 and $0.7 billion per year in fiscal years 2007 and
2006.





9
 Table of Contents





OTHER
SUBSIDIARIES





Laclede
Pipeline Company, a wholly-owned subsidiary of Laclede Group, operates a
pipeline under Federal Energy Regulatory Commission (FERC) jurisdiction that
connects the propane storage and vaporization facilities of Laclede Gas to
third-party propane supply terminal facilities located in Illinois. Laclede Gas
vaporizes the propane to supplement its natural gas supply and meet peak demands
on its distribution system.





Laclede
Investment LLC, a wholly-owned subsidiary of Laclede Group, invests in other
enterprises and has made loans to several joint ventures engaged in real estate
development.





Laclede
Gas Family Services, Inc., a wholly-owned subsidiary of Laclede Energy
Resources, Inc., is a registered insurance agency in the State of
Missouri.





Laclede
Development Company, a wholly-owned subsidiary of Laclede Group, participates in
real estate development, primarily through joint ventures.





Laclede
Venture Corp., a wholly-owned subsidiary of Laclede Development Company, offers
services for the compression of natural gas to third parties who desire to use
or to sell compressed natural gas for use in vehicles.





The
lines of business that constitute the Other activities of the corporate family
are not considered separately reportable operating segments as defined by
current accounting standards.


10
 Table of Contents





Item 1A. Risk Factors





Laclede
Group’s business and financial results are subject to a number of risks and
uncertainties, including those set forth below. The risks described below are
those the Company considers to be the most material.





RISKS
AND UNCERTAINTIES THAT RELATE TO THE BUSINESS AND FINANCIAL RESULTS OF LACLEDE
GROUP AND ITS SUBSIDIARIES





As
a holding company, Laclede Group depends on its operating subsidiaries to meet
its financial obligations.





Laclede
Group is a holding company with no significant assets other than cash
investments and the stock of its operating subsidiaries. Laclede Group, and
Laclede Gas prior to Laclede Group’s formation, have paid dividends continuously
since 1946. However, Laclede Group relies exclusively on dividends from its
subsidiaries, on intercompany loans from its non-regulated subsidiaries, and on
the repayments of principal and interest from intercompany loans made to its
subsidiaries for its cash flows. Laclede Group’s ability to pay dividends to its
shareholders is dependent on the ability of its subsidiaries, particularly
Laclede Gas, to generate sufficient net income and cash flows to pay upstream
dividends and make loans or loan repayments to Laclede Group. Laclede Group’s
cash flows for fiscal 2008 included proceeds from the sale of its wholly-owned
subsidiary, SM&P.





A
downgrade in Laclede Group’s credit rating could negatively affect its ability
to access capital.





Currently,
Laclede Group’s corporate rating is A by Standard & Poor’s and A- by Fitch.
Laclede Group has working capital lines of credit to meet the short-term
liquidity needs of its subsidiaries. If the rating agencies lowered Laclede
Group’s credit rating, particularly below investment grade, it might
significantly limit its ability to borrow and would increase its costs of
borrowing. Laclede Group’s ability to borrow and costs of borrowing have a
direct impact on its subsidiaries’ ability to execute operating
strategies.





Risk
of unexpected losses may adversely affect Laclede Group’s financial position and
results of operations.





As
with most businesses, there are operations and business risks inherent in the
activities of Laclede Group’s subsidiaries. If, in the normal course of
business, Laclede Group becomes a party to litigation, such litigation could
result in substantial monetary judgments, fines, or penalties or be resolved on
unfavorable terms. In accordance with customary practice, Laclede Group and its
subsidiaries maintain insurance against a significant portion of, but not all,
risks and losses. To the extent a loss is not fully covered by insurance, that
loss could adversely affect the Company’s financial position and results of
operations.








RISKS
THAT RELATE TO THE REGULATED GAS DISTRIBUTION SEGMENT





Risks
related to the regulation of the Utility business could impact rates it is able
to charge, costs, and profitability.





The
Missouri Public Service Commission (MoPSC or Commission) regulates many aspects
of its distribution operations, including construction and maintenance of
facilities, operations, safety, the rates that the Utility may charge customers,
the terms of service to its customers, and the rate of return that it is allowed
to realize; as well as the accounting treatment for certain aspects of its
operations. For further discussion of these accounting matters, see Critical
Accounting Policies pertaining to Laclede Gas, beginning on page 28. Laclede
Gas’ ability to obtain rate increases and rate supplements to maintain the
current rate of return depends upon regulatory discretion. There can be no
assurance that it will be able to obtain rate increases or rate supplements or
continue earning the current authorized rates of return. In addition, the FERC
regulates the interstate transportation of natural gas from the wellhead to the
Utility’s city gate and establishes the terms and conditions under which it may
use interstate gas pipeline and storage capacity to purchase, store, and
transport natural gas.


11
 Table of Contents





Laclede
Gas’ liquidity and, in certain circumstances, its results of operations could be
adversely affected by the cost of purchasing natural gas during periods in which
natural gas prices are rising significantly.





Laclede
Gas’ tariff rate schedules contain Purchased Gas Adjustment (PGA) Clauses that
permit the Utility to file for rate adjustments to recover the cost of purchased
gas. Changes in the cost of purchased gas are flowed through to customers and
may affect uncollectible amounts and cash flows and can therefore impact the
amount of capital resources. Currently, Laclede Gas is allowed to adjust the gas
cost component of its rates up to four times each year. The Utility must make a
mandatory gas cost adjustment at the beginning of the winter, in November, and
during the next twelve months it may make up to three additional discretionary
gas cost adjustments, so long as each of these adjustments is separated by at
least two months.





The
MoPSC typically approves the Utility’s PGA changes on an interim basis, subject
to refund and the outcome of a subsequent audit and prudence review. Due to such
review process, there is a risk of a disallowance of full recovery of these
costs. Any material disallowance of purchased gas costs would adversely affect
revenues. Increases in the prices the Utility charges for gas may also adversely
affect revenues because they could lead customers to reduce usage and cause some
customers to have trouble paying the resulting higher bills. These higher prices
may increase bad debt expenses and ultimately reduce earnings. Laclede Gas has
used short-term borrowings in the past to finance storage inventories and
purchased gas costs, and expects to do so in the future.





Laclede
Gas may be adversely affected by economic conditions.





Periods
of slowed economic activity, such as that currently being experienced, generally
result in decreased energy consumption, particularly by industrial and large
commercial companies. As a consequence, national or regional recessions or other
downturns in economic activity could adversely affect Laclede Gas’ revenues and
cash flows or restrict its future growth. Economic conditions in its service
territory may also adversely impact the Utility’s ability to collect its
accounts receivable resulting in an increase to bad debt expenses.





Hedging
procedures may not fully protect Laclede Gas sales and results of operations
from volatility, and the use of derivative contracts in the normal course of
business could result in financial losses.





To
lower financial exposure to commodity price fluctuations, Laclede Gas enters
into contracts to hedge the forward commodity price of its natural gas supplies.
As part of this strategy, the Utility may use fixed-price, forward, physical
purchase contracts, futures, and option contracts traded on the New York
Mercantile Exchange. However, the Utility does not hedge the entire exposure of
energy assets or positions to market price volatility, and the coverage will
vary over time. Any costs, gains, or losses experienced through hedging
procedures, including carrying costs, generally flow through the PGA Clause,
thereby limiting the Utility’s exposure to earnings volatility. However,
variations in the timing of collections of such gas costs under the PGA Clause
and the effect of cash payments for margin deposits associated with the
Utility’s use of natural gas financial instruments may cause short-term cash
requirements to vary. These procedures remain subject to prudence review by the
MoPSC.





Laclede
Gas is dependent on bank lines of credit and continued access to capital markets
to successfully execute its operating strategies.





In
addition to longer term debt that is issued to the public by the Utility under
its mortgage and deed of trust dated February 1, 1945, Laclede Gas has
relied, and continues to rely, upon shorter term bank borrowings or commercial
paper supported by bank lines of credit to finance the execution of a portion of
its operating strategies. The Utility is dependent on these capital sources to
purchase its natural gas supply and maintain its properties. The availability
and cost of these credit sources is cyclical and these capital sources may not
remain available to the Utility, or it may not be able to obtain funds at a
reasonable cost in the future. Laclede Gas’ ability to borrow under its existing
lines of credit depends on its compliance with the Utility’s obligations under
the lines of credit. Laclede Gas’ ability to issue commercial paper supported by
its lines of credit, to issue long-term bonds, or to obtain new lines of credit
also depends on current conditions in the credit markets.


12
 Table of Contents





A
downgrade in the Utility’s credit rating could negatively affect its ability to
access capital.





Standard
& Poor’s rating group, Moody’s Investors Service, and Fitch Ratings from
time to time implement new requirements for various ratings levels. To maintain
its current credit ratings in light of any new requirements, Laclede Gas may
find it necessary to take steps to change its business plans in ways that may
affect its results of operations.





The
following table shows the current ratings assigned by S&P, Moody’s, and
Fitch to certain of our outstanding debt:





Type
      of Facility
            S&P
            Moody’s
            FitchLaclede
      Gas First Mortgage Bonds
            A
            A3
            A+Laclede
      Gas Commercial Paper
            A-1
            P-2
            F1





If
the rating agencies lowered the Utility’s ratings, particularly below investment
grade, it could significantly limit its access to the commercial paper market
and would increase its costs of borrowing. In addition, Laclede Gas would likely
be required to pay a higher interest rate in future financings and the Utility’s
potential pool of investors and funding sources would likely decrease. Credit
ratings are an independent assessment of the Utility’s ability to pay its
obligations. Consequently, real or anticipated changes in credit ratings will
generally affect the market value of the specific debt instruments that are
rated.





Transporting,
distributing, and storing natural gas involves numerous risks that may result in
accidents and other operating risks and costs.





There
are inherent in gas distribution activities a variety of hazards and operations
risks, such as leaks, accidental explosions, and mechanical problems, that could
cause substantial financial losses. In addition, these risks could result in
loss of human life, significant damage to property, environmental pollution,
impairment of operations, and substantial losses to Laclede Gas. The location of
pipelines and storage facilities near populated areas, including residential
areas, commercial business centers, and industrial sites, could increase the
level of damages resulting from these risks. These activities may subject the
Utility to litigation or administrative proceedings from time to time. Such
litigation or proceedings could result in substantial monetary judgments, fines,
or penalties against the Utility or be resolved on unfavorable terms. In
accordance with customary industry practices, Laclede Gas maintains insurance
against a significant portion, but not all, of these risks and losses. To the
extent that the occurrence of any of these events is not fully covered by
insurance, it could adversely affect the Utility’s financial position and
results of operations.





Increases
in the wholesale costs of purchased natural gas supplies may adversely impact
the Utility’s competitive position compared with alternative energy
sources.





Laclede
Gas is the only distributor of natural gas within its franchised service area.
Nevertheless, rising wholesale natural gas prices compared with prices for
electricity, fuel oil, coal, propane, or other energy sources may affect the
Utility’s retention of natural gas customers and adversely impact its financial
position and results of operations.





Significantly
warmer-than-normal weather conditions, the effects of global warming and climate
change, and other factors that influence customer usage may affect the Utility’s
sale of heating energy and adversely impact its financial position and results
of operations.





Laclede
Gas’ earnings are primarily generated by the sale of heating energy. The Utility
has a weather mitigation rate design, approved by the MoPSC, that provides
better assurance of the recovery of the Utility’s fixed costs and margins during
winter months despite variations in sales volumes due to the impacts of weather
and other factors that affect customer usage. However, significantly
warmer-than-normal weather conditions in the Utility’s service area and other
factors may result in reduced profitability and decreased cash flows
attributable to lower gas sales levels. Furthermore, continuation of the weather
mitigation rate design is subject to regulatory discretion.


13
 Table of Contents





Regional
supply/demand fluctuations and changes in national pipeline infrastructure may,
as well as regulatory discretion, adversely affect Laclede Gas’ ability to
profit from off-system sales and capacity release.





Laclede
Gas’ income from off-system sales and capacity release is subject to
fluctuations in market conditions and changing supply and demand conditions in
areas the Utility holds pipeline capacity rights. Specific factors impacting the
Utility’s income from off-system sales and capacity release include the
availability of attractively-priced natural gas supply, availability of pipeline
capacity, and market demand. Income from off-system sales and capacity release
is shared with customers. Effective October 1, 2007, the Utility is
allowed to retain 15% to 25% of the first $6 million in annual income earned
(depending on the level of income earned) and 30% of income exceeding $6 million
annually. The Utility’s ability to retain such income in the future is subject
to regulatory discretion in a base rate proceeding.





Workforce
risks could affect Laclede Gas’ financial results.





Laclede
Gas is subject to various workforce risks, including but not limited to, the
risk that it will be unable to attract and retain qualified personnel; that it
will be unable to effectively transfer the knowledge and expertise of an aging
workforce to new personnel as those workers retire; and that it will be unable
to reach collective bargaining arrangements with the unions that represent
certain of its workers, which could result in work stoppages.





Catastrophic
events could adversely affect Laclede Gas’ facilities and
operations.





Catastrophic
events such as fires, earthquakes, explosions, floods, tornados, terrorists
acts, or other similar occurrences could adversely affect Laclede Gas’
facilities, operations, financial condition, and results of
operations.








RISKS
THAT RELATE TO THE NON-REGULATED GAS MARKETING SEGMENT





Risks
of increased competition, regional fluctuations in natural gas commodity prices,
and new national pipeline infrastructure projects may adversely impact LER’s
future profitability.





Competition
in the marketplace and regional fluctuations in natural gas commodity prices
have a direct impact on LER’s business. Changing market conditions caused by new
pipeline infrastructure may adversely impact LER’s sales margins or affect LER’s
ability to serve certain wholesale customers, thereby increasing certain credit
requirements and/or reducing wholesale sales volumes and profitability. The FERC
regulates the interstate transportation of natural gas and establishes the terms
and conditions under which LER may use interstate gas pipeline capacity to
purchase and transport natural gas.








Risks of reduced access to credit
and/or capital markets may prevent LER from executing operating
strategies.





In
addition to its cash flows, LER relies on parental guarantees and loans to cover
the lag between when it purchases natural gas and when its customers pay for
that gas. Although LER’s uncollectible amounts are closely monitored and have
not been significant, increased uncollectible amounts from customers are
possible and may result in financial losses and/or capital limitations.
Typically, a major portion of LER’s receivables are from customers in the energy
industry.





Risk
management policies and the use of cash flow hedging may not fully protect LER’s
sales and results of operations from volatility and may result in financial
losses.





LER
manages the price risk associated with fixed-price commitments for the purchase
or sale of natural gas by either closely matching the offsetting physical
purchase or sale of natural gas at fixed prices or through the use of
exchange-traded futures contracts to lock in margins. However, market conditions
and regional price changes may cause ineffective portions of matched positions
to result in financial losses.








14
 Table of Contents


Item 1B. Unresolved Staff Comments





None.








Item 2. Properties





The
principal utility properties of Laclede Gas consist of more than 16,000 miles of
gas main and related service pipes, meters, and regulators. Other physical
properties include regional office buildings and holder stations. Extensive
underground natural gas and propane storage facilities and equipment are located
in an area in North St. Louis County extending under the Missouri River into St.
Charles County. Substantially all of Laclede Gas’ utility plant is subject to
the liens of its mortgage.





All
of the utility properties of Laclede Gas are held in fee or by easement or under
lease agreements. The principal lease agreements include underground storage
rights that are of indefinite duration and the headquarters office building. The
current lease on the headquarters office building extends through
February 2010 with options to renew for up to 10 additional
years.





For
further information on Laclede Gas’ leases see Note 15 to the Consolidated
Financial Statements on page 77.





Other
properties of Laclede Group, including LER, do not constitute a significant
portion of its properties.








Item 3. Legal Proceedings





For
a description of environmental matters, see Note 15 to the Consolidated
Financial Statements on page 77. For a description of pending regulatory matters
of Laclede Gas, see the Regulatory Matters discussion in the Management’s
Discussion and Analysis of Financial Condition and Results of Operations, on
page 31.





Laclede
Group and its subsidiaries are involved in litigation, claims, and
investigations arising in the normal course of business. While the results of
such litigation cannot be predicted with certainty, management, after discussion
with counsel, believes the final outcome will not have a material adverse effect
on the consolidated financial position or results of operations reflected in the
consolidated financial statements presented herein.








Item 4. Submission of Matters to a Vote of Security
Holders





There
were no matters submitted to a vote of security holders during the fourth
quarter of fiscal year 2008.











15
 Table of Contents


EXECUTIVE OFFICERS OF
REGISTRANTS– Listed below are executive officers as defined by the
SEC for Laclede Group. Their ages, at September 30, 2008, and
positions are listed below along with their business experience during the past
five years.





Name,
      Age, and Position with Company *
            Appointed
      (1)D.
      H. Yaeger, Age 59Laclede
      GroupChairman,
      President and Chief Executive Officer
            October
      2000Laclede
      GasChairman,
      President and Chief Executive Officer
            January
      1999LERPresident
            
            January
      1999K.
      J. Neises, Age 67Laclede
      GasExecutive
      Vice President
            October
      2007Executive
      Vice President – Energy and Administrative Services
            January
      2002LERVice
      President
            February
      2002M.
      D. Waltermire, Age 50Laclede
      GroupChief
      Financial Officer
            October
      2007Laclede
      GasSenior
      Vice President and Chief Financial Officer
            October
      2007Vice
      President – Operations & Marketing
            April
      2003LERVice
      President
            October
      2007M.
      C. Darrell, Age 50Laclede
      GroupGeneral
      Counsel (2)
            May
      2004Laclede
      GasSenior
      Vice President and General Counsel
            October
      2007General
      Counsel
            May
      2004R.
      A. Skau, Age 51Laclede
      GasSenior
      Vice President – Human Resources
            October
      2007Vice
      President – Human Resources
            February
      2004Assistant
      Vice President – Human Resources
            September
      2001M.
      R. Spotanski, Age 48Laclede
      GasSenior
      Vice President – Operations and Marketing
            October
      2007Vice
      President – Finance
            January
      2001





16
 Table of Contents





M.
      C. Kullman, Age 48Laclede
      GroupChief
      Governance Officer and Corporate Secretary
            February
      2004Corporate
      Secretary
            October
      2000Laclede
      GasChief
      Governance Officer and Corporate Secretary
            February
      2004Secretary
      and Associate General Counsel
            February
      2001LERSecretary
            
            February
      1998D.
      P. Abernathy, Age 47Laclede
      GasVice
      President – Industrial Relations and Claims Management (3)
            October
      2007Vice
      President – Associate General Counsel
            September
      2004M.
      C. Geiselhart, Age 49Laclede
      GroupVice
      President – Strategic Development and Planning (4)
            August
      2006Laclede
      GasVice
      President – Strategic Development and Planning
            August
      2006S.
      F. Mathews, Age 50Laclede
      GasVice
      President – Gas Supply
            February
      2003M.
      C. Pendergast, Age 52Laclede
      GasVice
      President – Associate General Counsel
            January
      2002J.
      A. Fallert, Age 53Laclede
      GasController
            
            February
      1998S.
      E. Jaskowiak, Age 46LERVice
      President and General Manager
            February
      2005Managing
      Director
            May
      2003





17
 Table of Contents





*
            The
      information provided relates to the Company and its principal
      subsidiaries. Many of the executive officers have served or currently
      serve as officers or directors for other subsidiaries of the
      Company.





(1)
            Officers
      of Laclede are normally reappointed at the Annual Meeting of the Board of
      Directors in January of each year to serve at the pleasure of the Board of
      Directors for the ensuing year and until their successors are elected and
      qualify.(2)
            Mr. Darrell
      served as Assistant General Counsel for NiSource, Inc. since
      2002.(3)
            Mr.
      Abernathy served as Vice President, General Counsel and Secretary for
      American Water Works Company – Central Region since
  2002.(4)
            Mr.
      Geiselhart served as the Corporate Finance Consultant for Callaway
      Partners, LLC since 2003. During that time, he also served as Chief
      Financial Officer for both TowerLink Corporation, Inc. and Transcender
      Telecom Acquisition Corporation, Inc. Prior to that he was the founding
      Chief Financial Officer and Consultant for private equity firms for Quiet
      Water Associates, LLC from 2002 through 2003 and Vice President, Finance
      and Corporate Development for Evolution Networks, Inc. from 2000 through
      2002.








18
 Table of Contents


Part
II





Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters, and Issuer Purchases of Equity Securities





Laclede
Group’s common stock trades on The New York Stock Exchange under the symbol
“LG”. The high and the low sales price for the common stock for each quarter in
the two most recent fiscal years are:





Fiscal
      2008
            Fiscal
      2007High
            Low
            High
            Low1st
      Quarter
            35.72
            31.48
            37.51
            31.602nd
      Quarter
            36.45
            31.86
            36.03
            29.323rd
      Quarter
            41.96
            35.36
            33.24
            29.294th
      Quarter
            50.88
            37.78
            34.17
            28.84





The
number of holders of record as of September 30, 2008 was
4,447.





Dividends
declared on the common stock for the two most recent fiscal years
were:





Fiscal
      2008
            Fiscal
      20071st
      Quarter
            $0.375
            $0.3652nd
      Quarter
            $0.375
            $0.3653rd
      Quarter
            $0.375
            $0.3654th
      Quarter
            $0.375
            $0.365








Disclosures
relating to securities authorized for issuance under equity compensation plans
is incorporated by reference from the discussion in our 2008 proxy statement
under the heading “Other Matters.”





Laclede
Group periodically purchases common stock of Laclede Gas with the price set at
the book value of Laclede Gas common stock as of the most recently completed
fiscal quarter. The details on sales of common stock of Laclede Gas to Laclede
Group during the past three fiscal years are set forth below:





AggregatePurchase
      Price
            
            NumberDate
      of Sale
            
            (millions)
            
            of
      SharesFY
      2006December
      15, 2005
            
            $
            1.0
            
            30February
      21, 2006
            
            
            0.9
            
            26May
      24, 2006
            
            
            0.9
            
            25August
      15, 2006
            
            
            0.9
            
            27FY
      2007March
      23, 2007
            
            
            1.9
            
            55May
      21, 2007
            
            
            1.0
            
            27August
      10, 2007
            
            
            1.0
            
            28FY
      2008December
      20, 2007
            
            
            1.0
            
            30February
      14, 2008
            
            
            1.0
            
            28May
      12, 2008
            
            
            0.9
            
            26August
      18, 2008
            
            
            0.9
            
            25





The
proceeds from Laclede Gas’ sales of stock were used to reduce its short-term
borrowings. Exemption from registration was claimed under Section 4(2) of the
Securities Act of 1933.





For
details related to Laclede Group’s purchase of Laclede Gas’ common stock
subsequent to September 30, 2008, see Item 9B., Other Information, of
this Form 10-K.





19
 Table of Contents


Item 6.Selected Financial Data








The
Laclede Group, Inc.








Fiscal
      Years Ended September 30(Thousands,
      Except Per Share Amounts)
            
            2008
            
            2007
            
            2006
            
            2005
            
            2004Summary
      of OperationsOperating
      Revenues:Regulated
      Gas Distribution
            
            $
            1,128,287
            
            $
            1,131,554
            
            $
            1,141,011
            
            $
            978,195
            
            $
            868,905Non-Regulated
      Gas Marketing
            
            
            1,075,845
            
            
            718,704
            
            
            689,572
            
            
            469,559
            
            
            270,328Other
            
            
            4,841
            
            
            5,603
            
            
            4,445
            
            
            7,800
            
            
            6,848Total
      Operating Revenues
            
            
            2,208,973
            
            
            1,855,861
            
            
            1,835,028
            
            
            1,455,554
            
            
            1,146,081Operating
      Expenses:RegulatedNatural
      and propane gas
            
            
            770,097
            
            
            797,924
            
            
            821,721
            
            
            676,931
            
            
            575,691Other
      operation expenses
            
            
            144,611
            
            
            131,798
            
            
            128,180
            
            
            125,364
            
            
            121,596Maintenance
            
            
            25,827
            
            
            24,306
            
            
            21,198
            
            
            19,226
            
            
            18,705Depreciation
      and amortization
            
            
            35,303
            
            
            34,080
            
            
            30,904
            
            
            23,036
            
            
            22,385Taxes,
      other than income taxes
            
            
            69,023
            
            
            68,361
            
            
            71,038
            
            
            62,859
            
            
            60,077Total
      Regulated Operating Expenses
            
            
            1,044,861
            
            
            1,056,469
            
            
            1,073,041
            
            
            907,416
            
            
            798,454Non-Regulated
      Gas Marketing
            
            
            1,048,162
            
            
            698,962
            
            
            662,391
            
            
            462,348
            
            
            265,394Other
            
            
            4,603
            
            
            5,376
            
            
            5,024
            
            
            8,720
            
            
            7,263Total
      Operating Expenses
            
            
            2,097,626
            
            
            1,760,807
            
            
            1,740,456
            
            
            1,378,484
            
            
            1,071,111Operating
      Income
            
            
            111,347
            
            
            95,054
            
            
            94,572
            
            
            77,070
            
            
            74,970Allowance
      for Funds Used During Construction
            
            
            (72
            )
            
            (17
            )
            
            (45
            )
            
            (100
            )
            
            (123
            )Other
      Income and (Income Deductions) - Net
            
            
            1,953
            
            
            6,830
            
            
            5,553
            
            
            1,706
            
            
            3,757Interest
      Charges:Interest
      on long-term debt
            
            
            19,851
            
            
            22,502
            
            
            22,329
            
            
            22,835
            
            
            22,010Interest
      on long-term debt to unconsolidated
              affiliate
      trust
            
            
            486
            
            
            277
            
            
            277
            
            
            277
            
            
            277Other
      interest charges
            
            
            9,140
            
            
            11,155
            
            
            10,278
            
            
            4,141
            
            
            3,234Total
      Interest Charges
            
            
            29,477
            
            
            33,934
            
            
            32,884
            
            
            27,253
            
            
            25,521Income
      from Continuing Operations Before IncomeTaxes
      and Dividends on Laclede Gas RedeemablePreferred
      Stock
            
            
            83,751
            
            
            67,933
            
            
            67,196
            
            
            51,423
            
            
            53,083Income
      Tax Expense
            
            
            26,190
            
            
            22,146
            
            
            21,301
            
            
            16,914
            
            
            18,243Dividends
      on Laclede Gas RedeemablePreferred
      Stock
            
            
            35
            
            
            43
            
            
            48
            
            
            55
            
            
            62Income
      from Continuing Operations
            
            
            57,526
            
            
            45,744
            
            
            45,847
            
            
            34,454
            
            
            34,778Income
      from Discontinued Operations, Netof
      Income Tax
            
            
            20,396
            
            
            4,027
            
            
            3,142
            
            
            5,616
            
            
            1,278Net
      Income
            
            $
            77,922
            
            $
            49,771
            
            $
            48,989
            
            $
            40,070
            
            $
            36,056Basic
      Earnings Per Share of Common Stock:Income
      from Continuing Operations
            
            $
            2.66
            
            $
            2.13
            
            $
            2.16
            
            $
            1.63
            
            $
            1.76Income
      from Discontinued Operations
            
            
            0.94
            
            
            0.19
            
            
            0.15
            
            
            0.27
            
            
            0.06Net
      Income
            
            $
            3.60
            
            $
            2.32
            
            $
            2.31
            
            $
            1.90
            
            $
            1.82Diluted
      Earnings Per Share of Common Stock:Income
      from Continuing Operations
            
            $
            2.64
            
            $
            2.12
            
            $
            2.15
            
            $
            1.63
            
            $
            1.76Income
      from Discontinued Operations
            
            
            0.94
            
            
            0.19
            
            
            0.15
            
            
            0.27
            
            
            0.06Net
      Income
            
            $
            3.58
            
            $
            2.31
            
            $
            2.30
            
            $
            1.90
            
            $
            1.82

















20
 Table of Contents





Item
6. Selected Financial Data (continued)








The
Laclede Group, Inc.








Fiscal
      Years Ended September 30(Thousands,
      Except Per Share Amounts)
            
            2008
            
            2007
            
            2006
            
            2005
            
            2004Dividends
      Declared –Common
      Stock
            
            $
            32,776
            
            $
            31,505
            
            $
            30,045
            
            $
            29,002
            
            $
            27,183Dividends
      Declared PerShare
      of Common Stock
            
            $
            1.50
            
            $
            1.46
            
            $
            1.41
            
            $
            1.375
            
            $
            1.355Utility
      PlantGross
      Plant – End of Period
            
            $
            1,229,174
            
            $
            1,187,828
            
            $
            1,149,104
            
            $
            1,105,733
            
            $
            1,070,522Net
      Plant – End of Period
            
            
            823,197
            
            
            793,794
            
            
            763,827
            
            
            728,481
            
            
            699,144Capital
      Expenditures
            
            
            55,304
            
            
            56,434
            
            
            57,925
            
            
            54,621
            
            
            49,130Property
      Retirements
            
            
            15,629
            
            
            16,331
            
            
            22,588
            
            
            19,410
            
            
            9,276Non-Utility
      Property
            
            
            3,793
            
            
            4,065
            
            
            4,263
            
            
            3,899
            
            
            3,993Other
      Investments
            
            
            43,314
            
            
            43,635
            
            
            41,354
            
            
            36,851
            
            
            35,357Total
      Assets of Discontinued Operations
            
            
            —
            
            
            73,357
            
            
            76,353
            
            
            67,206
            
            
            57,070Total
      Assets – End of Period
            
            
            1,772,655
            
            
            1,641,153
            
            
            1,570,160
            
            
            1,434,101
            
            
            1,317,564Capitalization
      – End of PeriodCommon
      Stock and Paid-In Capital
            
            $
            169,234
            
            $
            157,707
            
            $
            148,487
            
            $
            142,677
            
            $
            137,039Retained
      Earnings
            
            
            312,808
            
            
            268,761
            
            
            250,495
            
            
            231,551
            
            
            220,483Accumulated Other Comprehensive Income (Loss)
            
            
            4,437
            
            
            1,857
            
            
            3,655
            
            
            (7,703
            )
            
            (1,607
            )Common
      Stock Equity
            
            
            486,479
            
            
            428,325
            
            
            402,637
            
            
            366,525
            
            
            355,915Laclede
      Gas Redeemable Preferred Stock
            
            
            467
            
            
            627
            
            
            787
            
            
            948
            
            
            1,108Long-Term Debt to Unconsolidated Affiliate Trust
            
            
            —
            
            
            46,400
            
            
            46,400
            
            
            46,400
            
            
            46,400Long-Term
      Debt – Laclede Gas
            
            
            389,181
            
            
            309,122
            
            
            349,041
            
            
            294,033
            
            
            333,936Total
      Capitalization
            
            $
            876,127
            
            $
            784,474
            
            $
            798,865
            
            $
            707,906
            
            $
            737,359Shares
      of Common StockOutstanding
      – End of Period
            
            
            21,993
            
            
            21,646
            
            
            21,362
            
            
            21,172
            
            
            20,981Book
      Value Per Share – End of Period
            
            $
            22.12
            
            $
            19.79
            
            $
            18.85
            
            $
            17.31
            
            $
            16.96




Note:
            Certain
      prior-period amounts have been reclassified to discontinued operations as
      a result of the sale of SM&P Utility Resources, Inc.
      (SM&P)on
      March 31, 2008. Income (Loss) from Discontinued Operations does
      not include general corporate overhead expenses previously
      recordedby
      SM&P. Associated assets are classified
  separately.








Laclede
Gas Company’s Selected Financial Data is included in Exhibit 99.1.

















21
 Table of Contents





ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS








THE
LACLEDE GROUP, INC.





INTRODUCTION





This
management’s discussion analyzes the financial condition and results of
operations of The Laclede Group, Inc. (Laclede Group or the Company) and its
subsidiaries. It includes management’s view of factors that affect its business,
explanations of past financial results including changes in earnings and costs
from the prior year periods, and their effects on overall financial condition
and liquidity.





The
Management’s Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Company’s Consolidated
Financial Statements and the Notes thereto.








RESULTS
OF OPERATIONS





Laclede
Group’s earnings are primarily derived from the regulated activities of its
largest subsidiary, Laclede Gas Company (Laclede Gas or the Utility), Missouri’s
largest natural gas distribution company. Laclede Gas is regulated by the
Missouri Public Service Commission (MoPSC or Commission) and serves the City of
St. Louis and parts of ten other counties in eastern Missouri. Laclede Gas
delivers natural gas to retail customers at rates and in accordance with tariffs
authorized by the MoPSC. The Utility’s earnings are primarily generated by the
sale of heating energy. The Utility’s innovative weather mitigation rate design
lessens the impact of weather volatility on Laclede Gas customers during cold
winters and stabilizes the Utility’s earnings by recovering fixed costs more
evenly during the heating season. Due to the seasonal nature of the business of
Laclede Gas, Laclede Group’s earnings are seasonal in nature and are typically
concentrated in the November through April period, which generally corresponds
with the heating season.





On
March 31, 2008, the Company completed the sale of 100% of its interest
in its wholly-owned subsidiary SM&P Utility Resources, Inc. (SM&P) to
Stripe Acquisition, Inc. (an affiliate of Kohlberg Management VI, LLC) for $85
million in cash, subject to certain closing and post-closing adjustments.
SM&P is an underground facilities locating and marking business that
formerly comprised Laclede Group’s Non-Regulated Services operating segment. The
sales agreement included representations, warranties, and indemnification
provisions customary for such transactions and was filed as an exhibit to the
March 31, 2008 Form 10-Q. In accordance with generally accepted
accounting principles, the results of operations for SM&P are reported as
discontinued operations in the Consolidated Statements of Income and its
associated assets and liabilities are classified separately in the Consolidated
Balance Sheets.





Laclede
Energy Resources, Inc. (LER) is engaged in the marketing of natural gas and
related activities on a non-regulated basis. LER markets natural gas to both
on-system Utility transportation customers and customers outside of Laclede Gas’
traditional service territory, including large retail and wholesale customers.
As such, LER’s operations and customer base are subject to fluctuations in
market conditions.





Other
subsidiaries provide less than 10% of consolidated revenues.





Laclede
Group’s strategy continues to include efforts to stabilize and improve the
performance of its core Utility, while developing non-regulated businesses and
taking a measured approach in the pursuit of additional growth opportunities
that complement the Utility business.


22
 Table of Contents





As
for the Utility, mitigating the impact of weather fluctuations on Laclede Gas
customers while improving the ability to recover its authorized distribution
costs and return continues to be a fundamental component of Laclede Group’s
strategy. The Utility’s distribution costs are the essential, primarily fixed
expenditures it must incur to operate and maintain a more than 16,000 mile
natural gas distribution system and related storage facilities. With regard to
the storage facilities owned by Laclede Gas, management is currently undertaking
an evaluation of the Utility’s natural gas storage field, which was developed
more than 50 years ago, to assess the field’s current and future capabilities.
In addition, Laclede Gas is working to continually improve its ability to
provide reliable natural gas service at a reasonable cost, while maintaining and
building a secure and dependable infrastructure. The settlement of the Utility’s
2007 rate case resulted in enhancements to the Utility’s weather mitigation rate
design that better ensure the recovery of its fixed costs and margins despite
variations in sales volumes due to the impacts of weather and other factors that
affect customer usage. The Utility’s income from off-system sales remains
subject to fluctuations in market conditions. In conjunction with the settlement
of the 2005 rate case, effective October 1, 2005, the Utility retained
all pre-tax income from off-system sales and capacity release revenues up to $12
million annually. Pre-tax amounts in excess of $12 million were shared with
customers, with the Utility retaining 50% of amounts exceeding that threshold.
The Stipulation & Agreement approved by the MoPSC in the Utility’s 2007 rate
case increases the portion of pre-tax income from off-system sales and capacity
release revenues that is shared with customers. Effective
October 1, 2007, the Utility is allowed to retain 15% to 25% of the
first $6 million in annual income earned (depending on the level of income
earned) and 30% of income exceeding $6 million annually. Some of the factors
impacting the level of off-system sales include the availability and cost of the
Utility’s natural gas supply, the weather in its service area, and the weather
in other markets. When Laclede Gas’ service area experiences warmer-than-normal
weather while other markets experience colder weather or supply constraints,
some of the Utility’s natural gas supply is available for off-system sales and
there may be a demand for such supply in other markets.





Laclede
Gas continues to work actively to reduce the impact of higher costs associated
with wholesale natural gas prices by strategically structuring its natural gas
supply portfolio and through the use of financial instruments. Nevertheless, the
overall cost of purchased gas remains subject to fluctuations in market
conditions. The Utility’s Purchased Gas Adjustment (PGA) Clause allows Laclede
Gas to flow through to customers, subject to prudence review, the cost of
purchased gas supplies, including costs, cost reductions, and related carrying
costs associated with the use of financial instruments to hedge the purchase
price of natural gas, as well as gas inventory carrying costs. The Utility
believes it will continue to be able to obtain sufficient gas supply. The
generally higher price levels, relative to historical levels, may continue to
affect sales volumes (due to the conservation efforts of customers) and cash
flows (associated with the timing of collection of gas costs and related
accounts receivable from customers).





Laclede
Group continues to develop its other subsidiaries. LER continues to focus on
growing its markets on a long-term and sustainable basis by providing both
on-system Utility transportation customers and customers outside of Laclede Gas’
traditional service area with another choice in non-regulated natural gas
suppliers. LER is working to assemble the team, technology, and resources
necessary to expand its geographic service area and the range of services that
it now provides. Nevertheless, income from LER’s operations is subject to
fluctuations in market conditions. LER reported record earnings during fiscal
year 2006 as a result of higher margins, caused by Gulf Coast market volatility,
as well as higher wholesale sales volumes. During fiscal 2008, LER reported new
record earnings, exceeding fiscal 2006, primarily due to improved margins on
sales of natural gas and higher wholesale sales volumes.





23
 Table of Contents


EARNINGS





Overview
– Net Income by Operating Segment





(Millions,
After-tax )


Years
      Ended September 30
            
            
            2008
            
            
            
            2007
            
            
            
            2006Regulated
      Gas Distribution
            
            
            $
            39.1
            
            
            
            $
            32.1
            
            
            
            $
            28.8Non-Regulated
      Gas Marketing
            
            
            
            19.3
            
            
            
            
            13.3
            
            
            
            
            17.1Other
            
            
            
            (0.9
            )
            
            
            
            0.4
            
            
            
            
            —Income
      from Continuing Operations
            
            
            
            57.5
            
            
            
            
            45.8
            
            
            
            
            45.9Income
      from Discontinued Operations
            
            
            
            20.4
            
            
            
            
            4.0
            
            
            
            
            3.1Net
      Income
            
            
            $
            77.9
            
            
            
            $
            49.8
            
            
            
            $
            49.0





Laclede
Group’s consolidated net income was $77.9 million in fiscal year 2008, compared
with $49.8 million in fiscal year 2007, and $49.0 million in fiscal year 2006.
Net income increased $28.1 million, or 56.4%, in fiscal year 2008 (compared with
fiscal year 2007) largely due to the net effect of the one-time gain realized on
the sale of Laclede Group’s wholly-owned subsidiary, SM&P, on
March 31, 2008 and the impact of SM&P’s seasonal operating loss
for the period prior to the sale. Earnings results reported by both Laclede
Group’s Regulated Gas Distribution segment and its Non-Regulated Gas Marketing
segment also increased over fiscal year 2007. Net income increased $0.8 million,
or 1.6%, in fiscal year 2007 (compared with fiscal year 2006) primarily due to
improved results reported by Laclede Group’s Regulated Gas Distribution segment
and the effect of SM&P’s increased operating income (reported as
discontinued operations), partially offset by lower earnings recorded by Laclede
Group’s Non-Regulated Gas Marketing segment.





Basic
and diluted earnings per share were $3.60 and $3.58, respectively, for fiscal
year 2008 compared with basic and diluted earnings per share of $2.32 and $2.31,
respectively, for fiscal year 2007, and $2.31 and $2.30, respectively for fiscal
year 2006. The year-to-year increases in earnings per share were primarily due
to the effect of higher net income in each period.





Income
from Continuing Operations





Laclede
Group’s income from continuing operations was $57.5 million in fiscal year 2008,
compared with $45.8 million in fiscal year 2007, and $45.9 million in fiscal
year 2006. Income from Continuing Operations increased $11.7 million, or 25.5%,
in fiscal year 2008 (compared with fiscal year 2007) primarily due to improved
results reported by both Laclede Group’s Regulated Gas Distribution segment and
its Non-Regulated Gas Marketing segment. Income from Continuing Operations
decreased $0.1 million in fiscal year 2007 (compared with fiscal year 2006)
primarily due to lower earnings recorded by Laclede Group’s Non-Regulated
Marketing Segment, largely offset by improved results reported by Laclede
Group’s Regulated Gas Distribution segment.





Basic
and diluted earnings per share from continuing operations were $2.66 and $2.64,
respectively, for fiscal year 2008, compared with basic and diluted earnings per
share of $2.13 and $2.12, respectively, for fiscal year 2007, and $2.16 and
$2.15, respectively, for fiscal year 2006. Variations in income from continuing
operations were primarily attributable to the factors described
below.





2008 vs.
2007





Regulated
Gas Distribution net income increased by $7.0 million in 2008, compared with
2007. The increase in net income was primarily due to the following factors,
quantified on a pre-tax basis:





•
            the
      benefit of the general rate increase, effective August 1, 2007, totaling
      $32.9 million;•
            the
      recognition of previously unrecognized tax benefits and the reversal of
      related expenses, totaling $1.6 million; and,•
            the
      effect of higher system gas sales volumes and other variations totaling
      $1.1 million.





24
 Table of Contents


These
factors were partially offset by:





•
            lower
      income from off-system sales and capacity release, totaling $10.2 million,
      primarily due to a reduction in the Utility’s share of such income
      (pursuant to the 2007 rate case);•
            increases
      in operation and maintenance expenses, excluding the provision for
      uncollectible accounts, totaling $8.3 million; and,•
            an
      increase in the provision for uncollectible accounts, totaling $6.0
      million.





The
Non-Regulated Gas Marketing segment reported earnings totaling $19.3 million for
fiscal year 2008, an increase in earnings of $6.0 million compared with fiscal
year 2007. The increased earnings were primarily due to improved margins on
sales of natural gas by LER, 15% higher sales volumes, and the effect of a
reversal of tax-related expenses during fiscal year 2008.





2007 vs.
2006





Regulated
Gas Distribution net income increased by $3.3 million in 2007, compared with
2006. The increase in net income was primarily due to the following factors,
quantified on a pre-tax basis:





•
            the
      effect of higher system gas sales volumes, primarily due to colder weather
      and other variations totaling $6.7 million;•
            the
      benefit of the general rate increase, effective August 1, 2007, totaling
      $5.3 million; and,•
            higher
      Infrastructure System Replacement Surcharge (ISRS) revenues totaling $2.6
      million.





These
factors were partially offset by:





•
            increases
      in operation and maintenance expenses totaling $6.7 million;
      and,•
            higher
      depreciation and amortization expense totaling $3.2 million resulting from
      the implementation of new depreciation rates effective
      January 1, 2006, as authorized by the MoPSC, and additional
      depreciable property.





The
Non-Regulated Gas Marketing segment reported earnings totaling $13.3 million for
fiscal 2007, a decrease in earnings of $3.8 million compared with 2006. While
LER achieved increased sales volumes in fiscal year 2007 over fiscal year 2006,
margins in fiscal year 2007 were reduced as volatility in Gulf Coast markets
stabilized. LER’s sales volumes increased 30% over the same period last year,
principally as a result of increased interstate pipeline wholesale
transactions.





Regulated
Gas Distribution Operating Revenues





2008 vs.
2007





Regulated
Gas Distribution Operating Revenues for fiscal year 2008 decreased $3.3 million
compared to fiscal year 2007 due in part to lower wholesale gas costs.
Temperatures experienced in the Utility’s service area during 2008 were 6.8%
colder than the same period last year, but 1.1% warmer than normal. Total system
therms sold and transported were 0.93 billion for fiscal year 2008 compared with
0.91 billion for fiscal year 2007. Total off-system therms sold and transported
were 0.14 billion for fiscal year 2008 compared with 0.21 billion for fiscal
year 2007. The decrease in Regulated Gas Distribution Operating Revenues was
primarily attributable to the following factors:





(Millions)Lower
      off-system sales volumes (reflecting less favorable market conditions as
      described in greater detailin
      the Results of Operations)
            
            $
            (47.9
            )Lower
      wholesale gas costs passed on to Utility customers (subject to prudence
      review by the MoPSC)
            
            
            (38.2
            )General
      rate increase, effective August 1, 2007
            
            
            32.9Higher
      system sales volumes, primarily due to colder weather and other
      variations
            
            
            27.3Higher
      prices charged for off-system sales
            
            
            24.0Lower
      ISRS revenues
            
            
            (1.4
            )Total
      Variation
            
            $
            (3.3
            )





25
 Table of Contents





2007 vs.
2006





Regulated
Gas Distribution Operating Revenues for fiscal year 2007 decreased $9.5 million
compared to fiscal year 2006 due in part to lower wholesale gas costs.
Temperatures experienced in the Utility’s service area during 2007 were 5.7%
colder than fiscal year 2006, but 7.4% warmer than normal. Total system therms
sold and transported were 0.91 billion for fiscal year 2007 compared with 0.87
billion for fiscal year 2006. Total off-system therms sold and transported were
0.21 billion for fiscal year 2007 compared with 0.16 billion for fiscal year
2006. The decrease in Regulated Gas Distribution Operating Revenues was
primarily attributable to the following factors:





(Millions)Lower
      wholesale gas costs passed on to Utility customers (subject to prudence
      review by the MoPSC)
            
            $
            (111.6
            )Higher
      system sales volumes, primarily due to colder weather and other
      variations
            
            
            80.6Higher
      off-system sales volumes
            
            
            48.1Lower
      prices charged for off-system sales
            
            
            (34.5
            )General
      rate increase, effective August 1, 2007
            
            
            5.3Higher
      ISRS revenues implemented June 15, 2006,
      January 2, 2007, and June 16, 2007
            
            
            2.6Total
      Variation
            
            $
            (9.5
            )





Regulated
Operating Expenses





2008 vs.
2007





Regulated
Operating Expenses in fiscal year 2008 decreased $11.6 million, or 1.1%, from
fiscal year 2007. Natural and propane gas expense decreased $27.8 million from
last year’s level, primarily attributable to lower rates charged by our
suppliers and lower off-system gas expense, partially offset by higher system
volumes purchased for sendout. Other operation and maintenance expenses
increased $14.3 million, or 9.2%, primarily due to a higher provision for
uncollectible accounts, increased maintenance and distribution expenses,
increased wage rates, higher legal fees, increased pension costs, and the effect
of a gain on the disposal of assets recorded last year. Depreciation and
amortization expense increased $1.2 million, or 3.6%, primarily due to
additional depreciable property.





2007 vs.
2006





Regulated
Operating Expenses in fiscal year 2007 decreased $16.6 million, or 1.5%, from
fiscal year 2006. Natural and propane gas expense decreased $23.8 million from
fiscal year 2006, primarily attributable to lower rates charged by our
suppliers, which was partially offset by higher system volumes purchased for
sendout and increased off-system gas expense. Other operation and maintenance
expenses increased $6.7 million, or 4.5%, primarily due to increased maintenance
and distribution charges, increased group insurance charges, higher wage rates,
and a higher provision for uncollectible accounts. These factors were partially
offset by decreased injuries and damages expense as well as a gain on the
disposal of assets. Depreciation and amortization expense increased $3.2
million, or 10.3%, primarily due to higher rates authorized in the 2005 rate
case effective January 1, 2006 and additional depreciable property.
Taxes, other than income taxes, decreased $2.7 million, or 3.8%, primarily due
to lower property taxes and decreased gross receipts taxes (attributable to the
decreased revenues).





Non-Regulated
Gas Marketing Operating Revenues and Operating Expenses





Non-Regulated
Gas Marketing Operating Revenues increased $357.1 million in fiscal year 2008
from those revenues for fiscal year 2007 primarily due to higher per unit gas
sales prices charged by LER and increased sales volumes. The increase in
Non-Regulated Gas Marketing Operating Expenses of $349.2 million was primarily
associated with higher prices charged by suppliers and increased volumes
purchased.





Non-Regulated
Gas Marketing Operating Revenues increased $29.1 million in fiscal year 2007
from those revenues for fiscal year 2006 primarily due to increased sales
volumes by LER, partially offset by lower per unit gas sales prices. The
increase in Non-Regulated Gas Marketing Operating Expenses of $36.6 million was
primarily associated with increased gas expense related to increased volumes
purchased, partially offset by lower prices.


26
 Table of Contents





Other
Income and (Income Deductions)-Net





Other
Income and (Income Deductions)-Net decreased $4.9 million in fiscal year 2008
(compared to fiscal year 2007), due to higher investment losses, a loss on the
redemption of long-term debt (primarily unamortized issuance costs), lower
income associated with carrying costs applied to under-recoveries of gas costs,
and increased charitable donations. These factors were partially offset by a
reversal of tax-related expenses and additional proceeds related to the
Company’s interest, as a policyholder, in the sale of a mutual insurance
company. Carrying costs on under-recoveries of gas costs are recovered through
the Utility’s PGA Clause.





The
$1.3 million increase in Other Income and (Income Deductions)-Net in fiscal year
2007 from fiscal year 2006 was primarily due to increased investment income,
higher interest income, and other minor variations, partially offset by lower
income associated with carrying costs applied to under-recoveries of gas
costs.





Interest
Charges





The
$4.5 million decrease in interest charges in fiscal year 2008 was primarily due
to a reduction in interest on long-term debt resulting from the
November 2007 maturity of $40 million principal amount of 7 1/2% First
Mortgage Bonds, lower interest on short-term debt, and the reversal of
tax-related expenses. The $1.1 million increase in interest charges in fiscal
year 2007 (over fiscal year 2006) was primarily due to higher interest on
short-term debt and other minor variations. Average short-term interest rates
were 4.1% this year compared with 5.4% in fiscal year 2007 and 4.7% in fiscal
year 2006. Average short-term borrowings were $180.7 million, $156.2 million,
and $172.4 million for fiscal years 2008, 2007, and 2006,
respectively.





Income
Taxes





The
$4.0 million increase in income taxes in fiscal year 2008 was primarily due to
higher pre-tax income, partially offset by the recognition of previously
unrecognized tax benefits recorded pursuant to Financial Accounting Standards
Board Interpretation No. (FIN) 48.





The
$0.8 million increase in income tax expense for fiscal year 2007 was primarily
due to higher pre-tax income and the effect of lower income tax expense in
fiscal year 2006 associated with a change in estimated tax depreciation and
other property-related deductions.





Income
from Discontinued Operations





The
sale of SM&P on March 31, 2008 resulted in after-tax earnings of
$25.4 million, net of associated costs of disposal. Income from discontinued
operations for fiscal year 2008 was $20.4 million, consisting of the net effect
of the sale and SM&P’s seasonal operating loss through the March 31
sale date. Income from discontinued operations for fiscal years 2007 and 2006
were $4.0 million and $3.1 million, respectively, reflecting SM&P’s
operating income for those periods.





Basic
and diluted earnings per share from discontinued operations were $0.94 for
fiscal year 2008, $0.19 for fiscal year 2007, and $0.15 for fiscal year
2006.





Labor
Agreement





Laclede
Gas has a labor agreement with Locals 11-6 and 11-194 of the United Steel, Paper
and Forestry, Rubber, Manufacturing, Energy, Allied-Industrial and Service
Workers International Union (Union), which represents approximately 65% of
Laclede Gas’ employees. On August 4, 2008, Laclede Gas and Union
representatives reached a new four-year labor agreement, replacing the prior
agreement that expired at midnight, July 31, 2008. The new contract
will expire at midnight on July 31, 2012. The new contract includes
revisions to the defined benefit plan pension formula, changes in wage rates and
work rules, and other modifications that enable the Utility to provide high
quality service to its customers and control operating costs while continuing to
provide competitive wages, pension, and healthcare benefits to its
employees.





The
Missouri Natural Division of Laclede Gas has a labor agreement with Local 11-884
of the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy,
Allied-Industrial and Service Workers International Union, which represents
approximately 5% of Laclede Gas’ employees. The agreement expires on
April 15, 2009.





27
 Table of Contents





CRITICAL
ACCOUNTING POLICIES





Our
discussion and analysis of our financial condition, results of operations,
liquidity, and capital resources is based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. Generally accepted
accounting principles require that we make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. We evaluate our estimates on an
ongoing basis. We base our estimates on historical experience and on various
other assumptions that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates. We believe the following
represent the more significant items requiring the use of judgment and estimates
in preparing our consolidated financial statements:





Allowances for Doubtful
      Accounts – Estimates of the collectibility of trade accounts
      receivable are based on historical trends, age of receivables, economic
      conditions, credit risk of specific customers, and other factors. The
      Utility’s provision for uncollectible accounts is dependent on the
      regulatory treatment provided for such costs. As approved by the MoPSC,
      the Utility was allowed to defer for future recovery uncollectible
      expenses associated with amendments to the Cold Weather Rule for fiscal
      years 2006 and 2007.





Employee Benefits and
      Postretirement Obligations – Pension and postretirement obligations
      are calculated by actuarial consultants that utilize several statistical
      factors and other assumptions provided by Management related to future
      events, such as discount rates, returns on plan assets, compensation
      increases, and mortality rates. For the Utility, the amount of expense
      recognized and the amounts reflected in other comprehensive income are
      dependent upon the regulatory treatment provided for such costs, as
      discussed further below. Certain liabilities related to group medical
      benefits and workers’ compensation claims, portions of which are
      self-insured and/or contain “stop-loss” coverage with third-party insurers
      to limit exposure, are established based on historical
    trends.





28
 Table of Contents


The
table below reflects the sensitivity of Laclede’s plans to potential changes in
key assumptions:





Pension
      Plan Benefits:Estimated
            
            
            
            EstimatedIncrease/
            
            
            
            Increase/(Decrease)
      to
            
            
            
            (Decrease)
      toProjected
            
            
            
            AnnualBenefit
            
            
            
            Net
      PensionIncrease/
            
            
            
            Obligation
            
            
            
            Cost*Actuarial
      Assumptions
            
            (Decrease)
            
            
            
            (Thousands)
            
            
            
            (Thousands)Discount
      Rate
            
            0.25
            %
            
            
            $
            (7,610
            )
            
            $
            (171
            )(0.25
            )
            
            
            
            7,820
            
            
            
            160Rate
      of Future Compensation Increase
            
            0.25
            %
            
            
            
            5,900
            
            
            
            750(0.25
            )
            
            
            
            (5,700
            )
            
            
            (730
            )Expected
      Return on Plan Assets
            
            0.25
            %
            
            
            
            —
            
            
            
            (630
            )(0.25
            )
            
            
            
            —
            
            
            
            630Postretirement
      Benefits:Estimated
            
            
            
            EstimatedIncrease/
            
            
            
            Increase/(Decrease)
      to
            
            
            
            (Decrease)
      toProjected
            
            
            
            Annual
      NetPostretirement
            
            
            
            PostretirementBenefit
            
            
            
            BenefitIncrease/
            
            
            
            
            Obligation
            
            
            
            Cost*Actuarial
      Assumptions
            
            (Decrease)
            
            
            
            
            (Thousands)
            
            
            
            (Thousands)Discount
      Rate
            
            0.25
            %
            
            
            $
            (1,500
            )
            
            $
            (101
            )(0.25
            )
            
            
            
            1,540
            
            
            
            101Expected
      Return on Plan Assets
            
            0.25
            %
            
            
            
            —
            
            
            
            (67
            )(0.25
            )
            
            
            
            —
            
            
            
            67Annual
      Medical Cost Trend
            
            1.00
            %
            
            
            
            3,570
            
            
            
            (790
            )(1.00
            )
            
            
            
            (3,240
            )
            
            
            700*
      Excludes the impact of regulatory deferral mechanism. See Note 3, Pension
      Plans and Other Postretirement Benefits, of the Notes to Consolidated
      Financial Statements for information regarding the regulatory treatment of
      these costs.





29
 Table of Contents


Regulated Operations–Laclede
Gas accounts for its regulated operations in accordance with Statement of
Financial Accounting Standards (SFAS) No. 71, “Accounting for the Effects of
Certain Types of Regulation.” This Statement sets forth the application of
accounting principles generally accepted in the United States of America for
those companies whose rates are established by or are subject to approval by an
independent third-party regulator. The provisions of SFAS No. 71 require, among
other things, that financial statements of a regulated enterprise reflect the
actions of regulators, where appropriate. These actions may result in the
recognition of revenues and expenses in time periods that are different than
non-regulated enterprises. When this occurs, costs are deferred as assets in the
balance sheet (regulatory assets) and recorded as expenses when those amounts
are reflected in rates. Also, regulators can impose liabilities upon a regulated
company for amounts previously collected from customers and for recovery of
costs that are expected to be incurred in the future (regulatory liabilities).
Management believes that the current regulatory environment supports the
continued use of SFAS No. 71 and that all regulatory assets and regulatory
liabilities are recoverable or refundable through the regulatory process.
Management believes the following represent the more significant items recorded
through the application of SFAS No. 71:





The
      Utility’s PGA Clause allows Laclede Gas to flow through to customers,
      subject to prudence review, the cost of purchased gas supplies, including
      the costs, cost reductions, and related carrying costs associated with the
      Utility’s use of natural gas financial instruments to hedge the purchase
      price of natural gas. The difference between actual costs incurred and
      costs recovered through the application of the PGA are recorded as
      regulatory assets and regulatory liabilities that are recovered or
      refunded in a subsequent period. The PGA Clause also authorizes the
      Utility to recover costs it incurs to finance its investment in gas
      supplies that are purchased during the storage injection season for sale
      during the heating season. The PGA Clause also permits the application of
      carrying costs to all over- or under-recoveries of gas costs, including
      costs and cost reductions associated with the use of financial
      instruments. Effective October 1, 2007, the PGA Clause also
      provides for a portion of income from off-system sales and capacity
      release revenues to be flowed through to customers.The
      Company records deferred tax liabilities and assets measured by enacted
      tax rates for the net tax effect of all temporary differences between the
      carrying amounts of assets and liabilities for financial reporting
      purposes, and the amounts used for income tax purposes. Changes in enacted
      tax rates, if any, and certain property basis differences will be
      reflected by entries to regulatory asset or regulatory liability accounts
      for regulated companies, and will be reflected as income or loss for
      non-regulated companies. Pursuant to the direction of the MoPSC, Laclede
      Gas’ provision for income tax expense for financial reporting purposes
      reflects an open-ended method of tax depreciation. Laclede Gas’ provision
      for income tax expense also records the income tax effect associated with
      the difference between overheads capitalized to construction for financial
      reporting purposes and those recognized for tax purposes without recording
      an offsetting deferred income tax expense. These two methods are
      consistent with the regulatory treatment prescribed by the
      MoPSC.Asset
      retirement obligations are recorded in accordance with SFAS No. 143,
      “Accounting for Asset Retirement Obligations” and FIN 47, “Accounting for
      Conditional Asset Retirement Obligations.” Asset retirement obligations
      are calculated using various assumptions related to the timing, method of
      settlement, inflation, and profit margins that third parties would demand
      to settle the future obligations. These assumptions require the use of
      judgment and estimates and may change in future periods as circumstances
      dictate. As authorized by the MoPSC, Laclede Gas accrues future removal
      costs associated with its property, plant and equipment through its
      depreciation rates, even if a legal obligation does not exist as defined
      by SFAS No. 143 and FIN 47. The difference between removal costs
      recognized in depreciation rates and the accretion expense and
      depreciation expense recognizable under SFAS No. 143 and FIN 47 is a
      timing difference between the recovery of these costs in rates and their
      recognition for financial reporting purposes. Accordingly, consistent with
      SFAS No. 71, these differences are deferred as regulatory
      liabilities.





30
 Table of Contents





The
      amount of net periodic pension and other postretirement benefit cost
      recognized in the financial statements related to the Utility’s qualified
      pension plans and other postretirement benefit plans is based upon
      allowances, as approved by the MoPSC, which have been established in the
      rate-making process for the recovery of these costs from customers. The
      differences between these amounts and actual pension and other
      postretirement benefit costs incurred for financial reporting purposes are
      deferred as regulatory assets or regulatory liabilities. SFAS No. 158,
      “Employers’ Accounting for Defined Benefit Pension and Other
      Postretirement Plans,” requires that changes that affect the funded status
      of pension and other postretirement benefit plans, but that are not yet
      required to be recognized as components of pension and other
      postretirement benefit cost, be reflected in other comprehensive income.
      For the Utility’s qualified pension plans and other postretirement benefit
      plans, amounts that would otherwise be reflected in other comprehensive
      income are deferred with entries to regulatory assets or regulatory
      liabilities.





For
further discussion of significant accounting policies, see Note 1 to the
Consolidated Financial Statements included on page 48.








REGULATORY
MATTERS





There
have been several significant regulatory developments affecting Laclede
Gas.





During
fiscal 2006, the MoPSC approved permanent modifications to the Cold Weather Rule
affecting the disconnection and reconnection practices of utilities during the
winter heating season. Those modifications included provisions to allow the
Utility to obtain accounting authorizations and defer for future recovery
certain costs incurred with the modifications. During fiscal 2007, the
Utility deferred for future recovery $2.7 million of costs associated with the
fiscal 2007 heating season. On October 31, 2007, the Utility
filed for determination and subsequent recovery of the deferred amount. On
November 16, 2007, the MoPSC directed the MoPSC Staff and the Missouri
Office of Public Counsel (Public Counsel) to submit their positions regarding
the Utility’s filing by February 28, 2008. On
February 28, 2008, the Utility and the MoPSC Staff filed a
Non-Unanimous Stipulation & Agreement in which these parties agreed to a
recovery of $2.5 million of costs. The Non-Unanimous Stipulation & Agreement
was opposed by Public Counsel, and a hearing in this matter was held before the
Commission on March 31, 2008. On April 17, 2008, the
Commission issued its Report and Order approving the $2.5 million cost recovery
recommended by the Utility and the MoPSC Staff. Consistent with the approved
amount, the Utility recorded a reduction in its deferral totaling $0.2 million
during the quarter ended March 31, 2008. On May 29, 2008,
Public Counsel appealed the MoPSC’s April 17 Order to the Cole County,
Missouri Circuit Court. Laclede Gas believes that Public Counsel’s appeal is
without merit and is vigorously opposing the appeal.





On
November 9, 2007, the Utility made an ISRS filing with the Commission
designed to increase revenues by $1.6 million annually. On
January 15, 2008, the Commission approved implementation of the
surcharge to be effective January 18, 2008. On
April 25, 2008, the Utility made an ISRS filing with the Commission
designed to increase revenues by $1.9 million annually. On
June 24, 2008, the Commission approved implementation of the surcharge
in the full amount requested, effective June 30, 2008.





On
December 28, 2006, the MoPSC Staff proposed a disallowance of $7.2
million related to Laclede Gas’ recovery of its purchased gas costs applicable
to fiscal 2005. On September 14, 2007, the Staff withdrew its pursuit
of $5.5 million of the disallowance it had originally proposed. Laclede Gas
believes that the remaining $1.7 million of the MoPSC Staff’s proposed
disallowance lacks merit and is vigorously opposing the adjustment in
proceedings before the MoPSC.





On
December 31, 2007, the MoPSC Staff proposed a disallowance of $2.8
million related to Laclede Gas’ recovery of its purchased gas costs applicable
to fiscal 2006. Laclede Gas believes that the MoPSC Staff’s position lacks
merit and is vigorously opposing the adjustment in proceedings before the MoPSC.
In addition, the MoPSC’s Staff raised questions regarding whether certain sales
and capacity release transactions, subject to the Federal Energy Regulatory
Commission (FERC)’s oversight, were consistent with the FERC’s regulations and
policies regarding capacity release. The Company commenced an internal review of
the questions raised by the MoPSC Staff and notified the FERC Staff that it took
this action. Subsequently, as a result of the internal review, the Company has
provided the FERC Staff with a report regarding compliance of sales and capacity
release activities with the FERC’s regulations and policies. On
July 23, 2008, the FERC Staff requested additional information, which
the Company provided on August 22, 2008 and
September 2, 2008.


31
 Table of Contents





On
July 9, 2008, Laclede Gas made a tariff filing with the MoPSC that
would make the payment provisions for the restoration of gas service under the
Utility’s Cold Weather Rule available to customers in the summer of 2008 and
enable the Utility to increase or decrease its PGA rates to correct for any
shortfall or surplus created by the difference between the gas cost portion of
the Utility’s actual net bad debt write-offs and the amount of such cost that is
embedded in its existing rates. The MoPSC suspended the tariff on
August 5, 2008 and established a procedural schedule to consider the
Utility’s filing. Hearings are scheduled for December 8, 2008. As a
result, the Cold Weather Rule portion of the filing is now moot, but the
remainder of the filing is pending before the MoPSC.








ACCOUNTING
PRONOUNCEMENTS





The
Company has evaluated or is in the process of evaluating the impact that
recently issued accounting standards will have on the Company’s financial
position or results of operations upon adoption. For disclosures related to the
adoption of new accounting standards, see the New Accounting Standards section
of Note 1 to the Consolidated Financial Statements.








INFLATION





The
accompanying consolidated financial statements reflect the historical costs of
events and transactions, regardless of the purchasing power of the dollar at the
time. Due to the capital-intensive nature of the business of Laclede Gas, the
most significant impact of inflation is on the depreciation of utility plant.
Rate regulation, to which Laclede Gas is subject, allows recovery through its
rates of only the historical cost of utility plant as depreciation. While no
plans exist to undertake replacements of plant in service other than normal
replacements and those under existing replacement programs, Laclede Gas believes
that any higher costs experienced upon replacement of existing facilities would
be recovered through the normal regulatory process.








CREDIT
RATINGS





Current
credit ratings for Laclede Group and Laclede Gas issues are as
follows:





Type
      of Facility
            S&P
            Moody’s
            FitchLaclede
      Group Issuer Rating
            A
            
            A-Laclede
      Gas First Mortgage Bonds
            A
            A3
            A+Laclede
      Gas Commercial Paper
            A-1
            P-2
            F1





The
Company has investment grade ratings and believes that it will have adequate
access to the financial markets to meet its capital requirements. These ratings
remain subject to review and change by the rating agencies.








CASH
FLOWS





The
Company’s short-term borrowing requirements typically peak during colder months
when Laclede Gas borrows money to cover the lag between when it purchases its
natural gas and when its customers pay for that gas. Changes in the wholesale
cost of natural gas (including cash payments for margin deposits associated with
the Utility’s use of natural gas financial instruments), variations in the
timing of collections of gas cost under the Utility’s PGA Clause, and the
utilization of storage gas inventories cause short-term cash requirements to
vary during the year and from year to year, and can cause significant variations
in the Utility’s cash provided by or used in operating activities.





Net
cash used in operating activities for fiscal year 2008 was $36.5 million. Net
cash provided by operating activities for fiscal year 2007 was $81.3 million.
Net cash used in operating activities was $8.3 million for fiscal year 2006. The
year-to-year variations are primarily attributable to the timing of the
Utility’s cash receipts and payments related to accounts payable, accounts
receivable, deferred purchased gas cost (including variations in cash payments
for margin deposits associated with the use of natural gas financial
instruments), and the cost of natural gas storage inventories, all of which were
impacted by year-to-year changes in the wholesale cost of natural
gas.


32
 Table of Contents





Net
cash provided by investing activities was $26.9 million for fiscal year 2008.
Net cash used in investing activities for fiscal years 2007 and 2006 were $58.7
million and $72.4 million, respectively. Net cash provided by investing
activities in fiscal year 2008 is primarily attributable to the proceeds from
the sale of SM&P, partially offset by capital expenditures. Net cash used in
investing activities in fiscal years 2007 and 2006 primarily reflected capital
expenditures and an acquisition by SM&P in fiscal 2006.





Net
cash used in financing activities for fiscal years 2008 and 2007 was $28.3
million and $20.6 million, respectively. Net cash provided by financing
activities was $125.5 million for fiscal year 2006. The variation in net cash
used in financing activities in fiscal year 2008 (over fiscal year 2007) was
primarily attributable to the redemption of the Company’s long-term debt to an
unconsolidated affiliate trust and the maturity of long-term debt, partially
offset by the issuance of additional long-term debt. The Company used a portion
of the proceeds from the aforementioned sale of SM&P to fund the redemption
of the long-term debt to the unconsolidated affiliate trust. The variation in
net cash used in financing activities in fiscal year 2007 compared with net cash
provided by financing activities in fiscal year 2006 was primarily attributable
to the level of short-term debt required in each year as a result of
fluctuations in cash provided by operating activities associated with the effect
of changes in natural gas prices described previously.








LIQUIDITY
AND CAPITAL RESOURCES





Short-term
Debt





As
indicated above, the Company’s short-term borrowing requirements typically peak
during the colder months. These short-term cash requirements have traditionally
been met through the sale of commercial paper supported by lines of credit with
banks. Laclede Gas has a line of credit in place of $320 million from 10 banks,
with the largest portion provided by a single bank being 17.5%. During the
second quarter of fiscal 2008, the expiration of this line was extended one year
to December 2011 from December 2010. In November 2007, the
Utility established a seasonal line of credit of $40 million, which expired in
March 2008. Subsequent to the end of fiscal year 2008, Laclede Gas
established a seasonal line of credit of $75 million, which will expire in
March 2009. Including both lines of credit, the largest portion provided by
a single bank is 26.8%. Due to unfavorable terms in the commercial paper markets
near the end of fiscal year 2008, Laclede Gas utilized its line of credit as a
more economical source of short-term financing. Short-term commercial paper
borrowings outstanding at September 30, 2008 were $61.7 million, while
outstanding bank line advances were $154.2 million. The weighted average
interest rate on these short-term borrowings was 4.0% per annum at
September 30, 2008. Based on total short-term borrowings at
September 30, 2008, a change in interest rate of 100 basis points
would increase or decrease pre-tax earnings and cash flows of Laclede Group by
approximately $2.2 million on an annual basis. Portions of such increases or
decreases may be offset through the application of PGA carrying costs. In
addition, Laclede Gas had borrowings from Laclede Group totaling $89.2 million
at September 30, 2008. The Utility had short-term borrowings
(including borrowings from Laclede Group) aggregating to a maximum of $328.8
million at any one time during the fiscal year. Excluding borrowings from
Laclede Group, the Utility’s maximum borrowings for the year were $304.5
million.





Laclede
Gas’ lines of credit include covenants limiting total debt, including short-term
debt, to no more than 70% of total capitalization and requiring earnings before
interest, taxes, depreciation and amortization (EBITDA) to be at least 2.25
times interest expense. On September 30, 2008, total debt was 66% of
total capitalization.For the fiscal year ended September 30, 2008, EBITDA was 3.97
times interest expense.





Short-term
cash requirements outside of Laclede Gas have generally been met with
internally-generated funds. However, Laclede Group has $50 million in working
capital lines of credit, $40 million of which expires in August 2009 and
$10 million of which expires in October 2009, to meet short-term liquidity
needs of its subsidiaries. These lines of credit have covenants limiting the
total debt of the consolidated Laclede Group to no more than 70% of the
Company’s total capitalization. This ratio stood at 55% on
September 30, 2008. These lines were previously used to provide
letters of credit on behalf of SM&P, and have been used to provide for
seasonal funding needs of various other subsidiaries from time to time. Just
prior to the SM&P sale, the letters of credit provided on behalf of SM&P
totaled $2.8 million. Such letters have been released and extinguished. There
were no borrowings under Laclede Group’s lines during the fiscal
year.


33
 Table of Contents





Long-term
Debt





On
November 1, 2007, Laclede Gas paid at maturity $40 million principal
amount of 7 1/2% First Mortgage Bonds. This maturity was funded through
short-term borrowings.





On
September 23, 2008, Laclede Gas issued $80 million of First Mortgage
Bonds, due October 15, 2038, at an interest rate of 6.35%. The bonds
are callable at par at the Utility’s option on or after
October 15, 2013.





At
September 30, 2008, Laclede Gas had fixed-rate long-term debt totaling
$390 million. While these long-term debt issues are fixed-rate, they are subject
to changes in fair value as market interest rates change. However, increases or
decreases in fair value would impact earnings and cash flows only if Laclede Gas
were to reacquire any of these issues in the open market prior to
maturity.





On
May 5, 2008, Laclede Group redeemed in full its $46.4 million
subordinated debentures, which also triggered the redemption of all of the
Laclede Capital Trust I (Trust) common and preferred securities on the same
date. Interest on the debentures and distributions on the Trust securities
ceased on and after the redemption date. Upon redemption, Laclede Group
recognized a pre-tax loss of $1.4 million, primarily attributable to unamortized
issuance costs. A portion of the proceeds received from the sale of SM&P was
used to fund the redemption. The Trust was dissolved on
June 16, 2008.





Shelf
Registrations





Laclede
Gas has on file with the Securities and Exchange Commission (SEC) an effective
shelf registration on Form S-3 for issuance of $350 million of securities, of
which $270 million remains available to Laclede Gas at this time. The Utility
has authority from the MoPSC to issue up to $500 million in First Mortgage
Bonds, unsecured debt, and equity securities, of which $412.4 million remained
available under this authorization as of September 30, 2008, and
$372.4 million remains available as of November 20, 2008. During
fiscal year 2008, pursuant to this authority, the Utility sold 109 shares of its
common stock to Laclede Group for $3.8 million. On November 20, 2008,
the Utility sold 1,161 shares of its common stock to Laclede Group for $40.0
million. The amount, timing, and type of additional financing to be issued will
depend on cash requirements and market conditions.





Laclede
Group has on file a shelf registration on Form S-3 with the SEC that allows for
the issuance of equity securities, other than preferred stock, and debt
securities. Of the $500 million of securities originally registered under this
Form S-3, $362.4 million remain registered and unissued as of
September 30, 2008. The amount, timing, and type of additional
financing to be issued under this shelf registration will depend on cash
requirements and market conditions.





Guarantees





Laclede
Gas has several operating leases for the rental of vehicles that contain
provisions requiring Laclede Gas to guarantee certain amounts related to the
residual value of the leased property. These leases have various terms, the
longest of which extends through 2014. At September 30, 2008, the
maximum guarantees under these leases were $1.8 million. However, the Utility
estimates that the residual value of the leased vehicles will be adequate to
satisfy most of the guaranteed amounts. At September 30, 2008, the
carrying value of the liability recognized for these guarantees was $0.3
million.





Laclede
Group had guarantees totaling $57.5 million for performance and payment of
certain wholesale gas supply purchases by LER, as of
September 30, 2008. Since that date, total guarantees issued by
Laclede Group on behalf of LER increased by $10.0 million bringing the total to
$67.5 million in guarantees outstanding at November 20, 2008. No
amounts have been recorded for these guarantees in the financial
statements.





Other





Utility
capital expenditures were $55.3 million in fiscal year 2008, compared with $56.4
million and $57.9 million for fiscal years 2007 and 2006, respectively. Utility
capital expenditures are expected to be approximately $59 million in fiscal year
2009. Non-utility capital expenditures for fiscal year 2008 were $1.3 million
compared with $2.5 million in fiscal year 2007 and $5.5 million in fiscal year
2006, and are estimated to be approximately $1 million in fiscal year
2009.


34
 Table of Contents





Consolidated
capitalization at September 30, 2008, excluding current obligations of
preferred stock, consisted of 55.5% Laclede Group common stock equity, 0.1%
Laclede Gas preferred stock equity, and 44.4% Laclede Gas long-term
debt.





Laclede
Group’s ratio of earnings (from continuing operations) to fixed charges was 3.7
for fiscal year 2008, 2.9 for fiscal year 2007, and 3.0 for fiscal year
2006.





It
is management’s view that the Company has adequate access to capital markets and
will have sufficient capital resources, both internal and external, to meet
anticipated capital requirements.








CONTRACTUAL
OBLIGATIONS





As
of September 30, 2008, Laclede Group had contractual obligations with
payments due as summarized


below
(in millions):





Payments
      due by periodLess
      than
            
            1-3
            
            3-5
            
            More
      thanContractual
      Obligations
            
            Total
            
            1
      Year
            
            Years
            
            Years
            
            5
      YearsPrincipal
      Payments on Long-Term Debt
            
            $
            390.0
            
            $
            —
            
            $
            25.0
            
            $
            25.0
            
            $
            340.0Interest
      Payments on Long-Term Debt
            
            
            533.9
            
            
            24.5
            
            
            48.3
            
            
            45.1
            
            
            416.0Operating
      Leases (a)
            
            
            11.2
            
            
            4.8
            
            
            5.3
            
            
            1.1
            
            
            —Purchase
      Obligations – Natural Gas (b)
            
            
            2,067.7
            
            
            789.8
            
            
            872.5
            
            
            371.4
            
            
            34.0Purchase
      Obligations – Other (c)
            
            
            113.9
            
            
            16.1
            
            
            25.3
            
            
            17.5
            
            
            55.0Total
      (d)
            
            $
            3,116.7
            
            $
            835.2
            
            $
            976.4
            
            $
            460.1
            
            $
            845.0





(a)
            Operating
      lease obligations are primarily for office space, vehicles, and power
      operated equipment in the gas distribution segment. Additional payments
      will be incurred if renewal options are exercised under the provisions of
      certain agreements.(b)
            These
      purchase obligations represent the minimum payments required under
      existing natural gas transportation and storage contracts and natural gas
      supply agreements in the utility gas distribution and non-regulated gas
      marketing segments. These amounts reflect fixed obligations as well as
      obligations to purchase natural gas at future market prices, calculated
      using September 30, 2008 New York Mercantile Exchange futures
      prices. Laclede Gas recovers the costs related to its purchases,
      transportation, and storage of natural gas through the operation of its
      PGA Clause, subject to prudence review; however, variations in the timing
      of collections of gas costs from customers affect short-term cash
      requirements. Additional contractual commitments are generally entered
      into prior to or during the heating season.(c)
            These
      purchase obligations reflect miscellaneous agreements for the purchase of
      materials and the procurement of services necessary for normal
      operations.(d)
            The
      categories of Capital Leases and Other Long-Term Liabilities have been
      excluded from the table above because there are no applicable amounts of
      contractual obligations under these categories. Also, commitments related
      to pension and postretirement benefit plans have been excluded from the
      table above. The Company expects to make contributions to its qualified,
      trusteed pension plans totaling $2.2 million in fiscal year 2009. Laclede
      Gas anticipates a $1.5 million contribution relative to its non-qualified
      pension plans during fiscal year 2009. With regard to the
      postretirement benefits, the Company anticipates Laclede Gas will
      contribute $9.7 million to the qualified trusts and $0.4 million directly
      to participants from Laclede Gas’ funds during fiscal year 2009. For
      further discussion of the Company’s pension and postretirement benefit
      plans, refer to Note 3, Pension Plans and Other Postretirement Benefits,
      of the Notes to Consolidated Financial
  Statements.





35
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MARKET
RISK





Laclede
Gas has a risk management policy that allows for the purchase of natural gas
financial instruments with the goal of managing price risk associated with
purchasing natural gas on behalf of its customers. This policy prohibits
speculation. Costs and cost reductions, including carrying costs, associated
with the Utility’s use of natural gas financial instruments are allowed to be
passed on to the Utility’s customers through the operation of its PGA Clause,
through which the MoPSC allows the Utility to recover gas supply costs.
Accordingly, Laclede Gas does not expect any adverse earnings impact as a result
of the use of these financial instruments. However, the timing of recovery for
cash payments related to margin requirements may cause short-term cash
requirements to vary. Nevertheless, carrying costs associated with such
requirements are recovered through the PGA Clause. At
September 30, 2008, the Utility held 42.7 million MMBtu of futures
contracts at an average price of $8.93 per MMBtu. Additionally, 16.0 million
MMBtu of other price risk mitigation was in place through the use of
option-based strategies. These positions have various expiration dates, the
longest of which extends through October 2011.





In
the course of its business, Laclede Group’s non-regulated gas marketing
affiliate, LER, enters into fixed-price commitments associated with the purchase
or sale of natural gas. As part of LER’s risk management policy, LER manages the
price risk associated with these commitments by either closely matching the
offsetting physical purchase or sale of natural gas at fixed-prices or through
the use of exchange-traded futures contracts to lock in margins. At
September 30, 2008, LER’s unmatched positions were not material to
Laclede Group’s financial position or results of operations. For details related
to LER’s exchange-traded futures contracts at September 30, 2008, see
Note 4 to the Consolidated Financial Statements.








ENVIRONMENTAL
MATTERS





Laclede
Gas owns and operates natural gas distribution, transmission, and storage
facilities, the operations of which are subject to various environmental laws,
regulations, and interpretations. While environmental issues resulting from such
operations arise in the ordinary course of business, such issues have not
materially affected the Company’s or Laclede Gas’ financial position and results
of operations. As environmental laws, regulations, and their interpretations
change, however, Laclede Gas may be required to incur additional costs. For a
description of environmental matters, see Note 15 to the Consolidated Financial
Statements.








OFF-BALANCE
SHEET ARRANGEMENTS





Laclede
Group has no off-balance sheet arrangements.








Laclede
Gas Company’s Management’s Discussion and Analysis of Financial Condition is
included in Exhibit 99.1 of this report.








Item 7A. Quantitative and Qualitative Disclosures About Market
Risk





For
this discussion, see the “Market Risk” subsection in Management’s Discussion and
Analysis of Financial Condition and Results of Operations, page
36.


36
 Table of Contents





Item 8.Financial Statements and Supplementary
      Data2008 10-K
      PageManagement Report on Internal Control over
      Financial Reporting
            38Reports of Independent Registered Public Accounting
      Firm
            39-40Financial
      Statements:The
      Laclede Group, Inc.:For
      Years Ended September 30, 2008, 2007, and 2006:Statements of Consolidated Income
            41Statements of Consolidated Comprehensive
      Income
            42Consolidated Statements of Common Shareholders’
      Equity
            46Statements of Consolidated Cash Flows
            47As
      of September 30, 2008 & 2007:Consolidated Balance Sheets
            43-44Statements of Consolidated
      Capitalization
            45Notes
      to Consolidated Financial Statements:Note 1 Summary of Significant Accounting
      Policies
            48Note 2 Discontinued Operations
            58Note 3 Pension Plans and Other Postretirement
      Benefits
            59Note 4 Financial Instruments
            68Note 5 Earnings Per Share of Common
Stock
            69Note 6 Common Stock and Paid-In Capital
            69Note 7 Laclede Gas Redeemable Preferred
      Stock
            70Note 8 Long-Term Debt
            70Note 9 Notes Payable and Credit
    Agreements
            71Note 10 Fair Value of Financial
    Instruments
            72Note 11 Accumulated Other Comprehensive Income
      (Loss)
            72Note 12 Income Taxes
            73Note 13 Other Income and (Income Deduction) –
      Net
            74Note 14 Information By Operating
Segment
            75Note 15 Commitments and Contingencies
            77Note 16 Interim Financial Information
      (Unaudited)
            80














37
 Table of Contents





Management Report on Internal Control over Financial
Reporting





Management
is responsible for establishing and maintaining adequate internal controls over
financial reporting. The Company’s internal control over financial reporting is
a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements and can provide
only reasonable assurance with respect to financial statement preparation and
presentation. Also, projections of any evaluation of effectiveness to future
periods are subject to the risks that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.





The
Company’s management, including our Chief Executive Officer and Chief Financial
Officer, conducted an assessment of the effectiveness of the Company’s internal
control over financial reporting as of September 30, 2008. In making
this assessment, management used the criteria in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on that assessment, management concluded that the
Company’s internal control over financial reporting was effective as of
September 30, 2008. Deloitte & Touche LLP, an independent
registered public accounting firm, has issued an attestation report on the
Company’s internal control over financial reporting, which is included
herein.












































38
 Table of Contents




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM






To
the Board of Directors and Shareholders of


The
Laclede Group, Inc.


St.
Louis, Missouri






We
have audited the internal control over financial reporting of The Laclede Group,
Inc. and its subsidiaries (the “Company”) as of September 30, 2008,
based on criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the
accompanying Management Report on Internal Control over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.




A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, the company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company’s board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.




Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.




In
our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of September 30, 2008,
based on the criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.




We
have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated financial
statements and financial statement schedule as of and for the year ended
September 30, 2008 of the Company and our report dated
November 21, 2008 expressed an unqualified opinion on those financial
statements and financial statement schedule and included an explanatory
paragraph regarding the Company’s adoption of Financial Accounting Standards
Board Interpretation No. 48, Accounting for Uncertainty in Income
Taxes—an Interpretation of FASB Statement No. 109, effective
October 1, 2007, and Statement of Financial Accounting Standards
No. 158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans — an
amendment of FASB Statements No. 87, 88, 106 and 132 (R), effective
September 30, 2007.






/s/
DELOITTE & TOUCHE LLP




St.
Louis, Missouri


November
21, 2008


39
 Table of Contents





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




To
the Board of Directors and Shareholders of


The
Laclede Group, Inc.


St.
Louis, Missouri






We
have audited the accompanying consolidated balance sheets and statements of
consolidated capitalization of The Laclede Group, Inc. and its subsidiaries (the
“Company”) as of September 30, 2008 and 2007, and the related
consolidated statements of income, common shareholders’ equity, comprehensive
income, and cash flows for each of the three years in the period ended
September 30, 2008. Our audits also included the financial statement
schedule listed in the Index at Part IV, Item 15(a) 2. These financial
statements and financial statement schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on the
consolidated financial statements and financial statement schedule based on our
audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.




In
our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Laclede Group, Inc. and its
subsidiaries as of September 30, 2008 and 2007, and the results of
their operations and their cash flows for each of the three years in the period
ended September 30, 2008, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.




As
discussed in Notes 1 and 3 to the consolidated financial statements, the Company
adopted the provisions of Financial Accounting Standards Board Interpretation
No. 48, Accounting for
Uncertainty in Income Taxes—an Interpretation of FASB Statement No. 109,
effective October 1, 2007, and Statement of Financial Accounting
Standards No. 158, Employers’
Accounting for Defined Benefit Pension and Other
Postretirement Plans — an amendment of FASB Statements No. 87,
88, 106 and 132 (R),effective September 30, 2007.




We
have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the Company’s internal control over
financial reporting as of September 30, 2008, based on the criteria
established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated
November 21, 2008 expressed an unqualified opinion on the Company’s
internal control over financial reporting.




/s/
DELOITTE & TOUCHE LLP





St.
Louis, Missouri


November
21, 2008


40
 Table of Contents





THE
      LACLEDE GROUP, INC.STATEMENTS OF CONSOLIDATED INCOME(Thousand,
      Except Per Share Amounts)Years
      Ended September 30
            
            
            
            2008
            
            
            
            2007
            
            
            
            2006Operating
      Revenues:Regulated
      Gas Distribution
            
            
            
            $
            1,128,287
            
            
            
            $
            1,131,554
            
            
            
            $
            1,141,011Non-Regulated
      Gas Marketing
            
            
            
            
            1,075,845
            
            
            
            
            718,704
            
            
            
            
            689,572Other
            
            
            
            
            4,841
            
            
            
            
            5,603
            
            
            
            
            4,445Total
      Operating Revenues
            
            
            
            
            2,208,973
            
            
            
            
            1,855,861
            
            
            
            
            1,835,028Operating
      Expenses:RegulatedNatural
      and propane gas
            
            
            
            
            770,097
            
            
            
            
            797,924
            
            
            
            
            821,721Other
      operation expenses
            
            
            
            
            144,611
            
            
            
            
            131,798
            
            
            
            
            128,180Maintenance
            
            
            
            
            25,827
            
            
            
            
            24,306
            
            
            
            
            21,198Depreciation
      and amortization
            
            
            
            
            35,303
            
            
            
            
            34,080
            
            
            
            
            30,904Taxes,
      other than income taxes
            
            
            
            
            69,023
            
            
            
            
            68,361
            
            
            
            
            71,038Total
      Regulated Operating Expenses
            
            
            
            
            1,044,861
            
            
            
            
            1,056,469
            
            
            
            
            1,073,041Non-Regulated
      Gas Marketing
            
            
            
            
            1,048,162
            
            
            
            
            698,962
            
            
            
            
            662,391Other
            
            
            
            
            4,603
            
            
            
            
            5,376
            
            
            
            
            5,024Total
      Operating Expenses
            
            
            
            
            2,097,626
            
            
            
            
            1,760,807
            
            
            
            
            1,740,456Operating
      Income
            
            
            
            
            111,347
            
            
            
            
            95,054
            
            
            
            
            94,572Other
      Income and (Income Deductions) – Net
            
            
            
            
            1,881
            
            
            
            
            6,813
            
            
            
            
            5,508Interest
      Charges:Interest
      on long-term debt
            
            
            
            
            19,851
            
            
            
            
            22,502
            
            
            
            
            22,329Interest
      on long-term debt to unconsolidated affiliate trust
            
            
            
            
            486
            
            
            
            
            277
            
            
            
            
            277Other
      interest charges
            
            
            
            
            9,140
            
            
            
            
            11,155
            
            
            
            
            10,278Total
      Interest Charges
            
            
            
            
            29,477
            
            
            
            
            33,934
            
            
            
            
            32,884Income
      from Continuing Operations Before Income Taxesand
      Dividends on Laclede Gas Redeemable Preferred Stock
            
            
            
            
            83,751
            
            
            
            
            67,933
            
            
            
            
            67,196Income
      Tax Expense
            
            
            
            
            26,190
            
            
            
            
            22,146
            
            
            
            
            21,301Dividends
      on Laclede Gas Redeemable Preferred Stock
            
            
            
            
            35
            
            
            
            
            43
            
            
            
            
            48Income
      from Continuing Operations
            
            
            
            
            57,526
            
            
            
            
            45,744
            
            
            
            
            45,847Income
      from Discontinued Operations, Net of Income Tax (Note 2)
            
            
            
            
            20,396
            
            
            
            
            4,027
            
            
            
            
            3,142Net
      Income
            
            
            
            $
            77,922
            
            
            
            $
            49,771
            
            
            
            $
            48,989Average
      Number of Common Shares Outstanding:Basic
            
            
            
            
            21,657
            
            
            
            
            21,455
            
            
            
            
            21,247Diluted
            
            
            
            
            21,763
            
            
            
            
            21,503
            
            
            
            
            21,286Basic
      Earnings Per Share of Common Stock:Income
      from Continuing Operations
            
            
            
            $
            2.66
            
            
            
            $
            2.13
            
            
            
            $
            2.16Income
      from Discontinued Operations
            
            
            
            
            0.94
            
            
            
            
            0.19
            
            
            
            
            0.15Net
      Income
            
            
            
            $
            3.60
            
            
            
            $
            2.32
            
            
            
            $
            2.31Diluted
      Earnings Per Share of Common Stock:Income
      from Continuing Operations
            
            
            
            $
            2.64
            
            
            
            $
            2.12
            
            
            
            $
            2.15Income
      from Discontinued Operations
            
            
            
            
            0.94
            
            
            
            
            0.19
            
            
            
            
            0.15Net
      Income
            
            
            
            $
            3.58
            
            
            
            $
            2.31
            
            
            
            $
            2.30See
      the accompanying Notes to Consolidated Financial
    Statements.





41
 Table of Contents





THE
      LACLEDE GROUP, INC.STATEMENTS OF CONSOLIDATED COMPREHENSIVE
      INCOME(Thousands)Years
      Ended September 30
            
            
            
            2008
            
            
            
            2007
            
            
            
            2006Net
      Income
            
            
            
            $
            77,922
            
            
            
            $
            49,771
            
            
            
            $
            48,989Other
      Comprehensive Income (Loss), Before Tax:Net
      gains (losses) on cash flow hedging derivative
instruments:Net
      hedging gain arising during the period
            
            
            
            
            8,091
            
            
            
            
            7,976
            
            
            
            
            16,449Reclassification
      adjustment for (gains) losses included in net income
            
            
            
            
            (3,814
            )
            
            
            
            (9,451
            )
            
            
            
            1,582Net
      unrealized gains (losses) on cash flow hedgingderivative
      instruments
            
            
            
            
            4,277
            
            
            
            
            (1,475
            )
            
            
            
            18,031Defined
      benefit pension and other postretirement benefit plans:Minimum
      pension liability adjustment
            
            
            
            
            —
            
            
            
            
            377
            
            
            
            
            479Net
      actuarial loss arising during period
            
            
            
            
            (271
            )
            
            
            
            —
            
            
            
            
            —Amortization
      of actuarial loss included in net periodic pension andpostretirement
      benefit cost
            
            
            
            
            171
            
            
            
            
            —
            
            
            
            
            —Net
      defined benefit pension and other postretirement benefit
    plans
            
            
            
            
            (100
            )
            
            
            
            377
            
            
            
            
            479Other
      Comprehensive Income (Loss), Before Tax
            
            
            
            
            4,177
            
            
            
            
            (1,098
            )
            
            
            
            18,510Income
      Tax Expense (Benefit) Related to Itemsof
      Other Comprehensive Income (Loss)
            
            
            
            
            1,597
            
            
            
            
            (424
            )
            
            
            
            7,152Other
      Comprehensive Income (Loss), Net of Tax
            
            
            
            
            2,580
            
            
            
            
            (674
            )
            
            
            
            11,358Comprehensive
      Income
            
            
            
            $
            80,502
            
            
            
            $
            49,097
            
            
            
            $
            60,347See
      the accompanying Notes to Consolidated Financial
    Statements.

















42
 Table of Contents





THE
      LACLEDE GROUP, INC.CONSOLIDATED BALANCE SHEETS(Thousands)September
      30
            
            
            
            2008
            
            
            
            2007ASSETSUtility
      Plant
            
            
            
            $
            1,229,174
            
            
            
            $
            1,187,828Less
      – Accumulated depreciation and amortization
            
            
            
            
            405,977
            
            
            
            
            394,034Net
      Utility Plant
            
            
            
            
            823,197
            
            
            
            
            793,794Non-utility
      property (net of accumulated depreciation andamortization,
      2008, $4,035; 2007, $3,725)
            
            
            
            
            3,793
            
            
            
            
            4,065Other
      investments
            
            
            
            
            43,314
            
            
            
            
            43,635Property
      and investments of discontinued operations
            
            
            
            
            —
            
            
            
            
            42,601Other
      Property and Investments
            
            
            
            
            47,107
            
            
            
            
            90,301Current
      Assets:Cash
      and cash equivalents
            
            
            
            
            14,899
            
            
            
            
            52,746Accounts
      receivable:Utility
            
            
            
            
            98,708
            
            
            
            
            103,050Non-utility
            
            
            
            
            102,389
            
            
            
            
            50,355Other
            
            
            
            
            10,486
            
            
            
            
            6,680Allowances
      for doubtful accounts
            
            
            
            
            (12,624
            )
            
            
            
            (11,232
            )Inventories:Natural
      gas stored underground at LIFO cost
            
            
            
            
            206,267
            
            
            
            
            138,256Propane
      gas at FIFO cost
            
            
            
            
            19,911
            
            
            
            
            19,950Materials,
      supplies, and merchandise at average cost
            
            
            
            
            5,301
            
            
            
            
            4,990Derivative
      instrument assets
            
            
            
            
            57,210
            
            
            
            
            31,057Unamortized
      purchased gas adjustments
            
            
            
            
            33,411
            
            
            
            
            12,813Prepayments
      and other
            
            
            
            
            25,950
            
            
            
            
            27,914Current
      assets of discontinued operations
            
            
            
            
            —
            
            
            
            
            30,756Total
      Current Assets
            
            
            
            
            561,908
            
            
            
            
            467,335Deferred
      Charges:Regulatory
      assets
            
            
            
            
            334,755
            
            
            
            
            285,054Other
            
            
            
            
            5,688
            
            
            
            
            4,669Total
      Deferred Charges
            
            
            
            
            340,443
            
            
            
            
            289,723Total
      Assets
            
            
            
            $
            1,772,655
            
            
            
            $
            1,641,153

















43
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THE
      LACLEDE GROUP, INC.CONSOLIDATED
      BALANCE SHEETS (Continued)(Thousands)September
      30
            
            
            
            2008
            
            
            
            2007CAPITALIZATION
      AND LIABILITIESCapitalization:Common
      stock equity
            
            
            
            $
            486,479
            
            
            
            $
            428,325Laclede
      Gas redeemable preferred stock (less current sinking fund
      requirements)
            
            
            
            
            467
            
            
            
            
            627Long-term
      debt to unconsolidated affiliate trust
            
            
            
            
            —
            
            
            
            
            46,400Long-term
      debt (less current portion) – Laclede Gas
            
            
            
            
            389,181
            
            
            
            
            309,122Total
      Capitalization
            
            
            
            
            876,127
            
            
            
            
            784,474Current
      Liabilities:Notes
      payable
            
            
            
            
            215,900
            
            
            
            
            211,400Accounts
      payable
            
            
            
            
            159,580
            
            
            
            
            99,109Advance
      customer billings
            
            
            
            
            25,548
            
            
            
            
            25,440Current
      portion of long-term debt and preferred stock
            
            
            
            
            160
            
            
            
            
            40,160Wages
      and compensation accrued
            
            
            
            
            12,197
            
            
            
            
            11,532Dividends
      payable
            
            
            
            
            8,400
            
            
            
            
            7,970Customer
      deposits
            
            
            
            
            14,020
            
            
            
            
            15,899Interest
      accrued
            
            
            
            
            10,094
            
            
            
            
            11,103Taxes
      accrued
            
            
            
            
            11,387
            
            
            
            
            20,922Deferred
      income taxes current
            
            
            
            
            11,669
            
            
            
            
            2,644Other
            
            
            
            
            10,249
            
            
            
            
            5,756Current
      liabilities of discontinued operations
            
            
            
            
            —
            
            
            
            
            21,730Total
      Current Liabilities
            
            
            
            
            479,204
            
            
            
            
            473,665Deferred
      Credits and Other Liabilities:Deferred
      income taxes
            
            
            
            
            222,761
            
            
            
            
            223,750Unamortized
      investment tax credits
            
            
            
            
            3,973
            
            
            
            
            4,200Pension
      and postretirement benefit costs
            
            
            
            
            98,513
            
            
            
            
            63,678Asset
      retirement obligations
            
            
            
            
            26,833
            
            
            
            
            26,125Regulatory
      liabilities
            
            
            
            
            42,191
            
            
            
            
            39,589Other
            
            
            
            
            23,053
            
            
            
            
            22,554Deferred
      credits and other liabilities of discontinued operations
            
            
            
            
            —
            
            
            
            
            3,118Total
      Deferred Credits and Other Liabilities
            
            
            
            
            417,324
            
            
            
            
            383,014Commitments
      and Contingencies (Note 15)Total
      Capitalization and Liabilities
            
            
            
            $
            1,772,655
            
            
            
            $
            1,641,153See
      the accompanying Notes to Consolidated Financial
    Statements.

















44
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THE
      LACLEDE GROUP, INC.STATEMENTS OF CONSOLIDATED
      CAPITALIZATION(Thousands,
      Except for Shares and Per Share Amounts)September
      30
            
            
            
            2008
            
            
            
            2007Common
      Stock Equity:Common
      stock, par value $1 per share:Authorized
      – 2008 and 2007, 70,000,000 sharesIssued
      – 2008, 21,993,473 shares; and 2007, 21,645,637 shares
            
            
            
            $
            21,993
            
            
            
            $
            21,646Paid-in
      capital
            
            
            
            
            147,241
            
            
            
            
            136,061Retained
      earnings
            
            
            
            
            312,808
            
            
            
            
            268,761Accumulated
      other comprehensive income
            
            
            
            
            4,437
            
            
            
            
            1,857Total
      Common Stock Equity
            
            
            
            
            486,479
            
            
            
            
            428,325Laclede
      Gas Redeemable Preferred Stock par value $25 per share(1,480,000
      shares authorized) issued and outstanding:5%
      Series B – 2008, 19,200 shares; and 2007, 25,600 shares
            
            
            
            
            320
            
            
            
            
            4804.56%
      Series C – 2008 and 2007, 5,894 shares
            
            
            
            
            147
            
            
            
            
            147Total
      Redeemable Preferred Stock
            
            
            
            
            467
            
            
            
            
            627Long-Term
      Debt to Unconsolidated Affiliate Trust
            
            
            
            
            —
            
            
            
            
            46,400Long-Term
      Debt – Laclede Gas:First
      Mortgage Bonds:6-1/2%
      Series, due November 15, 2010
            
            
            
            
            25,000
            
            
            
            
            25,0006-1/2%
      Series, due October 15, 2012
            
            
            
            
            25,000
            
            
            
            
            25,0005-1/2%
      Series, due May 1, 2019
            
            
            
            
            50,000
            
            
            
            
            50,0007%
      Series, due June 1, 2029
            
            
            
            
            25,000
            
            
            
            
            25,0007.90%
      Series, due September 15, 2030
            
            
            
            
            30,000
            
            
            
            
            30,0006%
      Series, due May 1, 2034
            
            
            
            
            100,000
            
            
            
            
            100,0006.15%
      Series, due June 1, 2036
            
            
            
            
            55,000
            
            
            
            
            55,0006.35%
      Series, due October 15, 2038
            
            
            
            
            80,000
            
            
            
            
            —Total
            
            
            
            
            390,000
            
            
            
            
            310,000Unamortized
      discount, net of premium,  on long-term debt
            
            
            
            
            (819
            )
            
            
            
            (878
            )Total
      Long-Term Debt – Laclede Gas
            
            
            
            
            389,181
            
            
            
            
            309,122Total
            
            
            
            $
            876,127
            
            
            
            $
            784,474Long-term
      debt and preferred stock dollar amounts are exclusive of current
      portion.See
      the accompanying Notes to Consolidated Financial
    Statements.

















45
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THE
      LACLEDE GROUP, INC.CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS’
      EQUITYCommon
      Stock Issued
            
            Paid-in
            
            Retained
            
            Accum.
              Other
              Comp.(Thousands,
      Except for Shares and Per Share Amounts)
            
            Shares
            
            Amount
            
            Capital
            
            Earnings
            
            Income
            
            TotalBALANCE
      OCTOBER 1, 2005
            
            21,172,009
            
            $
            21,172
            
            $
            121,505
            
            $
            231,551
            
            $
            (7,703
            )
            $
            366,525Net
      income
            
            —
            
            
            —
            
            
            —
            
            
            48,989
            
            
            —
            
            
            48,989Dividend
      reinvestment plan
            
            114,255
            
            
            114
            
            
            3,604
            
            
            —
            
            
            —
            
            
            3,718Stock-based
      compensation costs
            
            —
            
            
            —
            
            
            1,544
            
            
            —
            
            
            —
            
            
            1,544Employee
      stock options exercised
            
            24,375
            
            
            25
            
            
            591
            
            
            —
            
            
            —
            
            
            616Employee
      restricted stock awards
            
            51,000
            
            
            51
            
            
            (51
            )
            
            —
            
            
            —
            
            
            —Non-employee
      directors’ restricted stock awards
            
            —
            
            
            —
            
            
            (145
            )
            
            —
            
            
            —
            
            
            (145
            )Tax
      benefit – stock compensation
            
            —
            
            
            —
            
            
            77
            
            
            —
            
            
            —
            
            
            77Dividends
      declared:Common
      stock ($1.41 per share)
            
            —
            
            
            —
            
            
            —
            
            
            (30,045
            )
            
            —
            
            
            (30,045
            )Other
      comprehensive income, net of tax
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            11,358
            
            
            11,358BALANCE
      SEPTEMBER 30, 2006
            
            21,361,639
            
            
            21,362
            
            
            127,125
            
            
            250,495
            
            
            3,655
            
            
            402,637Net
      income
            
            —
            
            
            —
            
            
            —
            
            
            49,771
            
            
            —
            
            
            49,771Dividend
      reinvestment plan
            
            116,973
            
            
            117
            
            
            3,690
            
            
            —
            
            
            —
            
            
            3,807Stock-based
      compensation costs
            
            —
            
            
            —
            
            
            2,388
            
            
            —
            
            
            —
            
            
            2,388Employee
      stock options exercised
            
            108,025
            
            
            108
            
            
            2,946
            
            
            —
            
            
            —
            
            
            3,054Employee
      restricted stock awards
            
            59,000
            
            
            59
            
            
            (59
            )
            
            —
            
            
            —
            
            
            —Non-employee
      directors’ restricted stock awards
            
            —
            
            
            —
            
            
            (292
            )
            
            —
            
            
            —
            
            
            (292
            )Tax
      benefit – stock compensation
            
            —
            
            
            —
            
            
            263
            
            
            —
            
            
            —
            
            
            263Dividends
      declared:Common
      stock ($1.46 per share)
            
            —
            
            
            —
            
            
            —
            
            
            (31,505
            )
            
            —
            
            
            (31,505
            )Other
      comprehensive loss, net of tax
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (674
            )
            
            (674
            )Adoption
      of SFAS No. 158, net of tax
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,124
            )
            
            (1,124
            )BALANCE
      SEPTEMBER 30, 2007
            
            21,645,637
            
            
            21,646
            
            
            136,061
            
            
            268,761
            
            
            1,857
            
            
            428,325Adoption
      of FIN 48, as of October 1, 2007
            
            —
            
            
            —
            
            
            —
            
            
            (1,099
            )
            
            —
            
            
            (1,099
            )Net
      income
            
            —
            
            
            —
            
            
            —
            
            
            77,922
            
            
            —
            
            
            77,922Dividend
      reinvestment plan
            
            106,436
            
            
            106
            
            
            3,681
            
            
            —
            
            
            —
            
            
            3,787Stock-based
      compensation costs
            
            —
            
            
            —
            
            
            2,615
            
            
            —
            
            
            —
            
            
            2,615Employee
      stock options exercised
            
            178,750
            
            
            179
            
            
            4,833
            
            
            —
            
            
            —
            
            
            5,012Employee
      restricted stock awards
            
            62,650
            
            
            62
            
            
            (62
            )
            
            —
            
            
            —
            
            
            —Non-employee
      directors’ restricted stock awards
            
            —
            
            
            —
            
            
            (421
            )
            
            —
            
            
            —
            
            
            (421
            )Tax
      benefit – stock compensation
            
            —
            
            
            —
            
            
            534
            
            
            —
            
            
            —
            
            
            534Dividends
      declared:Common
      stock ($1.50 per share)
            
            —
            
            
            —
            
            
            —
            
            
            (32,776
            )
            
            —
            
            
            (32,776
            )Other
      comprehensive income, net of tax
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            2,580
            
            
            2,580BALANCE
      SEPTEMBER 30, 2008
            
            21,993,473
            
            $
            21,993
            
            $
            147,241
            
            $
            312,808
            
            $
            4,437
            
            $
            486,479See
      the accompanying Notes to Consolidated Financial
    Statements.

















46
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THE
      LACLEDE GROUP, INC.STATEMENTS OF CONSOLIDATED CASH FLOWS(Thousands)Years
      Ended September 30
            
            2008
            
            2007
            
            2006Operating
      Activities:Net
      Income
            
            $
            77,922
            
            $
            49,771
            
            $
            48,989Adjustments
      to reconcile net income tonet
      cash provided by (used in) operating activities:Gain
      on sale of discontinued operations
            
            
            (44,401
            )
            
            —
            
            
            —Depreciation,
      amortization and accretion
            
            
            36,913
            
            
            38,308
            
            
            34,943Deferred
      income taxes and investment tax credits
            
            
            5,786
            
            
            (16,144
            )
            
            30,822Other
      - net
            
            
            5,494
            
            
            2,118
            
            
            1,773Changes
      in assets and liabilities:Accounts
      receivable – net
            
            
            (50,106
            )
            
            (15,927
            )
            
            (4,506
            )Unamortized
      purchased gas adjustments
            
            
            (20,598
            )
            
            31,568
            
            
            (13,120
            )Deferred
      purchased gas costs
            
            
            (19,614
            )
            
            13,381
            
            
            (114,686
            )Accounts
      payable
            
            
            59,161
            
            
            2,181
            
            
            (36,763
            )Advance
      customer billings – net
            
            
            108
            
            
            (6,003
            )
            
            755Taxes
      accrued
            
            
            (6,886
            )
            
            5,404
            
            
            (8,655
            )Natural
      gas stored underground
            
            
            (68,011
            )
            
            (780
            )
            
            22,167Other
      assets and liabilities
            
            
            (12,300
            )
            
            (22,586
            )
            
            30,015Net
      cash (used in) provided by operating activities
            
            
            (36,532
            )
            
            81,291
            
            
            (8,266
            )Investing
      Activities:Proceeds
      from sale of discontinued operations
            
            
            83,554
            
            
            —
            
            
            —Capital
      expenditures
            
            
            (56,621
            )
            
            (58,870
            )
            
            (63,416
            )Non-Regulated
      Services acquisition
            
            
            —
            
            
            —
            
            
            (5,700
            )Other
      investments
            
            
            (1,393
            )
            
            153
            
            
            (3,312
            )Proceeds
      from unconsolidated affiliate trust’s redemption of its common
      securities
            
            
            1,400
            
            
            —
            
            
            —Net
      cash provided by (used in) investing activities
            
            
            26,940
            
            
            (58,717
            )
            
            (72,428
            )Financing
      Activities:Issuance
      of First Mortgage Bonds
            
            
            80,000
            
            
            —
            
            
            55,000Maturity
      of First Mortgage Bonds
            
            
            (40,000
            )
            
            —
            
            
            (40,000
            )Redemption
      of long-term debt to unconsolidated affiliate trust
            
            
            (46,400
            )
            
            —
            
            
            —Issuance
      of short-term debt - net
            
            
            4,500
            
            
            4,100
            
            
            136,695Issuance
      of common stock
            
            
            8,799
            
            
            6,861
            
            
            4,333Non-employee
      directors’ restricted stock awards
            
            
            (421
            )
            
            (292
            )
            
            (145
            )Dividends
      paid
            
            
            (32,430
            )
            
            (31,193
            )
            
            (29,760
            )Preferred
      stock reacquired – Laclede Gas
            
            
            (160
            )
            
            (159
            )
            
            (63
            )Other
            
            
            (2,143
            )
            
            77
            
            
            (601
            )Net
      cash (used in) provided by financing activities
            
            
            (28,255
            )
            
            (20,606
            )
            
            125,459Net
      (Decrease) Increase in Cash and Cash Equivalents
            
            
            (37,847
            )
            
            1,968
            
            
            44,765Cash
      and Cash Equivalents at Beginning of Year
            
            
            52,746
            
            
            50,778
            
            
            6,013Cash
      and Cash Equivalents at End of Year
            
            $
            14,899
            
            $
            52,746
            
            $
            50,778Supplemental
      Disclosure of Cash Paid During the Year for:Interest
            
            $
            32,687
            
            $
            35,241
            
            $
            35,751Income
      taxes
            
            
            47,572
            
            
            26,191
            
            
            9,924See
      the accompanying Notes to Consolidated Financial
    Statements.














47
 Table of Contents





THE
LACLEDE GROUP, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




1.
            SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES





BASIS OF CONSOLIDATION - The
consolidated financial statements include the accounts of The Laclede Group,
Inc. (Laclede Group or the Company) and its subsidiary companies. All
subsidiaries are wholly owned. Laclede Gas Company (Laclede Gas or the Utility)
and other subsidiaries of Laclede Group may engage in related party transactions
during the ordinary course of business. All intercompany balances have been
eliminated from the consolidated financial statements of Laclede Group except
that certain intercompany transactions with Laclede Gas are not eliminated in
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 71, “Accounting for the Effects of Certain Types of Regulation.”
Those types of transactions include sales of natural gas from Laclede Gas to
Laclede Energy Resources, Inc. (LER), sales of natural gas from LER to Laclede
Gas, and sales of propane and transportation services provided by Laclede
Pipeline Company to Laclede Gas. These revenues are shown on the Intersegment
revenues lines in the table included in Note 14 under Regulated Gas
Distribution, Non-Regulated Gas Marketing, and Other columns,
respectively.


DISCONTINUED OPERATIONS - On
March 31, 2008, Laclede Group sold 100% of its interest in SM&P
Utility Resources, Inc. (SM&P), its wholly-owned subsidiary, which comprised
the Non-Regulated Services segment. In accordance with generally accepted
accounting principles, the results of operations for SM&P are reported as
discontinued operations in the statement of income and its associated assets and
liabilities are classified separately in the balance sheet. The operating
results of SM&P have been aggregated and reported on the Statements of
Consolidated Income as Income from Discontinued Operations, Net of Income Tax.
The Company has reported in discontinued operations interest expense based on
amounts previously recorded by SM&P. Discontinued operations does not
include general corporate overheads previously recorded by SM&P. Prior
periods have been reclassified to conform to the current-period presentation.
For additional information relative to the Company’s sale of SM&P, refer to
Note 2, Discontinued Operations.


INVESTMENT IN UNCONSOLIDATED
AFFILIATE TRUST - In fiscal year 2003, Laclede Group formed Laclede
Capital Trust I (Trust), its affiliated, nonconsolidated trust, for the sole
purpose of issuing trust securities and investing the gross proceeds of the sale
of the trust securities in debt securities of Laclede Group. All of the Trust
securities had a liquidation value of $25 per share and a dividend rate of
7.70%, with all of its common securities being owned by Laclede Group and all of
its preferred securities being sold to the public. The Trust’s sole asset was
the Company’s $46.4 million aggregate principal amount of 7.70% debentures due
December 1, 2032, which had the same economic terms as the Trust
securities and were reflected as Long-term debt to unconsolidated affiliate
trust on the Consolidated Balance Sheets. The Company’s investment in the Trust
common securities was included on the Other investments line on the Consolidated
Balance Sheets.


On
May 5, 2008, Laclede Group redeemed in full its $46.4 million
subordinated debentures, which also triggered the redemption of all of the Trust
common and preferred securities on the same date. Interest on the debentures and
distributions on the Trust securities ceased on and after the redemption date.
Upon redemption, Laclede Group recognized a pre-tax loss of $1.4 million,
primarily attributable to unamortized issuance costs. A portion of the proceeds
received from the sale of SM&P was used to fund the redemption. The Trust
was dissolved on June 16, 2008.


NATURE OF OPERATIONS - Laclede
Group is a public utility holding company under the Public Utility Holding
Company Act of 2005. All subsidiaries are wholly owned by Laclede Group. The
Regulated Gas Distribution segment includes Laclede Gas, Laclede Group’s largest
subsidiary and core business unit. Laclede Gas is a public utility engaged in
the retail distribution and sale of natural gas. Laclede Gas serves an area in
eastern Missouri, with a population of approximately 2.1 million, including the
City of St. Louis and parts of ten other counties in eastern Missouri. As an
adjunct to its gas distribution business, Laclede Gas operates underground
natural gas storage fields. The Non-Regulated Gas Marketing segment includes
LER, a subsidiary engaged in the non-regulated marketing of natural gas and
related activities. The activities of other subsidiaries are described in Note
14, Information by Operating Segment, and are included in the Other
column.


USE OF ESTIMATES - The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.


SYSTEM OF ACCOUNTS - The
accounts of Laclede Gas are maintained in accordance with the uniform system of
accounts prescribed by the Missouri Public Service Commission (MoPSC or
Commission), which system substantially conforms to that prescribed by the
Federal Energy Regulatory Commission (FERC). The accounts of Laclede Pipeline
Company are maintained in accordance with the Uniform System of Accounts
prescribed by the FERC.


48
 Table of Contents


UTILITY PLANT, DEPRECIATION AND
AMORTIZATION - Utility plant is stated at original cost. The cost of
additions to utility plant includes contracted work, direct labor and materials,
allocable overheads, and an allowance for funds used during construction. The
costs of units of property retired, replaced, or renewed are removed from
utility plant and are charged to accumulated depreciation. Maintenance and
repairs of property and replacement and renewal of items determined to be less
than units of property are charged to maintenance expenses.


Utility
plant is depreciated on a straight-line basis at rates based on estimated
service lives of the various classes of property. Annual depreciation and
amortization in 2008, 2007, and 2006 averaged 3.1%, 3.1%, and 3.0%,
respectively, of the original cost of depreciable and amortizable
property.


Pursuant
to the terms of the 2005 rate case settlement, higher depreciation rates became
effective January 1, 2006, reflecting, in part, an accrual for future
removal costs, including costs related to interim retirements. Concurrent with
implementation of new depreciation rates on January 1, 2006, Laclede
Gas ceased expensing all removal costs, net of salvage, as incurred and
discontinued an annual $3.4 million negative amortization of a portion of the
Utility’s depreciation reserve, as previously ordered by the MoPSC. Consistent
with SFAS No. 71, the Utility records accruals for asset removal costs that are
provided for through depreciation expense with credits to Regulatory
Liabilities. When Laclede Gas retires depreciable utility plant and equipment,
it charges the associated original costs to Accumulated Depreciation and
Amortization, and any related removal costs incurred are charged to Regulatory
Liabilities. The regulatory liability for accrued asset removal costs represents
amounts recovered through rates in excess of actual costs incurred. In the rate
setting process, the regulatory liability is deducted from the rate base upon
which the Utility has the opportunity to earn its allowed rate of
return.


The
Utility’s capital expenditures were $55.3 million, $56.4 million, and $57.9
million for fiscal years 2008, 2007, and 2006, respectively. Additionally, at
September 30, 2008, the Utility had recorded accruals for capital
expenditures totaling approximately $2.3 million. Accrued capital expenditures
at September 30, 2007 and 2006 were not material. Accrued capital
expenditures are excluded from the Consolidated Statements of Cash
Flows.


ASSET RETIREMENT OBLIGATIONS -
In accordance with SFAS No. 143, “Accounting for Asset Retirement Obligations,”
and Financial Accounting Standards Board (FASB) Interpretation No. (FIN) 47,
“Accounting for Conditional Asset Retirement Obligations,” Laclede Group records
legal obligations associated with the retirement of long-lived assets in the
period in which the obligations are incurred, if sufficient information exists
to reasonably estimate the fair value of the obligations. Obligations are
recorded as both a cost of the related long-lived asset and as a corresponding
liability. Subsequently, the asset retirement costs are depreciated over the
life of the asset and the asset retirement obligations are accreted to the
expected settlement amounts. The Company has recorded asset retirement
obligations associated with certain safety requirements to purge and seal gas
distribution mains upon retirement, the plugging and abandonment of storage
wells and other storage facilities, specific service line obligations, and
certain removal and disposal obligations related to components of Laclede Gas’
distribution system and general plant. Asset retirement obligations recorded by
Laclede Group’s non-regulated subsidiaries are not material. As authorized by
the MoPSC, Laclede Gas accrues future removal costs associated with its
property, plant and equipment through its depreciation rates, even if a legal
obligation, as defined by SFAS No. 143 and FIN 47, does not exist. The
difference between removal costs recognized in depreciation rates and the
accretion expense and depreciation expense recognizable under SFAS No. 143 and
FIN 47 is a timing difference between recovery of these costs in rates and their
recognition for financial reporting purposes. Accordingly, consistent with SFAS
No. 71, these differences are deferred as regulatory liabilities.


Laclede
Group first adopted the provisions of FIN 47 on September 30, 2006.
Upon adoption, the Utility recorded Asset Retirement Obligations of $26.0
million and increased the carrying value of the related assets by $3.3 million
(reflecting an increase in gross plant of $6.8 million reduced by accumulated
depreciation totaling $3.5 million). The remaining $22.7 million represents the
cumulative effect of adoption and was recorded as a reduction to Regulatory
Liabilities pursuant to SFAS No. 71.


49
 Table of Contents


The
following table presents a reconciliation of the beginning and ending balances
of Asset Retirement Obligations reported in the Consolidated Balance
Sheets:





(Thousands)Balance
      at September 30, 2006
            
            $
            26,018Liabilities
      incurred during the period
            
            
            603Liabilities
      settled during the period
            
            
            (2,372
            )Accretion
            
            
            1,506Revisions
      in estimated cash flows
            
            
            370Balance
      at September 30, 2007
            
            
            26,125Liabilities
      incurred during the period
            
            
            235Liabilities
      settled during the period
            
            
            (1,035
            )Accretion
            
            
            1,567Revisions
      in estimated cash flows
            
            
            (59
            )Balance
      at September 30, 2008
            
            $
            26,833





REGULATED OPERATIONS - Laclede
Gas accounts for its regulated operations in accordance with SFAS No. 71. This
Statement sets forth the application of accounting principles generally accepted
in the United States of America for those companies whose rates are established
by or are subject to approval by an independent third-party regulator. The
provisions of SFAS No. 71 require, among other things, that financial statements
of a regulated enterprise reflect the actions of regulators, where appropriate.
These actions may result in the recognition of revenues and expenses in time
periods that are different than non-regulated enterprises. When this occurs,
costs are deferred as assets in the balance sheet (regulatory assets) and
recorded as expenses when those amounts are reflected in rates. Also, regulators
can impose liabilities upon a regulated company for amounts previously collected
from customers and for recovery of costs that are expected to be incurred in the
future (regulatory liabilities).


The
following regulatory assets and regulatory liabilities were reflected in the
Consolidated Balance Sheets as of September 30:





(Thousands)
            
            2008
            
            2007Regulatory
      Assets:Future
      income taxes due from customers
            
            $
            85,456
            
            $
            85,476Pension
      and postretirement benefit costs
            
            
            182,890
            
            
            151,163Unamortized
      purchased gas adjustments
            
            
            33,411
            
            
            12,813Purchased
      gas costs
            
            
            49,071
            
            
            29,457Compensated
      absences
            
            
            7,253
            
            
            7,104Cold
      weather rule
            
            
            6,074
            
            
            6,952Other
            
            
            4,011
            
            
            4,902Total
      Regulatory Assets
            
            $
            368,166
            
            $
            297,867Regulatory
      Liabilities:Unamortized
      investment tax credits
            
            $
            3,973
            
            $
            4,200Accrued
      cost of removal
            
            
            35,922
            
            
            33,238Other
            
            
            6,269
            
            
            6,351Total
      Regulatory Liabilities
            
            $
            46,164
            
            $
            43,789





As
authorized by the MoPSC, Laclede Gas discontinued deferring certain costs for
future recovery, as expenses associated with those specific areas were included
in approved rates effective December 27, 1999. Previously deferred
costs of $10.5 million are being recovered and amortized on a straight-line
basis over a fifteen-year period, without return on investment. Amortization of
these costs totaled $6.2 million from December 27, 1999 through
September 30, 2008. Previously deferred costs of $2.1 million are
being recovered and amortized on a straight-line basis over a ten-year period,
without return on investment. Amortization of these costs totaled $1.8 million
from December 27, 1999 through
September 30, 2008.


NATURAL GAS STORED UNDERGROUND
- Inventory of Utility natural gas in storage is priced on a last-in,
first-out (LIFO) basis. The replacement cost of natural gas stored underground
for current use at September 30, 2008 was less than the LIFO cost by
$21.8 million and at September 30, 2007 exceeded the LIFO cost by $4.3
million. The inventory carrying value is not adjusted to the lower of cost or
market prices because, pursuant to the Laclede Gas Purchased Gas Adjustment
(PGA) Clause, actual gas costs are recovered in customer rates.


50
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REVENUE RECOGNITION - Laclede
Gas reads meters and bills its customers on monthly cycles. The Utility records
its regulated gas distribution revenues from gas sales and transportation
services on an accrual basis that includes estimated amounts for gas delivered,
but not yet billed. The accruals for unbilled revenues are reversed in the
subsequent accounting period when meters are actually read and customers are
billed. The amounts of accrued unbilled revenues at September 30, 2008
and 2007, for the Utility, were $13.5 million and $11.9 million,
respectively.


LER
and Laclede Group’s other subsidiaries record revenues when earned, either when
the product is delivered or when services are performed.


In
the course of its business, Laclede Group’s non-regulated gas marketing
affiliate, LER, enters into fixed-price commitments associated with the purchase
or sale of natural gas. LER’s fixed-price energy contracts are designated as
normal purchases and normal sales, as defined in accordance with SFAS No. 133,
“Accounting for Derivative Instruments and Hedging Activities.” As such, those
contracts are accounted for as executory contracts and recorded on an accrual
basis. Revenues are recorded using a gross presentation.


PURCHASED GAS ADJUSTMENTS AND
DEFERRED ACCOUNT-The PGA Clause allows
Laclede Gas to flow through to customers, subject to prudence review, the cost
of purchased gas supplies. To better match customer billings with market natural
gas prices, the Utility is allowed to file to modify, on a periodic basis, the
level of gas costs in its PGA. Laclede Gas has a risk management policy that
allows for the purchase of natural gas financial instruments with the goal of
managing price risk associated with purchasing natural gas on behalf of its
customers. The MoPSC clarified that costs, cost reductions, and carrying costs
associated with the Utility’s use of natural gas financial instruments are gas
costs recoverable through the PGA mechanism. As part of the settlements of the
Utility’s 2005 and 2007 rate cases, the following modifications were made to
Laclede Gas’ PGA Clause:


•
            Effective
      October 1, 2005, the tariffs allow the Utility flexibility to
      make up to three discretionary PGA changes during each year, in addition
      to its mandatory November PGA change, so long as such changes are
      separated by at least two months.•
            Effective
      October 1, 2005, the Utility was authorized to implement the
      recovery of gas inventory carrying costs through its PGA rates to recover
      costs it incurs to finance its investment in gas supplies that are
      purchased during the storage injection season for sale during the heating
      season. The MoPSC also approved the application of carrying costs to all
      over- or under-recoveries of gas costs, including costs and cost
      reductions associated with the use of financial instruments. Previously,
      carrying costs were applicable only to certain gas cost components
      exceeding a predetermined threshold.•
            In
      its 2002 rate case, the MoPSC approved a plan applicable to the Utility’s
      gas supply commodity costs under which it could retain up to 10% of cost
      savings associated with the acquisition of natural gas below an
      established benchmark level of gas cost. This gas supply cost management
      program required that if Laclede Gas’ retention of cost savings reached $5
      million, the Utility would retain 1% of any remaining cost savings. The
      settlement of the Utility’s 2005 rate case continued the plan, with
      certain modifications. The settlement of the Utility’s 2007 rate case
      provides certain modifications to the plan, including a provision that
      allows the Utility to retain 10% of cost savings, up to a maximum of $3.0
      million annually, commencing October 1, 2007. The Utility
      recorded $0.6 million in pre-tax income under the plan in fiscal year
      2008. Laclede Gas did not record any income under the plan during fiscal
      years 2007 and 2006. Income recorded under the plan is included in the
      Regulated Gas Distribution Operating Revenues on the Statements of
      Consolidated Income.


Pursuant
to the provisions of the PGA Clause, the difference between actual costs
incurred and costs recovered through the application of the PGA (including costs
and cost reductions associated with the use of financial instruments and gas
inventory carrying costs), amounts due to or from customers related to operation
of the gas supply cost management program, and carrying costs on such over-or
under-recoveries are reflected as a deferred charge or credit until fiscal year
end. At that time, the balance is classified as a current asset or current
liability and recovered from or credited to customers over an annual period
commencing in November. The balance in the current account is amortized as
amounts are reflected in customer billings. Effective October 1, 2007,
the PGA Clause also provides for the treatment of income from off-system sales
and capacity release revenues, as described below.


OFF-SYSTEM SALES - In
conjunction with the settlement of the 2005 rate case, effective
October 1, 2005, the Utility retained all pre-tax income from
off-system sales and capacity release revenues up to $12 million annually.
Pre-tax amounts in excess of $12 million were shared with customers, with the
Utility retaining 50% of amounts exceeding that threshold. Pursuant to the
settlement of the 2007 rate case, the pre-tax amounts in excess of $12 million
to be shared with customers resulting from amounts earned in fiscal years 2006
and 2007, totaling approximately $7 million, were flowed back to customers over
an annual period commencing in November 2007. In addition, the portion of
pre-tax income to be shared with customers was increased beginning
October 1, 2007. The customer share of such income is determined in
accordance with the table below. The difference between the actual amount
allocated to customers for each fiscal year and the estimated amount assumed in
PGA rates is recovered from or credited to customers over an annual period
commencing in the subsequent November.


51
 Table of Contents





Pre-tax
      Income
            Customer
      Share
            
            Company
      ShareFirst
      $2 million
            85%
            
            15%Next
      $2 million
            80%
            
            20%Next
      $2 million
            75%
            
            25%Amounts
      exceeding $6 million
            70%
            
            30%





INCOME TAXES - Laclede Group
and its subsidiaries have elected, for tax purposes only, various accelerated
depreciation provisions of the Internal Revenue Code. In addition, certain other
costs are expensed currently for tax purposes while being deferred for book
purposes. Effective October 1, 2007, generally accepted accounting
principles require that tax benefits be recognized in the financial statements
as determined by new recognition and measurement provisions. These provisions
permit the benefit from a tax position to be recognized only if, and to the
extent that, it is more likely than not that the tax position will be sustained
upon examination by the taxing authority, based on the technical merits of the
position. Unrecognized tax benefits and related interest and penalties, if any,
are recorded as liabilities or as a reduction to deferred tax assets. Laclede
Group companies record deferred tax liabilities and assets measured by enacted
tax rates for the net tax effect of all temporary differences between the
carrying amounts of assets and liabilities in the financial statements, and the
related tax basis. Changes in enacted tax rates, if any, and certain property
basis differences will be reflected by entries to regulatory asset or regulatory
liability accounts for regulated companies, and will be reflected as income or
loss for non-regulated companies.


Laclede
Gas’ investment tax credits utilized prior to 1986 have been deferred and are
being amortized in accordance with regulatory treatment over the useful life of
the related property.


CASH AND CASH EQUIVALENTS -
All highly liquid debt instruments purchased with original maturities of three
months or less are considered to be cash equivalents. Such instruments are
carried at cost, which approximates market value.


EARNINGS PER COMMON SHARE -
Basic earnings per common share is computed by dividing Net Income by the
weighted average number of shares outstanding for the period. Diluted earnings
per common share reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into common
stock. The only potentially dilutive securities the Company had outstanding at
September 30, 2008, were stock options and nonvested restricted stock
and restricted stock units. The diluted weighted average shares outstanding, as
shown in Note 5, reflects the potential dilution as a result of these stock
options and nonvested restricted stock/units as determined using the Treasury
Stock Method. Securities that are antidilutive are excluded from the calculation
of diluted earnings per share.


GOODWILL - The Company
previously reported Goodwill separately on the Consolidated Balance Sheets, the
total of which was fully attributable to SM&P, and was included in the
Non-Regulated Services operating segment. During the quarter ended
March 31, 2008, the Company sold 100% of its interest in SM&P,
thereby reducing Goodwill to zero at March 31, 2008. Goodwill for
prior periods has been reclassified in the Consolidated Balance Sheets and is
included in the Property and Investments of Discontinued Operations line. For
further information on the sale of SM&P, see Note 2, Discontinued
Operations.


GROSS RECEIPTS AND SALES TAXES
- Gross receipts taxes associated with Laclede Gas’ natural gas utility
service are imposed on the Utility and billed to its customers. These amounts
are recorded gross in the Statements of Consolidated Income. Amounts recorded in
Regulated Gas Distribution Operating Revenues were $52.5 million, $51.8 million,
and $53.0 million for fiscal years 2008, 2007, and 2006, respectively. Gross
receipts taxes are expensed by the Utility and included in the Taxes, Other Than
Income Taxes line.


Sales
taxes imposed on applicable Company sales are billed to customers. These amounts
are not recorded in the Statements of Consolidated Income, but are recorded as
tax collections payable and included in Other Current Liabilities in the
Consolidated Balance Sheets.


ALLOWANCES FOR DOUBTFUL ACCOUNTS
- Estimates of the collectibility of trade accounts receivables are based
on historical trends, age of receivables, economic conditions, credit risk of
specific customers, and other factors. The Utility’s provision for uncollectible
accounts is dependent on the regulatory treatment provided for such costs. The
Utility was allowed to defer for future recovery uncollectible expenses
associated with amendments to the Cold Weather Rule for fiscal years 2006 and
2007, as approved by the MoPSC.


GROUP MEDICAL AND WORKERS’
COMPENSATION RESERVES - The Company self-insures its group medical and
workers’ compensation costs and carries stop-loss coverage in relation to
medical claims and workers’ compensation claims. Reserves for amounts incurred
but not reported are established based on historical cost levels and lags
between occurrences and reporting.


52
 Table of Contents


STOCK-BASED COMPENSATION - The
Laclede Group 2006 Equity Incentive Plan (the 2006 Plan) was approved at the
annual meeting of shareholders of Laclede Group on January 26, 2006.
The purpose of the 2006 Plan is to encourage officers and employees of the
Company and its subsidiaries to contribute to the Company’s success and align
their interests with that of shareholders. To accomplish this purpose, the
Compensation Committee of the Board of Directors may grant awards under the 2006
Plan that may be earned by achieving performance objectives and/or other
criteria as determined by the Compensation Committee. Under the terms of the
2006 Plan, officers and employees of the Company and its subsidiaries, as
determined by the Committee, are eligible to be selected for awards. The 2006
Plan provides for restricted stock, restricted stock units, qualified and
non-qualified stock options, stock appreciation rights, and performance shares
payable in stock, cash, or a combination of both. The 2006 Plan generally
provides a minimum vesting period of at least three years for each type of
award. The maximum number of shares reserved for issuance under the 2006 Plan is
1,250,000. The 2006 Plan replaced the Laclede Group Equity Incentive Plan (the
2003 Plan). Shares reserved under the 2003 Plan, other than those needed for
currently outstanding awards, were canceled upon shareholder approval of the
2006 Plan.


The
Company’s Restricted Stock Plan for Non-Employee Directors was approved by
shareholders in January 2003. The principal purpose of the plan is to
attract and retain qualified persons who are not employees or former employees
of the Company or any of its subsidiaries for service as members of the Board of
Directors and to encourage ownership in the Company by such non-employee
directors by granting shares of common stock subject to restrictions. Shares
vest depending on the participant’s age upon entering the plan and years of
service as a director. The total number of shares of common stock that may be
issued under the Restricted Stock Plan for Non-Employee Directors is
50,000.


The
Company issues new shares to satisfy employee restricted stock awards and stock
option exercises. Shares for non-employee directors are purchased on the open
market.





Restricted
Stock Awards





During
fiscal year 2008, the Company awarded 74,100 shares of performance-contingent
restricted stock to executive officers at a weighted average grant date fair
value of $29.32 per share. This number of shares represents the maximum shares
that can be earned pursuant to the terms of the awards. The shares were awarded
on December 5, 2007 and have a performance period ending in
September 2010, during which participants are entitled to receive full
dividends and voting rights on 49,400 of these shares based on the target level
of performance. The number of shares that will ultimately vest is dependent upon
the attainment of certain levels of earnings and dividend growth performance
goals; further, under the terms of the award, the Compensation Committee
(Committee) of the Board of Directors may reduce by up to 50% the number of
shares that vest if the Company’s total shareholder return (TSR) during the
performance period ranks in the bottom quartile relative to a comparator group
of companies. This TSR provision is considered a market condition under
generally accepted accounting principles and is discussed further
below.


During
fiscal year 2008, the Company made a separate award of 15,000 shares of
performance-contingent restricted stock to an executive officer at a weighted
average grant date fair value of $33.26 per share. This number of shares
represents the maximum shares that can be earned pursuant to the terms of the
award. The shares were awarded on December 5, 2007 and have a
performance period ending in September 2009, during which the participant
is entitled to receive full dividends and voting rights on 10,000 of these
shares based on the target level of performance. The number of shares that will
ultimately vest is dependent upon the attainment of certain business development
performance metrics and succession management objectives and is not subject to
the aforementioned TSR provision.


The
weighted average grant date fair value of performance-contingent restricted
stock awarded during fiscal years 2007 and 2006 was $34.95 and $30.46 per share,
respectively.


Performance-contingent
restricted stock activity for fiscal year 2008 is presented below:





WeightedAverageGrant
      DateShares
            
            
            Fair
      ValueNonvested
      at September 30, 2007
            
            110,000
            
            
            
            $
            32.87Granted
            
            89,100
            
            
            
            $
            29.99Vested
            
            —
            
            
            
            $
            —Forfeited
            
            (20,000
            )
            
            
            $
            33.15Nonvested
      at September 30, 2008
            
            179,100
            
            
            
            $
            31.40





53
 Table of Contents


During
fiscal year 2008, the Company awarded 23,250 shares of time-vested restricted
stock to executives and key employees at a weighted average grant date fair
value of $34.25 per share. These shares were awarded on
December 5, 2007 and vest December 5, 2010. In the interim,
participants receive full dividends and voting rights.


During
fiscal year 2008, the Company made a special award of 15,000 time-vested
restricted stock units to an executive officer at a weighted average grant date
fair value of $28.49 per share. Each restricted stock unit represents a
contingent right to receive one share of Laclede Group common stock. The units
were awarded on February 14, 2008 and vest December 1, 2011.
The participant is required to retain the shares acquired upon vesting for
twelve months from the date of delivery of the shares. No dividends are paid or
accrue during the vesting period. Furthermore, the participant has no voting
rights in the interim.


During
fiscal year 2008, the Company awarded 12,500 shares of time-vested restricted
stock to non-employee directors at a weighted average grant date fair value of
$33.77 per share. These shares were awarded on January 31, 2008. The
weighted average fair value of restricted stock awarded to non-employee
directors during fiscal years 2007 and 2006 was $32.74 per share and $31.80 per
share, respectively. These shares vest depending on the participant’s age upon
entering the plan and years of service as a director. The plan’s trustee
acquires the shares for the awards in the open market and holds the shares as
trustee for the benefit of the non-employee directors until the restrictions
expire. In the interim, the participants receive full dividends and voting
rights.


Time-vested
restricted stock and time-vested restricted stock unit activity for fiscal year
2008 is presented below:





WeightedAverageShares/
            
            
            Grant
      DateUnits
            
            
            Fair
      ValueNonvested
      at September 30, 2007
            
            9,000
            
            
            
            $
            32.44Granted
            
            50,750
            
            
            
            $
            32.43Vested
            
            (2,900
            )
            
            
            $
            33.77Forfeited
            
            —
            
            
            
            $
            —Nonvested
      at September 30, 2008
            
            56,850
            
            
            
            $
            32.36





The
total fair value of restricted stock vested during fiscal years 2008, 2007, and
2006 was $98,000, $83,000, and $87,000, respectively, and the related actual tax
benefit realized was $38,000, $32,000, and $34,000, respectively.





54
 Table of Contents


Stock
Option Awards





No
stock options were granted during fiscal year 2008. The weighted average fair
value of stock options granted during fiscal years 2007 and 2006 was $8.07 and
$6.80 per option, respectively.


Stock
option activity for fiscal year 2008 is presented below:





WeightedAverageWeighted
            
            
            Remaining
            
            
            AggregateAverage
            
            
            Contractual
            
            
            IntrinsicExercise
            
            
            Term
            
            
            ValueShares
            
            
            Price
            
            
            (Years)
            
            
            ($000)Outstanding
      at September 30, 2007
            
            617,100
            
            
            $
            30.04Granted
            
            —
            
            
            $
            —Exercised
            
            (178,500
            )
            
            $
            28.05Forfeited
            
            (15,000
            )
            
            $
            30.88Expired
            
            (7,750
            )
            
            $
            31.14Outstanding
      at September 30, 2008
            
            415,850
            
            
            $
            30.84
            
            
            6.4
            
            
            $
            7,339Fully
      Vested and Expected to Vest
              at
      September 30, 2008
            
            403,205
            
            
            $
            30.79
            
            
            6.4
            
            
            $
            7,138Exercisable
      at September 30, 2008
            
            235,225
            
            
            $
            29.50
            
            
            5.8
            
            
            $
            4,467





Exercise
prices of options outstanding at September 30, 2008 range from $23.27
to $34.95. During fiscal year 2008, cash received from the exercise of stock
options was $5.0 million, the intrinsic value of the options exercised was $2.0
million and the related actual tax benefit realized was $0.8 million. During
fiscal year 2007, cash received from the exercise of stock options was $3.1
million, the intrinsic value of the options exercised was $0.8 million and the
related actual tax benefit realized was $0.3 million. During fiscal year 2006,
cash received from the exercise of stock options was $0.6 million, the intrinsic
value of the options exercised was $0.2 million and the related actual tax
benefit realized was $76,000.


The
closing price of the Company’s common stock was $48.49 at
September 30, 2008.





Equity
Compensation Costs





Compensation
cost for performance-contingent restricted stock awards is based upon the
probable outcome of the performance conditions. For shares that do not vest or
are not expected to vest due to the outcome of the performance conditions, no
compensation cost is recognized and any previously recognized compensation cost
is reversed.


The
fair value of awards of performance-contingent and time-vested restricted stock
and restricted stock units, not subject to the TSR provision, is estimated using
the closing price of the Company’s stock on the date of the grant. For those
awards that do not pay dividends during the vesting period, the estimate of fair
value is reduced by the present value of the dividends expected to be paid on
the Company’s common stock during the performance period, discounted using an
appropriate U.S. Treasury yield. For shares subject to the TSR provision, the
estimated impact of this market condition is reflected in the grant date fair
value per share of the awards. Accordingly, compensation cost is not reversed to
reflect any actual reductions in the awards that may result from the TSR
provision. However, if the Company’s TSR during the performance period ranks in
the bottom quartile relative to a comparator group of companies and the
Committee elects not to reduce the award (or reduce by a lesser amount), this
election would be accounted for as a modification of the original award and
additional compensation cost would be recognized at that time. The grant date
fair value per share of the awards subject to the TSR provision awarded during
fiscal year 2008 was valued by a Monte Carlo simulation model that assessed the
probabilities of various TSR outcomes. The significant assumptions used in the
Monte Carlo simulation are as follows:


55
 Table of Contents





2008
            
            2007
            
            2006Risk
      free interest rate
            2.89%
            
            Not
      applicable
            
            Not
      applicableExpected
      dividend yield of stock
            —
            
            Not
      applicable
            
            Not
      applicableExpected
      volatility of stock
            24.96%
            
            Not
      applicable
            
            Not
      applicableVesting
      period
            2.8
      years
            
            Not
      applicable
            
            Not
      applicable





The
risk free interest rate was based on the yield on U.S. Treasury securities
matching the vesting period. The expected volatility is based on the historical
volatility of the Company’s stock. Volatility assumptions were also made for
each of the companies included in the comparator group. The vesting period is
equal to the performance period set forth in the terms of the
award.


The
fair value of the options granted during fiscal years 2007 and 2006 was
estimated at the date of grant using a binomial option-pricing model based on
the assumptions noted in the following table. Expected volatility was based on
the historical volatility of the Company’s stock. The risk-free rate was based
on U.S. Treasury yields at the grant date. The expected life of options was
based on generalized expectations regarding the behavior of option holders since
the Company’s experience was not yet sufficient to develop an assumption
specific to its employees.





2008
            
            2007
            
            2006Risk
      free interest rate
            Not
      applicable
            
            4.60%
            
            4.60%Expected
      dividend yield of stock
            Not
      applicable
            
            4.20%
            
            4.50%Expected
      volatility of stock
            Not
      applicable
            
            25.00%
            
            25.00%Expected
      life of option
            Not
      applicable
            
            96
      months
            
            96
      months





The
amounts of compensation cost recognized for share-based compensation
arrangements are presented below:





(Thousands)
            
            2008
            
            2007
            
            2006Total
      compensation cost
            
            $
            2,651
            
            $
            2,401
            
            $
            1,550Compensation
      cost capitalized
            
            
            (578
            )
            
            (524
            )
            
            (360
            )Compensation
      cost recognized in net income
            
            
            2,073
            
            
            1,877
            
            
            1,190Income
      tax benefit recognized in net income
            
            
            (799
            )
            
            (725
            )
            
            (460
            )Compensation cost recognized in net income, net of income tax
            
            $
            1,274
            
            $
            1,152
            
            $
            730





As
of September 30, 2008, there was $3.9 million of total unrecognized
compensation cost related to nonvested share-based compensation arrangements.
That cost is expected to be recognized over a weighted average period of 2.4
years.


NEW ACCOUNTING STANDARDS-In June 2006, the FASB
issued FIN 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies
the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements in accordance with FASB Statement No. 109, “Accounting for
Income Taxes.” Under FIN 48, the Company may recognize the tax benefit from a
tax position only if it is at least more likely than not that the tax position
will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial
statements from such a position should be measured based on the largest benefit
that has a greater than fifty percent likelihood of being realized upon
settlement with the taxing authorities. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure, and transition. The Company adopted the provisions of FIN
48 as of October 1, 2007. For details regarding the cumulative effect
of adoption and other pertinent information, see Note 12, Income
Taxes.


56
 Table of Contents


In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”
This Statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about
fair value measurements. The Statement applies to fair value measurements
required under other accounting guidance that require or permit fair value
measurements. Accordingly, this Statement does not require any new fair value
measurements. The guidance in this Statement does not apply to the Company’s
stock-based compensation plans accounted for in accordance with SFAS No. 123(R),
“Share-Based Payment.” Except as described below, SFAS No. 157 is effective for
the Company as of the beginning of fiscal year 2009. In February 2008,
the FASB issued two Staff Positions that amend SFAS No. 157. The first FASB
Staff Position (FSP), No. FAS 157-1, excludes from the scope of SFAS No. 157
accounting pronouncements that address fair value measurements for purposes of
lease classification and measurement. The second FSP, No. FAS 157-2, delays the
effective date of SFAS No. 157 for nonfinancial assets and nonfinancial
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). Application
of SFAS No. 157 to these items will be effective for the Company as of the
beginning of fiscal year 2010. In October 2008, the FASB issued FSP No. FAS
157-3, which clarifies the application of SFAS No. 157 in a market that is not
active. The Company anticipates that the adoption of SFAS No. 157, as amended by
these Staff Positions, will not have a material impact on the Company’s
financial position or results of operations. The Company will, however, be
required to provide additional disclosures on certain fair value
measurements.


In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans.” As discussed in Note 3,
Pension Plans and Other Postretirement Benefits, Laclede Group adopted the
recognition and disclosure provisions of this Statement effective
September 30, 2007. The Statement also requires that plan assets and
benefit obligations be measured as of the date of the employer’s fiscal year-end
statement of financial position. This requirement is effective for the Company
as of the end of fiscal year 2009. In conjunction with adoption of this
provision of SFAS No. 158, the Company will be required to change its valuation
date for its pension and other postretirement plans from June 30 to
September 30. Adoption will require certain adjustments to retained
earnings and other comprehensive income, the amounts of which are not yet known.
However, the majority of these adjustments, attributable to the Company’s
qualified pension plans and other postretirement benefit plans, are expected to
be deferred with entries to regulatory assets.


In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities.” The Statement permits entities to
choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value. SFAS No. 159
also establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. This Statement does not affect any
existing accounting literature that requires certain assets and liabilities to
be carried at fair value. Upon adoption of SFAS No. 159, entities are permitted
to choose, at specified election dates, to measure eligible items at fair value
(fair value option). Unrealized gains and losses on items for which the fair
value option has been elected are reported in earnings at each reporting date.
The decision about whether to elect the fair value option is applied instrument
by instrument with few exceptions. The decision is also irrevocable (unless a
new election date occurs) and must be applied to entire instruments and not to
portions of instruments. SFAS No. 159 requires that cash flows related to items
measured at fair value be classified in the statement of cash flows according to
their nature and purpose as required by SFAS No. 95, “Statement of Cash Flows”
(as amended). SFAS No. 159 is effective for the Company as of the beginning of
fiscal year 2009. The Company does not intend to elect the fair value option for
any instruments not currently reported at fair value. Therefore, the adoption of
this Statement will have no effect on the Company’s financial position or
results of operations.


In
June 2007, the FASB ratified the consensus reached in Emerging Issues Task
Force (EITF) Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends
on Share-Based Payment Awards.” This Issue addresses how an entity should
recognize the tax benefit received on dividends that are (a) paid to employees
holding equity-classified nonvested shares, equity-classified nonvested share
units, or equity-classified outstanding share options and (b) charged to
retained earnings under SFAS No. 123(R). The Task Force reached a consensus that
such tax benefits should be recognized as an increase in additional paid-in
capital. This EITF Issue also addresses how the accounting for these tax
benefits is affected if an entity’s estimate of forfeitures changes in
subsequent periods. This EITF Issue is effective for Laclede Group as of the
beginning of fiscal year 2009. Adoption of this EITF issue will not have a
material effect on the Company’s financial position or results of
operations.


In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements.” This Statement amends Accounting Research
Bulletin No. 51, “Consolidated Financial Statements.” A noncontrolling interest,
sometimes called a minority interest, is the portion of equity in a subsidiary
not attributable, directly or indirectly, to a parent. SFAS No. 160 clarifies
that noncontrolling interests should be separately reported as equity in the
balance sheet. Additionally, SFAS No. 160 requires certain changes in
presentation to income statements. SFAS No. 160 also addresses accounting for
changes in the parent’s ownership interest of a subsidiary, accounting for the
deconsolidation of a subsidiary, and disclosure requirements. This Statement is
effective for Laclede Group as of the beginning of fiscal year 2010. Currently,
all of Laclede Group’s consolidated subsidiaries are wholly owned and therefore
adoption of this Statement will not have any effect on the Company’s
consolidated financial statements.


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In
December 2007, the FASB issued SFAS No. 141 (revised 2007) (141(R)),
“Business Combinations.” This Statement revises SFAS No. 141 but retains the
fundamental requirements in SFAS No. 141 that the acquisition method
(formerly known as purchase method) of accounting be used for all business
combinations. SFAS No. 141(R) requires an acquirer to recognize the assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at the acquisition date, measured at their fair values as of that date,
with limited exceptions specified in the Statement. SFAS 141(R) requires
acquisition-related costs to be accounted for separately instead of being
allocated to the assets acquired and liabilities assumed. SFAS No. 141(R) also
amends the guidance related to the recognition of certain assets acquired and
liabilities assumed that relate to contingencies, research and development
assets acquired that have no alternative future use, and negative goodwill
arising from a bargain purchase. Laclede Group is required to adopt SFAS No.
141(R) prospectively to business combinations with acquisition dates on or after
October 1, 2009 (fiscal 2010). Because this Statement is only
applicable to future business combinations, existing amounts reported on the
Company’s consolidated financial statements will not be impacted by adoption of
this Statement.


In
March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities.” This Statement amends SFAS No. 133, by
requiring enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. This Statement will be
effective for the Company’s interim and annual financial statements beginning in
the second quarter of fiscal year 2009. This Statement encourages, but does
not require, comparative disclosures for earlier periods at initial adoption.
The Company is currently evaluating the provisions of this
Statement.


In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles.” SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting principles to be used in
the preparation and presentation of financial statements in accordance with
generally accepted accounting principles. This statement will be effective in
the first quarter of fiscal 2009. The adoption of SFAS No. 162 will not have any
effect on the Company’s consolidated financial statements.


In
May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No. 60.” This Statement
provides clarification to the guidance in SFAS No. 60, “Accounting and Reporting
by Insurance Enterprises,” and expands disclosure requirements. This Statement
is effective for Laclede Group as of the beginning of fiscal year 2010.
Because SFAS No. 163 is primarily applicable to insurance enterprises that issue
financial guarantee insurance contracts, the adoption of this Statement will
have no effect on the Company’s consolidated financial statements.


In
June 2008, the FASB issued FSP No. EITF 03-6-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities.” This FSP addresses whether instruments granted in share-based
payment transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in computing earnings
per share (EPS) under the two-class method described by SFAS No. 128, “Earnings
per Share.” The guidance in this FSP states that unvested share-based payment
awards that contain nonforfeitable rights to dividends or dividend equivalents
(whether paid or unpaid) are participating securities and shall be included in
the computation of EPS pursuant to the two-class method. This FSP is effective
for Laclede Group as of the beginning of fiscal year 2010. The FSP requires that
the guidance be applied retrospectively to all prior-period EPS data presented.
The Company is currently assessing the potential impact of this FSP on its EPS
calculations.








2.
            DISCONTINUED
      OPERATIONS





On
March 31, 2008, the Company completed the sale of 100% of its interest
in its wholly-owned subsidiary, SM&P, to Stripe Acquisition, Inc. (an
affiliate of Kohlberg Management VI, LLC) for $85 million in cash, subject to
certain closing and post-closing adjustments. SM&P is an underground
facilities locating and marking business that comprised Laclede Group’s
Non-Regulated Services operating segment. The sales agreement included
representations, warranties, and indemnification provisions customary for such
transactions and was filed as an exhibit to the March 31, 2008 Form
10-Q. For information concerning Laclede Group’s obligations under these
provisions, see Note 15, Commitments and Contingencies.


In
accordance with generally accepted accounting principles, the operating results
of SM&P have been aggregated and reported on the Statements of Consolidated
Income as Income from Discontinued Operations, Net of Income Tax. The Company
has reported in discontinued operations interest expense based on amounts
previously recorded by SM&P. Discontinued operations includes pre-tax
interest expense of $1.6 million for fiscal year 2008 and $3.3 million per year
for fiscal years 2007 and 2006. Discontinued operations does not include general
corporate overhead expense. Income from Discontinued Operations reported in
the Statements of Consolidated Income consists of the
following:


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(Thousands)
            
            2008
            
            2007
            
            2006Operating
      revenues
            
            $
            65,423
            
            $
            165,733
            
            $
            162,523Income
      (loss) from operations
            
            
            (9,434
            )
            
            6,916
            
            
            5,408Gain
      on disposal
            
            
            44,401
            
            
            —
            
            
            —Pre-tax
      income
            
            
            34,967
            
            
            6,916
            
            
            5,408Income
      tax expense
            
            
            14,571
            
            
            2,889
            
            
            2,266Income
      from Discontinued Operations
            
            $
            20,396
            
            $
            4,027
            
            $
            3,142





The
assets and liabilities of SM&P have been segregated from continuing
operations and have been reported as assets or liabilities of discontinued
operations on the Consolidated Balance Sheets. Assets and liabilities of
SM&P reported in the Consolidated Balance Sheets as discontinued operations
consist of the following:





Sept.
      30,(Thousands)
            
            2007AssetsProperty
      and Investments:Goodwill
            
            $
            33,595Property,
      plant and equipment – net
            
            
            7,204Other
      investments
            
            
            1,802Total
      Property and Investments
            
            
            42,601Current
      Assets:Accounts
      receivable – net
            
            
            28,816Other
            
            
            1,940Total
      Current Assets
            
            
            30,756Total
      Assets
            
            $
            73,357LiabilitiesCurrent
      Liabilities:Accounts
      payable
            
            $
            7,720Wages
      and compensation accrued
            
            
            3,950Other
            
            
            10,060Total
      Current Liabilities
            
            
            21,730Deferred
      credits and other liabilities
            
            
            3,118Total
      Liabilities
            
            $
            24,848





Cash flows from SM&P’s operations
were not material.





3.
            PENSION
      PLANS AND OTHER POSTRETIREMENT
BENEFITS





In
September 2007, the Company adopted SFAS No. 158. This Statement amended
FASB Statements No. 87, “Employers’ Accounting for Pensions,” No. 88,
“Employers’ Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits,” No. 106, “Employers’ Accounting for
Postretirement Benefits Other Than Pensions,” and No. 132 (revised 2003),
“Employers’ Disclosure About Pensions and Other Postretirement Benefits.”
Statement No. 158 requires an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan as an asset or
liability in its statement of financial position. Prior accounting standards
allowed an employer to delay recognition of certain economic events that
affected the costs of providing postretirement benefits and to disclose the
overfunded or underfunded status of a plan in the notes to the financial
statements. This Statement eliminated the delayed recognition of actuarial gains
and losses and prior service costs and credits that arise during the period and
requires employers to recognize these items as components of other comprehensive
income, net of tax. Additional minimum pension liabilities and related
intangible assets were derecognized upon adoption of this Statement. The
Statement also requires that plan assets and benefit obligations be measured as
of the date of the employer’s fiscal year-end statement of financial position.
This requirement will be effective for the Company as of the end of fiscal year
2009. The Company currently uses a June 30 valuation date for its benefit
plans.


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For
the Utility, the amount of expense recognized and the amounts reflected in other
comprehensive income are dependent upon the regulatory treatment provided for
such costs. Accordingly, consistent with SFAS No. 71, the impact of adoption of
SFAS No. 158 on accumulated other comprehensive income for the Utility’s
qualified pension plans and postretirement benefit plans was deferred with
entries to Regulatory Assets.


The
incremental effects of adoption of SFAS No. 158 on individual line items of the
Consolidated Balance Sheet at September 30, 2007 were as
follows:


(Thousands)
            
            Prior
      to
              SFAS
      No. 158
              Adoption
            
            Adjustments
            
            After
              SFAS
      No. 158
              AdoptionDeferred
      Charges:Prepaid
      pension cost
            
            $
            51,962
            
            $
            (51,962
            )
            $
            —Regulatory
      assets
            
            
            190,254
            
            
            94,800
            
            
            285,054Other
            
            
            5,192
            
            
            (523
            )
            
            4,669Common
      stock equity:Accumulated
      other comprehensive income (loss) *
            
            
            2,981
            
            
            (1,124
            )
            
            1,857Current
      Liabilities:Other
            
            
            5,056
            
            
            700
            
            
            5,756Deferred
      Credits and Other Liabilities:Deferred
      income taxes
            
            
            224,458
            
            
            (708
            )
            
            223,750Pension
      and postretirement benefit costs
            
            
            20,231
            
            
            43,447
            
            
            63,678*
      Appears on the Statements of Consolidated Capitalization








Pension
Plans





Laclede
Gas has non-contributory defined benefit, trusteed forms of pension plans
covering substantially all employees. Benefits are based on years of service and
the participant’s compensation during the highest three years of the last ten
years of employment. Plan assets consist primarily of corporate and U.S.
government obligations and pooled equity funds.


Pension
costs in 2008, 2007, and 2006 amounted to $6.1, $5.5, and $5.4 million,
respectively, including amounts charged to construction.


The
net periodic pension costs include the following components:





(Thousands)
            
            2008
            
            2007
            
            2006Service
      cost – benefits earned during the period
            
            $
            12,970
            
            $
            12,422
            
            $
            14,761Interest
      cost on projected benefit obligation
            
            
            18,680
            
            
            17,929
            
            
            16,704Expected
      return on plan assets
            
            
            (20,650
            )
            
            (20,295
            )
            
            (20,782
            )Amortization
      of prior service cost
            
            
            1,088
            
            
            1,143
            
            
            1,175Amortization
      of actuarial loss
            
            
            3,165
            
            
            3,673
            
            
            6,912Sub-total
            
            
            15,253
            
            
            14,872
            
            
            18,770Loss
      on lump-sum settlement
            
            
            —
            
            
            803
            
            
            —Regulatory
      adjustment
            
            
            (9,120
            )
            
            (10,131
            )
            
            (13,417
            )Net
      pension cost
            
            $
            6,133
            
            $
            5,544
            
            $
            5,353





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Other changes in plan assets and
pension benefit obligations recognized in Other Comprehensive Income during
fiscal year 2008 include the following:





(Thousands)
            
            2008Current
      year actuarial loss
            
            $
            18,050Amortization
      of actuarial loss
            
            
            (3,165
            )Amortization
      of prior service cost
            
            
            (1,088
            )Sub-total
            
            
            13,797Regulatory
      adjustment
            
            
            (13,697
            )Total
      recognized in other comprehensive income
            
            $
            100





Changes in the minimum pension
liability resulted in credits to Other Comprehensive Income of $0.4 million in
fiscal year 2007 and $3.6 million in fiscal year 2006, excluding the effect of
regulatory treatment. After the effect of regulatory treatment, credits
recognized in other comprehensive income for fiscal years 2007 and 2006 were
$0.4 million and $0.5 million, respectively.


Pursuant
to the provisions of the Laclede Gas pension plans, pension obligations may be
satisfied by lump-sum cash payments. Pursuant to a MoPSC Order, lump-sum
payments are recognized as settlements (which can result in gains or losses)
only if the total of such payments exceeds 100% of the sum of service and
interest costs. No lump-sum payments were recognized as settlements during
fiscal year 2008. Lump-sum payments recognized as settlements during fiscal year
2007 were $3.0 million. No lump-sum payments were recognized as settlements in
fiscal year 2006.


Pursuant
to a MoPSC Order, the return on plan assets is based on the market-related value
of plan assets implemented prospectively over a four-year period. Gains or
losses not yet includible in pension cost are amortized only to the extent that
such gain or loss exceeds 10% of the greater of the projected benefit obligation
or the market-related value of plan assets. Such excess is amortized over the
average remaining service life of active participants. The recovery in rates for
the Utility’s qualified pension plans is based on an allowance of $4.1 million
annually effective October 1, 2005 and $4.8 million annually effective
August 1, 2007. The difference between this amount and pension expense
as calculated pursuant to the above and that otherwise would be included in the
Statements of Consolidated Income and Consolidated Comprehensive Income is
deferred as a regulatory asset or regulatory liability.


The
following table sets forth the reconciliation of the beginning and ending
balances of the pension benefit obligation at September 30:





(Thousands)
            
            2008
            
            2007Benefit
      obligation at beginning of year
            
            $
            293,265
            
            $
            282,060Service
      cost
            
            
            12,970
            
            
            12,422Interest
      cost
            
            
            18,680
            
            
            17,929Actuarial
      (gain) loss
            
            
            (19
            )
            
            1,407Gross
      benefits paid *
            
            
            (16,160
            )
            
            (20,553
            )Benefit
      obligation at end of year
            
            $
            308,736
            
            $
            293,265Accumulated
      benefit obligation at end of year
            
            $
            238,769
            
            $
            231,719*
      Includes $(3,021) in lump-sum payments recognized as settlements in fiscal
      year 2007.





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The
following table sets forth the reconciliation of the beginning and ending
balances of the fair value of plan assets at September 30:





(Thousands)
            
            2008
            
            2007Fair
      value of plan assets at beginning of year
            
            $
            260,280
            
            $
            246,136Actual
      return on plan assets
            
            
            2,581
            
            
            33,515Employer
      contributions
            
            
            1,645
            
            
            1,182Gross
      benefits paid *
            
            
            (16,160
            )
            
            (20,553
            )Fair
      value of plan assets at end of year
            
            $
            248,346
            
            $
            260,280Funded
      status of plans
            
            $
            (60,390
            )
            $
            (32,985
            )Fourth
      quarter contribution adjustment
            
            
            56
            
            
            261Funded
      status, end of year
            
            $
            (60,334
            )
            $
            (32,724
            )*
      Includes $(3,021) in lump-sum payments recognized as settlements in fiscal
      year 2007.





The
following table sets forth the amounts recognized in the Consolidated Balance
Sheet at September 30:





(Thousands)
            
            2008
            
            2007Noncurrent
      assets
            
            $
            —
            
            $
            —Current
      liabilities
            
            
            (1,460
            )
            
            (400
            )Noncurrent
      liabilities
            
            
            (58,874
            )
            
            (32,324
            )Total
            
            $
            (60,334
            )
            $
            (32,724
            )Pre-tax
      amounts recognized in Accumulated Other Comprehensive
    Incomenot
      yet recognized as components of net periodic pension cost consist
      of:Net
      actuarial loss
            
            $
            82,371
            
            $
            67,486Prior
      service costs
            
            
            11,244
            
            
            12,332Sub-total
            
            
            93,615
            
            
            79,818Adjustments
      for amounts included in Regulatory Assets
            
            
            (90,701
            )
            
            (77,004
            )Total
            
            $
            2,914
            
            $
            2,814





At
September 30, 2008, the following pre-tax amounts are expected to be
amortized from Accumulated Other Comprehensive Income into net periodic pension
cost during fiscal year 2009:





(Thousands)Amortization
      of net actuarial loss
            
            $
            3,096Amortization
      of prior service cost
            
            
            1,035Sub-total
            
            
            4,131Regulatory
      adjustment
            
            
            (3,932
            )Total
            
            $
            199





The
pension benefit obligation and the fair value of plan assets are based on a
June 30 measurement date.


The
assumptions used to calculate net periodic pension costs are as
follows:





2008
            
            2007
            
            2006Weighted
      average discount rate
            6.25%
            
            6.25%
            
            5.00%Weighted
      average rate of future compensation increase
            3.50%
            
            3.50%
            
            3.00%Expected
      long-term rate of return on plan assets
            8.25%
            
            8.25%
            
            8.25%





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The
weighted average discount rate is based on long-term, high quality bond indices
at the measurement date. The expected long-term rate of return on plan assets is
based on historical and projected rates of return for current and planned asset
classes in the investment portfolio. Assumed projected rates of return for each
asset class were selected after analyzing historical experience and future
expectations of the returns. The overall expected rate of return for the
portfolio was developed based on the target allocation for each class. The
expected return is a long-term assumption that generally does not change
annually.


The
assumptions used to calculate the benefit obligations are as
follows:





2008
            
            2007Weighted
      average discount rate
            6.60%
            
            6.25%Weighted
      average rate of future compensation increase
            3.75%
            
            3.50%





Following
are the projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for plans that have a projected benefit obligation and an
accumulated benefit obligation in excess of plan assets:





(Thousands)
            
            2008
            
            2007Projected
      benefit obligation
            
            $
            308,736
            
            $
            293,265Fair
      value of plan assets
            
            
            248,346
            
            
            260,280Accumulated
      benefit obligation
            
            
            24,938
            
            
            24,431Fair
      value of plan assets
            
            
            12,727
            
            
            12,795





Following
are the targeted and actual plan assets by category:





2009
            
            2008
            
            2007Target
            
            Actual
            
            ActualEquity
      Securities
            50%
            
            46%
            
            50%Debt
      Securities
            50%
            
            54%
            
            50%Total
            100%
            
            100%
            
            100%





Laclede
Gas’ investment policy is designed to preserve, to the extent possible, the
current funded status of the plan and minimize contributions to the trusts. The
policy seeks to maximize investment returns consistent with these objectives and
Laclede Gas’ tolerance for risk. Outside investment management specialists are
utilized in each asset class. Such specialists are provided with guidelines,
where appropriate, designed to ensure that the investment portfolio is managed
in accordance with the policy. Performance and compliance with the guidelines is
regularly monitored. Laclede Gas generally rebalances plan assets quarterly if
the actual allocation deviates from the target allocation by more than
2%.


Following
are expected pension benefit payments for the succeeding five fiscal years, and
in aggregate for the five years thereafter:





(Millions)
            
            Pensions
      from
              Qualified
      Trust
            
            Pensions
      from
              Laclede
      Gas
              Funds2009
            
            
            $
            14.7
            
            
            
            $
            1.52010
            
            
            
            14.7
            
            
            
            
            1.32011
            
            
            
            16.7
            
            
            
            
            1.82012
            
            
            
            18.4
            
            
            
            
            1.02013
            
            
            
            22.8
            
            
            
            
            0.82014
      – 2018
            
            
            
            182.4
            
            
            
            
            2.7





The
funding policy of Laclede Gas is to contribute an amount not less than the
minimum required by government funding standards, nor more than the maximum
deductible amount for federal income tax purposes. Contributions to the pension
plans in fiscal year 2009 are anticipated to be $2.2 million into the qualified
trusts, and $1.5 million into the non-qualified plans.


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 Table of Contents





Postretirement
Benefits





Laclede
Gas provides certain life insurance benefits at retirement. Medical insurance is
available after early retirement until age 65. The transition obligation not yet
includible in postretirement benefit cost is being amortized over 20 years.
Postretirement benefit costs in 2008, 2007, and 2006 amounted to $7.6 million,
$7.8 million, and $8.9 million, respectively, including amounts charged to
construction.


Net
periodic postretirement benefit costs consisted of the following
components:





(Thousands)
            
            2008
            
            2007
            
            2006Service
      cost – benefits earned during the period
            
            $
            4,560
            
            $
            4,063
            
            $
            3,985Interest
      cost on accumulated postretirementbenefit
      obligation
            
            
            3,909
            
            
            3,599
            
            
            2,959Expected
      return on plan assets
            
            
            (2,039
            )
            
            (1,723
            )
            
            (1,358
            )Amortization
      of transition obligation
            
            
            136
            
            
            136
            
            
            327Amortization
      of prior service cost
            
            
            (2,328
            )
            
            (2,328
            )
            
            (36
            )Amortization
      of actuarial loss
            
            
            2,985
            
            
            3,245
            
            
            1,273Sub-total
            
            
            7,223
            
            
            6,992
            
            
            7,150Regulatory
      adjustment
            
            
            419
            
            
            851
            
            
            1,713Net
      postretirement benefit cost
            
            $
            7,642
            
            $
            7,843
            
            $
            8,863





Other changes in plan assets and
postretirement benefit obligations recognized in Other Comprehensive Income
during fiscal year 2008 include the following:





(Thousands)
            
            2008Current
      year actuarial loss
            
            $
            9,772Amortization
      of actuarial loss
            
            
            (2,985
            )Amortization
      of prior service credit
            
            
            2,328Amortization
      of transition obligation
            
            
            (136
            )Sub-total
            
            
            8,979Regulatory
      adjustment
            
            
            (8,979
            )Total
      recognized in other comprehensive income
            
            $
            —





Pursuant
to the Commission’s Order in the Utility’s 2002 rate case and affirmed in the
2005 and 2007 rate cases, the return on plan assets is based on the
market-related value of plan assets implemented prospectively over a four-year
period. Gains and losses not yet includible in postretirement benefit cost are
amortized only to the extent that such gain or loss exceeds 10% of the greater
of the accumulated postretirement benefit obligation or the market-related value
of plan assets. Such excess is amortized over the average remaining service life
of active participants. Also in the 2002 and 2005 rate cases, the Commission
ordered that the recovery in rates for the postretirement benefit costs be based
on the accounting methodology as ordered in the 1999 rate case, which based the
amortization of gains and losses on a five-year average of gains and losses. The
difference between this amount and postretirement benefit expense as calculated
pursuant to the above was deferred as a regulatory asset or regulatory
liability. In the 2007 rate case, the Commission recognized that the recovery in
rates is based on an annual allowance of $7.6 million, effective
August 1, 2007. The difference between this amount and postretirement
benefit cost based on the above and that otherwise would be included in the
Statements of Consolidated Income and Consolidated Comprehensive Income is
deferred as a regulatory asset or regulatory liability.


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The
following table sets forth the reconciliation of the beginning and ending
balances of the postretirement benefit obligation at
September 30:





(Thousands)
            
            2008
            
            2007Benefit
      obligation at beginning of year
            
            $
            60,111
            
            $
            55,584Service
      cost
            
            
            4,560
            
            
            4,063Interest
      cost
            
            
            3,909
            
            
            3,599Actuarial
      loss
            
            
            6,356
            
            
            1,551Gross
      benefits paid
            
            
            (5,222
            )
            
            (4,686
            )Benefit
      obligation at end of year
            
            $
            69,714
            
            $
            60,111





The
following table sets forth the reconciliation of the beginning and ending
balances of the fair value of plan assets at September 30:





(Thousands)
            
            2008
            
            2007Fair
      value of plan assets at beginning of year
            
            $
            24,997
            
            $
            21,179Actual
      return on plan assets
            
            
            (1,378
            )
            
            2,947Employer
      contributions
            
            
            7,685
            
            
            5,557Gross
      benefits paid
            
            
            (5,222
            )
            
            (4,686
            )Fair
      value of plan assets at end of year
            
            $
            26,082
            
            $
            24,997Funded
      status of plans
            
            $
            (43,632
            )
            $
            (35,114
            )Fourth
      quarter contribution adjustment
            
            
            4,068
            
            
            3,460Funded
      status, end of year
            
            $
            (39,564
            )
            $
            (31,654
            )





The
following table sets forth the amounts recognized in the Consolidated Balance
Sheet at September 30:





(Thousands)
            
            2008
            
            2007Noncurrent
      assets
            
            $
            —
            
            $
            —Current
      liabilities
            
            
            (300
            )
            
            (300
            )Noncurrent
      liabilities
            
            
            (39,264
            )
            
            (31,354
            )Total
            
            $
            (39,564
            )
            $
            (31,654
            )Pre-tax
      amounts recognized in Accumulated Other Comprehensive
    Incomenot
      yet recognized as components of net periodic postretirement
      costconsist
      of:Net
      actuarial loss
            
            $
            39,957
            
            $
            33,170Prior
      service credit
            
            
            (9,660
            )
            
            (11,988
            )Transition
      obligation
            
            
            671
            
            
            807Sub-total
            
            
            30,968
            
            
            21,989Adjustments
      for amounts included in Regulatory Assets
            
            
            (30,968
            )
            
            (21,989
            )Total
            
            $
            —
            
            $
            —





At
September 30, 2008, the following pre-tax amounts are expected to be
amortized from Accumulated Other Comprehensive Income into net periodic
postretirement benefit cost during fiscal year 2009:





( (Thousands)Amortization of net actuarial loss
            
            $
            3,509Amortization of prior service credit
            
            
            (2,328
            )Amortization of transition obligation
            
            
            136Sub-total
            
            
            1,317Regulatory adjustment
            
            
            (1,317
            )Total
            
            $
            —





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The
accumulated postretirement benefit obligation and the fair value of plan assets
are based on a June 30 measurement date.


The
assumptions used to calculate net periodic postretirement benefit costs are as
follows:





2008
            
            2007
            
            2006Weighted
      average discount rate
            6.25%
            
            6.25%
            
            5.00%Weighted
      average rate of future compensation increase
            3.50%
            
            3.50%
            
            3.00%Expected
      long-term rate of return on plan assets
            8.25%
            
            8.25%
            
            8.25%





The
weighted average discount rate is based on long-term, high quality bond indices
at the measurement date. The expected long-term rate of return on plan assets is
based on historical and projected rates of return for current and planned asset
classes in the investment portfolio. Assumed projected rates of return for each
asset class were selected after analyzing historical experience and future
expectations of the returns. The overall expected rate of return for the
portfolio was developed based on the target allocation for each class. The
expected return is a long-term assumption that generally does not change
annually.


The
assumptions used to calculate the accumulated postretirement benefit obligations
are as follows:





2008
            
            2007Weighted
      average discount rate
            6.35%
            
            6.25%Weighted
      average rate of future compensation increase
            3.75%
            
            3.50%





The
assumed medical cost trend rates at September 30 are as
follows:





2008
            
            2007Medical
      cost trend assumed for next year
            8.50%
            
            8.00%Rate
      to which the medical cost trend rate is assumed to decline(the
      ultimate medical cost trend rate)
            5.00%
            
            5.00%Year
      that the rate reaches the ultimate trend
            2016
            
            2011





The
following table presents the effect of an assumed 1% change in the assumed
medical cost trend rate:





(Thousands)
            
            1%
      Increase
            
            1%
      DecreaseEffect
      on net periodic postretirement benefit cost
            
            
            $
            790
            
            
            $
            (700
            )Effect
      on accumulated postretirement benefit obligation
            
            
            
            3,570
            
            
            
            (3,240
            )





Following
are the targeted and actual plan assets by category:





2009
            
            2008
            
            2007Target
            
            Actual
            
            ActualEquity
      Securities
            60%
            
            54%
            
            58%Debt
      Securities
            40%
            
            46%
            
            42%Total
            100%
            
            100%
            
            100%





Missouri
state law provides for the recovery in rates of SFAS No. 106 accrued costs
provided that such costs are funded through an independent, external funding
mechanism. Laclede Gas established Voluntary Employees’ Beneficiary Association
and Rabbi trusts as its external funding mechanisms. Laclede Gas’ investment
policy seeks to maximize investment returns consistent with Laclede Gas’
tolerance for risk. Outside investment management specialists are utilized in
each asset class. Such specialists are provided with guidelines, where
appropriate, designed to ensure that the investment portfolio is managed in
accordance with policy. Performance and compliance with the guidelines is
regularly monitored. Laclede Gas’ current investment policy targets an asset
allocation of 60% to equity securities and 40% to debt securities, excluding
cash held in short-term debt securities for the purpose of making benefit
payments. Laclede Gas currently invests in a mutual fund which is rebalanced on
an ongoing basis to the target allocation.


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Following
are expected postretirement benefit payments for the succeeding five fiscal
years, and in aggregate for the five years thereafter:





(Millions)
            
            Benefits
      Paid
              from
              Qualified
      Trust
            
            Benefits
      Paid
              from
      Laclede Gas
              Funds2009
            
            
            $
            4.6
            
            
            
            $
            0.32010
            
            
            
            4.8
            
            
            
            
            0.32011
            
            
            
            4.9
            
            
            
            
            0.32012
            
            
            
            5.0
            
            
            
            
            0.32013
            
            
            
            5.3
            
            
            
            
            0.32014
      – 2018
            
            
            
            34.5
            
            
            
            
            1.8





Laclede
Gas’ funding policy is to contribute amounts to the trusts equal to the periodic
benefit cost calculated pursuant to SFAS No. 106 as recovered in rates.
Contributions to the postretirement plans in fiscal year 2009 are anticipated to
be $9.7 million to the qualified trusts, and $0.4 million paid directly to
participants from Laclede Gas funds.





Other
Plans





Laclede
Gas sponsors 401(k) plans that cover substantially all employees. The plans
allow employees to contribute a portion of their base pay in accordance with
specific guidelines. Laclede Gas provides a match of such contributions within
specific limits. The cost of the defined contribution plans of Laclede Gas
amounted to $3.1 million, $3.0 million, and $3.0 million for fiscal years 2008,
2007, and 2006, respectively.








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4.
            FINANCIAL
      INSTRUMENTS





In
the course of its business, Laclede Group’s non-regulated gas marketing
affiliate, LER, enters into fixed-price commitments associated with the purchase
or sale of natural gas. LER manages the price risk associated with these
commitments by either closely matching the offsetting physical purchase or sale
of natural gas at fixed prices or through the use of exchange-traded futures
contracts to lock in margins. At September 30, 2008, LER’s unmatched
positions were not material to Laclede Group’s financial position or results of
operations.


Settled
and open exchange-traded futures positions were as follows at
September 30, 2008:





Position
      Month
            
            MMBtu
              (millions)
            
            Average
              Price
      per
              MMBtuSettled
      short positions
            
            October
      2008
            
            1.56
            
            $
            9.32Settled
      long positions
            
            October
      2008
            
            0.52
            
            
            7.75Open
      short futures positions
            
            November
      2008
            
            1.39
            
            
            9.39December
      2008
            
            0.79
            
            
            9.47January
      2009
            
            0.31
            
            
            9.76February
      2009
            
            0.31
            
            
            9.74March
      2009
            
            0.27
            
            
            9.69April
      2009
            
            0.71
            
            
            8.80May
      2009
            
            0.02
            
            
            8.11June
      2009
            
            0.08
            
            
            8.13November
      2009
            
            0.10
            
            
            8.80December
      2009
            
            0.15
            
            
            8.83January
      2010
            
            0.15
            
            
            8.83February
      2010
            
            0.15
            
            
            8.83March
      2010
            
            0.10
            
            
            8.80Open
      long futures positions
            
            November
      2008
            
            0.40
            
            
            8.24December
      2008
            
            0.15
            
            
            9.04January
      2009
            
            0.11
            
            
            10.00February
      2009
            
            0.11
            
            
            10.00March
      2009
            
            0.11
            
            
            10.00April
      2009
            
            0.41
            
            
            9.22May
      2009
            
            0.11
            
            
            10.00





The
above futures contracts are derivative instruments, and management has
designated these items as cash flow hedges of forecasted transactions. The fair
values of the instruments are recognized on the Consolidated Balance Sheets. The
change in the fair value of the effective portion of these hedge instruments is
recorded, net of tax, in Other Comprehensive Income. Accumulated Other
Comprehensive Income is a component of Total Common Stock Equity. These amounts
will reduce or be charged to Non-Regulated Gas Marketing Operating Revenues or
Expenses in the Statements of Consolidated Income as the hedged transactions
occur. Based on market prices at September 30, 2008, it is expected
that approximately $8.3 million of pre-tax unrealized gains will be reclassified
into the Consolidated Statement of Income during fiscal year 2009. The
ineffective portions of these hedge instruments are charged or credited to
Non-Regulated Gas Marketing Operating Revenues or Expenses. The net amount of
pre-tax (losses) gains recognized in earnings for the ineffective portion of
cash flow hedges was $(2.8) million, $(0.5) million, and $0.7 million for fiscal
years 2008, 2007, and 2006, respectively. These losses and gains were primarily
due to price volatility and regional supply/demand imbalances. Cash flows from
hedging transactions are classified in the same category as the cash flows from
the items that are being hedged in the Statements of Consolidated Cash
Flows.





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5.
            EARNINGS
      PER SHARE OF COMMON STOCK





SFAS
No. 128 requires dual presentation of basic and diluted EPS. Basic EPS does not
include potentially dilutive securities and is computed by dividing net income
by the weighted average number of common shares outstanding during the period.
Diluted EPS assumes the issuance of common shares pursuant to the Company’s
stock-based compensation plans at the beginning of each respective period, or at
the date of grant or award, if later. Shares attributable to stock options and
time-vested restricted stock/units are excluded from the calculation of diluted
earnings per share if the effect would be antidilutive. For the fiscal year
ended September 30, 2008 no shares attributable to antidilutive
outstanding stock options were excluded from the calculation of diluted earnings
per share. For the fiscal years ended September 30, 2007, and 2006,
107,500, and 100,500 shares, respectively, attributable to antidilutive
outstanding stock options were excluded from the calculation of diluted earnings
per share. Performance-contingent restricted stock awards are only included in
the calculation of diluted earnings per share to the extent the underlying
performance conditions are satisfied (a) prior to the end of the reporting
period or (b) would be satisfied if the end of the reporting period were the end
of the related contingency period and the result would be dilutive. For the
years ended September 30, 2008, 2007, and 2006, 136,100, 110,000, and
51,000 shares, respectively, of nonvested performance-contingent restricted
stock were excluded from the calculation of diluted earnings per
share.





(Thousands,
      Except Per Share Amounts)
            
            2008
            
            2007
            
            2006Basic
      EPS:Income
      from Continuing Operations
            
            $
            57,526
            
            $
            45,744
            
            $
            45,847Weighted
      Average Shares Outstanding
            
            
            21,657
            
            
            21,455
            
            
            21,247Earnings
      Per Share of Common Stock fromContinuing
      Operations
            
            $
            2.66
            
            $
            2.13
            
            $
            2.16Diluted
      EPS:Income
      from Continuing Operations
            
            $
            57,526
            
            $
            45,744
            
            $
            45,847Weighted
      Average Shares Outstanding
            
            
            21,657
            
            
            21,455
            
            
            21,247Dilutive
      Effect of Stock Optionsand
      Restricted Stock/Units
            
            
            106
            
            
            48
            
            
            39Weighted
      Average Diluted Shares
            
            
            21,763
            
            
            21,503
            
            
            21,286Earnings
      Per Share of Common Stock fromContinuing
      Operations
            
            $
            2.64
            
            $
            2.12
            
            $
            2.15








6.
            COMMON
      STOCK AND PAID-IN CAPITAL





Total
shares of common stock outstanding were 21.99 million and 21.65 million at
September 30, 2008 and 2007, respectively.


Common
stock and paid-in capital increased $11.5 million in fiscal year 2008. The
issuance of 106,436 common shares under the Dividend Reinvestment and Stock
Purchase Plan increased common stock and paid-in capital by $3.8 million. The
remaining $7.7 million increase was primarily due to stock-based compensation
costs and the issuance of 241,400 shares of common stock under the Equity
Incentive Plan. Common stock and paid-in capital increased $9.2 million in
fiscal year 2007. The issuance of 116,973 common shares issued under the
Dividend Reinvestment and Stock Purchase Plan increased common stock and paid-in
capital by $3.8 million. The remaining $5.4 million increase was primarily due
to stock-based compensation costs and the issuance of 167,025 shares of common
stock under the Equity Incentive Plan.


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On
August 23, 2001, Laclede Group declared a dividend of one preferred
share purchase right for each outstanding share of common stock. Each preferred
share purchase right entitles the registered holder to purchase from Laclede
Group one one-hundredth of Series A junior participating preferred stock for a
purchase price of $90, subject to adjustment. The value of one one-hundredth of
a preferred share purchasable upon the exercise of each right should, because of
the nature of the preferred shares’ dividend, liquidation and voting rights,
approximate the value of one common share. The rights expire on
October 1, 2011 and may be redeemed by Laclede Group for one cent each
at any time before they become exercisable. The rights will not be exercisable
or transferable apart from the common stock until ten business days after (i)
public announcement that a person or group has acquired beneficial ownership of
20% or more of the common stock, or (ii) commencement of, or announcement of an
intention to make, a tender or exchange offer for beneficial ownership of 20% or
more of the common stock. Following such an event, a right will entitle its
holder to purchase, for the purchase price, the number of shares equal to the
purchase price divided by one-half of the market price. Alternatively, Laclede
Group may exchange each right for one one-hundredth of a preferred share. The
number of rights outstanding is the same as the number of shares of common stock
outstanding on any date prior to rights becoming exercisable or transferable
apart from the common stock.


Laclede
Group has on file a shelf registration on Form S-3, which allows for the
issuance of equity securities, other than preferred stock, and debt securities.
Of the $500 million of securities originally registered under this Form S-3,
$362.4 million remain registered and unissued as of
September 30, 2008. The amount, timing and type of additional
financing to be issued under this shelf registration will depend on cash
requirements and market conditions.








7.
            LACLEDE
      GAS REDEEMABLE PREFERRED STOCK





Laclede
Gas preferred stock, which is non-voting except in certain circumstances, may be
redeemed at the option of the Laclede Gas Board of Directors. The redemption
price is equal to par of $25.00 per share.


During
2008, 6,400 shares of 5% Series B preferred stock were called to meet sinking
fund requirements. During 2007, 6,351 shares of 5% Series B preferred stock were
called to meet sinking fund requirements.


Any
default in a sinking fund payment must be cured before Laclede Gas may pay
dividends on or acquire any common stock. Sinking fund requirements on preferred
stock for the next five years subsequent to September 30, 2008 are
$0.2 million per year in 2009 through 2011, and none in 2012 and
2013.








8.
            LONG-TERM
      DEBT





Maturities
on long-term debt, including current portion, for the five fiscal years
subsequent to


September 30, 2008
are as follows:





2009
            —2010
            —2011
            $25
      million2012
            —2013
            $25
      million





On
November 1, 2007, Laclede Gas paid at maturity $40 million principal
amount of 7 1/2% First Mortgage Bonds. This maturity was funded through
short-term borrowings.


On
September 23, 2008, Laclede Gas issued $80 million of First Mortgage
Bonds, due October 15, 2038, at an interest rate of 6.35%. The bonds
are callable at par at the Utility’s option on or after
October 15, 2013.


At
September 30, 2008, Laclede Gas had fixed-rate long-term debt totaling
$390 million. While these long-term debt issues are fixed-rate, they are subject
to changes in fair value as market interest rates change. However, increases or
decreases in fair value would impact earnings and cash flows only if Laclede Gas
were to reacquire any of these issues in the open market prior to
maturity.


Laclede
Gas has on file with the SEC an effective shelf registration on Form S-3 for
issuance of $350 million of securities, $270 million of which remains available
to Laclede Gas at this time. The Utility has authority from the MoPSC to issue
up to $500 million in First Mortgage Bonds, unsecured debt, and equity
securities, of which $412.4 million remained under this authorization as of
September 30, 2008. The amount, timing, and type of additional
financing to be issued will depend on cash requirements and market
conditions.


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Substantially
all of the utility plant of Laclede Gas is subject to the liens of its mortgage.
The mortgage contains several restrictions on Laclede Gas’ ability to pay cash
dividends on its common stock. These provisions are applicable regardless of
whether the stock is publicly held or, as has been the case since the formation
of Laclede Group, held solely by the Utility’s parent company. Under the most
restrictive of these provisions, no cash dividend may be declared or paid if,
after the dividend, the aggregate net amount spent for all dividends after
September 30, 1953, would exceed a maximum amount determined by a
formula set out in the mortgage. Under that formula, the maximum amount is the
sum of $8 million plus earnings applicable to common stock (adjusted for stock
repurchases and issuances) for the period from September 30, 1953, to
the last day of the quarter before the declaration or payment date for the
dividends. As of September 30, 2008 and 2007, the amount under the
mortgage’s formula that was available to pay dividends was $273 million and $263
million, respectively. Thus, all of the Utility’s retained earnings were free
from such restrictions as of those dates.


On
May 5, 2008, Laclede Group redeemed in full its $46.4 million
subordinated debentures, which also triggered the redemption of all of the Trust
common and preferred securities on the same date. Interest on the debentures and
distributions on the Trust securities ceased on and after the redemption date.
Upon redemption, Laclede Group recognized a pre-tax loss of $1.4 million,
primarily attributable to unamortized issuance costs. A portion of the proceeds
received from the sale of SM&P was used to fund the redemption. The Trust
was dissolved on June 16, 2008.








9.
            NOTES
      PAYABLE AND CREDIT AGREEMENTS





Throughout
fiscal year 2008, Laclede Gas had a line of credit in place of $320 million,
which expires in December 2011. In November 2007, the Utility
established a seasonal line of credit of $40 million, which expired in
March 2008. Subsequent to the end of fiscal year 2008, Laclede Gas
established a seasonal line of credit of $75 million, expiring in
March 2009.


Laclede
Gas issues commercial paper that is supported by the bank lines of credit.
During fiscal year 2008, the Utility’s short-term borrowing requirements, which
peaked at $328.8 million, were generally met by the sale of commercial paper.
However, due to unfavorable terms in the commercial paper markets near the end
of the fiscal year, Laclede Gas utilized its line of credit as a more economical
source of short-term financing. Laclede Gas had $61.7 million in commercial
paper and $154.2 million of bank line advances outstanding as of
September 30, 2008, at a weighted average interest rate of 4.0% per
annum, and $89.2 million of borrowings from Laclede Group. The Utility had
$211.4 million of commercial paper outstanding as of
September 30, 2007, at a weighted average interest rate of 5.5% per
annum, and no borrowings from Laclede Group.


Laclede
Gas’ lines of credit include covenants limiting total debt, including short-term
debt, to no more than 70% of total capitalization and requiring earnings before
interest, taxes, depreciation, and amortization (EBITDA) to be at least 2.25
times interest expense. On September 30, 2008, total debt was 66% of
total capitalization.For the fiscal year ended September 30, 2008, EBITDA was 3.97
times interest expense.


Short-term
cash requirements outside of Laclede Gas have generally been met with
internally-generated funds. However, Laclede Group has $50 million in
working-capital lines of credit, $40 million of which expires in
August 2009 and $10 million of which expires in October 2009, to meet
short-term liquidity needs of its subsidiaries. These lines of credit have
covenants limiting the total debt of the consolidated Laclede Group to no more
than 70% of the Company’s total capitalization. This ratio stood at 55% on
September 30, 2008. These lines were previously used to provide
letters of credit on behalf of SM&P, and have been used to provide for
seasonal funding needs of various other subsidiaries from time to time. Just
prior to the SM&P sale, the letters of credit provided on behalf of SM&P
totaled $2.8 million. Such letters have been released and extinguished. There
were no borrowings under Laclede Group’s lines during the fiscal
year.





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10.
            FAIR
      VALUE OF FINANCIAL INSTRUMENTS





The
carrying amounts and estimated fair values of financial instruments at
September 30, 2008 and 2007 are as follows:





(Thousands)
            
            Carrying
              Amount
            
            Fair
              Value2008:Cash
      and cash equivalents
            
            $
            14,899
            
            $
            14,899Marketable
      securities
            
            
            10,059
            
            
            10,059Derivative
      instrument assets
            
            
            57,210
            
            
            57,210Short-term
      debt
            
            
            215,900
            
            
            215,900Long-term
      debt
            
            
            389,181
            
            
            356,421Redeemable preferred stock, including current sinking fund requirements
            
            
            627
            
            
            4312007:Cash
      and cash equivalents
            
            $
            52,746
            
            $
            52,746Marketable
      securities
            
            
            9,196
            
            
            9,196Investment
      in unconsolidated affiliate trust
            
            
            1,400
            
            
            1,400Derivative
      instrument assets
            
            
            31,057
            
            
            31,057Short-term
      debt
            
            
            211,400
            
            
            211,400Long-term
      debt, including current portion
            
            
            349,122
            
            
            356,964Redeemable preferred stock, including current sinking fund requirements
            
            
            787
            
            
            756Long-term
      debt to unconsolidated affiliate trust
            
            
            46,400
            
            
            46,400





The
carrying amounts for cash and cash equivalents and short-term debt approximate
fair value due to the short maturity of these instruments. Fair values of
derivative instrument assets and marketable securities are valued using quoted
market prices. Fair values of long-term debt, preferred stock, and long-term
debt to unconsolidated affiliate trust are estimated based on market prices for
similar issues.








11.
            ACCUMULATED
      OTHER COMPREHENSIVE INCOME (LOSS)





The
components of accumulated other comprehensive income (loss), net of income
taxes, recognized in the


Consolidated
Balance Sheets at September 30 were as follows:





(Thousands)
            Net
      Unrealized Gains (Losses) on Cash Flow Hedges
            Minimum
      Pension Liability Adjustment
            Defined
      Benefit Pension and Other
              Postretirement
              Benefit
      Plans
            TotalBalance,
      September 30, 2006
            
            
            $
            4,489
            
            
            $
            (834
            )
            
            $
            —
            
            
            $
            3,655Current-period
      change
            
            
            
            (905
            )
            
            
            231
            
            
            
            —
            
            
            
            (674
            )Adoption
      of SFAS No. 158
            
            
            
            —
            
            
            
            603
            
            
            
            (1,727
            )
            
            
            (1,124
            )Balance,
      September 30, 2007
            
            
            
            3,584
            
            
            
            —
            
            
            
            (1,727
            )
            
            
            1,857Current-period
      change
            
            
            
            2,643
            
            
            
            —
            
            
            
            (63
            )
            
            
            2,580Balance,
      September 30, 2008
            
            
            $
            6,227
            
            
            $
            —
            
            
            $
            (1,790
            )
            
            $
            4,437





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12.
            INCOME
      TAXES





The
net provisions for income taxes from continuing operations charged during the
years ended September 30, 2008, 2007, and 2006 are as
follows:





(Thousands)
            
            2008
            
            2007
            
            2006Included
      in Statements of Consolidated Income:FederalCurrent
            
            $
            17,584
            
            $
            32,863
            
            $
            (8,186
            )Deferred
            
            
            5,097
            
            
            (13,454
            )
            
            26,614Investment
      tax credits
            
            
            (227
            )
            
            (237
            )
            
            (241
            )State
      and localCurrent
            
            
            2,743
            
            
            5,427
            
            
            (1,265
            )Deferred
            
            
            993
            
            
            (2,453
            )
            
            4,379Total
      Income Tax Expense from Continuing Operations
            
            $
            26,190
            
            $
            22,146
            
            $
            21,301





For
the years ended September 30, 2008, 2007, and 2006, the Company
recorded current income tax expense totaling $14.6 million, $2.9 million, and
$2.2 million, respectively; and deferred income tax expense (benefit) totaling
$(77,000), $(55,000), and $69,000, respectively, related to discontinued
operations.


The
effective income tax rate varied from the federal statutory income tax rate for
continuing operations for each year due to the following:





2008
            
            2007
            
            2006Federal
      income tax statutory rate
            
            
            35.0
            %
            
            35.0
            %
            
            35.0
            %State
      and local income taxes, net of federalincome
      tax benefits
            
            
            2.9
            
            
            2.9
            
            
            3.1Certain
      expenses capitalized on books anddeducted
      on tax return
            
            
            (3.5
            )
            
            (4.1
            )
            
            (3.1
            )Taxes
      related to prior years
            
            
            (1.0
            )
            
            0.4
            
            
            (1.5
            )Other
      items – net
            
            
            (2.1
            )
            
            (1.6
            )
            
            (1.8
            )Effective
      income tax rate
            
            
            31.3
            %
            
            32.6
            %
            
            31.7
            %





The
significant items comprising the net deferred tax liability recognized in the
Consolidated Balance Sheets as of September 30 are as follows:





(Thousands)
            
            2008
            
            2007Deferred
      tax assets:Reserves
      not currently deductible
            
            $
            18,850
            
            $
            18,364Unamortized
      investment tax credits
            
            
            2,495
            
            
            2,644Other
            
            
            11,071
            
            
            9,934Total
      deferred tax assets
            
            
            32,416
            
            
            30,942Deferred
      tax liabilities:Relating
      to property
            
            
            205,362
            
            
            196,475Pension
      and other postretirement benefits
            
            
            29,732
            
            
            31,262Deferred
      gas costs
            
            
            10,156
            
            
            8,220Other
            
            
            21,596
            
            
            21,379Total
      deferred tax liabilities
            
            
            266,846
            
            
            257,336Net
      deferred tax liability
            
            
            234,430
            
            
            226,394Net
      deferred tax liability – current
            
            
            (11,669
            )
            
            (2,644
            )Net
      deferred tax liability – non-current
            
            $
            222,761
            
            $
            223,750





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The
Company adopted the provisions of FIN 48, as of October 1, 2007. FIN
48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with FASB Statement No. 109.
Pursuant to FIN 48, the Company may recognize the tax benefit from a tax
position only if it is at least more likely than not that the tax position will
be sustained on examination by the taxing authorities, based on the technical
merits of the position. The Company records potential interest and penalties
related to its uncertain tax positions as interest expense and other income
deductions, respectively. Unrecognized tax benefits, accrued interest payable,
and accrued penalties payable are included in the Other line of the Deferred
Credits and Other Liabilities section of the Consolidated Balance
Sheets.


Upon
adoption of FIN 48, the Company recognized a reduction to beginning retained
earnings as a cumulative-effect adjustment totaling $1.1 million, reclassified
$2.5 million of income tax liabilities from current to non-current liabilities,
and increased its liabilities for accrued interest and penalties (net of income
tax benefit) to $1.5 million. A reconciliation of the beginning and ending
amount of unrecognized tax benefits is as follows:





(Thousands)Balance
      as of October 1, 2007
            
            $
            2,134Decreases
      related to prior year tax positions
            
            
            (270
            )Increases
      related to current year tax positions
            
            
            419Settlements
      with taxing authorities
            
            
            (986
            )Reductions
      due to lapse of applicable statute of limitations
            
            
            (264
            )Balance
      at September 30, 2008
            
            $
            1,033





The
entire amount of unrecognized tax benefits at September 30, 2008, if
recognized, would affect the Company’s effective tax rate. The Company does not
expect any significant change related to any of the above unrecognized tax
positions within the next twelve months.


Interest
accrued associated with the Company’s uncertain tax positions as of
September 30, 2008 was immaterial and no penalties were accrued as of
that date. During fiscal year 2008, the Company reversed $0.8 million of accrued
interest expense and $0.9 million of accrued penalties in the Consolidated
Statement of Income.


The
Company is subject to U.S. federal income tax as well as income tax of state and
local jurisdictions. The Company is no longer subject to examination for fiscal
years prior to 2005. The federal statute of limitations remains open until
June 15, 2009 and 2010 for fiscal years 2005 and 2006, respectively.
However, during fiscal 2008, the Company effectively settled with the Internal
Revenue Service for those periods. Completion of the audit represented an event
requiring the Company to re-evaluate its uncertain tax positions. Also, during
fiscal 2008, the statute of limitations for the Company’s fiscal year 2004
expired.








13.
            OTHER
      INCOME AND (INCOME DEDUCTIONS) –
NET





(Thousands)
            
            2008
            
            2007
            
            2006Allowance
      for funds used during construction
            
            $
            (72
            )
            $
            (17
            )
            $
            (45
            )Interest
      income
            
            
            4,221
            
            
            5,703
            
            
            5,560Other
      income
            
            
            1,323
            
            
            1,190
            
            
            887Other
      income deductions
            
            
            (3,591
            )
            
            (63
            )
            
            (894
            )Other
      Income and (Income Deductions) – Net
            
            $
            1,881
            
            $
            6,813
            
            $
            5,508





The
decrease in Other Income and (Income Deductions) – Net in fiscal year 2008
compared with the prior years is primarily due to higher investment losses, a
loss on the redemption of long-term debt (primarily unamortized issuance costs),
lower income associated with carrying costs applied to under-recoveries of gas
costs, and an increase in charitable donations. These factors were partially
offset by a reversal of tax-related expenses and additional proceeds related to
the Company’s interest, as a policyholder, in the sale of a mutual insurance
company in fiscal year 2008. Carrying costs on under-recoveries of gas costs are
recovered through the Utility’s PGA Clause.


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14.
            INFORMATION
      BY OPERATING SEGMENT





All
of Laclede Group’s subsidiaries are wholly owned. The Regulated Gas Distribution
segment consists of the regulated operations of Laclede Gas and is the core
business segment of Laclede Group. Laclede Gas is a public utility engaged in
the retail distribution and sale of natural gas serving an area in eastern
Missouri, with a population of approximately 2.1 million, including the City of
St. Louis and parts of ten other counties in eastern Missouri. The Non-Regulated
Gas Marketing segment includes the results of LER, a subsidiary engaged in the
non-regulated marketing of natural gas and related activities. Other includes
Laclede Pipeline Company’s transportation of liquid propane regulated by the
FERC as well as non-regulated activities, including real estate development, the
compression of natural gas, and financial investments in other enterprises.
These operations are conducted through five subsidiaries. Other also includes
Laclede Gas’ non-regulated merchandise sales business. Certain intersegment
revenues with Laclede Gas are not eliminated in accordance with the provisions
of SFAS No. 71. Those types of transactions include sales of natural gas from
Laclede Gas to LER, sales of natural gas from LER to Laclede Gas, and sales of
propane and transportation services provided by Laclede Pipeline Company to
Laclede Gas. These revenues are shown on the Intersegment Revenues lines in the
table under Regulated Gas Distribution, Non-Regulated Gas Marketing, and Other
columns respectively.


Previously,
SM&P fully comprised the Non-Regulated Services segment and its financial
information was presented separately. As discussed in Note 2, Discontinued
Operations, the Company sold SM&P on March 31, 2008. Accordingly,
financial information for this segment has been reclassified and reported as
discontinued operations in the Consolidated Financial Statements. Under
generally accepted accounting principles, general corporate overhead expenses
may not be reported in discontinued operations. Amounts of such expenses that
were previously reported by SM&P but that are required to be reported in
continuing operations are reflected in the Unallocated & Eliminations column
of the table below. Prior periods reported in the table below have been
reclassified to conform to the current-period presentation of segment
information. As such, the Non-Regulated Services segment is no longer
reported.


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Non-Regulated
            
            Regulated
            
            
            
            UnallocatedGas
            
            Gas
            
            
            
            &(Thousands)
            
            Distribution
            
            Marketing
            
            Other
            
            Eliminations
            
            ConsolidatedFISCAL
      2008Revenues
      from externalcustomers
            
            $
            1,126,826
            
            $
            1,067,257
            
            $
            3,803
            
            $
            —
            
            $
            2,197,886Intersegment
      revenues
            
            
            1,461
            
            
            8,588
            
            
            1,038
            
            
            —
            
            
            11,087Total Operating Revenues
            
            
            1,128,287
            
            
            1,075,845
            
            
            4,841
            
            
            —
            
            
            2,208,973Depreciation & amortization
            
            
            35,303
            
            
            —
            
            
            —
            *
            
            —
            
            
            35,303Interest
      income
            
            
            2,133
            
            
            1,531
            
            
            2,762
            
            
            (2,205
            )
            
            4,221Interest
      charges
            
            
            30,214
            
            
            (614
            )
            
            2,222
            
            
            (2,345
            )
            
            29,477Income tax expense (benefit)
            
            
            15,244
            
            
            11,404
            
            
            (291
            )
            
            (167
            )
            
            26,190Income (loss) from continuingoperations
            
            
            39,139
            
            
            19,258
            
            
            (607
            )
            
            (264
            )
            
            57,526Total
      assets of continuingoperations
            
            
            1,624,041
            
            
            182,750
            
            
            138,982
            
            
            (173,118
            )
            
            1,772,655Capital
      expenditures
            
            
            55,304
            
            
            41
            
            
            25
            
            
            1,251
            
            
            56,621FISCAL
      2007Revenues
      from externalcustomers
            
            $
            1,093,372
            
            $
            669,464
            
            $
            4,565
            
            $
            —
            
            $
            1,767,401Intersegment
      revenues
            
            
            38,182
            
            
            49,240
            
            
            1,038
            
            
            —
            
            
            88,460Total
      Operating Revenues
            
            
            1,131,554
            
            
            718,704
            
            
            5,603
            
            
            —
            
            
            1,855,861Depreciation
      & amortization
            
            
            34,080
            
            
            —
            
            
            —
            *
            
            —
            
            
            34,080Interest
      income
            
            
            3,499
            
            
            1,796
            
            
            2,265
            
            
            (1,857
            )
            
            5,703Interest
      charges
            
            
            33,603
            
            
            —
            
            
            2,105
            
            
            (1,774
            )
            
            33,934Income
      tax expense
            
            
            13,853
            
            
            8,204
            
            
            561
            
            
            (472
            )
            
            22,146Income
      (loss) from continuingoperations
            
            
            32,133
            
            
            13,334
            
            
            1,024
            
            
            (747
            )
            
            45,744Total
      assets of continuingoperations
            
            
            1,429,415
            
            
            115,246
            
            
            84,953
            
            
            (61,818
            )
            
            1,567,796Capital
      expenditures
            
            
            56,434
            
            
            —
            
            
            57
            
            
            2,379
            
            
            58,870FISCAL
      2006Revenues
      from externalcustomers
            
            $
            1,119,919
            
            $
            640,419
            
            $
            3,382
            
            $
            —
            
            $
            1,763,720Intersegment
      revenues
            
            
            21,092
            
            
            49,153
            
            
            1,063
            
            
            —
            
            
            71,308Total
      Operating Revenues
            
            
            1,141,011
            
            
            689,572
            
            
            4,445
            
            
            —
            
            
            1,835,028Depreciation
      & amortization
            
            
            30,904
            
            
            —
            
            
            —
            *
            
            —
            
            
            30,904Interest
      income
            
            
            4,146
            
            
            794
            
            
            1,566
            
            
            (946
            )
            
            5,560Interest
      charges
            
            
            32,565
            
            
            94
            
            
            1,206
            
            
            (981
            )
            
            32,884Income
      tax expense (benefit)
            
            
            10,636
            
            
            10,762
            
            
            397
            
            
            (494
            )
            
            21,301Income
      (loss) from continuingoperations
            
            
            28,839
            
            
            17,094
            
            
            698
            
            
            (784
            )
            
            45,847Total
      assets of continuingoperations
            
            
            1,383,703
            
            
            86,891
            
            
            86,736
            
            
            (63,523
            )
            
            1,493,807Capital
      expenditures
            
            
            57,925
            
            
            —
            
            
            630
            
            
            4,861
            
            
            63,416*
            Depreciation
      & amortization for Other is included in the Other Operating Expenses
      on the Statements of Consolidated Income ($0.3 million per year for fiscal
      years 2008, 2007, and 2006).





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15.
            COMMITMENTS
      AND CONTINGENCIES





Commitments





Laclede
Gas estimates fiscal year 2009 utility capital expenditures at approximately $59
million. Fiscal year 2009 capital expenditures for non-regulated subsidiaries
are estimated at approximately $1 million. There are no material contractual
commitments at September 30, 2008 related to these estimated capital
expenditures.


Laclede
Gas and LER have entered into various contracts, expiring on dates through 2017,
for the storage, transportation, and supply of natural gas. Minimum payments
required under the contracts in place at September 30, 2008 are
estimated at approximately $2.1 billion. Additional contracts are generally
entered into prior to or during the heating season. Laclede Gas estimates that
it will pay approximately $95 million annually, at present rate levels, for
fixed charges related to these or other contracts that are expected to be in
place for the upcoming year for the reservation of gas supplies and pipeline
transmission and storage capacity. The Utility recovers these costs from
customers in accordance with the PGA Clause.


Laclede
Pipeline Company (Pipeline), a wholly-owned subsidiary of Laclede Group, is
providing liquid propane transportation service to Laclede Gas pursuant to an
approved FERC tariff and a contractual arrangement between Pipeline and Laclede
Gas. In accordance with the terms of that agreement, Laclede Gas is obligated to
pay Pipeline approximately $1.0 million annually, at current rates, commencing
April 1, 2006. The agreement renews at the end of each contract year,
unless terminated by either party upon provision of at least six months’
notice.





Leases
and Guarantees





The
lease agreement covering the headquarters office space of Laclede Gas extends
through February 2010 with options to renew for up to 10 additional years.
The aggregate rental expense for fiscal years 2008, 2007, and 2006 was $891,000,
$882,000, and $874,000, respectively. The annual minimum rental payment for
fiscal year 2009 is anticipated to be approximately $900,000 with a maximum
annual rental payment escalation of $8,800 per year for each year through fiscal
year 2010. Laclede Gas has other relatively minor rental arrangements that
provide for minimum rental payments. Laclede Gas has entered into various
operating lease agreements for the rental of vehicles and power operated
equipment. The rental costs will be approximately $3.7 million in fiscal year
2009, $2.7 million in fiscal year 2010, $1.7 million in fiscal year 2011, $0.8
million in fiscal year 2012, and $0.2 million in fiscal year 2013.


Laclede
Gas has several operating leases for the rental of vehicles that contain
provisions requiring Laclede Gas to guarantee certain amounts related to the
residual value of the leased property. These leases have various terms, the
longest of which extends through 2014. At September 30, 2008, the
maximum guarantees under these leases are $1.8 million. However, the Utility
estimates that the residual value of the leased vehicles will be adequate to
satisfy most of the guaranteed amounts. At September 30, 2008, the
carrying value of the liability recognized for these guarantees was $0.3
million.


SM&P
has several operating leases for vehicles used in its business. Laclede Group
previously had parental guarantees of certain of those vehicle leases but was
released from those guarantees on or before March 31, 2008, concurrent
with the sale of SM&P.


Laclede
Group had guarantees totaling $57.5 million for performance and payment of
certain wholesale gas supply purchases by LER, as of
September 30, 2008. Since that date, total guarantees issued by
Laclede Group on behalf of LER increased by $10.0 million bringing the total to
$67.5 million in guarantees outstanding at November 20, 2008. No
amounts have been recorded for these guarantees in the financial
statements.


A
consolidated subsidiary is a general partner in an unconsolidated partnership
that invests in real estate partnerships. The subsidiary and third parties are
jointly and severally liable for the payment of mortgage loans in the aggregate
outstanding amount of approximately $2.2 million incurred in connection with
various real estate ventures. Laclede Group has no reason to believe that the
other principal liable parties will not be able to meet their proportionate
share of these obligations. Laclede Group further believes that the asset values
of the real estate properties are sufficient to support these mortgage
loans.





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Contingencies
and Indemnifications





Laclede
Gas owns and operates natural gas distribution, transmission, and storage
facilities, the operations of which are subject to various environmental laws,
regulations, and interpretations. While environmental issues resulting from such
operations arise in the ordinary course of business, such issues have not
materially affected the Company’s or Laclede Gas’ financial position and results
of operations. As environmental laws, regulations, and their interpretations
change, however, Laclede Gas may be required to incur additional
costs.


As
with other companies, Laclede Gas faces the risk of environmental liabilities.
In the natural gas industry, these are typically associated with sites formerly
owned or operated by gas distribution companies like Laclede Gas and/or its
predecessor companies at which manufactured gas operations took place. At this
time, Laclede Gas has identified three former manufactured gas plant (MGP)
sites: one in Shrewsbury and two in the City of St. Louis.


With
regard to the former MGP site located in Shrewsbury, Missouri, Laclede Gas and
state and federal environmental regulators agreed upon certain remedial actions
to a portion of the site in a 1999 Administrative Order on Consent (AOC), which
actions have been completed. On September 22, 2008, EPA Region VII
issued a letter of Termination and Satisfaction terminating the AOC. However, if
after termination of the AOC, regulators require additional remedial actions, or
additional claims are asserted, Laclede Gas may incur additional
costs.


The
site in the City of St. Louis, which is currently owned by the City, has been
enrolled in the Missouri Voluntary Cleanup Program (VCP). The VCP provides
potential opportunities to minimize the cost of site cleanup while maximizing
possibilities for site development. The City has selected a developer with whom
it is negotiating a final site development contract. Previously, Laclede Gas
requested that other former site owners and operators share costs relative to
any remedial actions required, one of whom is participating. No significant
costs relative to this site have been incurred in recent years.


The
third former MGP site, also located in the City, is not currently and has not
been owned by Laclede Gas for many years. At this time, it is not known whether
Laclede Gas will incur any costs in connection with environmental investigations
of or remediation at the site, and if it does incur any such costs, what the
amount of those costs would be.


Laclede
Gas has notified its insurers that it seeks reimbursement for costs incurred in
the past and future potential liabilities associated with the three MGP sites
identified above. In response, the majority of insurers have reserved their
rights. While some of the insurers have denied coverage, Laclede Gas continues
to discuss potential reimbursements with them, with one insurer making a
settlement payment in exchange for a release of claims in June 2007. The
Utility’s outside consultant completed an analysis of the MGP sites to determine
cost estimates for a one-time contractual transfer of risk from each insurer to
the Utility of environmental coverage for the MGP sites. That analysis
demonstrated a range of possible future expenditures to investigate, monitor,
and remediate these MGP sites from $5.8 million to $36.3 million based upon then
currently available facts, technology, and laws and regulations. The actual
costs that Laclede Gas may incur could be materially higher or lower depending
upon several factors, including whether remedial actions will be required, final
selection and regulatory approval of any remedial actions, changing technologies
and governmental regulations, the ultimate ability of other potentially
responsible parties to pay, and any insurance recoveries. Costs associated with
environmental remediation activities are accrued when such costs are probable
and reasonably estimable.


The
amount of costs relative to future remedial actions at these and other sites is
unknown and may be material. Laclede Gas anticipates that any costs it may incur
in the future to remediate these sites, less any amounts received as insurance
proceeds or as contributions from other potentially responsible parties, would
be deferred and recovered in rates through periodic adjustments approved by the
MoPSC. Accordingly, potential liabilities associated with remediating these
sites are not expected to have a material impact on the future financial
position and results of operations of Laclede Gas or the Company.


On
December 28, 2006, the MoPSC Staff proposed a disallowance of $7.2
million related to Laclede Gas’ recovery of its purchased gas costs applicable
to fiscal 2005. On September 14, 2007, the Staff withdrew its pursuit
of $5.5 million of the disallowance it had originally proposed. Laclede Gas
believes that the remaining $1.7 million of the MoPSC Staff’s proposed
disallowance lacks merit and is vigorously opposing the adjustment in
proceedings before the MoPSC.


On
December 31, 2007, the MoPSC Staff proposed a disallowance of $2.8
million related to Laclede Gas’ recovery of its purchased gas costs applicable
to fiscal 2006. Laclede Gas believes that the MoPSC Staff’s position lacks merit
and intends to vigorously oppose the adjustment in proceedings before the MoPSC.
In addition, the MoPSC’s Staff raised questions regarding whether certain sales
and capacity release transactions subject to the FERC’s oversight were
consistent with the FERC’s regulations and policies regarding capacity release.
The Company commenced an internal review of the questions raised by the MoPSC
Staff and notified the FERC Staff that it took this action. Subsequently, as a
result of the internal review, the Company has provided the FERC Staff with a
report regarding compliance of sales and capacity release activities with the
FERC’s regulations and policies. On July 23, 2008, the FERC Staff
requested additional information which the Company provided on
August 22, 2008 and September 2, 2008.


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As
reported in Note 2, Discontinued Operations, during the quarter ended
March 31, 2008, the Company sold 100% of its interest in its
wholly-owned subsidiary SM&P. The sales agreement (Agreement) includes
representations and warranties customary for such transactions, including, among
others, representations and warranties of the parties as to brokers’ fees; of
SM&P as to its financial status, contracts, title to and condition of
personal and real property, taxes, legal compliance, environmental matters,
employee benefits, and intellectual property. The Agreement also includes
customary indemnification provisions under which Laclede’s aggregate
indemnification obligations are limited to a maximum of $7.0 million for most
claims. Obligations subject to this maximum apply only in the event claims
exceed a stated deductible, both individually and in the aggregate. However,
this maximum limitation and deductible do not apply to obligations associated
with taxes, employee benefits, title to personal property, and certain other
fundamental representations and warranties. A maximum potential future payment
amount cannot be estimated for these obligations. The terms of the
indemnifications in the Agreement are generally dependent upon the statute of
limitations applicable to the particular representations and warranties made by
the Company, although certain representations and warranties have an indefinite
life under the Agreement. As of September 30, 2008, the carrying
amount of the liability recognized for these indemnification obligations was
$0.2 million, based on the Company’s assessment of risk.


Laclede
Group is involved in other litigation, claims, and investigations arising in the
normal course of business. While the results of such litigation cannot be
predicted with certainty, management, after discussion with counsel, believes
that the final outcome will not have a material adverse effect on the
consolidated financial position or results of operations of the
Company.





79
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16.
            INTERIM
      FINANCIAL INFORMATION (UNAUDITED)





In
the opinion of Laclede Group, the quarterly information presented below for
fiscal years 2008 and 2007 includes all adjustments (consisting of only normal
recurring accruals) necessary for a fair statement of the results of operations
for such periods. Variations in consolidated operations reported on a quarterly
basis primarily reflect the seasonal nature of the business of Laclede
Gas.





(Thousands,
      Except Per Share Amounts)Three
      Months Ended
            
            Dec.
      31
            
            
            
            March
      31
            
            
            
            June
      30
            
            
            
            Sept.
      302008Total
      Operating Revenues
            $
            503,990
            
            
            $
            747,706
            
            
            $
            505,488
            
            
            $
            451,789Operating
      income
            
            40,177
            
            
            
            51,883
            
            
            
            19,259
            
            
            
            28Income
      (Loss) from Continuing Operations
            
            21,536
            
            
            
            30,060
            
            
            
            9,101
            
            
            
            (3,171
            )Income
      (Loss) from Discontinued Operations
            
            (633
            )
            
            
            21,294
            
            
            
            158
            
            
            
            (423
            )Net
      Income (Loss)
            
            20,903
            
            
            
            51,354
            
            
            
            9,259
            
            
            
            (3,594
            )Basic
      Earnings (Loss) Per Share of Common Stock:Income
      (Loss) from Continuing Operations
            $
            1.00
            
            
            $
            1.39
            
            
            $
            0.42
            
            
            $
            (0.14
            )Income
      (Loss) from Discontinued Operations
            
            (0.03
            )
            
            
            0.99
            
            
            
            0.01
            
            
            
            (0.02
            )Net
      Income (Loss)
            $
            0.97
            
            
            $
            2.38
            
            
            $
            0.43
            
            
            $
            (0.16
            )Diluted
      Earnings (Loss) Per Share of Common Stock:Income
      (Loss) from Continuing Operations
            $
            1.00
            
            
            $
            1.39
            
            
            $
            0.41
            
            
            $
            (0.14
            )Income
      (Loss) from Discontinued Operations
            
            (0.03
            )
            
            
            0.98
            
            
            
            0.01
            
            
            
            (0.02
            )Net
      Income (Loss)
            $
            0.97
            
            
            $
            2.37
            
            
            $
            0.42
            
            
            $
            (0.16
            )Three
      Months Ended
            
            Dec.
      31
            
            
            
            March
      31
            
            
            
            June
      30
            
            
            
            Sept.
      302007Total
      Operating Revenues
            $
            503,132
            
            
            $
            670,700
            
            
            $
            406,220
            
            
            $
            275,809Operating
      income
            
            36,032
            
            
            
            45,017
            
            
            
            13,155
            
            
            
            850Income
      (Loss) from Continuing Operations
            
            19,408
            
            
            
            24,009
            
            
            
            4,763
            
            
            
            (2,436
            )Income
      (Loss) from Discontinued Operations
            
            (321
            )
            
            
            (3,190
            )
            
            
            4,499
            
            
            
            3,039Net
      Income
            
            19,087
            
            
            
            20,819
            
            
            
            9,262
            
            
            
            603Basic
      Earnings (Loss) Per Share of Common Stock:Income
      (Loss) from Continuing Operations
            $
            0.91
            
            
            $
            1.12
            
            
            $
            0.22
            
            
            $
            (0.11
            )Income
      (Loss) from Discontinued Operations
            
            (0.02
            )
            
            
            (0.15
            )
            
            
            0.21
            
            
            
            0.14Net
      Income
            $
            0.89
            
            
            $
            0.97
            
            
            $
            0.43
            
            
            $
            0.03Diluted
      Earnings (Loss) Per Share of Common Stock:Income
      (Loss) from Continuing Operations
            $
            0.91
            
            
            $
            1.12
            
            
            $
            0.22
            
            
            $
            (0.11
            )Income
      (Loss) from Discontinued Operations
            
            (0.02
            )
            
            
            (0.15
            )
            
            
            0.21
            
            
            
            0.14Net
      Income
            $
            0.89
            
            
            $
            0.97
            
            
            $
            0.43
            
            
            $
            0.03





Prior
period interim financial information has been reclassified to conform to the
current-year presentation as a result of the sale of SM&P on
March 31, 2008. Income from discontinued operations for the quarter
ended March 31, 2008 included after-tax earnings of $25.8 million
attributable to the gain on the sale of SM&P, net of associated costs of
disposal.





Laclede
Gas Company’s Financial Statements and Notes to Financial Statements are
included in Exhibit 99.1.


80
 Table of Contents


Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure





There
have been no disagreements on accounting and financial disclosure with Laclede’s
outside auditors that are required to be disclosed.





Item 9A. Controls and Procedures





As
of the end of the period covered by this report, we carried out an evaluation,
under the supervision and with participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to Rule
13a-15e and Rule 15d-15e under the Securities Exchange Act of 1934, as amended.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures are
effective.


There
have been no changes in our internal control over financial reporting that
occurred during our fourth fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.


The
Management Report on Internal Control over Financial Reporting and the Reports
of Independent Registered Public Accounting Firm are included under Item 8,
pages 38 through 40.





Item 9B. Other Information





On
November 20, 2008, the Board of Directors of Laclede Gas approved the
sale of 1,161 shares of Laclede Gas’ common stock to Laclede Group. The proceeds
from the sale, totaling $40.0 million, were used to reduce short-term
borrowings. Exemption from registration was claimed under Section 4(2) of the
Securities Act of 1933.


On
November 20, 2008, Laclede Group executed an amendment to its $40
million line of credit with U.S. Bank National Association to provide that it
would not contribute proceeds to the Utility from any loans under that line of
credit until credit commitments under Laclede Gas’ 120-day line of credit, under
which U.S. Bank serves as agent and that expires on March 16, 2009,
have been fully advanced.


















































81
 Table of Contents


Part
III





Item 10. Directors, Executive Officers and Corporate
Governance





Information
about:


•
            our
      directors is incorporated by reference from the discussion under Proposal
      1 of our proxy statement dated December 22, 2008 (2008 proxy
      statement);•
            our
      executive officers is reported in Part I of this Form
  10-K;•
            compliance
      with Section 16(a) of the Exchange Act is incorporated by reference from
      the discussion in our 2008 proxy statement under the heading “Section
      16(a) Beneficial Ownership Reporting Compliance”;•
            Financial
      Code of Ethics is posted on our website, www.thelacledegroup.com,
      in the Investor Services section under Governance Documents;
      and,•
            our
      audit committee, our audit committee financial experts, and submitting
      nominations to the Corporate Governance Committee is incorporated by
      reference from the discussion in our 2008 proxy statement under the
      heading “Corporate Governance.”


In
addition to our Financial Code of Ethics, our Code of Business Conduct,
Corporate Governance Guidelines, and charters for our audit, compensation and
corporate governance committees are available on our website, and a copy will be
sent to any shareholder upon written request.





Item 11. Executive Compensation





Information
about director and executive compensation is incorporated by reference from the
discussion in our 2008 proxy statement under the headings: “Directors’
Compensation,” “Compensation Discussion and Analysis,” and “Executive
Compensation.” The 2008 proxy statement also includes the “Compensation
Committee Report,” which is deemed furnished and not filed.





Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters





Information
about security ownership of certain beneficial owners and management is
incorporated by reference from the discussion in our 2008 proxy statement under
“Beneficial Ownership of Laclede Group Common Stock” and equity compensation
plan information is incorporated by reference from the discussion in our 2008
proxy statement under “Other Matters.”








82
 Table of Contents





Item 13. Certain Relationships and Related Transactions, and
Director Independence





Information
about:


•
            our
      policy and procedures for related party transactions
and•
            the
      independence of our directors


is
included in our 2008 proxy statement under “Corporate Governance” and is
incorporated by reference. There were no related party transactions in fiscal
year 2008.








Item 14. Principal Accounting Fees and Services





Information
about fees paid to our independent registered public accountant and our policy
for pre-approval of services provided by our independent registered public
accountant is incorporated by reference from our 2008 proxy statement under
“Fees of Independent Registered Public Accountant” and “Corporate Governance,”
respectively.


83
 Table of Contents


Part
IV





Item 15. Exhibits, Financial Statement
      Schedules2008 10-K
      Page(a)
            1.
            Financial
      Statements:The
      Laclede Group, Inc.:See
      Item 8. Financial Statements and Supplementary Data, filed herewith, for a
      list of financial statements.Laclede
      Gas Company:For
      Years Ended September 30, 2008, 2007, and 2006:Statements
      of Income
            Ex.
      99.1, p. 18Statements
      of Comprehensive Income
            Ex.
      99.1, p. 19Statements
      of Common Shareholder’s Equity
            Ex.
      99.1, p. 23Statements
      of Cash Flows
            Ex.
      99.1, p. 24As
      of September 30, 2008 & 2007:Balance
      Sheets
            Ex.
      99.1, pp. 20-21Statements
      of Capitalization
            Ex.
      99.1, p. 22Notes
      to Financial Statements
            Ex.
      99.1, pp. 25-47Management
      Report on Internal Control over Financial Reporting
            Ex.
      99.1, p. 15Reports
      of Independent Registered Public Accounting Firm
            Ex.
      99.1, p. 16-172.
            Supplemental
      SchedulesII
      – Reserves – The Laclede Group, Inc.
            87II
      – Reserves – Laclede Gas Company
            88Schedules
      not included have been omitted because they are not applicable or
      therequired
      data has been included in the financial statements or notes to
      financialstatements.3.
            ExhibitsIncorporated
      herein by reference to Index to Exhibits, page 89.Item
      15(a)(3) See the marked exhibits in the Index to Exhibits, page
      89.(b)
            
            Incorporated
      herein by reference to Index to Exhibits, page 89.











84
 Table of Contents





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





THE
      LACLEDE GROUP, INC.November 20, 2008
            
            By
      /s/
            Mark
      D. WaltermireMark
      D. WaltermireChief
      Financial Officer








Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Date
            Signature
            Title11/20/08
            /s/
            Douglas
      H. Yaeger
            Chairman
      of the Board,Douglas
      H. Yaeger
            President
      and Chief Executive Officer(Principal
      Executive Officer)11/20/08
            /s/
            Mark
      D. Waltermire
            Chief
      Financial OfficerMark
      D. Waltermire
            (Principal
      Financial andAccounting
      Officer)11/20/08
            /s/
            Arnold
      W. Donald
            DirectorArnold
      W. Donald11/20/08
            /s/
            Edward
      L. Glotzbach
            DirectorEdward
      L. Glotzbach11/20/08
            /s/
            Anthony
      V. Leness
            DirectorAnthony
      V. Leness11/20/08
            /s/
            W.
      Stephen Maritz
            DirectorW.
      Stephen Maritz11/20/08
            /s/
            William
      E. Nasser
            DirectorWilliam
      E. Nasser11/20/08
            /s/
            Brenda
      D. Newberry
            DirectorBrenda
      D. Newberry11/20/08
            /s/
            John
      P. Stupp, Jr.
            DirectorJohn
      P. Stupp, Jr.11/20/08
            /s/
            MaryAnn
      Van Lokeren
            DirectorMaryAnn
      Van Lokeren














85
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SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.





LACLEDE
      GAS COMPANYNovember 20, 2008
            
            By
      /s/
            Mark
      D. WaltermireMark
      D. WaltermireSenior
      Vice President andChief
      Financial Officer








Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.





Date
            Signature
            Title11/20/08
            /s/
            Douglas
      H. Yaeger
            Chairman
      of the Board,Douglas
      H. Yaeger
            President
      and Chief Executive Officer(Principal
      Executive Officer)11/20/08
            /s/
            Mark
      D. Waltermire
            Director,
      Senior Vice PresidentMark
      D. Waltermire
            and
      Chief Financial Officer(Principal
      Financial andAccounting
      Officer)11/20/08
            /s/
            Kenneth
      J. Neises
            Director,
      Executive Vice PresidentKenneth
      J. Neises11/20/08
            /s/
            Michael
      R. Spotanski
            Director,
      Senior Vice PresidentMichael
      R. Spotanski
            Operations
      and Marketing




































































86
 Table of Contents





SCHEDULE II


THE
LACLEDE GROUP, INC. AND SUBSIDIARY COMPANIES


RESERVES


FOR
THE YEARS ENDED SEPTEMBER 30, 2008, 2007, AND 2006











COLUMN
      A
            
            
            COLUMN
      B
            
            COLUMN
      C
            
            
            
            COLUMN
      D
            
            
            
            COLUMN
      EBALANCE
      AT
            ADDITIONS
            CHARGED
            
            
            DEDUCTIONS
            
            
            BALANCEBEGINNING
            
            TO
            
            TO
      OTHER
            
            
            
            FROM
            
            
            
            AT
      CLOSEDESCRIPTION
            
            
            OF
      PERIOD
            
            INCOME
            
            ACCOUNTS
            
            
            
            RESERVES
            
            
            OF
      PERIOD(Thousands
      of Dollars)YEAR
      ENDEDSEPTEMBER
      30, 2008:DOUBTFUL
      ACCOUNTS
            
            $
            11,268
            $
            13,100
            $
            9,850
            
            (a)
            $
            21,594
            
            (b)(d)
            $
            12,624MISCELLANEOUS:Injuries
      andproperty
      damage
            
            $
            10,765
            $
            7,263
            $
            —
            
            
            $
            15,216
            
            (c)(d)
            $
            2,812Deferred
      compensation
            
            
            10,949
            
            1,446
            
            —
            
            
            
            1,231
            
            
            
            11,164Group
      medical claimsincurred
      but not reported
            
            
            2,571
            
            15,777
            
            —
            
            
            
            16,848
            
            (c)(d)
            
            1,500TOTAL
            
            $
            24,285
            $
            24,486
            $
            —
            
            
            $
            33,295
            
            
            $
            15,476YEAR
      ENDEDSEPTEMBER
      30, 2007:DOUBTFUL
      ACCOUNTS
            
            $
            13,105
            $
            9,537
            $
            9,313
            
            (a)
            $
            20,687
            
            (b)
            $
            11,268MISCELLANEOUS:Injuries
      andproperty
      damage
            
            $
            11,342
            $
            12,948
            $
            —
            
            
            $
            13,525
            
            (c)
            $
            10,765Deferred
      compensation
            
            
            10,516
            
            1,399
            
            —
            
            
            
            966
            
            
            
            10,949Group
      medical claimsincurred
      but not reported
            
            
            1,940
            
            18,801
            
            —
            
            
            
            18,170
            
            (c)
            
            2,571TOTAL
            
            $
            23,798
            $
            33,148
            $
            —
            
            
            $
            32,661
            
            
            $
            24,285YEAR
      ENDEDSEPTEMBER
      30, 2006:DOUBTFUL
      ACCOUNTS
            
            $
            11,813
            $
            12,077
            $
            7,985
            
            (a)
            $
            18,770
            
            (b)
            $
            13,105MISCELLANEOUS:Injuries
      andproperty
      damage
            
            $
            10,544
            $
            20,806
            $
            —
            
            
            $
            20,008
            
            (c)
            $
            11,342Deferred
      compensation
            
            
            9,595
            
            1,802
            
            —
            
            
            
            881
            
            
            
            10,516Group
      medical claimsincurred
      but not reported
            
            
            2,531
            
            13,760
            
            —
            
            
            
            14,351
            
            (c)
            
            1,940TOTAL
            
            $
            22,670
            $
            36,368
            $
            —
            
            
            $
            35,240
            
            
            $
            23,798








(a)
            Accounts
      reinstated, cash recoveries, etc.(b)
            Accounts
      written off.(c)
            Claims
      settled, less reimbursements from insurance companies.(d)
            Deductions
      include write-off of SM&P reserve balances at March 31, 2008
      due to the sale of the subsidiary.





87
 Table of Contents





SCHEDULE II


LACLEDE
GAS COMPANY


RESERVES


FOR
THE YEARS ENDED SEPTEMBER 30, 2008, 2007, AND 2006








COLUMN
      A
            
            
            COLUMN
      B
            
            COLUMN
      C
            
            
            
            COLUMN
      D
            
            
            
            COLUMN
      EBALANCE
      AT
            
            ADDITIONS
            
            CHARGED
            
            
            
            DEDUCTIONS
            
            
            
            BALANCEBEGINNING
            
            TO
            
            TO
      OTHER
            
            
            
            FROM
            
            
            
            AT
      CLOSEDESCRIPTION
            
            
            OF
      PERIOD
            
            INCOME
            
            ACCOUNTS
            
            
            
            RESERVES
            
            
            
            OF
      PERIOD(Thousands
      of Dollars)YEAR
      ENDEDSEPTEMBER
      30, 2008:DOUBTFUL
      ACCOUNTS
            
            $
            10,961
            $
            13,034
            $
            9,850
            
            (a)
            $
            21,369
            
            (b)
            $
            12,476MISCELLANEOUS:Injuries
      andproperty
      damage
            
            $
            3,128
            $
            1,715
            $
            —
            
            
            $
            2,031
            
            (c)
            $
            2,812Deferred
      compensation
            
            
            10,949
            
            1,446
            
            —
            
            
            
            1,231
            
            
            
            11,164Group
      medical claimsincurred
      but not reported
            
            
            1,150
            
            12,192
            
            —
            
            
            
            11,842
            
            (c)
            
            1,500TOTAL
            
            $
            15,227
            $
            15,353
            $
            —
            
            
            $
            15,104
            
            
            $
            15,476YEAR
      ENDEDSEPTEMBER
      30, 2007:DOUBTFUL
      ACCOUNTS
            
            $
            12,798
            $
            9,550
            $
            9,313
            
            (a)
            $
            20,700
            
            (b)
            $
            10,961MISCELLANEOUS:Injuries
      andproperty
      damage
            
            $
            4,124
            $
            1,473
            $
            —
            
            
            $
            2,469
            
            (c)
            $
            3,128Deferred
      compensation
            
            
            10,516
            
            1,399
            
            —
            
            
            
            966
            
            
            
            10,949Group
      medical claimsincurred
      but not reported
            
            
            800
            
            11,909
            
            —
            
            
            
            11,559
            
            (c)
            
            1,150TOTAL
            
            $
            15,440
            $
            14,781
            $
            —
            
            
            $
            14,994
            
            
            $
            15,227YEAR
      ENDEDSEPTEMBER
      30, 2006:DOUBTFUL
      ACCOUNTS
            
            $
            11,442
            $
            12,141
            $
            7,985
            
            (a)
            $
            18,770
            
            (b)
            $
            12,798MISCELLANEOUS:Injuries
      andproperty
      damage
            
            $
            4,553
            $
            2,817
            $
            —
            
            
            $
            3,246
            
            (c)
            $
            4,124Deferred
      compensation
            
            
            9,595
            
            1,802
            
            —
            
            
            
            881
            
            
            
            10,516Group
      medical claimsincurred
      but not reported
            
            
            1,500
            
            8,625
            
            —
            
            
            
            9,325
            
            (c)
            
            800TOTAL
            
            $
            15,648
            $
            13,244
            $
            —
            
            
            $
            13,452
            
            
            $
            15,440








(a)
            Accounts
      reinstated, cash recoveries, etc.(b)
            Accounts
      written off.(c)
            Claims
      settled, less reimbursements from insurance
  companies.





88
 Table of Contents





INDEX
      TO EXHIBITSExhibitNo.2.01*
            -
            Agreement
      and Plan of Merger and Reorganization; filed as Appendix A to proxy
      statement/prospectus contained in the Company’s registration statement on
      Form S-4, No. 333-48794.3.01(i)*
            -
            Laclede’s
      Restated Articles of Incorporation effective March 18, 2002;
      filed as Exhibit 3.3 to Form 8-K filed
    May 29, 2002.3.01(ii)*
            -
            Bylaws
      of Laclede effective January 18, 2002; filed as Exhibit 3.4 to
      Laclede’s Form 8-K filed May 29, 2002.3.02(i)*
            -
            The
      Company’s Articles of Incorporation, as amended; filed as Exhibit 3.1 to
      the Company’s Form 8-K filed
January 26, 2006.3.02(ii)*
            -
            The
      Company’s Bylaws, as amended; filed as Exhibit 3.2 to the Company’s Form
      8-K filed January 26, 2006.4.01*
            -
            Mortgage
      and Deed of Trust, dated as of February 1, 1945; filed as
      Exhibit 7-A to registration statement No. 2-5586.4.02*
            -
            Fourteenth
      Supplemental Indenture, dated as of October 26, 1976; filed on
      June 26, 1979 as Exhibit b-4 to registration statement No.
      2-64857.4.03*
            -
            Twenty-Second
      Supplemental Indenture dated as of November 15, 1995; filed on
      December 8, 1995 as Exhibit 4.01 to Laclede’s Form
      8-K.4.04*
            -
            Twenty-Third
      Supplemental Indenture dated as of October 15, 1997; filed on
      November 6, 1997 as Exhibit 4.01 to Laclede’s Form
      8-K.4.05*
            -
            Twenty-Fourth
      Supplemental Indenture dated as of June 1, 1999; filed on
      June 4, 1999 as Exhibit 4.01 to Laclede’s Form
    8-K.4.06*
            -
            Twenty-Fifth
      Supplemental Indenture dated as of September 15, 2000; filed on
      September 27, 2000 as Exhibit 4.01 to Laclede’s Form
      8-K.4.07*
            -
            Twenty-Seventh
      Supplemental Indenture dated as of April 15, 2004; filed on
      April 28, 2004 as Exhibit 4.01 to Laclede’s Form
      8-K.4.08*
            -
            Twenty-Eighth
      Supplemental Indenture dated as of April 15, 2004; filed on
      April 28, 2004 as Exhibit 4.02 to Laclede’s Form
      8-K.4.09*
            -
            Twenty-Ninth
      Supplemental Indenture dated as of June 1, 2006; filed on
      June 9, 2006, as Exhibit 4.1 to Laclede’s Form
    8-K4.10*
            -
            Thirtieth
      Supplemental Indenture dated as of September 15, 2008; filed on
      September 23, 2008 as Exhibit 4.1 to Laclede’s Form
      8-K.4.11*
            -
            Laclede
      Gas Company Board of Directors’ Resolution dated August 28, 1986
      which generally provides that the Board may delegate its authority in the
      adoption of certain employee benefit plan amendments to certain designated
      Executive Officers; filed as Exhibit 4.12 to the Company’s 1991
      10-K.4.11a*
            -
            Company
      Board of Directors’ Resolutions dated March 27, 2003, updating
      authority delegated pursuant to August 28, 1986 Laclede Gas
      Company resolutions; filed as Exhibit 4.19(a) to the Company’s Form 10-K
      for the year ended September 30, 2003.4.12*
            -
            Rights
      Agreement dated as of October 1, 2001; filed as Exhibit 4 to the
      Company’s Form 8-A on
  September 6, 2001.








*Incorporated
herein by reference and made a part hereof. Laclede’s File No. 1-1822; the
Company’s File No. 1-16681.





Bold
items reflect management, contract or compensatory plan or
arrangement.


89
 Table of Contents





INDEX TO
      EXHIBITSExhibitNo.10.01*
            -
            Laclede
      Incentive Compensation Plan, as amended; filed as Exhibit 10.03 to the
      Company’s 1989 10-K.10.01a*
            -
            Amendment
      adopted by the Board of Directors on July 26, 1990 to the
      Incentive Compensation Plan; filed as Exhibit 10.02a to the Company’s 1990
      10-K.10.01b*
            -
            Amendments
      adopted by the Board of Directors on August 23, 1990 to the
      Incentive Compensation Plan; filed as Exhibit 10.02b to the Company’s 1990
      10-K.10.01c*
            -
            Amendments
      to Laclede’s Incentive Compensation Plan, effective
      January 26, 1995; filed as Exhibit 10.3 to the Company’s 10-Q
      for the fiscal quarter ended March 31, 1995.10.02*
            -
            Senior
      Officers’ Life Insurance Program of Laclede, as amended; filed as Exhibit
      10.03 to the Company’s 1990 10-K.10.02a*
            -
            Certified
      copy of resolutions of Laclede’s Board of Directors adopted on
      June 27, 1991 amending the Senior Officers’ Life Insurance
      Program; filed as Exhibit 10.01 to the Company’s 10-Q for the fiscal
      quarter ended June 30, 1991.10.02b*
            -
            Certified
      copy of resolutions of Laclede’s Board of Directors adopted on
      January 28, 1993 amending the Senior Officers’ Life Insurance
      Program; filed as Exhibit 10.03 to the Company’s 10-Q for the fiscal
      quarter ended March 31, 1993.10.03*
            -
            Laclede
      Gas Company Supplemental Retirement Benefit Plan, as amended and restated
      effective July 25, 1991; filed as Exhibit 10.05 to the Company’s
      1991 10-K.10.04*
            -
            Amended
      and Restated Storage Service Agreement For Rate Schedule FSS, Contract
      #3147 between Centerpoint Energy-Mississippi River Transmission
      Corporation (MRT) and Laclede dated March 18, 2008; filed as
      Exhibit 10.5 to the Company’s 10-Q for the fiscal quarter ended
      March 31, 2008.10.04a*
            -
            Amended
      and Restated Transportation Service Agreement for Rate Schedule FTS,
      Contract #3310 between Laclede and MRT dated March 18, 2008;
      filed as Exhibit 10.6 to the Company’s 10-Q for the fiscal quarter ended
      March 31, 2008.10.04b*
            -
            Amended
      and Restated Transportation Service Agreement for Rate Schedule FTS,
      Contract #3311, between Laclede and MRT dated March 18, 2008;
      filed as Exhibit 10.7 to the Company’s 10-Q for the fiscal quarter ended
      March 31, 2008.10.05*
            -
            Amendment
      and Restatement of Retirement Plan for Non-Employee Directors as of
      November 1, 2002; filed as Exhibit 10.08c to the Company’s 10-K
      for the fiscal year ended September 30, 2002.10.05a*
            -
            Amendment
      to Terms of Retirement Plan for Non-Employee Directors as of
      October 1, 2004; filed as Exhibit 10.w to the Company’s Form
      10-Q for the fiscal quarter ended
  June 30, 2004.








*Incorporated
herein by reference and made a part hereof. Laclede’s File No. 1-1822; the
Company’s File No. 1-16681.





Bold
items reflect management, contract or compensatory plan or
arrangement.


90
 Table of Contents





INDEX TO
      EXHIBITSExhibitNo.10.06*
            -
            Salient
      Features of the Laclede Gas Company Deferred Income Plan for Directors and
      Selected Executives, including amendments adopted by the Board of
      Directors on July 26, 1990; filed as Exhibit 10.12 to the
      Company’s 1991 10-K.10.06a*
            -
            Amendment
      to Laclede’s Deferred Income Plan for Directors and Selected Executives,
      adopted by the Board of Directors on August 27, 1992; filed as
      Exhibit 10.12a to the Company’s 1992 10-K.10.07*
            -
            Form
      of Indemnification Agreement between Laclede and its Directors and
      Officers; filed as Exhibit 10.13 to the Company’s 1990
    10-K.10.08*
            -
            Laclede
      Gas Company Management Continuity Protection Plan, as amended, effective
      at the close of business on January 27, 1994, by the Board of
      Directors; filed as Exhibit 10.1 to the Company’s 10-Q for the fiscal
      quarter ended March 31, 1994.10.09*
            -
            2002
      Restricted Stock Plan for Non-Employee Directors as of
      November 1, 2002; filed as Exhibit 10.12d to the Company’s Form
      10-K for the fiscal year ended
    September 30, 2002.10.09a*
            -
            Amendment
      to the 2002 Restricted Stock Plan for Non-Employee Directors as of
      October 1, 2004; filed as Exhibit 10.3 to the Company’s Form
      10-Q for the fiscal quarter ended
  June 30, 2004.10.09b*
            -
            Amendment
      to Restricted Stock Plan for Non-Employee Directors as of
      January 1, 2006; filed as Exhibit 10.2 to the Company’s Form 8-K
      filed November 1, 2005.10.09c*
            -
            Restricted
      Stock Plan for Non-employee Directors Amendment effective
      January 1, 2007; filed as Exhibit 10.1 to the Company’s Form 8-K
      filed November 2, 2006.10.09d
            -
            Amendment
      to Restricted Stock Plan for Non-Employee Directors effective
      January 1, 2008.10.10*
            -
            Salient
      Features of the Laclede Gas Company Deferred Income Plan II for Directors
      and Selected Executives adopted by the Board of Directors on
      September 23, 1993; filed as Exhibit 10.17 to the Company’s 1993
      10-K.10.11*
            -
            Amended
      and Restated Revolving Credit Agreement between the Company and U.S. Bank
      National Association dated August 4, 2005; filed as Exhibit 10.1
      to the Company’s 8-K filed August 5, 2005.10.11a*
            -
            First
      Amendment to Amended and Restated Revolving Credit Agreement between the
      Company and U.S. Bank National Association dated March 31, 2008;
      filed as Exhibit 10.8 to the Company’s Form 10-Q for the fiscal quarter
      ended March 31, 2008.10.11b*
            -
            Second
      Amendment to Amended and Restated Revolving Credit Agreement between the
      Company and U.S. Bank National Association executed on
      August 1, 2008; filed as Exhibit 10.1 to the Company’s Form 10-Q
      for the fiscal quarter ended June 30, 2008.10.11c
            -
            Third
      Amendment to Amended and Restated Credit Agreement between the Company and
      U.S. Bank National Association dated
      November 21, 2008.





*Incorporated
herein by reference and made a part hereof. Laclede’s File No. 1-1822; the
Company’s File No. 1-16681.





Bold
items reflect management, contract or compensatory plan or
arrangement.


91
 Table of Contents





INDEX TO
      EXHIBITSExhibitNo.10.12*
            -
            Amended
      and Restated Loan Agreement dated September 10, 2004 for Laclede
      with U.S. Bank National Association as administrative agent and lead
      arranger, Bank Hapoalim B.M., as syndication agent, and Southwest Bank of
      St. Louis as documentation agent; filed as Exhibit 10.1 on Form 8-K filed
      on September 13, 2004.10.12a*
            -
            Amendment
      to loan agreement in Exhibit 10.12, dated December 23, 2005;
      filed as Exhibit 10.1 to Laclede’s Form 8-K filed
      December 23, 2005.10.12b*
            -
            Second
      amendment dated February 8, 2008 to syndicated loan agreement of
      Laclede Gas Company dated September 10, 2004 and first amended
      December 23, 2005; filed as Exhibit 10.1 to Laclede’s Form 10-Q
      for the fiscal quarter ended March 31, 2008.10.13*
            -
            Stock
      Purchase Agreement between the Company and Stripe Acquisition, Inc. dated
      February 15, 2008 for the sale of SM&P Utility Resources,
      Inc.; filed as Exhibit 10.3 to the Company’s Form 10-Q for the fiscal
      quarter ended March 31, 2008.10.14*
            -
            The
      Laclede Group, Inc. 2002 Equity Incentive Plan; filed as Exhibit 10.22 to
      the Company’s Form 10-K for the year ended
      September 30, 2002.10.14a*
            -
            Form
      of Non-Qualified Stock Option Award Agreement with Mandatory Retirement
      Provisions; filed as Exhibit 10.1 to the Company’s Form 8-K filed
      November 5, 2004.10.14b*
            -
            Form
      of Non-Qualified Stock Option Award Agreement without Mandatory Retirement
      Provisions; filed as Exhibit 10.2 to the Company’s Form 8-K filed
      November 5, 2004.10.14c*
            -
            Form
      of Restricted Stock Award Agreement; filed as Exhibit 10.17 to the
      Company’s 10-Q for the fiscal quarter ended
      March 31, 2004.10.14d*
            -
            Form
      of Performance – Contingent Restricted Stock Award Agreement; filed as
      Exhibit 10.3 to the Company’s Form 8-K filed
      November 1, 2005.10.14e*
            -
            Form
      of Performance – Contingent Restricted Stock Award Agreement; filed as
      Exhibit 10.2 to the Company’s Form 8-K filedNovember 2, 2006.10.15*
            -
            Lease
      between Laclede Gas Company, as Lessee and First National Bank in St.
      Louis, Trustee, as Lessor; filed as Exhibit 10.23 to the Company’s Form
      10-K for the fiscal year ended
    September 30, 2002.10.16*
            -
            Automated
      Meter Reading Services Agreement executed March 11, 2005; filed
      as Exhibit 10.1 to the Company’s Form 10-Q for the fiscal quarter ended
      March 31, 2005. Confidential portions of this exhibit have been
      omitted and filed separately with the Securities and Exchange Commission
      pursuant to a request for confidential treatment.10.17*
            -
            Stock
      Ownership Guidelines and Holding Requirements; filed as Exhibit 10.1 to
      the Company’s Form 8-K filed
November 1, 2005.10.18*
            -
            The
      Laclede Group, Inc. Annual Incentive Plan; filed as Appendix 4 to the
      Company’s proxy statement filed
    December 19, 2005.








*Incorporated
herein by reference and made a part hereof. Laclede’s File No. 1-1822; the
Company’s File No. 1-16681.





Bold
items reflect management, contract or compensatory plan or
arrangement.


92
 Table of Contents





INDEX TO
      EXHIBITSExhibitNo.10.19*
            -
            The
      Laclede Group, Inc. 2006 Equity Incentive Plan; filed as Appendix 5 to the
      Company’s proxy statement, filed
    December 19, 2005.10.19a*
            -
            Form
      of Restricted Stock Award Agreement; filed as Exhibit 10.1 to the
      Company’s Form
              10-Q
      for the fiscal quarter ended
  December 31, 2007.10.19b*
            -
            Form
      of Performance Contingent Restricted Stock Award Agreement for all
      participants except the Chief Executive Officer and the Executive Vice
      President-Energy and Administrative Services; filed as Exhibit 10.2 to the
      Company’s Form 10-Q for the fiscal quarter ended
      December 31, 2007.10.19c*
            -
            Forms
      of Performance Contingent Restricted Stock Award Agreements for Chief
      Executive Officer; filed as Exhibit 10.3 to the Company’s Form 10-Q for
      the fiscal quarter ended December 31, 2007.10.19d*
            -
            Form
      of Performance Contingent Restricted Stock Award Agreement for Executive
      Vice President-Energy and Administrative Services; filed as Exhibit 10.4
      to the Company’s Form 10-Q for the fiscal quarter ended
      December 31, 2007.10.19e*
            -
            Restricted
      Stock Unit Award Agreement with Douglas H. Yaeger dated
      February 14, 2008; filed as Exhibit 10.2 to the Company’s Form
      10-Q for the fiscal quarter ended
  March 31, 2008.10.20*
            -
            Supplemental
      Pension Agreement between Laclede Gas Company and Kenneth J. Neises dated
      March 7, 2008; filed as Exhibit 10.4 to the Company’s Form 10-Q
      for the fiscal quarter ended March 31, 2008.12
            -
            Ratio
      of Earnings to Fixed Charges.21
            -
            Subsidiaries
      of the Registrant.23
            -
            Consents
      of Independent Registered Public Accounting Firm.31
            -
            Certificates
      under Rule 13a-14(a) of the CEO and CFO of The Laclede Group, Inc. and
      Laclede Gas Company.32
            -
            Section
      1350 Certifications under Rule 13a-14(b) of the CEO and CFO of The Laclede
      Group, Inc. and Laclede Gas Company.99.1
            -
            Laclede
      Gas Company – Selected Financial Data, Management’s Discussion and
      Analysis of Financial Condition and Results of Operations, Notes to
      Financial Statements, management Report on Internal Control over Financial
      Reporting, and Reports of Independent Registered Public Accounting
      Firm.








*Incorporated
herein by reference and made a part hereof. Laclede’s File No. 1-1822; the
Company’s File No. 1-16681.





Bold
items reflect management, contract or compensatory plan or
arrangement.








93