SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D. C. 20549
  FORM
10-Q
 
 [
      X ]
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934 For the Quarter Ended December 31,
2008
 OR
 [    
      ]
              TRANSITION
      REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 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
 
 Indicate
by check mark if the registrant:
 
 (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)
have been subject to such filing requirements for the past
90 days.
 
 The Laclede Group,
      Inc.:
                Yes
                [
      X ]
                No
                [    
      ]Laclede Gas
      Company:
                Yes
                [
      X ]
                No
                [    
      ]
 
 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 ]
 
 Indicate
the 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
                  January 29, 2009The Laclede Group,
      Inc.:
                  Common
      Stock ($1.00 Par Value)
                  22,135,185Laclede Gas
      Company:
                  Common
      Stock ($1.00 Par Value)
                  11,603  *
 *
100% owned by The Laclede Group, Inc.
 Table of
Contents
 
 
 TABLE OF CONTENTS
                Page
      No.PART 1.  FINANCIAL
  INFORMATIONItem 1
                Financial StatementsThe
      Laclede Group, Inc.:Statements of Consolidated Income
                4Statements of Consolidated Comprehensive
      Income
                5Consolidated Balance Sheets
                6-7Statements of Consolidated Cash Flows
                8Notes to Consolidated Financial
    Statements
                9-20Laclede Gas Company:Statements
      of Income
                Ex.
      99.1, p. 1Statements
      of Comprehensive Income
                Ex.
      99.1, p. 2Balance
      Sheets
                Ex.
      99.1, p. 3-4Statements
      of Cash Flows
                Ex.
      99.1, p. 5Notes
      to Financial Statements
                Ex.
      99.1, p. 6-12Item 2
                Management’s Discussion and Analysis of Financial Condition
      andResults of Operations (The Laclede Group,
      Inc.)
                21-31Management’s
      Discussion and Analysis of Financial Condition andResults
      of Operations (Laclede Gas Company)
                Ex.
      99.1, p. 13-22Item 3
                Quantitative and Qualitative Disclosures About Market
      Risk
                32Item 4
                Controls and Procedures
                32PART II.  OTHER
      INFORMATIONItem 1
                Legal Proceedings
                33Item 2
                Unregistered Sales of Equity Securities and Use of
      Proceeds
                33Item 6
                Exhibits
                33SIGNATURES – The Laclede Group,
      Inc.
                34SIGNATURES – Laclede Gas
      Company
                35INDEX TO EXHIBITS
                36
 
 
 FILING
      FORMAT
 This
Quarterly Report on Form 10-Q is a combined report being filed by two separate
registrants: The Laclede Group, Inc. (Laclede Group or the Company) and Laclede
Gas Company (Laclede Gas or the Utility).
 
 
 
  2
 Table of Contents
  
 PART I.
              FINANCIAL
      INFORMATION
 
 
 The
interim financial statements included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in conjunction
with the financial statements and the notes thereto included in the Company’s
Form 10-K for the fiscal year ended September 30, 2008.
 
 
 
  3
 Table of Contents
  
 Item 1. Financial StatementsTHE
      LACLEDE GROUP, INC.STATEMENTS OF CONSOLIDATED INCOME(UNAUDITED)Three
      Months EndedDecember
      31,(Thousands,
      Except Per Share Amounts)
                                                            
                                                            2008
                                                            
                                                            2007Operating
      Revenues:Regulated
      Gas Distribution
                                                            
                                                            $
                                                            358,101
                                                            
                                                            $
                                                            320,892Non-Regulated
      Gas Marketing
                                                            
                                                            
                                                            315,040
                                                            
                                                            
                                                            181,798Other
                                                            
                                                            
                                                            1,115
                                                            
                                                            
                                                            1,300Total
      Operating Revenues
                                                            
                                                            
                                                            674,256
                                                            
                                                            
                                                            503,990Operating
      Expenses:Regulated
      Gas DistributionNatural
      and propane gas
                                                            
                                                            
                                                            254,897
                                                            
                                                            
                                                            222,841Other
      operation expenses
                                                            
                                                            
                                                            36,301
                                                            
                                                            
                                                            35,213Maintenance
                                                            
                                                            
                                                            6,534
                                                            
                                                            
                                                            6,235Depreciation
      and amortization
                                                            
                                                            
                                                            9,119
                                                            
                                                            
                                                            8,713Taxes,
      other than income taxes
                                                            
                                                            
                                                            18,358
                                                            
                                                            
                                                            16,681Total
      Regulated Gas Distribution Operating Expenses
                                                            
                                                            
                                                            325,209
                                                            
                                                            
                                                            289,683Non-Regulated
      Gas Marketing
                                                            
                                                            
                                                            291,601
                                                            
                                                            
                                                            172,872Other
                                                            
                                                            
                                                            758
                                                            
                                                            
                                                            1,258Total
      Operating Expenses
                                                            
                                                            
                                                            617,568
                                                            
                                                            
                                                            463,813Operating
      Income
                                                            
                                                            
                                                            56,688
                                                            
                                                            
                                                            40,177Other
      Income and (Income Deductions) – Net
                                                            
                                                            
                                                            739
                                                            
                                                            
                                                            2,649Interest
      Charges:Interest
      on long-term debt
                                                            
                                                            
                                                            6,146
                                                            
                                                            
                                                            5,126Interest
      on long-term debt to unconsolidated affiliate trust
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            69Other
      interest charges
                                                            
                                                            
                                                            2,646
                                                            
                                                            
                                                            4,163Total
      Interest Charges
                                                            
                                                            
                                                            8,792
                                                            
                                                            
                                                            9,358Income
      from Continuing Operations Before Income Taxesand
      Dividends on Laclede Gas Redeemable Preferred Stock
                                                            
                                                            
                                                            48,635
                                                            
                                                            
                                                            33,468Income
      Tax Expense
                                                            
                                                            
                                                            17,321
                                                            
                                                            
                                                            11,922Dividends
      on Laclede Gas Redeemable Preferred Stock
                                                            
                                                            
                                                            8
                                                            
                                                            
                                                            10Income
      from Continuing Operations
                                                            
                                                            
                                                            31,306
                                                            
                                                            
                                                            21,536Loss
      from Discontinued Operations, Net of Income Tax (Note 2)
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            (633
                                                            )Net
      Income
                                                            
                                                            $
                                                            31,306
                                                            
                                                            $
                                                            20,903Average
      Number of Common Shares Outstanding:Basic
                                                            
                                                            
                                                            21,857
                                                            
                                                            
                                                            21,554Diluted
                                                            
                                                            
                                                            22,013
                                                            
                                                            
                                                            21,621Basic
      Earnings (Loss) Per Share of Common Stock:Income
      from Continuing Operations
                                                            
                                                            $
                                                            1.43
                                                            
                                                            $
                                                            1.00Loss
      from Discontinued Operations
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            (0.03
                                                            )Net
      Income
                                                            
                                                            $
                                                            1.43
                                                            
                                                            $
                                                            0.97Diluted
      Earnings (Loss) Per Share of Common Stock:Income
      from Continuing Operations
                                                            
                                                            $
                                                            1.42
                                                            
                                                            $
                                                            1.00Loss
      from Discontinued Operations
                                                            
                                                            
                                                            —
                                                            
                                                            
                                                            (0.03
                                                            )Net
      Income
                                                            
                                                            $
                                                            1.42
                                                            
                                                            $
                                                            0.97Dividends
      Declared Per Share of Common Stock
                                                            
                                                            $
                                                            0.385
                                                            
                                                            $
                                                            0.375See
      Notes to Consolidated Financial Statements.
  4
 Table of Contents
  
 THE
LACLEDE GROUP, INC.
 STATEMENTS OF CONSOLIDATED COMPREHENSIVE
INCOME
 (UNAUDITED)
 
 Three
      Months EndedDecember
      31,(Thousands)
                                                
                                                2008
                                                
                                                2007Net
      Income
                                                
                                                $
                                                31,306
                                                
                                                $
                                                20,903Other
      Comprehensive Income (Loss), Before Tax:Net
      gains (losses) on cash flow hedging derivative
instruments:Net
      hedging gain arising during the period
                                                
                                                
                                                2,039
                                                
                                                
                                                144Reclassification
      adjustment for gains included in net income
                                                
                                                
                                                (8,272
                                                )
                                                
                                                (2,734
                                                )Net
      unrealized losses on cash flow hedging derivative
    instruments
                                                
                                                
                                                (6,233
                                                )
                                                
                                                (2,590
                                                )Amortization
      of actuarial loss included in net periodic pension andpostretirement
      benefit cost
                                                
                                                
                                                50
                                                
                                                
                                                43Other
      Comprehensive Loss, Before Tax
                                                
                                                
                                                (6,183
                                                )
                                                
                                                (2,547
                                                )Income
      Tax Benefit Related to Items of Other Comprehensive Loss
                                                
                                                
                                                (2,380
                                                )
                                                
                                                (984
                                                )Other
      Comprehensive Loss, Net of Tax
                                                
                                                
                                                (3,803
                                                )
                                                
                                                (1,563
                                                )Comprehensive
      Income
                                                
                                                $
                                                27,503
                                                
                                                $
                                                19,340See
      Notes to Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
 
 
  5
 Table of Contents
  THE
LACLEDE GROUP, INC.
 CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
 
 Dec.
      31,
                    
                    
                    
                    Sept.
      30,
                    
                    
                    
                    Dec.
      31,(Thousands)
                    
                    2008
                    
                    
                    
                    2008
                    
                    
                    
                    2007ASSETSUtility
      Plant
                    
                    $
                    1,239,063
                    
                    
                    
                    $
                    1,229,174
                    
                    
                    
                    $
                    1,195,431Less:  Accumulated
      depreciation and amortization
                    
                    
                    410,662
                    
                    
                    
                    
                    405,977
                    
                    
                    
                    
                    395,447Net
      Utility Plant
                    
                    
                    828,401
                    
                    
                    
                    
                    823,197
                    
                    
                    
                    
                    799,984Non-utility
      property
                    
                    
                    4,055
                    
                    
                    
                    
                    3,793
                    
                    
                    
                    
                    4,093Other
      investments
                    
                    
                    42,995
                    
                    
                    
                    
                    43,314
                    
                    
                    
                    
                    45,305Property
      and investments of discontinued operations
                    
                    
                    —
                    
                    
                    
                    
                    —
                    
                    
                    
                    
                    41,955Other
      Property and Investments
                    
                    
                    47,050
                    
                    
                    
                    
                    47,107
                    
                    
                    
                    
                    91,353Current
      Assets:Cash
      and cash equivalents
                    
                    
                    30,080
                    
                    
                    
                    
                    14,899
                    
                    
                    
                    
                    66,930Accounts
      receivable:Utility
                    
                    
                    208,744
                    
                    
                    
                    
                    98,708
                    
                    
                    
                    
                    211,568Non-utility
                    
                    
                    115,290
                    
                    
                    
                    
                    102,389
                    
                    
                    
                    
                    68,630Other
                    
                    
                    10,629
                    
                    
                    
                    
                    10,486
                    
                    
                    
                    
                    10,872Allowances
      for doubtful accounts
                    
                    
                    (8,479
                    )
                    
                    
                    
                    (12,624
                    )
                    
                    
                    
                    (8,644
                    )Inventories:Natural
      gas stored underground at LIFO cost
                    
                    
                    197,423
                    
                    
                    
                    
                    206,267
                    
                    
                    
                    
                    132,059Propane
      gas at FIFO cost
                    
                    
                    19,871
                    
                    
                    
                    
                    19,911
                    
                    
                    
                    
                    19,913Materials,
      supplies, and merchandise at average cost
                    
                    
                    5,353
                    
                    
                    
                    
                    5,301
                    
                    
                    
                    
                    5,041Derivative
      instrument assets
                    
                    
                    25,381
                    
                    
                    
                    
                    57,210
                    
                    
                    
                    
                    15,953Unamortized
      purchased gas adjustments
                    
                    
                    24,149
                    
                    
                    
                    
                    33,411
                    
                    
                    
                    
                    8,613Prepayments
      and other
                    
                    
                    11,460
                    
                    
                    
                    
                    25,950
                    
                    
                    
                    
                    11,679Current
      assets of discontinued operations
                    
                    
                    —
                    
                    
                    
                    
                    —
                    
                    
                    
                    
                    19,799Total
      Current Assets
                    
                    
                    639,901
                    
                    
                    
                    
                    561,908
                    
                    
                    
                    
                    562,413Deferred
      Charges:Regulatory
      assets
                    
                    
                    354,274
                    
                    
                    
                    
                    334,755
                    
                    
                    
                    
                    288,868Other
                    
                    
                    6,020
                    
                    
                    
                    
                    5,688
                    
                    
                    
                    
                    5,067Total
      Deferred Charges
                    
                    
                    360,294
                    
                    
                    
                    
                    340,443
                    
                    
                    
                    
                    293,935Total
      Assets
                    
                    $
                    1,875,646
                    
                    
                    
                    $
                    1,772,655
                    
                    
                    
                    $
                    1,747,685
 
 
 
 
 
  6
 Table of Contents
  
 
 THE
LACLEDE GROUP, INC.
 CONSOLIDATED
BALANCE SHEETS (Continued)
 (UNAUDITED)
 
 Dec.
      31,
                    
                    
                    
                    Sept.
      30,
                    
                    
                    
                    Dec.
      31,(Thousands,
      except share amounts)
                    
                    2008
                    
                    
                    
                    2008
                    
                    
                    
                    2007CAPITALIZATION
      AND LIABILITIESCapitalization:Common
      stock (70,000,000 shares authorized, 22,129,166
                      21,993,473,
      and 21,761,629 shares issued, respectively)
                    
                    $
                    22,129
                    
                    
                    
                    $
                    21,993
                    
                    
                    
                    $
                    21,762Paid-in
      capital
                    
                    
                    150,166
                    
                    
                    
                    
                    147,241
                    
                    
                    
                    
                    137,903Retained
      earnings
                    
                    
                    335,598
                    
                    
                    
                    
                    312,808
                    
                    
                    
                    
                    280,438Accumulated
      other comprehensive income
                    
                    
                    633
                    
                    
                    
                    
                    4,437
                    
                    
                    
                    
                    294Total
      Common Stock Equity
                    
                    
                    508,526
                    
                    
                    
                    
                    486,479
                    
                    
                    
                    
                    440,397Laclede
      Gas redeemable preferred stock
                      (less
      current sinking fund requirements)
                    
                    
                    467
                    
                    
                    
                    
                    467
                    
                    
                    
                    
                    627Long-term
      debt to unconsolidated affiliate trust
                    
                    
                    —
                    
                    
                    
                    
                    —
                    
                    
                    
                    
                    46,400Long-term
      debt – Laclede Gas
                    
                    
                    389,196
                    
                    
                    
                    
                    389,181
                    
                    
                    
                    
                    309,138Total
      Capitalization
                    
                    
                    898,189
                    
                    
                    
                    
                    876,127
                    
                    
                    
                    
                    796,562Current
      Liabilities:Notes
      payable
                    
                    
                    263,500
                    
                    
                    
                    
                    215,900
                    
                    
                    
                    
                    294,450Accounts
      payable
                    
                    
                    175,285
                    
                    
                    
                    
                    159,580
                    
                    
                    
                    
                    141,093Advance
      customer billings
                    
                    
                    16,578
                    
                    
                    
                    
                    25,548
                    
                    
                    
                    
                    27,382Current
      portion of preferred stock
                    
                    
                    160
                    
                    
                    
                    
                    160
                    
                    
                    
                    
                    160Wages
      and compensation accrued
                    
                    
                    14,063
                    
                    
                    
                    
                    12,197
                    
                    
                    
                    
                    13,262Dividends
      payable
                    
                    
                    8,674
                    
                    
                    
                    
                    8,400
                    
                    
                    
                    
                    8,247Customer
      deposits
                    
                    
                    13,772
                    
                    
                    
                    
                    14,020
                    
                    
                    
                    
                    15,128Interest
      accrued
                    
                    
                    6,825
                    
                    
                    
                    
                    10,094
                    
                    
                    
                    
                    6,371Taxes
      accrued
                    
                    
                    37,557
                    
                    
                    
                    
                    11,387
                    
                    
                    
                    
                    18,935Deferred
      income taxes current
                    
                    
                    7,624
                    
                    
                    
                    
                    11,669
                    
                    
                    
                    
                    1,525Other
                    
                    
                    16,680
                    
                    
                    
                    
                    10,249
                    
                    
                    
                    
                    6,077Current
      liabilities of discontinued operations
                    
                    
                    —
                    
                    
                    
                    
                    —
                    
                    
                    
                    
                    19,582Total
      Current Liabilities
                    
                    
                    560,718
                    
                    
                    
                    
                    479,204
                    
                    
                    
                    
                    552,212Deferred
      Credits and Other Liabilities:Deferred
      income taxes
                    
                    
                    216,234
                    
                    
                    
                    
                    222,761
                    
                    
                    
                    
                    231,115Unamortized
      investment tax credits
                    
                    
                    3,918
                    
                    
                    
                    
                    3,973
                    
                    
                    
                    
                    4,143Pension
      and postretirement benefit costs
                    
                    
                    103,507
                    
                    
                    
                    
                    98,513
                    
                    
                    
                    
                    67,648Asset
      retirement obligations
                    
                    
                    27,236
                    
                    
                    
                    
                    26,833
                    
                    
                    
                    
                    26,517Regulatory
      liabilities
                    
                    
                    42,639
                    
                    
                    
                    
                    42,191
                    
                    
                    
                    
                    39,687Other
                    
                    
                    23,205
                    
                    
                    
                    
                    23,053
                    
                    
                    
                    
                    26,428Deferred
      credits and other liabilities of
                      discontinued
      operations
                    
                    
                    —
                    
                    
                    
                    
                    —
                    
                    
                    
                    
                    3,373Total
      Deferred Credits and Other Liabilities
                    
                    
                    416,739
                    
                    
                    
                    
                    417,324
                    
                    
                    
                    
                    398,911Total
      Capitalization and Liabilities
                    
                    $
                    1,875,646
                    
                    
                    
                    $
                    1,772,655
                    
                    
                    
                    $
                    1,747,685See
      Notes to Consolidated Financial Statements.
 
  7
 Table of Contents
  
 THE
LACLEDE GROUP, INC.
 STATEMENTS OF CONSOLIDATED CASH FLOWS
 (UNAUDITED)
  Three
      Months EndedDecember
      31,(Thousands)
                                                
                                                2008
                                                
                                                
                                                
                                                2007Operating
      Activities:Net
      Income
                                                
                                                $
                                                31,306
                                                
                                                
                                                
                                                $
                                                20,903Adjustments
      to reconcile net income to net cash provided by (used in)
                                                  operating
      activities:Depreciation,
      amortization, and accretion
                                                
                                                
                                                9,193
                                                
                                                
                                                
                                                
                                                9,672Deferred
      income taxes and investment tax credits
                                                
                                                
                                                (11,566
                                                )
                                                
                                                
                                                
                                                1,884Other
      – net
                                                
                                                
                                                2,113
                                                
                                                
                                                
                                                
                                                630Changes
      in assets and liabilities:Accounts
      receivable – net
                                                
                                                
                                                (127,225
                                                )
                                                
                                                
                                                
                                                (133,573
                                                )Unamortized
      purchased gas adjustments
                                                
                                                
                                                9,262
                                                
                                                
                                                
                                                
                                                4,200Deferred
      purchased gas costs
                                                
                                                
                                                (14,832
                                                )
                                                
                                                
                                                
                                                1,943Accounts
      payable
                                                
                                                
                                                17,473
                                                
                                                
                                                
                                                
                                                41,984Advance
      customer billings - net
                                                
                                                
                                                (8,970
                                                )
                                                
                                                
                                                
                                                1,942Taxes
      accrued
                                                
                                                
                                                26,170
                                                
                                                
                                                
                                                
                                                (1,987
                                                )Natural
      gas stored underground
                                                
                                                
                                                8,844
                                                
                                                
                                                
                                                
                                                6,197Other
      assets and liabilities
                                                
                                                
                                                41,002
                                                
                                                
                                                
                                                
                                                38,486Net
      cash used in operating activities
                                                
                                                
                                                (17,230
                                                )
                                                
                                                
                                                
                                                (7,719
                                                )Investing
      Activities:Capital
      expenditures
                                                
                                                
                                                (14,332
                                                )
                                                
                                                
                                                
                                                (13,369
                                                )Other
      investments
                                                
                                                
                                                (837
                                                )
                                                
                                                
                                                
                                                (1,194
                                                )Net
      cash used in investing activities
                                                
                                                
                                                (15,169
                                                )
                                                
                                                
                                                
                                                (14,563
                                                )Financing
      Activities:Maturity
      of First Mortgage Bonds
                                                
                                                
                                                —
                                                
                                                
                                                
                                                
                                                (40,000
                                                )Issuance
      of short-term debt – net
                                                
                                                
                                                47,600
                                                
                                                
                                                
                                                
                                                83,050Changes
      in book overdrafts
                                                
                                                
                                                6,115
                                                
                                                
                                                
                                                
                                                —Issuance
      of common stock
                                                
                                                
                                                2,245
                                                
                                                
                                                
                                                
                                                1,305Dividends
      paid
                                                
                                                
                                                (8,240
                                                )
                                                
                                                
                                                
                                                (7,897
                                                )Employees’
      taxes paid associated with restricted shares withheld upon
      vesting
                                                
                                                
                                                (675
                                                )
                                                
                                                
                                                
                                                —Excess
      tax benefits from stock-based compensation
                                                
                                                
                                                650
                                                
                                                
                                                
                                                
                                                8Other
                                                
                                                
                                                (115
                                                )
                                                
                                                
                                                
                                                —Net
      cash provided by financing activities
                                                
                                                
                                                47,580
                                                
                                                
                                                
                                                
                                                36,466Net
      Increase in Cash and Cash Equivalents
                                                
                                                
                                                15,181
                                                
                                                
                                                
                                                
                                                14,184Cash
      and Cash Equivalents at Beginning of Period
                                                
                                                
                                                14,899
                                                
                                                
                                                
                                                
                                                52,746Cash
      and Cash Equivalents at End of Period
                                                
                                                $
                                                30,080
                                                
                                                
                                                
                                                $
                                                66,930Supplemental
      Disclosure of Cash Paid (Refunded) During the Period for:Interest
                                                
                                                $
                                                11,961
                                                
                                                
                                                
                                                $
                                                15,226Income
      taxes
                                                
                                                
                                                (503
                                                )
                                                
                                                
                                                
                                                5,931See
      Notes to Consolidated Financial Statements.
 
 
  8
 Table of Contents
  
 THE
LACLEDE GROUP, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 1.
                SUMMARY
      OF SIGNIFICANT ACCOUNTING
POLICIES
 
 These
notes are an integral part of the accompanying consolidated financial statements
of The Laclede Group, Inc. (Laclede Group or the Company) and its subsidiaries.
In the opinion of Laclede Group, this interim report includes all adjustments
(consisting of only normal recurring accruals) necessary for the fair
presentation of the results of operations for the periods presented. This Form
10-Q should be read in conjunction with the Notes to Consolidated Financial
Statements contained in the Company’s Fiscal Year 2008 Form
10-K.
 The
consolidated financial position, results of operations, and cash flows of
Laclede Group are comprised primarily from the financial position, results of
operations, and cash flowsof Laclede Gas Company
(Laclede Gas or the Utility). Laclede Gas is a regulated natural gas
distribution utility having a material seasonal cycle. As a result, these
interim statements of income for Laclede Group are not necessarily indicative of
annual results or representative of succeeding quarters of the fiscal year. Due
to the seasonal nature of the business of Laclede Gas, earnings are typically
concentrated in the November through April period, which generally corresponds
with the heating season.
 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 December 31, 2008
and 2007, for the Utility, were $69.0 million and $50.7 million, respectively.
The amount of accrued unbilled revenue at September 30, 2008 was $13.5
million.
 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. Outstanding checks on the
Company’s controlled disbursement bank accounts in excess of funds on deposit
create book overdrafts (which are funded at the time checks are presented for
payment) and are classified as Other Current Liabilities on the Consolidated
Balance Sheets. Changes in book overdrafts between periods are reflected as
Financing Activities in the Statements of Consolidated Cash Flows.
 GROSS RECEIPTS 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 for the quarters ended
December 31, 2008 and 2007 were $14.8 million, and $13.0 million,
respectively. Gross receipts taxes are expensed by the Utility and included in
the Taxes, Other Than Income Taxes line.
 STOCK-BASED COMPENSATION -
Awards of stock-based compensation are made pursuant to The Laclede Group 2006
Equity Incentive Plan and the Restricted Stock Plan for Non-Employee Directors.
Refer to Note 1 of the Consolidated Financial Statements included in the
Company’s Form 10-K for the fiscal year ended September 30, 2008 for
descriptions of these plans.
 
 Restricted
Stock Awards
 
 During
the quarter ended December 31, 2008, the Company awarded 89,850
performance-contingent restricted shares and share units to executive officers
at a weighted average grant fair value of $47.17 per share. This number
represents the maximum shares that can be earned pursuant to the terms of the
awards. The shares and share units were awarded on November 5, 2008
and have a performance period ending September 30, 2011, during which
participants are entitled to receive full dividends and voting rights on the
target level, or 59,900 shares. The number of shares and share units that will
ultimately vest is dependent upon the attainment of certain levels of earnings
growth and portfolio development performance goals; further, under the terms of
the award, the Compensation Committee of the Board of Directors may reduce by up
to 25% the number that vest if the Company’s total shareholder return (TSR)
during the performance period ranks below the median relative to a comparator
group of companies. This TSR provision is considered a market condition under
generally accepted accounting principles.
 On
November 2, 2008, 43,000 shares of performance-contingent restricted
stock, awarded on November 2, 2005, vested. On that date, the Company
withheld 12,615 of these vested shares at an average price of $53.48 per share
pursuant to elections by employees to satisfy tax withholding
obligations.
  9
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  Performance-contingent
restricted stock and performance-contingent restricted stock unit activity for
the quarter ended December 31, 2008 is presented below:
 
 WeightedAverageShares/
                        
                        
                        Grant
      DateUnits
                        
                        
                        Fair
      ValueNonvested
      at September 30, 2008
                        
                        179,100
                        
                        
                        
                        $
                        31.40Granted
                        
                        89,850
                        
                        
                        
                        $
                        47.17Vested
                        
                        (43,000
                        )
                        
                        
                        $
                        30.46Forfeited
                        
                        —
                        
                        
                        
                        $
                        —Nonvested
      at December 31, 2008
                        
                        225,950
                        
                        
                        
                        $
                        37.85
 
 During
the quarter ended December 31, 2008, the Company awarded 27,100 shares
of time-vested restricted stock to executives and key employees at a weighted
average grant date fair value of $50.89 per share. These shares were awarded on
November 5, 2008 and vest November 5, 2011. In the interim,
participants receive full dividends and voting rights.
 Time-vested
restricted stock and time-vested restricted stock unit activity for quarter
ended December 31, 2008 is presented below:
 
 WeightedAverageShares/
                    
                    
                    Grant
      DateUnits
                    
                    
                    Fair
      ValueNonvested
      at September 30, 2008
                    
                    56,850
                    
                    
                    
                    $
                    32.36Granted
                    
                    27,100
                    
                    
                    
                    $
                    50.89Vested
                    
                    —
                    
                    
                    
                    $
                    —Forfeited
                    
                    (800
                    )
                    
                    
                    $
                    42.57Nonvested
      at December 31, 2008
                    
                    83,150
                    
                    
                    
                    $
                    38.30
 
 Stock
Option Awards
 
 Stock
option activity for the quarter ended December 31, 2008 is presented
below:
 
 WeightedAverageWeighted
                  
                  
                  Remaining
                  
                  
                  AggregateAverage
                  
                  
                  Contractual
                  
                  
                  IntrinsicStock
                  
                  
                  Exercise
                  
                  
                  Term
                  
                  
                  ValueOptions
                  
                  
                  Price
                  
                  
                  (Years)
                  
                  
                  ($000)Outstanding
      at September 30, 2008
                  
                  415,850
                  
                  
                  $
                  30.84Granted
                  
                  —
                  
                  
                  $
                  —Exercised
                  
                  (43,625
                  )
                  
                  $
                  31.31Forfeited
                  
                  (1,500
                  )
                  
                  $
                  33.45Expired
                  
                  —
                  
                  
                  $
                  —Outstanding
      at December 31, 2008
                  
                  370,725
                  
                  
                  $
                  30.78
                  
                  
                  6.1
                  
                  
                  $
                  5,955Fully
      Vested and Expected to Vest
                    at
      December 31, 2008
                  
                  365,553
                  
                  
                  $
                  30.74
                  
                  
                  6.1
                  
                  
                  $
                  5,887Exercisable
      at December 31, 2008
                  
                  296,850
                  
                  
                  $
                  30.07
                  
                  
                  5.8
                  
                  
                  $
                  4,978
 
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 The
closing price of the Company’s common stock was $46.84 at
December 31, 2008.
 
 Equity
Compensation Costs
 
 The
amounts of compensation cost recognized for share-based compensation
arrangements for the quarters ended December 31, 2008 and 2007 are
presented below:
 
 Three
      Months EndedDecember
      31,(Thousands)
                          
                          
                          2008
                          
                          
                          2007Total
      compensation cost
                          
                          $
                          842
                          
                          $
                          656Compensation
      cost capitalized
                          
                          
                          (180
                          )
                          
                          (135
                          )Compensation
      cost recognized in net income
                          
                          
                          662
                          
                          
                          521Income
      tax benefit recognized in net income
                          
                          
                          (256
                          )
                          
                          (201
                          )Compensation
      cost recognized in net income, net of income tax
                          
                          $
                          406
                          
                          $
                          320
 
 As
of December 31, 2008, there was $7.3 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
2.6 years.
 NEW ACCOUNTING STANDARDS– In
September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (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.” The Company partially adopted SFAS No. 157 on
October 1, 2008 and elected the one-year deferral allowed by FASB
Staff Position (FSP) No. FAS 157-2, which permits delayed application of SFAS
No. 157 for nonfinancial assets and nonfinancial liabilities, except for those
recognized or disclosed at fair value on a recurring basis. The partial adoption
of SFAS No. 157 had no impact on the Company’s financial position or results of
operations. For disclosures required pursuant to SFAS No. 157, see Note 6, Fair
Value Measurements. The Company will adopt SFAS No. 157 for certain nonfinancial
assets and nonfinancial liabilities (primarily asset retirement obligations) as
of the beginning of fiscal year 2010 and does not anticipate that such adoption
will have a material impact on the Company’s financial position or results of
operations.
 In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans.” 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. 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. The Company will adopt this provision on
September 30, 2009. Adoption will require certain adjustments to
retained earnings and other comprehensive income, the total amounts of which
will not be known until the September 30, 2009 actuarial valuation of
the plans is complete. 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.
  11
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  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). The Company adopted SFAS No. 159 on October 1, 2008. The
Company did not elect the fair value option for any instruments not currently
reported at fair value. Therefore, the adoption of this Statement had 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. With the adoption of this EITF issue on
October 1, 2008, the Company now records these income tax benefits as
increases to additional paid-in capital. Previously, the Company recorded these
income tax benefits as reductions to income tax expense. Adoption of this EITF
issue did not have a material effect on the Company’s financial position or
results of operations.
 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. The Company adopted this Statement
effective November 15, 2008. The adoption of SFAS No. 162 did not have
any 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.
 In
December 2008, the FASB issued FSP No. FAS 132(R)-1, “Employers’ Disclosures
about Postretirement Benefit Plan Assets.” This FSP provides guidance on an
employer’s disclosures about plan assets of a defined benefit pension or other
postretirement plan. The FSP requires disclosure of information regarding
investment policies and strategies, the categories of plan assets, fair value
measurements of plan assets, and significant concentrations of risk. The Company
will be required to provide the additional disclosures with its annual financial
statements for fiscal year 2010. The Company is currently evaluating the
provisions of this FSP.
 
  12
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 2.
              DISCONTINUED
      OPERATIONS
 
 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
previously 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 9, 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 Loss from Discontinued Operations, Net of Income Tax. The Company has
reported in discontinued operations interest expense based on amounts previously
recorded by SM&P. For the quarter ended December 31, 2007,
discontinued operations includes pre-tax interest expense of $0.8 million.
Discontinued operations does not include general corporate overhead expense.
Loss from Discontinued Operations reported in the Statements of Consolidated
Income consists of the following:
 
 Three
      Months EndedDecember
      31,(Thousands)
                          
                          2008
                          
                          2007Operating
      revenues
                          
                          $
                          —
                          
                          $
                          37,362Loss
      from operations
                          
                          
                          —
                          
                          
                          (954
                          )Gain
      on disposal
                          
                          
                          —
                          
                          
                          —Pre-tax
      loss
                          
                          
                          —
                          
                          
                          (954
                          )Income
      tax benefit
                          
                          
                          —
                          
                          
                          (321
                          )Loss
      from Discontinued Operations
                          
                          $
                          —
                          
                          $
                          (633
                          )
 
 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:
 
 Dec.
      31,(Thousands)
                          
                          2007AssetsProperty
      and Investments:Goodwill
                          
                          $
                          33,595Property,
      plant, and equipment – net
                          
                          
                          6,561Other
      investments
                          
                          
                          1,799Total
      Property and Investments
                          
                          
                          41,955Current
      Assets:Accounts
      receivable – net
                          
                          
                          18,133Other
                          
                          
                          1,666Total
      Current Assets
                          
                          
                          19,799Total
      Assets
                          
                          $
                          61,754LiabilitiesCurrent
      Liabilities:Accounts
      payable
                          
                          $
                          4,489Wages
      and compensation accrued
                          
                          
                          4,528Other
                          
                          
                          10,565Total
      Current Liabilities
                          
                          
                          19,582Deferred
      credits and other liabilities
                          
                          
                          3,373Total
      Liabilities
                          
                          $
                          22,955
 
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 3.
              EARNINGS
      PER SHARE
 
 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 are excluded from the calculation of diluted
earnings per share if the effect would be antidilutive. For the quarter ended
December 31, 2008, no shares attributable to antidilutive outstanding
stock options were excluded from the calculation of diluted earnings per share.
For the quarter ended December 31, 2007, 105,500 shares 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 quarters ended December 31, 2008 and 2007, 193,050 and 191,100
shares and share units, respectively, of nonvested performance-contingent
restricted stock were excluded from the calculation of diluted earnings per
share.
 
 Three
      Months EndedDecember
      31,(Thousands,
      Except Per Share Amounts)
                          
                          
                          2008
                          
                          
                          2007Basic
      EPS:Income
      from Continuing Operations
                          
                          $
                          31,306
                          
                          $
                          21,536Weighted
      Average Shares Outstanding
                          
                          
                          21,857
                          
                          
                          21,554Earnings
      Per Share of Common Stock fromContinuing
      Operations
                          
                          $
                          1.43
                          
                          $
                          1.00Diluted
      EPS:Income
      from Continuing Operations
                          
                          $
                          31,306
                          
                          $
                          21,536Weighted
      Average Shares Outstanding
                          
                          
                          21,857
                          
                          
                          21,554Dilutive
      Effect of Stock Optionsand
      Restricted Stock
                          
                          
                          156
                          
                          
                          67Weighted
      Average Diluted Shares
                          
                          
                          22,013
                          
                          
                          21,621Earnings
      Per Share of Common Stock fromContinuing
      Operations
                          
                          $
                          1.42
                          
                          $
                          1.00
 
 
 4.
              PENSION
      PLANS AND OTHER POSTRETIREMENT
BENEFITS
 
 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 for both the quarters ending December 31, 2008 and 2007 were
$1.5 million, including amounts charged to construction.
  14
 Table of Contents
  The
net periodic pension costs include the following components:
 
 Three
      Months EndedDecember
      31,(Thousands)
                        
                        2008
                        
                        2007Service
      cost – benefits earnedduring
      the period
                        
                        $
                        3,485
                        
                        $
                        3,242Interest
      cost on projectedbenefit
      obligation
                        
                        
                        5,268
                        
                        
                        4,670Expected
      return on plan assets
                        
                        
                        (5,235
                        )
                        
                        (5,162
                        )Amortization
      of prior service cost
                        
                        
                        259
                        
                        
                        272Amortization
      of actuarial loss
                        
                        
                        774
                        
                        
                        791Sub-total
                        
                        
                        4,551
                        
                        
                        3,813Regulatory
      adjustment
                        
                        
                        (3,002
                        )
                        
                        (2,280
                        )Net
      pension cost
                        
                        $
                        1,549
                        
                        $
                        1,533
 
 Pursuant
to the provisions of the Laclede Gas pension plans, pension obligations may be
satisfied by lump-sum cash payments. Pursuant to a Missouri Public Service
Commission (MoPSC or Commission) 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 the three months ended
December 31, 2008 and December 31, 2007.
 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 $4.8 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.
 
 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 for both the quarters ended
December 31, 2008 and 2007 were $1.9 million, including amounts
charged to construction.
 Net
periodic postretirement benefit costs consisted of the following
components:
 
 Three
      Months EndedDecember
      31,(Thousands)
                      
                      2008
                      
                      2007Service
      cost – benefits earnedduring
      the period
                      
                      $
                      1,283
                      
                      $
                      1,140Interest
      cost on accumulatedpostretirement
      benefit obligation
                      
                      
                      1,170
                      
                      
                      977Expected
      return on plan assets
                      
                      
                      (594
                      )
                      
                      (510
                      )Amortization
      of transition obligation
                      
                      
                      34
                      
                      
                      34Amortization
      of prior service cost
                      
                      
                      (582
                      )
                      
                      (582
                      )Amortization
      of actuarial loss
                      
                      
                      877
                      
                      
                      746Sub-total
                      
                      
                      2,188
                      
                      
                      1,805Regulatory
      adjustment
                      
                      
                      (278
                      )
                      
                      105Net
      postretirement benefit cost
                      
                      $
                      1,910
                      
                      $
                      1,910
 
  15
 Table of Contents
  
 Missouri
state law provides for the recovery in rates of SFAS No. 106, “Employers’
Accounting for Postretirement Benefits Other Than Pensions,” accrued costs
provided that such costs are funded through an independent, external funding
mechanism. Laclede Gas established Voluntary Employees’ Beneficiary Association
(VEBA) and Rabbi trusts as its external funding mechanisms. VEBA and Rabbi
trusts’ assets consist primarily of money market securities and mutual funds
invested in stocks and bonds.
 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 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. Previously, the recovery in rates for the postretirement benefit
costs was based on an alternative methodology for amortization of unrecognized
gains and losses as ordered by the MoPSC. The Commission ordered that the
recovery in rates be 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.
 
 
 5.
              FINANCIAL
      INSTRUMENTS
 
 In
the course of its business, Laclede Group’s non-regulated gas marketing
affiliate, Laclede Energy Resources, Inc. (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
December 31, 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
December 31, 2008:
 
 Position
      Month
                    
                    MMBtu
                      (millions)
                    
                    Average
                      Price
      per
                      MMBtuSettled
      short positions
                    
                    January
      2009
                    
                    1.49
                    
                    $
                    6.75Settled
      long positions
                    
                    January
      2009
                    
                    0.51
                    
                    
                    6.85Open
      short futures positions
                    
                    February
      2009
                    
                    0.31
                    
                    
                    9.74March
      2009
                    
                    0.27
                    
                    
                    9.69April
      2009
                    
                    1.04
                    
                    
                    8.22May
      2009
                    
                    0.02
                    
                    
                    8.11June
      2009
                    
                    0.39
                    
                    
                    6.62August
      2009
                    
                    0.31
                    
                    
                    7.64November
      2009
                    
                    0.10
                    
                    
                    8.80December
      2009
                    
                    0.44
                    
                    
                    7.71January
      2010
                    
                    0.15
                    
                    
                    8.83February
      2010
                    
                    0.15
                    
                    
                    8.83March
      2010
                    
                    0.10
                    
                    
                    8.80Open
      long futures positions
                    
                    February
      2009
                    
                    0.52
                    
                    
                    7.86March
      2009
                    
                    0.19
                    
                    
                    8.63April
      2009
                    
                    0.41
                    
                    
                    9.22May
      2009
                    
                    0.11
                    
                    
                    10.00
 
  16
 Table of Contents
  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 December 31, 2008, it is expected
that approximately $3.3 million of pre-tax unrealized gains will be reclassified
into the Consolidated Statement of Income during the next twelve months. 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 gains recognized in earnings for the ineffective portion of cash flow
hedges was $2.2 million for the quarter ended December 31, 2008 and
$0.3 million for the quarter ended December 31, 2007. 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.
 
 
 6.
              FAIR
      VALUE MEASUREMENTS
 
 As
discussed in the New Accounting Standards section of Note 1, effective
October 1, 2008, the Company partially adopted the provisions of SFAS
No. 157. This Statement establishes a three-level hierarchy for fair value
measurements that prioritizes the inputs used to measure fair value. Assessment
of the significance of a particular input to the fair value measurements may
require judgment and may affect the valuation of the asset or liability and its
placement within the fair value hierarchy.
 The
following table categorizes the assets and liabilities in the Consolidated
Balance Sheets that are accounted for at fair value on a recurring basis in
periods subsequent to initial recognition.
 
 As
      of December 31, 2008(Thousands)
                  
                  Total
                  
                  Quoted
                    Prices
      in
                    Active
                    Markets
                    (Level
      1)
                  
                  Significant
                    Observable
                    Inputs
                    (Level
      2)
                  
                  Significant
                    Unobservable
                    Inputs
                    (Level
      3)AssetsMarketable
      securities
                  
                  $
                  8,918
                  
                  $
                  8,918
                  
                  $
                  —
                  
                  $
                  —Derivative
      instruments
                  
                  
                  25,381
                  
                  
                  24,997
                  
                  
                  384
                  
                  
                  —Total
                  
                  $
                  34,299
                  
                  $
                  33,915
                  
                  $
                  384
                  
                  $
                  —LiabilitiesDerivative
      instruments
                  
                  $
                  7
                  
                  $
                  —
                  
                  $
                  7
                  
                  $
                  —
 
 Marketable
securities included in Level 1 are mutual funds valued based on quoted market
prices of identical securities that are provided by the trustees of these
securities. Derivative instruments included in Level 1 are valued using quoted
market prices on the New York Mercantile Exchange. Derivative instruments
included in Level 2 are non-exchange traded derivatives and are valued using
broker or dealer quotation services or by using observable market inputs.
Marketable securities are included in the Other investments line of the
Consolidated Balance Sheets. Liabilities for derivative instruments are included
in the Other line of the Current Liabilities section of the Consolidated Balance
Sheets.
 
 
 7.
              OTHER
      INCOME AND (INCOME DEDUCTIONS) –
NET
 
 
 Three
      Months EndedDecember
      31,(Thousands)
                      
                      2008
                      
                      2007Interest
      income
                      
                      $
                      1,139
                      
                      $
                      1,772Other
      income
                      
                      
                      411
                      
                      
                      537Other
      income deductions
                      
                      
                      (811
                      )
                      
                      340Other
      Income and (Income Deductions) – Net
                      
                      $
                      739
                      
                      $
                      2,649
 
  17
 Table of Contents
  
 The
decrease in Other Income and (Income Deductions) – Net for the quarter ended
December 31, 2008, compared with the quarter ended
December 31, 2007, was primarily due to higher investment losses and
lower interest income.
 
 
 8.
              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
Federal Energy Regulatory Commission (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, “Accounting for the Effects of
Certain Types of Regulation.” Those types of transactions include sales of
natural gas from Laclede Gas to LER, sales of natural gas from LER to Laclede
Gas, 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.
 
 Non-Regulated
                
                Regulated
                
                
                
                UnallocatedGas
                
                Gas
                
                
                
                &(Thousands)
                
                Distribution
                
                Marketing
                
                Other
                
                Eliminations
                
                ConsolidatedThree
      Months EndedDecember
      31, 2008Revenues
      from externalcustomers
                
                $
                356,623
                
                $
                305,133
                
                $
                855
                
                $
                —
                
                $
                662,611Intersegment
      revenues
                
                
                1,478
                
                
                9,907
                
                
                260
                
                
                —
                
                
                11,645Total
      Operating Revenues
                
                
                358,101
                
                
                315,040
                
                
                1,115
                
                
                —
                
                
                674,256Income
      from continuingoperations
                
                
                16,148
                
                
                14,701
                
                
                457
                
                
                —
                
                
                31,306Total
      assets of continuingoperations
                
                
                1,712,374
                
                
                195,707
                
                
                114,492
                
                
                (146,927
                )
                
                1,875,646Three
      Months EndedDecember
      31, 2007Revenues
      from externalcustomers
                
                $
                319,674
                
                $
                178,660
                
                $
                1,040
                
                $
                —
                
                $
                499,374Intersegment
      revenues
                
                
                1,218
                
                
                3,138
                
                
                260
                
                
                —
                
                
                4,616Total
      Operating Revenues
                
                
                320,892
                
                
                181,798
                
                
                1,300
                
                
                —
                
                
                503,990Income
      (Loss) from continuingoperations
                
                
                15,747
                
                
                5,654
                
                
                229
                
                
                (94
                )
                
                21,536Total
      assets of continuingoperations
                
                
                1,529,861
                
                
                123,363
                
                
                97,021
                
                
                (64,314
                )
                
                1,685,931
 
  18
 Table of Contents
  
 9.
              COMMITMENTS
      AND CONTINGENCIES
 
 Commitments
 
 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 December 31, 2008 are
estimated at approximately $2.1 billion. Additional contracts are generally
entered into prior to or during the heating season. Laclede Gas recovers its
costs from customers in accordance with the PGA Clause.
 
 Leases
and 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 December 31, 2008, the
maximum guarantees under these leases are $1.8 million. As of
December 31, 2008, the Utility believes that it is unlikely that it
will be subject to the maximum payment amount because it estimates that the
residual value of the leased vehicles will be adequate to satisfy most of the
guaranteed amounts. At December 31, 2008, the carrying value of the
liability recognized for these guarantees was $0.3 million.
 Laclede
Group had guarantees totaling $72 million for performance and payment of certain
wholesale gas supply purchases by LER, as of December 31, 2008. No
amounts have been recorded for these guarantees in the financial statements. As
of December 31, 2008, management believes the probability is low that
Laclede Group will be required to make payments under these
guarantees.
 
 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. See Note
15 to the Consolidated Financial Statements included in the Company’s Fiscal
Year 2008 Form 10-K for information relative to environmental matters
generally. There have been no significant changes relative to environmental
matters in the first quarter of 2009.
 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.
 On
December 31, 2008, the MoPSC Staff proposed a disallowance of $1.5
million related to Laclede Gas’ recovery of its purchased gas costs applicable
to fiscal 2007. Laclede Gas believes that the MoPSC Staff’s position lacks merit
and intends to vigorously oppose the adjustment in proceedings before the
MoPSC.
  19
 Table of Contents
  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 December 31, 2008, the carrying amount
of the liability recognized for these indemnification obligations was $0.2
million, based on the Company’s assessment of risk, which is believed to be
low.
 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.
 
 
 
 
 Laclede
Gas Company’s Financial Statements and Notes to Financial Statements are
included in Exhibit 99.1 to this report.
  20
 Table of Contents
  ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
 THE
LACLEDE GROUP, INC.
 
 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.
 
 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 changes 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.
 
 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.
 
 
 
 
 
  21
 Table of Contents
  
 THE
LACLEDE GROUP, INC.
 
 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.
 
 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 continually to 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. 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.
  22
 Table of Contents
  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. High
natural gas prices and other economic conditions may 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.
 
 Quarter
Ended December 31, 2008
 
 Earnings
 
 Overview
      – Net Income (Loss) by Operating Segment
                    
                    
                    
                    Quarter
      EndedDecember
      31,(Millions,
      after-tax)
                    
                    
                    
                    
                    2008
                    
                    
                    
                    
                    2007Regulated
      Gas Distribution
                    
                    
                    
                    $
                    16.1
                    
                    
                    
                    $
                    15.8Non-Regulated
      Gas Marketing
                    
                    
                    
                    
                    14.7
                    
                    
                    
                    
                    5.6Other
                    
                    
                    
                    
                    0.5
                    
                    
                    
                    
                    0.1Income
      from Continuing Operations
                    
                    
                    
                    
                    31.3
                    
                    
                    
                    
                    21.5Loss
      from Discontinued Operations
                    
                    
                    
                    
                    —
                    
                    
                    
                    
                    (0.6
                    )Net
      Income
                    
                    
                    
                    $
                    31.3
                    
                    
                    
                    $
                    20.9
 
 Laclede
Group’s consolidated net income was $31.3 million for the quarter ended
December 31, 2008, compared with $20.9 million for the quarter ended
December 31, 2007. Basic and diluted earnings per share for the
quarter ended December 31, 2008 were $1.43 and $1.42, respectively,
compared with basic and diluted earnings per share of $0.97 reported for the
same quarter last year. Results for the quarter ended
December 31, 2007 included the effect of SM&P’s seasonal operating
loss, reported as discontinued operations this year as a result of the sale of
SM&P on March 31, 2008. Consolidated earnings per share increased
compared to last year primarily due to strong performance reported by Laclede
Group’s Non-Regulated Gas Marketing segment.
 
 Income
from Continuing Operations
 
 Laclede
Group’s income from continuing operations was $31.3 million for the quarter
ended December 31, 2008, compared with $21.5 million for the quarter
ended December 31, 2007. Basic and diluted earnings per share from
continuing operations were $1.43 and $1.42, respectively, for the quarter ended
December 31, 2008, compared with basic and diluted earnings per share
of $1.00 for the quarter ended December 31, 2007. Earnings results
reported by both Laclede Group’s Non-Regulated Gas Marketing segment and its
Regulated Gas Distribution segment increased over the quarter ended
December 31, 2007. Variations in income from continuing operations
were primarily attributable to the factors described below.
 
 Regulated
Gas Distribution net income increased by $0.3 million for the quarter ended
December 31, 2008, compared with the quarter ended
December 31, 2007. 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 $2.7 million;
  and,•
              higher
      Infrastructure System Replacement Surcharge (ISRS) revenues totaling $0.9
      million.
 
  23
 Table of Contents
  
 These
factors were partially offset by:
 
 •
              an
      increase in investment losses totaling $1.6 million;
  and,•
              increases
      in operation and maintenance expenses totaling $1.4
    million;
 
 The
Non-Regulated Gas Marketing segment reported an increase in earnings of $9.1
million compared with the same period last year. This increase was primarily due
to LER’s increased sales volumes attributable to the contracting for additional
pipeline capacity and higher margins on sales of natural gas due to depressed
supply pricing in the Midwest from increased shale supply
production.
 
 Regulated
Gas Distribution Operating Revenues
 
 Laclede
Gas passes on to Utility customers (subject to prudence review) increases and
decreases in the wholesale cost of natural gas in accordance with its PGA
Clause. The volatility of the wholesale natural gas market results in
fluctuations from period to period in the recorded levels of, among other items,
revenues and natural gas cost expense. Nevertheless, increases and decreases in
the cost of gas associated with system gas sales volumes have no direct effect
on net revenues and net income.
 
 Regulated
Gas Distribution Operating Revenues for the quarter ended
December 31, 2008 were $358.1 million, or $37.2 million more than
the same period last year. Temperatures experienced in the Utility’s service
area during the quarter were 12.6% colder than the same quarter last year and
4.6% colder than normal. Total system therms sold and transported were 0.31
billion for the quarter ended December 31, 2008 compared with 0.27
billion for the same period last year. Total off-system therms sold and
transported were 0.04 billion for the quarter ended December 31, 2008
compared with 0.05 billion for the same period last year. The increase in
Regulated Gas Distribution Operating Revenues was primarily attributable to the
following factors:
 
 (Millions)Higher
      system sales volumes and other variations
                      
                      $
                      37.9Higher
      wholesale gas costs passed on to Utility customers (subject to prudence
      review by the MoPSC)
                      
                      
                      8.3Lower
      off-system sales volumes
                      
                      
                      (7.8
                      )Lower
      prices charged for off-system sales
                      
                      
                      (2.1
                      )Higher
      ISRS revenues
                      
                      
                      0.9Total
      Variation
                      
                      $
                      37.2
 
 Regulated
Gas Distribution Operating Expenses
 
 Regulated
Gas Distribution Operating Expenses for the quarter ended
December 31, 2008 increased $35.5 million from the same quarter last
year. Natural and propane gas expense increased $32.1 million, or 14.4%, from
last year’s level, primarily attributable to increased system volumes purchased
for sendout and higher rates charged by our suppliers, partially offset by lower
off-system gas expense. Other operation and maintenance expenses increased $1.4
million, or 3.3%, primarily due to higher wage rates, increased charges for
outside services, and increased group insurance charges, partially offset by a
decrease in injuries and damages expense. Taxes, other than income taxes,
increased $1.7 million, or 10.1%, primarily due to increased gross receipts
taxes (attributable to the increased revenues).
 
 Non-Regulated
Gas Marketing Operating Revenues and Operating Expenses
 
 Non-Regulated
Gas Marketing Operating Revenues increased $133.2 million primarily due to 86%
higher sales volumes, partially offset by decreased per unit gas sales prices by
LER. The increase in Non-Regulated Gas Marketing Operating Expenses totaling
$118.7 million was primarily associated with increased volumes purchased,
partially offset by lower prices charged by suppliers.
 
 Other
Income and (Income Deductions) - Net
 
 Other
Income and (Income Deductions) – Net decreased $1.9 million primarily due to
higher investment losses and lower interest income.
  24
 Table of Contents
  
 Interest
Charges
 
 The
$0.6 million decrease in interest charges was primarily due to lower interest on
short-term debt, partially offset by an increase in interest on long-term debt,
primarily attributable to the issuance of $80.0 million First Mortgage Bonds on
September 23, 2008. Average short-term interest rates were 3.0% for
the quarter ended December 31, 2008 compared with 5.1% for the quarter
ended December 31, 2007. Average short-term borrowings were $262.6
million for the quarter ended December 31, 2008 compared with $255.2
million for the quarter ended December 31, 2007.
 
 Income
Taxes
 
 The
$5.4 million increase in income taxes was primarily due to higher pre-tax
income.
 
 Loss
from Discontinued Operations
 
 Laclede
Group closed on the sale of 100% of its interest in SM&P on
March 31, 2008. Loss from Discontinued Operations for the quarter
ended December 31, 2007 was $0.6 million, attributable to SM&P’s
seasonal operating loss. Basic and diluted loss per share from discontinued
operations for the quarter ended December 31, 2007 was
$0.03.
 
 
 REGULATORY
MATTERS
 
 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. On January 6, 2009, the
Court issued its judgment affirming the Commission’s order approving the Cold
Weather Rule compliance cost amount that the Utility and Staff had recommended
over Public Counsel’s objection.
 
 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.
 
 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. As a result, the Cold Weather Rule portion of the filing is
now moot. A formal hearing pertaining to the bad debt portion of the filing was
held on January 5, 2009. The matter is currently pending before the
MoPSC.
  25
 Table of Contents
  On
November 21, 2008, the Utility made an ISRS filing with the Commission
designed to increase revenues by $1.9 million annually. The filing is
pending Commission approval.
 
 On
December 31, 2008, the MoPSC Staff proposed a disallowance of $1.5
million related to Laclede Gas’ recovery of its purchased gas costs applicable
to fiscal 2007. Laclede Gas believes that the MoPSC Staff’s position lacks merit
and intends to vigorously oppose the adjustment in proceedings before the
MoPSC.
 
 
 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.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.
 
 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.
 
  26
 Table of Contents
  
 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 Financial Accounting
      Standards Board Interpretation No. (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.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 in the Company’s Form 10-K for the
fiscal year ended September 30, 2008.
 
 
 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.
 
  27
 Table of Contents
  
 FINANCIAL
CONDITION
 
 
 CREDIT
RATINGS
 
 As
of December 31, 2008, credit ratings for outstanding securities for
Laclede Group and Laclede Gas issues were 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, the
seasonality of accounts receivable balances, 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 the three months ended
December 31, 2008 was $17.2 million, compared with $7.7 million for
the same period last year. The difference is primarily attributable to
variations associated with the timing of collections of gas cost under the
Utility’s PGA Clause, including the effects of this year’s increase in net cash
payments for margin deposits associated with the Utility’s use of natural gas
financial instruments.
 
 Net
cash used in investing activities for the three months ended
December 31, 2008 was $15.2 million compared with $14.6 million for
the three months ended December 31, 2007. Cash used in investing
activities primarily reflected capital expenditures in both
periods.
 
 Net
cash provided by financing activities was $47.6 million for the three months
ended December 31, 2008 compared with $36.5 million for the three
months ended December 31, 2007. The increase primarily reflects the
effect of the maturity of long-term debt last year, partially offset by the
reduced issuance of short-term debt this year.
 
 
 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 can be met through
the sale of commercial paper supported by lines of credit with banks or through
direct use of the lines of credit. 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%. This line expires in December 2011. In November 2008, the
Utility established a seasonal line of credit of $75 million, which expires in
March 2009.  Including both lines of credit, the largest portion
provided by a single bank is 26.8%. During the quarter ending December 31, 2008,
Laclede Gas utilized both its line of credit and commercial paper for short-term
funding.  Commercial paper outstanding at December 31, 2008
was $73.5 million, while outstanding bank line advances were $190.0 million. The
weighted average interest rate on these short-term borrowings was 1.8% per annum
at December 31, 2008. Based on total short-term borrowings at
December 31, 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 $2.6 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 $52.6 million
at December 31, 2008. The Utility had short-term borrowings (including
borrowings from Laclede Group) aggregating to a maximum of $386.4 million at any
one time during the quarter. Excluding borrowings from Laclede Group, the
Utility’s maximum borrowings for the quarter were $309.9
million.
  28
 Table of Contents
  
 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 December 31, 2008, total debt was 63% of
total capitalization.For the twelve months ended December 31, 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 56% on
December 31, 2008. These lines have been used to provide for seasonal
funding needs of various subsidiaries from time to time. There were no
borrowings under Laclede Group’s lines during the quarter.
 
 Long-term
Debt
 
 At
December 31, 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.
 
 Equity
and 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 First Mortgage
Bonds, unsecured debt, and preferred stock, 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 $371.5 million remained available under this authorization
as of December 31, 2008. During the quarter ending December 31, 2008,
pursuant to this authority, the Utility sold 1,187 shares of its common stock to
Laclede Group for $40.9 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 an automatic shelf registration on Form S-3 with the SEC that
allows for the issuance of equity securities and debt securities. No securities
have been issued under this registration statement, which expires
November 26, 2011. The amount, timing, and type of financing to be
issued under this shelf registration will depend on cash requirements and market
conditions. In addition, Laclede Group has a registration statement on file on
Form S-3 for the issuance and sale of up to 400,000 shares of its common stock
under its Dividend Reinvestment and Stock Purchase Program. At
December 31, 2008, 399,868 shares remain available for issuance under
this Form S-3.
 
 At
December 31, 2008, Laclede Gas had outstanding preferred stock
totaling $0.6 million, including current maturities. On
January 15, 2009, the Board of Directors of Laclede Gas approved the
final redemption of all of its outstanding 5% Series B and 4.56% Series C
preferred stock on March 31, 2009. The redemption price shall be its
par value of $25 per share, in addition to the dividend payable on
March 31, 2009.
 
 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 December 31, 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
December 31, 2008, the carrying value of the liability recognized for
these guarantees was $0.3 million.
 
 Laclede
Group had guarantees totaling $72 million for performance and payment of certain
wholesale gas supply purchases by LER, as of December 31, 2008. No
amounts have been recorded for these guarantees in the financial
statements.
  29
 Table of Contents
  Other
 
 Utility
capital expenditures were $14.0 million for the three months ended
December 31, 2008, compared with $13.0 million for the same
period last year. Non-utility capital expenditures were $0.3 million for the
three months ended December 31, 2008, compared with $0.4 million for
the three months ended December 31, 2007.
 
 Consolidated
capitalization at December 31, 2008, excluding current obligations of
preferred stock, consisted of 56.6% Laclede Group common stock equity, 0.1%
Laclede Gas preferred stock equity, and 43.3% Laclede Gas long-term
debt.
 
 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.
 
 The
seasonal nature of Laclede Gas’ sales affects the comparison of certain balance
sheet items at December 31, 2008 and at September 30, 2008,
such as Accounts receivable - net, Gas stored underground, Notes payable,
Accounts payable, Regulatory assets and Regulatory liabilities, and Advance
customer billings. The Consolidated Balance Sheet at December 31, 2007
is presented to facilitate comparison of these items with the corresponding
interim period of the preceding fiscal year.
 
 
 CONTRACTUAL
OBLIGATIONS
 
 As
of December 31, 2008, Laclede Group had contractual obligations with
payments due as summarized below (in millions):
 
 Payments
      due by periodRemaining
                              
                              
                              
                              
                              
                              Fiscal
      YearsContractual
      Obligations
                              
                              Total
                              
                              Fiscal
      Year
                                2009
                              
                              Fiscal
      Years
                                2010-2011
                              
                              Fiscal
      Years
                                2012-2013
                              
                              2014
      and
                                thereafterPrincipal
      Payments on Long-Term Debt
                              
                              $
                              390.0
                              
                              $
                              —
                              
                              $
                              25.0
                              
                              $
                              25.0
                              
                              $
                              340.0Interest
      Payments on Long-Term Debt
                              
                              
                              524.2
                              
                              
                              14.7
                              
                              
                              48.4
                              
                              
                              45.1
                              
                              
                              416.0Operating
      Leases (a)
                              
                              
                              16.4
                              
                              
                              3.9
                              
                              
                              7.7
                              
                              
                              3.4
                              
                              
                              1.4Purchase
      Obligations – Natural Gas (b)
                              
                              
                              2,118.6
                              
                              
                              640.1
                              
                              
                              931.1
                              
                              
                              503.3
                              
                              
                              44.1Purchase
      Obligations – Other (c)
                              
                              
                              111.6
                              
                              
                              13.7
                              
                              
                              25.4
                              
                              
                              17.5
                              
                              
                              55.0Total
      (d)
                              
                              $
                              3,160.8
                              
                              $
                              672.4
                              
                              $
                              1,037.6
                              
                              $
                              594.3
                              
                              $
                              856.5
 
 (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 December 31, 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 $2.0 million during the remainder of
      fiscal year 2009. Laclede Gas anticipates a $1.1 million contribution
      relative to its non-qualified pension plans during the remainder of fiscal
      year 2009. With regard to the postretirement benefits, the Company
      anticipates Laclede Gas will contribute $10.0 million to the qualified
      trusts and $0.3 million directly to participants from Laclede Gas’ funds
      during the remainder of fiscal year 2009. For further discussion of
      the Company’s pension and postretirement benefit plans, refer to Note 4,
      Pension Plans and Other Postretirement Benefits, of the Notes to
      Consolidated Financial
Statements.
 
  30
 Table of Contents
  
 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
December 31, 2008, the Utility held 35.7 million MMBtu of futures
contracts at an average price of $8.78 per MMBtu. Additionally, 10.1 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
December 31, 2008, LER’s unmatched positions are not material to
Laclede Group’s financial position or results of operations. For details related
to LER’s exchange-traded futures contracts at December 31, 2008, see
Note 5 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
information relative to environmental matters, see Note 15 to the Consolidated
Financial Statements included in the Company’s Form 10-K for the fiscal year
ended September 30, 2008. There have been no significant changes
relative to environmental matters in the first quarter of fiscal
year 2009.
 
 
 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.
 
  31
 Table of Contents
  Item 3.Quantitative and Qualitative Disclosures About Market
Risk
 
 For
this discussion, see Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Market Risk, on page 31 of this
report.
 
 Item 4.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 first fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
 
 
 
 
  32
 Table of Contents
  PART II. OTHER INFORMATION
 
 Item 1.Legal Proceedings
 
 For
a description of environmental matters and legal proceedings, see Note 15 to the
Consolidated Financial Statements included in the Company’s Form 10-K for the
fiscal year ended September 30, 2008. For a description of pending
regulatory matters of Laclede Gas, see Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Regulatory Matters,
on page 25 of this report.
 
 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 that the final outcome will not have a material adverse effect on the
consolidated financial position or results of operations of the
Company.
 
 Item 2.Unregistered Sales of Equity Securities and Use of
Proceeds
 
 On
November 20, 2008 and December 18, 2008, the Board of
Directors of Laclede Gas approved the sale of 1,161 shares and 26 shares,
respectively, of Laclede Gas common stock to Laclede Group. The proceeds from
the sale, totaling $40.0 million and $0.9 million, respectively, were used
to reduce short-term borrowings. Exemption from registration was claimed under
Section 4(2) of the Securities Act of 1933.
 
 During
the quarter ended December 31, 2008, the only repurchases of our
common stock were pursuant to elections by employees to have shares of stock
withheld to cover employee tax withholding obligations upon the vesting of
performance-based restricted stock on November 2, 2008. The following
table provides information on those repurchases.
 
 Period
                Total
      No. of
                  Shares
      Purchased
                Average
      Price Paid
                  Per
      Share
                Total
      No. of Shares
                  Purchased
      as Part of
                  Publicly
      Announced
                  Plans
                Maximum
      No. of
                  Shares
      that May
                  Yet
      be Purchased
                  Under
      the PlansOctober
      1, 2008 –
                  October
      31, 2008
                -
                -
                -
                -November
      1, 2008 –
                  November
      30, 2008
                12,615
                $53.48
                -
                -December
      1, 2008 –
                  December
      31, 2008
                -
                -
                -
                -Total
                12,615
                
                -
                -
 
 
 Item 6. Exhibits
 
 (a)
              See
      Exhibit Index
 
 
 
 
 
 
 
 
 
  33
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 SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrants have
duly caused this report to be signed on their behalf by the undersigned
thereunto duly authorized.
  The
      Laclede Group, Inc.Dated:
                
                January
      28, 2009
                
                By:
                /s/
      Mark D. WaltermireMark
      D. WaltermireChief
      Financial Officer(Authorized
      Signatory and Chief Financial
Officer)
 
 
 
 
 
 
  34
 Table of Contents
  
 SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrants have
duly caused this report to be signed on their behalf by the undersigned
thereunto duly authorized.
  Laclede
      Gas CompanyDated:
                
                January
      28, 2009
                
                By:
                /s/
      Mark D. WaltermireMark
      D. WaltermireSenior
      Vice President andChief
      Financial Officer(Authorized
      Signatory and Chief Financial
Officer)
 
 
 
 
 
  35
 Table of Contents
  
 
 INDEX TO
EXHIBITS
 
 
 Exhibit
      No.10.1
                -
                Salient
      Features of Laclede Gas Company Deferred Income Plan II for Directors and
      Selected Executives (as amended and restated effective as of
      January 1, 2005).10.2
                -
                Salient
      Features of The Laclede Group, Inc. Deferred Income Plan for Directors and
      Selected Executives (effective as of
      January 1, 2005).10.3
                -
                Laclede
      Gas Company Incentive Compensation Plan (amended and restated effective as
      of January 1, 2005).10.4
                -
                Laclede
      Gas Company Incentive Compensation Plan II (effective as of
      January 1, 2005).10.5
                -
                The
      Laclede Group Management Continuity Protection Plan (effective as of
      January 1, 2005).10.5a
                -
                Form
      of Management Continuity Protection Agreement.10.6
                -
                Restated
      Laclede Gas Company Supplemental Retirement Benefit Plan (as amended and
      restated as of January 1, 2005).10.7
                -
                Laclede
      Gas Company Supplemental Retirement Benefit Plan II (effective as of
      January 1, 2005).10.8
                -
                Form
      of Restricted Stock Award Agreement.10.9
                -
                Form
      of Performance Contingent Restricted Stock Award
  Agreement.12
                -
                Ratio
      of Earnings to Fixed Charges.31
                -
                CEO
      and CFO Certifications under Exchange Act Rule 13a –
  14(a).32
                -
                CEO
      and CFO Section 1350 Certifications.99.1
                -
                Laclede
      Gas Company - Financial Statements, Notes to Financial Statements, and
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations.
 
 
 
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