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 March 31,
2009


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
              [    
      ]





has
submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).





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





Table of Contents








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
              April 29,
      2009The Laclede Group,
      Inc.:
              Common
      Stock ($1.00 Par Value)
              22,147,631Laclede Gas
      Company:
              Common
      Stock ($1.00 Par Value)
              11,614  *


*
100% owned by The Laclede Group, Inc.





2
 Table of Contents








TABLE OF CONTENTS
                      Page
      No.PART
      1. FINANCIAL INFORMATIONItem 1
                      Financial StatementsThe
      Laclede Group, Inc.:Statements of Consolidated
    Income
                      5Statements of Consolidated Comprehensive
      Income
                      6Consolidated Balance Sheets
                      7-8Statements of Consolidated Cash Flows
                      9Notes to Consolidated Financial
    Statements
                      10-25Laclede
      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. 6-15Item 2
                      Management’s Discussion and Analysis of Financial Condition
      andResults of Operations (The Laclede Group,
      Inc.)
                      26-38Management’s
      Discussion and Analysis of Financial Condition andResults
      of Operations (Laclede Gas Company)
                      Ex.
      99.1, p. 16-26Item 3
                      Quantitative and Qualitative Disclosures About Market
      Risk
                      39Item 4
                      Controls and Procedures
                      39PART II.  OTHER INFORMATIONItem 1
                      Legal Proceedings
                      40Item 2
                      Unregistered Sales of Equity Securities and Use of
      Proceeds
                      40Item 4
                      Submission of Matters to a Vote of Security
      Holders
                      40Item 5
                      Other Information
                      40Item 6
                      Exhibits
                      40SIGNATURES – The Laclede Group,
Inc.
                      41SIGNATURES – Laclede Gas Company
                      42INDEX TO EXHIBITS
                      43








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).











3
 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.











4
 Table of Contents


Item 1. Financial Statements


THE LACLEDE GROUP, INC.STATEMENTS
      OF CONSOLIDATED INCOME(UNAUDITED)




Three
      Months Ended
              
              
              
              Six
      Months EndedMarch
      31,
              
              
              
              March
      31,(Thousands,
      Except Per Share Amounts)
              
              
              2009
              
              
              2008
              
              
              
              
              2009
              
              
              2008Operating
      Revenues:Regulated
      Gas Distribution
              
              $
              440,468
              
              $
              507,089
              
              
              
              $
              798,569
              
              $
              827,981Non-Regulated
      Gas Marketing
              
              
              217,589
              
              
              239,387
              
              
              
              
              532,629
              
              
              421,185Other
              
              
              1,011
              
              
              1,230
              
              
              
              
              2,126
              
              
              2,530Total
      Operating Revenues
              
              
              659,068
              
              
              747,706
              
              
              
              
              1,333,324
              
              
              1,251,696Operating
      Expenses:Regulated
      Gas DistributionNatural
      and propane gas
              
              
              313,506
              
              
              377,526
              
              
              
              
              568,403
              
              
              600,367Other
      operation expenses
              
              
              40,251
              
              
              38,989
              
              
              
              
              76,552
              
              
              74,202Maintenance
              
              
              7,261
              
              
              5,814
              
              
              
              
              13,795
              
              
              12,049Depreciation
      and amortization
              
              
              9,180
              
              
              8,763
              
              
              
              
              18,299
              
              
              17,476Taxes,
      other than income taxes
              
              
              28,216
              
              
              29,255
              
              
              
              
              46,574
              
              
              45,936Total
      Regulated Gas Distribution Operating Expenses
              
              
              398,414
              
              
              460,347
              
              
              
              
              723,623
              
              
              750,030Non-Regulated
      Gas Marketing
              
              
              204,487
              
              
              234,021
              
              
              
              
              496,088
              
              
              406,893Other
              
              
              927
              
              
              1,455
              
              
              
              
              1,685
              
              
              2,713Total
      Operating Expenses
              
              
              603,828
              
              
              695,823
              
              
              
              
              1,221,396
              
              
              1,159,636Operating
      Income
              
              
              55,240
              
              
              51,883
              
              
              
              
              111,928
              
              
              92,060Other
      Income and (Income Deductions) – Net
              
              
              247
              
              
              1,076
              
              
              
              
              986
              
              
              3,725Interest
      Charges:Interest
      on long-term debt
              
              
              6,145
              
              
              4,875
              
              
              
              
              12,291
              
              
              10,001Interest
      on long-term debt to unconsolidated affiliate trust
              
              
              —
              
              
              70
              
              
              
              
              —
              
              
              139Other
      interest charges
              
              
              1,168
              
              
              2,056
              
              
              
              
              3,814
              
              
              6,219Total
      Interest Charges
              
              
              7,313
              
              
              7,001
              
              
              
              
              16,105
              
              
              16,359Income
      from Continuing Operations Before Income Taxesand
      Dividends on Laclede Gas Redeemable Preferred Stock
              
              
              48,174
              
              
              45,958
              
              
              
              
              96,809
              
              
              79,426Income
      Tax Expense
              
              
              17,356
              
              
              15,889
              
              
              
              
              34,677
              
              
              27,811Dividends
      on Laclede Gas Redeemable Preferred Stock
              
              
              7
              
              
              9
              
              
              
              
              15
              
              
              19Income
      from Continuing Operations
              
              
              30,811
              
              
              30,060
              
              
              
              
              62,117
              
              
              51,596Income
      from Discontinued Operations, Netof
      Income Tax (Note 2)
              
              
              —
              
              
              21,294
              
              
              
              
              —
              
              
              20,661Net
      Income
              
              $
              30,811
              
              $
              51,354
              
              
              
              $
              62,117
              
              $
              72,257Average
      Number of Common Shares Outstanding:Basic
              
              
              21,891
              
              
              21,589
              
              
              
              
              21,874
              
              
              21,571Diluted
              
              
              22,017
              
              
              21,685
              
              
              
              
              22,015
              
              
              21,653Basic
      Earnings Per Share of Common Stock:Income
      from Continuing Operations
              
              $
              1.41
              
              $
              1.39
              
              
              
              $
              2.84
              
              $
              2.39Income
      from Discontinued Operations
              
              
              —
              
              
              0.99
              
              
              
              
              —
              
              
              0.96Net
      Income
              
              $
              1.41
              
              $
              2.38
              
              
              
              $
              2.84
              
              $
              3.35Diluted
      Earnings Per Share of Common Stock:Income
      from Continuing Operations
              
              $
              1.40
              
              $
              1.39
              
              
              
              $
              2.82
              
              $
              2.38Income
      from Discontinued Operations
              
              
              —
              
              
              0.98
              
              
              
              
              —
              
              
              0.96Net
      Income
              
              $
              1.40
              
              $
              2.37
              
              
              
              $
              2.82
              
              $
              3.34Dividends
      Declared Per Share of Common Stock
              
              $
              0.385
              
              $
              0.375
              
              
              
              $
              0.770
              
              $
              0.750See
      Notes to Consolidated Financial
      Statements.


5
 Table of Contents





THE LACLEDE GROUP, INC.


STATEMENTS
OF CONSOLIDATED COMPREHENSIVE INCOME


(UNAUDITED)





Three
      Months Ended
                                  
                                  
                                  
                                  Six
      Months EndedMarch
      31,
                                  
                                  
                                  
                                  March
      31,(Thousands)
                                  
                                  
                                  2009
                                  
                                  
                                  2008
                                  
                                  
                                  
                                  
                                  2009
                                  
                                  
                                  2008Net
      Income
                                  
                                  $
                                  30,811
                                  
                                  $
                                  51,354
                                  
                                  
                                  
                                  $
                                  62,117
                                  
                                  $
                                  72,257Other
      Comprehensive Income (Loss), Before Tax:Net
      gains (losses) on cash flow hedging derivative
instruments:Net
      hedging gain (loss) arising during period
                                  
                                  
                                  5,002
                                  
                                  
                                  (6,022
                                  )
                                  
                                  
                                  
                                  7,041
                                  
                                  
                                  (5,878
                                  )Reclassification
      adjustment for gains included in net income
                                  
                                  
                                  (2,295
                                  )
                                  
                                  (1,706
                                  )
                                  
                                  
                                  
                                  (10,567
                                  )
                                  
                                  (4,440
                                  )Net
      unrealized gains (losses) on cash flow hedgingderivative
      instruments
                                  
                                  
                                  2,707
                                  
                                  
                                  (7,728
                                  )
                                  
                                  
                                  
                                  (3,526
                                  )
                                  
                                  (10,318
                                  )Amortization
      of actuarial loss included in net periodicpension
      and postretirement benefit cost
                                  
                                  
                                  50
                                  
                                  
                                  43
                                  
                                  
                                  
                                  
                                  100
                                  
                                  
                                  86Other
      Comprehensive Income (Loss), Before Tax
                                  
                                  
                                  2,757
                                  
                                  
                                  (7,685
                                  )
                                  
                                  
                                  
                                  (3,426
                                  )
                                  
                                  (10,232
                                  )Income
      Tax Expense (Benefit) Related to Items of OtherComprehensive
      Income (Loss)
                                  
                                  
                                  1,063
                                  
                                  
                                  (2,969
                                  )
                                  
                                  
                                  
                                  (1,317
                                  )
                                  
                                  (3,953
                                  )Other
      Comprehensive Income (Loss), Net of Tax
                                  
                                  
                                  1,694
                                  
                                  
                                  (4,716
                                  )
                                  
                                  
                                  
                                  (2,109
                                  )
                                  
                                  (6,279
                                  )Comprehensive
      Income
                                  
                                  $
                                  32,505
                                  
                                  $
                                  46,638
                                  
                                  
                                  
                                  $
                                  60,008
                                  
                                  $
                                  65,978See
      Notes to Consolidated Financial
      Statements.






































6
 Table of Contents


THE LACLEDE GROUP, INC.


CONSOLIDATED
BALANCE SHEETS


(UNAUDITED)





March
      31,
                                                
                                                
                                                
                                                Sept.
      30,
                                                
                                                
                                                
                                                March
      31,(Thousands)
                                                
                                                2009
                                                
                                                
                                                
                                                2008
                                                
                                                
                                                
                                                2008ASSETSUtility
      Plant
                                                
                                                $
                                                1,247,921
                                                
                                                
                                                
                                                $
                                                1,229,174
                                                
                                                
                                                
                                                $
                                                1,204,984Less:  Accumulated
      depreciation and amortization
                                                
                                                
                                                414,956
                                                
                                                
                                                
                                                
                                                405,977
                                                
                                                
                                                
                                                
                                                398,661Net
      Utility Plant
                                                
                                                
                                                832,965
                                                
                                                
                                                
                                                
                                                823,197
                                                
                                                
                                                
                                                
                                                806,323Non-utility
      property
                                                
                                                
                                                4,591
                                                
                                                
                                                
                                                
                                                3,793
                                                
                                                
                                                
                                                
                                                4,026Other
      investments
                                                
                                                
                                                43,805
                                                
                                                
                                                
                                                
                                                43,314
                                                
                                                
                                                
                                                
                                                44,664Other
      Property and Investments
                                                
                                                
                                                48,396
                                                
                                                
                                                
                                                
                                                47,107
                                                
                                                
                                                
                                                
                                                48,690Current
      Assets:Cash
      and cash equivalents
                                                
                                                
                                                93,602
                                                
                                                
                                                
                                                
                                                14,899
                                                
                                                
                                                
                                                
                                                145,510Accounts
      receivable:Utility
                                                
                                                
                                                166,854
                                                
                                                
                                                
                                                
                                                98,708
                                                
                                                
                                                
                                                
                                                218,674Non-utility
                                                
                                                
                                                64,505
                                                
                                                
                                                
                                                
                                                102,389
                                                
                                                
                                                
                                                
                                                97,548Other
                                                
                                                
                                                5,090
                                                
                                                
                                                
                                                
                                                10,486
                                                
                                                
                                                
                                                
                                                5,513Allowances
      for doubtful accounts
                                                
                                                
                                                (12,666
                                                )
                                                
                                                
                                                
                                                (12,624
                                                )
                                                
                                                
                                                
                                                (13,749
                                                )Delayed
      customer billings
                                                
                                                
                                                35,213
                                                
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                
                                                40,417Inventories:Natural
      gas stored underground at LIFO cost
                                                
                                                
                                                69,940
                                                
                                                
                                                
                                                
                                                206,267
                                                
                                                
                                                
                                                
                                                31,749Propane
      gas at FIFO cost
                                                
                                                
                                                19,861
                                                
                                                
                                                
                                                
                                                19,911
                                                
                                                
                                                
                                                
                                                19,904Materials,
      supplies, and merchandise at average cost
                                                
                                                
                                                5,501
                                                
                                                
                                                
                                                
                                                5,301
                                                
                                                
                                                
                                                
                                                5,409Derivative
      instrument assets
                                                
                                                
                                                30,652
                                                
                                                
                                                
                                                
                                                57,210
                                                
                                                
                                                
                                                
                                                15,133Unamortized
      purchased gas adjustments
                                                
                                                
                                                8,891
                                                
                                                
                                                
                                                
                                                33,411
                                                
                                                
                                                
                                                
                                                4,365Deferred
      income taxes
                                                
                                                
                                                —
                                                
                                                
                                                
                                                
                                                —
                                                
                                                
                                                
                                                
                                                3,029Prepayments
      and other
                                                
                                                
                                                14,535
                                                
                                                
                                                
                                                
                                                25,950
                                                
                                                
                                                
                                                
                                                5,488Total
      Current Assets
                                                
                                                
                                                501,978
                                                
                                                
                                                
                                                
                                                561,908
                                                
                                                
                                                
                                                
                                                578,990Deferred
      Charges:Regulatory
      assets
                                                
                                                
                                                395,869
                                                
                                                
                                                
                                                
                                                334,755
                                                
                                                
                                                
                                                
                                                265,495Other
                                                
                                                
                                                5,748
                                                
                                                
                                                
                                                
                                                5,688
                                                
                                                
                                                
                                                
                                                6,366Total
      Deferred Charges
                                                
                                                
                                                401,617
                                                
                                                
                                                
                                                
                                                340,443
                                                
                                                
                                                
                                                
                                                271,861Total
      Assets
                                                
                                                $
                                                1,784,956
                                                
                                                
                                                
                                                $
                                                1,772,655
                                                
                                                
                                                
                                                $
                                                1,705,864














7
 Table of Contents








THE
LACLEDE GROUP, INC.


CONSOLIDATED
BALANCE SHEETS (Continued)


(UNAUDITED)





March
      31,
                                                        
                                                        
                                                        
                                                        Sept.
      30,
                                                        
                                                        
                                                        
                                                        March
      31,(Thousands,
      except share amounts)
                                                        
                                                        2009
                                                        
                                                        
                                                        
                                                        2008
                                                        
                                                        
                                                        
                                                        2008CAPITALIZATION
      AND LIABILITIESCapitalization:Common
      stock (70,000,000 shares authorized, 22,138,864,
                                                          21,993,473,
      and 21,810,222 shares issued, respectively)
                                                        
                                                        $
                                                        22,139
                                                        
                                                        
                                                        
                                                        $
                                                        21,993
                                                        
                                                        
                                                        
                                                        $
                                                        21,810Paid-in
      capital
                                                        
                                                        
                                                        151,327
                                                        
                                                        
                                                        
                                                        
                                                        147,241
                                                        
                                                        
                                                        
                                                        
                                                        139,763Retained
      earnings
                                                        
                                                        
                                                        357,887
                                                        
                                                        
                                                        
                                                        
                                                        312,808
                                                        
                                                        
                                                        
                                                        
                                                        323,581Accumulated
      other comprehensive income (loss)
                                                        
                                                        
                                                        2,328
                                                        
                                                        
                                                        
                                                        
                                                        4,437
                                                        
                                                        
                                                        
                                                        
                                                        (4,422
                                                        )Total
      Common Stock Equity
                                                        
                                                        
                                                        533,681
                                                        
                                                        
                                                        
                                                        
                                                        486,479
                                                        
                                                        
                                                        
                                                        
                                                        480,732Laclede
      Gas redeemable preferred stock
                                                          (less
      current sinking fund requirements)
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        
                                                        467
                                                        
                                                        
                                                        
                                                        
                                                        467Long-term
      debt to unconsolidated affiliate trust
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        
                                                        46,400Long-term
      debt – Laclede Gas
                                                        
                                                        
                                                        389,211
                                                        
                                                        
                                                        
                                                        
                                                        389,181
                                                        
                                                        
                                                        
                                                        
                                                        309,152Total
      Capitalization
                                                        
                                                        
                                                        922,892
                                                        
                                                        
                                                        
                                                        
                                                        876,127
                                                        
                                                        
                                                        
                                                        
                                                        836,751Current
      Liabilities:Notes
      payable
                                                        
                                                        
                                                        238,800
                                                        
                                                        
                                                        
                                                        
                                                        215,900
                                                        
                                                        
                                                        
                                                        
                                                        171,650Accounts
      payable
                                                        
                                                        
                                                        100,416
                                                        
                                                        
                                                        
                                                        
                                                        159,580
                                                        
                                                        
                                                        
                                                        
                                                        186,944Advance
      customer billings
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        
                                                        25,548
                                                        
                                                        
                                                        
                                                        
                                                        —Current
      portion of preferred stock
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        
                                                        160
                                                        
                                                        
                                                        
                                                        
                                                        160Wages
      and compensation accrued
                                                        
                                                        
                                                        12,304
                                                        
                                                        
                                                        
                                                        
                                                        12,197
                                                        
                                                        
                                                        
                                                        
                                                        11,880Dividends
      payable
                                                        
                                                        
                                                        8,675
                                                        
                                                        
                                                        
                                                        
                                                        8,400
                                                        
                                                        
                                                        
                                                        
                                                        8,303Customer
      deposits
                                                        
                                                        
                                                        13,045
                                                        
                                                        
                                                        
                                                        
                                                        14,020
                                                        
                                                        
                                                        
                                                        
                                                        13,960Interest
      accrued
                                                        
                                                        
                                                        10,333
                                                        
                                                        
                                                        
                                                        
                                                        10,094
                                                        
                                                        
                                                        
                                                        
                                                        10,185Taxes
      accrued
                                                        
                                                        
                                                        34,078
                                                        
                                                        
                                                        
                                                        
                                                        11,387
                                                        
                                                        
                                                        
                                                        
                                                        39,921Deferred
      income taxes current
                                                        
                                                        
                                                        1,959
                                                        
                                                        
                                                        
                                                        
                                                        11,669
                                                        
                                                        
                                                        
                                                        
                                                        —Other
                                                        
                                                        
                                                        9,616
                                                        
                                                        
                                                        
                                                        
                                                        10,249
                                                        
                                                        
                                                        
                                                        
                                                        7,419Total
      Current Liabilities
                                                        
                                                        
                                                        429,226
                                                        
                                                        
                                                        
                                                        
                                                        479,204
                                                        
                                                        
                                                        
                                                        
                                                        450,422Deferred
      Credits and Other Liabilities:Deferred
      income taxes
                                                        
                                                        
                                                        232,446
                                                        
                                                        
                                                        
                                                        
                                                        222,761
                                                        
                                                        
                                                        
                                                        
                                                        232,531Unamortized
      investment tax credits
                                                        
                                                        
                                                        3,863
                                                        
                                                        
                                                        
                                                        
                                                        3,973
                                                        
                                                        
                                                        
                                                        
                                                        4,086Pension
      and postretirement benefit costs
                                                        
                                                        
                                                        103,226
                                                        
                                                        
                                                        
                                                        
                                                        98,513
                                                        
                                                        
                                                        
                                                        
                                                        67,515Asset
      retirement obligations
                                                        
                                                        
                                                        27,638
                                                        
                                                        
                                                        
                                                        
                                                        26,833
                                                        
                                                        
                                                        
                                                        
                                                        26,908Regulatory
      liabilities
                                                        
                                                        
                                                        42,506
                                                        
                                                        
                                                        
                                                        
                                                        42,191
                                                        
                                                        
                                                        
                                                        
                                                        64,027Other
                                                        
                                                        
                                                        23,159
                                                        
                                                        
                                                        
                                                        
                                                        23,053
                                                        
                                                        
                                                        
                                                        
                                                        23,624Total
      Deferred Credits and Other Liabilities
                                                        
                                                        
                                                        432,838
                                                        
                                                        
                                                        
                                                        
                                                        417,324
                                                        
                                                        
                                                        
                                                        
                                                        418,691Total
      Capitalization and Liabilities
                                                        
                                                        $
                                                        1,784,956
                                                        
                                                        
                                                        
                                                        $
                                                        1,772,655
                                                        
                                                        
                                                        
                                                        $
                                                        1,705,864See
      Notes to Consolidated Financial
      Statements.





8
 Table of Contents





THE LACLEDE GROUP, INC.


STATEMENTS
OF CONSOLIDATED CASH FLOWS


(UNAUDITED)




Six
      Months EndedMarch
      31,(Thousands)
                                        
                                        2009
                                        
                                        
                                        
                                        2008Operating
      Activities:Net
      Income
                                        
                                        $
                                        62,117
                                        
                                        
                                        
                                        $
                                        72,257Adjustments
      to reconcile net income to net cash provided by (used in)
                                          operating
      activities:Gain
      on sale of discontinued operations
                                        
                                        
                                        —
                                        
                                        
                                        
                                        
                                        (44,491
                                        )Depreciation,
      amortization, and accretion
                                        
                                        
                                        18,446
                                        
                                        
                                        
                                        
                                        18,931Deferred
      income taxes and investment tax credits
                                        
                                        
                                        (3,819
                                        )
                                        
                                        
                                        
                                        (2,696
                                        )Other
      – net
                                        
                                        
                                        3,412
                                        
                                        
                                        
                                        
                                        1,410Changes
      in assets and liabilities:Accounts
      receivable – net
                                        
                                        
                                        (24,824
                                        )
                                        
                                        
                                        
                                        (159,133
                                        )Unamortized
      purchased gas adjustments
                                        
                                        
                                        24,520
                                        
                                        
                                        
                                        
                                        8,448Deferred
      purchased gas costs
                                        
                                        
                                        (54,990
                                        )
                                        
                                        
                                        
                                        53,094Accounts
      payable
                                        
                                        
                                        (57,281
                                        )
                                        
                                        
                                        
                                        87,835Delayed
      customer billings - net
                                        
                                        
                                        (60,761
                                        )
                                        
                                        
                                        
                                        (65,857
                                        )Taxes
      accrued
                                        
                                        
                                        22,683
                                        
                                        
                                        
                                        
                                        18,999Natural
      gas stored underground
                                        
                                        
                                        136,327
                                        
                                        
                                        
                                        
                                        106,507Other
      assets and liabilities
                                        
                                        
                                        32,951
                                        
                                        
                                        
                                        
                                        35,467Net
      cash provided by operating activities
                                        
                                        
                                        98,781
                                        
                                        
                                        
                                        
                                        130,771Investing
      Activities:Proceeds
      from sale of discontinued operations
                                        
                                        
                                        —
                                        
                                        
                                        
                                        
                                        83,229Capital
      expenditures
                                        
                                        
                                        (26,597
                                        )
                                        
                                        
                                        
                                        (27,744
                                        )Other
      investments
                                        
                                        
                                        (1,446
                                        )
                                        
                                        
                                        
                                        26Net
      cash (used in) provided by investing activities
                                        
                                        
                                        (28,043
                                        )
                                        
                                        
                                        
                                        55,511Financing
      Activities:Maturity
      of First Mortgage Bonds
                                        
                                        
                                        —
                                        
                                        
                                        
                                        
                                        (40,000
                                        )Issuance
      (repayment) of short-term debt – net
                                        
                                        
                                        22,900
                                        
                                        
                                        
                                        
                                        (39,750
                                        )Changes
      in book overdrafts
                                        
                                        
                                        419
                                        
                                        
                                        
                                        
                                        —Issuance
      of common stock
                                        
                                        
                                        2,705
                                        
                                        
                                        
                                        
                                        2,860Non-employee
      directors’ restricted stock awards
                                        
                                        
                                        (570
                                        )
                                        
                                        
                                        
                                        (421
                                        )Dividends
      paid
                                        
                                        
                                        (16,757
                                        )
                                        
                                        
                                        
                                        (16,064
                                        )Preferred
      stock reacquired
                                        
                                        
                                        (627
                                        )
                                        
                                        
                                        
                                        (160
                                        )Employees’
      taxes paid associated with restricted shares withheld upon
      vesting
                                        
                                        
                                        (675
                                        )
                                        
                                        
                                        
                                        —Excess
      tax benefits from stock-based compensation
                                        
                                        
                                        686
                                        
                                        
                                        
                                        
                                        17Other
                                        
                                        
                                        (116
                                        )
                                        
                                        
                                        
                                        —Net
      cash provided by (used in) financing activities
                                        
                                        
                                        7,965
                                        
                                        
                                        
                                        
                                        (93,518
                                        )Net
      Increase in Cash and Cash Equivalents
                                        
                                        
                                        78,703
                                        
                                        
                                        
                                        
                                        92,764Cash
      and Cash Equivalents at Beginning of Period
                                        
                                        
                                        14,899
                                        
                                        
                                        
                                        
                                        52,746Cash
      and Cash Equivalents at End of Period
                                        
                                        $
                                        93,602
                                        
                                        
                                        
                                        $
                                        145,510Supplemental
      Disclosure of Cash Paid During the Period for:Interest
                                        
                                        $
                                        15,768
                                        
                                        
                                        
                                        $
                                        19,662Income
      taxes
                                        
                                        
                                        9,254
                                        
                                        
                                        
                                        
                                        22,501See
      Notes to Consolidated Financial
      Statements.








9
 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 March 31, 2009 and
2008, for the Utility, were $26.2 million and $31.9 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 Utility
Operating Revenues for the quarters ended March 31, 2009 and 2008 were
$23.8 million, and $25.2 million, respectively. Amounts recorded in
Regulated Gas Distribution Operating Revenues for the six months ended
March 31, 2009 and 2008 were $38.6 million and $38.2 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. In January 2009, shareholders approved an amendment to the
Restricted Stock Plan for Non-Employee Directors (Plan), increasing the number
of shares of common stock available under the Plan to 150,000 from
50,000.





Restricted
Stock Awards





During
the six months ended March 31, 2009, 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.


10
 Table of Contents


Performance-contingent
restricted stock and performance-contingent restricted stock unit activity for
the six months ended March 31, 2009 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 March 31, 2009
                        
                        225,950
                        
                        
                        
                        $
                        37.85





During
the six months ended March 31, 2009, 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. On
March 31, 2009, the Company also awarded 800 shares of time-vested
restricted stock to key employees at a weighted average grant date fair value of
$38.98 per share. These shares vest April 1, 2012. In the interim,
participants receive full dividends and voting rights.


During
the six months ended March 31, 2009, the Company awarded 12,500 shares
of time-vested restricted stock to non-employee directors at a weighted average
grant date fair value of $46.52 per share. These shares vest depending on the
participant’s age upon entering the plan and years of service as a director. The
plan’s trustee acquires the shares for the awards in the open market and holds
the shares as trustee for the benefit of the non-employee directors until the
restrictions expire. In the interim, the participants receive full dividends and
voting rights.


Time-vested
restricted stock and time-vested restricted stock unit activity for the six
months ended March 31, 2009 is presented below:





WeightedAverageShares/
                            
                            
                            Grant
      DateUnits
                            
                            
                            Fair
      ValueNonvested
      at September 30, 2008
                            
                            56,850
                            
                            
                            
                            $
                            32.36Granted
                            
                            40,400
                            
                            
                            
                            $
                            49.30Vested
                            
                            (5,400
                            )
                            
                            
                            $
                            42.36Forfeited
                            
                            (800
                            )
                            
                            
                            $
                            42.57Nonvested
      at March 31, 2009
                            
                            91,050
                            
                            
                            
                            $
                            39.20





11
 Table of Contents





Stock
Option Awards





Stock
option activity for the six months ended March 31, 2009 is presented
below:





WeightedAverageWeighted
                
                
                Remaining
                
                
                AggregateAverage
                
                
                Contractual
                
                
                IntrinsicStock
                
                
                Exercise
                
                
                Term
                
                
                ValueOptions
                
                
                Price
                
                
                (Years)
                
                
                ($000)Outstanding
      at September 30, 2008
                
                415,850
                
                
                $
                30.84Granted
                
                —
                
                
                $
                —Exercised
                
                (45,625
                )
                
                $
                31.36Forfeited
                
                (3,000
                )
                
                $
                33.45Expired
                
                (2,500
                )
                
                $
                32.26Outstanding
      at March 31, 2009
                
                364,725
                
                
                $
                30.75
                
                
                5.8
                
                
                $
                3,003Fully
      Vested and Expected to Vest
                  at
      March 31, 2009
                
                359,658
                
                
                $
                30.71
                
                
                5.8
                
                
                $
                2,976Exercisable
      at March 31, 2009
                
                292,350
                
                
                $
                30.04
                
                
                5.5
                
                
                $
                2,614





The
closing price of the Company’s common stock was $38.98 at
March 31, 2009.





Equity
Compensation Costs





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





Three
      Months Ended
                                
                                Six
      Months EndedMarch
      31,
                                
                                March
      31,(Thousands)
                                
                                2009
                                
                                2008
                                
                                2009
                                
                                2008Total
      compensation cost
                                
                                $
                                1,257
                                
                                $
                                766
                                
                                $
                                2,099
                                
                                $
                                1,422Compensation
      cost capitalized
                                
                                
                                (253
                                )
                                
                                (163
                                )
                                
                                (433
                                )
                                
                                (298
                                )Compensation
      cost recognized in net income
                                
                                
                                1,004
                                
                                
                                603
                                
                                
                                1,666
                                
                                
                                1,124Income
      tax benefit recognized in net income
                                
                                
                                (386
                                )
                                
                                (233
                                )
                                
                                (642
                                )
                                
                                (434
                                )Compensation
      cost recognized in net income,net
      of income tax
                                
                                $
                                618
                                
                                $
                                370
                                
                                $
                                1,024
                                
                                $
                                690





As
of March 31, 2009, there was $7.2 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
2.5 years.


12
 Table of Contents


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 5, 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.


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,
“Accounting for Derivative Instruments and Hedging Activities,” 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 SFAS No. 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 is effective for
the Company’s interim and annual financial statements beginning with the second
quarter of fiscal year 2009. The adoption of this standard had no effect on
the Company’s financial position or results of operations. For disclosures
required pursuant to SFAS No. 161, see Note 6, Derivative
Instruments and Hedging Activities.


13
 Table of Contents


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.


In
April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures
about Fair Value of Financial Instruments.” This FSP requires entities to
provide disclosure of the fair value of all financial instruments for which it
is practicable to estimate that value, whether recognized or not recognized in
the balance sheet, in interim reporting periods. Prior to the issuance of this
FSP, such disclosures were required only in annual reporting periods. The FSP
does not require disclosures for earlier periods presented for comparative
purposes at initial adoption. Laclede Group will provide the required
disclosures beginning with the third quarter of fiscal year 2009, as required by
the FSP.








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 10, Commitments and Contingencies.


In
accordance with generally accepted accounting principles, the operating results
of SM&P have been aggregated and reported on the Statements of Consolidated
Income as Income from Discontinued Operations, Net of Income Tax. The Company
has reported in discontinued operations interest expense based on amounts
previously recorded by SM&P. For the quarter ended March 31, 2008,
discontinued operations includes pre-tax interest expense of $0.8 million.
For the six months ended March 31, 2008, discontinued operations
includes pre-tax interest expense of $1.6 million. Discontinued operations does
not include general corporate overhead expense. Income from Discontinued
Operations reported in the Statements of Consolidated Income consists of the
following:





Three
      Months Ended
              
              Six
      Months EndedMarch
      31,
              
              March
      31,(Thousands)
              
              2009
              
              2008
              
              2009
              
              2008Operating
      revenues
              
              $
              —
              
              $
              28,062
              
              $
              —
              
              $
              65,423Loss
      from operations
              
              
              —
              
              
              (8,433
              )
              
              —
              
              
              (9,387
              )Gain
      on disposal
              
              
              —
              
              
              44,491
              
              
              —
              
              
              44,491Pre-tax
      income
              
              
              —
              
              
              36,058
              
              
              —
              
              
              35,104Income
      tax expense
              
              
              —
              
              
              14,764
              
              
              —
              
              
              14,443Income
      From Discontinued Operations
              
              $
              —
              
              $
              21,294
              
              $
              —
              
              $
              20,661





14
 Table of Contents





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 both the quarter and
six months ended March 31, 2009, no shares attributable to
antidilutive outstanding stock options were excluded from the calculation of
diluted earnings per share. For the quarter and six months ended
March 31, 2008, 105,500 shares attributable to stock options were
excluded. For the quarter and six months ended March 31, 2009, there
were 36,300 and 9,600 shares, respectively, attributable to antidilutive
outstanding time-vested restricted stock that were excluded. For the quarter and
six months ended March 31, 2008, no shares attributable to time-vested
restricted stock were excluded. 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 both the quarter and six months ended March 31, 2009 185,550
shares and share units of nonvested performance-contingent restricted stock were
excluded from the calculation of diluted earnings per share. For both the
quarter and six months ended March 31, 2008, there were 158,200 shares
and share units excluded.





Three
      Months Ended
              
              Six
      Months EndedMarch
      31,
              
              March
      31,(Thousands,
      Except Per Share Amounts)
              
              
              2009
              
              
              2008
              
              
              2009
              
              
              2008Basic
      EPS:Income
      from Continuing Operations
              
              $
              30,811
              
              $
              30,060
              
              $
              62,117
              
              $
              51,596Weighted
      Average Shares Outstanding
              
              
              21,891
              
              
              21,589
              
              
              21,874
              
              
              21,571Earnings
      Per Share of Common Stock fromContinuing
      Operations
              
              $
              1.41
              
              $
              1.39
              
              $
              2.84
              
              $
              2.39Diluted
      EPS:Income
      from Continuing Operations
              
              $
              30,811
              
              $
              30,060
              
              $
              62,117
              
              $
              51,596Weighted
      Average Shares Outstanding
              
              
              21,891
              
              
              21,589
              
              
              21,874
              
              
              21,571Dilutive
      Effect of Stock Optionsand
      Restricted Stock
              
              
              126
              
              
              96
              
              
              141
              
              
              82Weighted
      Average Diluted Shares
              
              
              22,017
              
              
              21,685
              
              
              22,015
              
              
              21,653Earnings
      Per Share of Common Stock fromContinuing
      Operations
              
              $
              1.40
              
              $
              1.39
              
              $
              2.82
              
              $
              2.38





15
 Table of Contents





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. Effective January 1, 2009, the
Company modified the calculation of future benefits under the primary plan from
a years of service and final average compensation formula to a cash balance
formula which accrues benefits based on a percentage of compensation. Benefits
attributable to plan participation prior to January 1, 2009 will be
based on final average compensation at the date of termination of employment and
years of service earned through January 1, 2009. Plan assets consist
primarily of corporate and U.S. government obligations and pooled equity
funds.


Pension
costs for both the quarters ending March 31, 2009 and 2008 were $1.5
million, including amounts charged to construction. Pension costs for both the
six months ended March 31, 2009 and 2008 were $3.1 million, including
amounts charged to construction.


The
net periodic pension costs include the following components:





Three
      Months Ended
                      
                      Six
      Months EndedMarch
      31,
                      
                      March
      31,(Thousands)
                      
                      2009
                      
                      2008
                      
                      2009
                      
                      2008Service
      cost – benefits earnedduring
      the period
                      
                      $
                      1,817
                      
                      $
                      3,243
                      
                      $
                      5,302
                      
                      $
                      6,485Interest
      cost on projectedbenefit
      obligation
                      
                      
                      5,229
                      
                      
                      4,670
                      
                      
                      10,497
                      
                      
                      9,340Expected
      return on plan assets
                      
                      
                      (5,234
                      )
                      
                      (5,163
                      )
                      
                      (10,469
                      )
                      
                      (10,325
                      )Amortization
      of prior service cost
                      
                      
                      259
                      
                      
                      272
                      
                      
                      518
                      
                      
                      544Amortization
      of actuarial loss
                      
                      
                      774
                      
                      
                      791
                      
                      
                      1,548
                      
                      
                      1,582Sub-total
                      
                      
                      2,845
                      
                      
                      3,813
                      
                      
                      7,396
                      
                      
                      7,626Regulatory
      adjustment
                      
                      
                      (1,296
                      )
                      
                      (2,280
                      )
                      
                      (4,298
                      )
                      
                      (4,560
                      )Net
      pension cost
                      
                      $
                      1,549
                      
                      $
                      1,533
                      
                      $
                      3,098
                      
                      $
                      3,066





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 six months ended
March 31, 2009 and March 31, 2008.


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.


16
 Table of Contents





Postretirement
Benefits





Laclede
Gas provides certain life insurance benefits at retirement. Medical insurance is
available after early retirement until age 65. The transition obligation not yet
includible in postretirement benefit cost is being amortized over 20 years.
Postretirement benefit costs for both the quarters ended
March 31, 2009 and 2008 were $1.9 million, including amounts charged
to construction. Postretirement benefit costs for both the six months ended
March 31, 2009 and 2008 were $3.8 million, including amounts charged
to construction.


Net
periodic postretirement benefit costs consisted of the following
components:





Three
      Months Ended
                  
                  Six
      Months EndedMarch
      31,
                  
                  March
      31,(Thousands)
                  
                  2009
                  
                  2008
                  
                  2009
                  
                  2008Service
      cost – benefits earnedduring
      the period
                  
                  $
                  1,283
                  
                  $
                  1,140
                  
                  $
                  2,566
                  
                  $
                  2,280Interest
      cost on accumulatedpostretirement
      benefit obligation
                  
                  
                  1,170
                  
                  
                  977
                  
                  
                  2,340
                  
                  
                  1,954Expected
      return on plan assets
                  
                  
                  (594
                  )
                  
                  (509
                  )
                  
                  (1,188
                  )
                  
                  (1,019
                  )Amortization
      of transition obligation
                  
                  
                  34
                  
                  
                  34
                  
                  
                  68
                  
                  
                  68Amortization
      of prior service cost
                  
                  
                  (582
                  )
                  
                  (582
                  )
                  
                  (1,164
                  )
                  
                  (1,164
                  )Amortization
      of actuarial loss
                  
                  
                  877
                  
                  
                  746
                  
                  
                  1,754
                  
                  
                  1,492Sub-total
                  
                  
                  2,188
                  
                  
                  1,806
                  
                  
                  4,376
                  
                  
                  3,611Regulatory
      adjustment
                  
                  
                  (277
                  )
                  
                  105
                  
                  
                  (555
                  )
                  
                  210Net
      postretirement benefit cost
                  
                  $
                  1,911
                  
                  $
                  1,911
                  
                  $
                  3,821
                  
                  $
                  3,821





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.





17
 Table of Contents





5.
            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 March 31, 2009(Thousands)
                  
                  
                  Quoted
                    Prices
      in
                    Active
                    Markets
                    (Level
      1)
                  
                  
                  Significant
                    Observable
                    Inputs
                    (Level
      2)
                  
                  
                  Significant
                    Unobservable
                    Inputs
                    (Level
      3)
                  
                  
                  Effects
      of Netting and Cash Margin Receivables
                    /Payables
                  
                  
                  TotalAssetsMarketable
      securities
                  
                  $
                  8,325
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  8,325Derivative
      instruments
                  
                  
                  10,521
                  
                  
                  156
                  
                  
                  —
                  
                  
                  19,975
                  
                  
                  30,652Total
                  
                  $
                  18,846
                  
                  $
                  156
                  
                  $
                  —
                  
                  $
                  19,975
                  
                  $
                  38,977LiabilitiesDerivative
      instruments
                  
                  $
                  112,929
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  (112,929
                  )
                  $
                  —





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 (NYMEX). Derivative
instruments included in Level 2 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, if any, are included in the Other line
of the Current Liabilities section of the Consolidated Balance Sheets.
Derivative assets and liabilities, including receivables and payables associated
with cash margin requirements, are presented net in the Consolidated Balance
Sheets when a legally enforceable netting agreement exists between the Company
and the counterparty to a derivative contract.








6.
            DERIVATIVE
      INSTRUMENTS AND HEDGING ACTIVITIES





Laclede
Gas has a risk management policy that allows for the purchase of natural gas
derivative instruments with the goal of managing price risk associated with
purchasing natural gas on behalf of its customers. This policy prohibits
speculation. The policy permits the Utility to hedge up to 70% of its normal
volumes purchased for up to a 36-month period. Costs and cost reductions,
including carrying costs, associated with the Utility’s use of natural gas
derivative instruments are allowed to be passed on to the Utility’s customers
through the operation of its Purchased Gas Adjustment (PGA) Clause, through
which the MoPSC allows the Utility to recover gas supply costs, subject to
prudence review. Accordingly, Laclede Gas does not expect any adverse earnings
impact as a result of the use of these derivative instruments. The Utility does
not designate these instruments as hedging instruments under SFAS No. 133
because gains or losses associated with the use of these derivative instruments
are deferred and recorded as regulatory assets or regulatory liabilities
pursuant to SFAS No. 71, “Accounting for the Effects of Certain Types of
Regulation,” and, as a result, have no direct impact on the Statements of
Consolidated Income. The timing of the operation of the PGA clause may cause
interim variations in short-term cash flows because the Utility is subject to
cash margin requirements associated with changes in the values of these
instruments. Nevertheless, carrying costs associated with such requirements are
recovered through the PGA Clause.


From
time to time, Laclede Gas purchases NYMEX futures contracts to help stabilize
operating costs associated with forecasted purchases of gasoline and diesel
fuels used to power vehicles and equipment used in the course of its business.
At March 31, 2009, Laclede Gas held 0.8 million gallons of gasoline
futures contracts at an average price of $1.32 per gallon and 0.1 million
gallons of heating oil futures contracts (to hedge diesel fuel purchases) at an
average price of $1.26 per gallon. Most of these futures contracts, the longest
of which extends to 2010, are designated as cash flow hedges of forecasted
transactions pursuant to SFAS No. 133. The gains or losses on these derivative
instruments are not subject to the Utility’s PGA Clause.


18
 Table of Contents


In
the course of its business, Laclede Group’s non-regulated gas marketing
affiliate, Laclede Energy Resources, Inc. (LER), enters into commitments
associated with the purchase or sale of natural gas. Most of LER’s derivative
natural gas contracts are designated as normal purchases or normal sales and, as
such, are excluded from the scope of SFAS No. 133 and are accounted for as
executory contracts on an accrual basis. Any of LER’s derivative natural gas
contracts that are not designated as normal purchases or normal sales are
accounted for at fair value pursuant to SFAS No. 133. At
March 31, 2009, LER had 2.3 million MMBtu of non-exchange traded
natural gas commodity contracts for which the normal purchases and normal sales
scope exception was not elected, all of which extend to April 2009. These
contracts have not been designated as hedges; therefore, changes in the fair
value of these contracts are reported in earnings each period. LER manages the
price risk associated with its fixed-priced commitments by either closely
matching the offsetting physical purchase or sale of natural gas at fixed prices
or through the use of NYMEX futures contracts to lock in margins. At
March 31, 2009, LER’s unmatched fixed-price positions were not
material to Laclede Group’s financial position or results of operations. LER’s
NYMEX natural gas futures contracts used to lock in margins are designated as
cash flow hedges of forecasted transactions pursuant to SFAS No.
133.


Derivative
instruments designated as cash flow hedges of forecasted transactions are
recognized on the Consolidated Balance Sheets at fair value and the change in
the fair value of the effective portion of these hedge instruments is recorded,
net of tax, in Other Comprehensive Income (OCI). Accumulated Other Comprehensive
Income (AOCI) is a component of Total Common Stock Equity. Amounts are
reclassified from AOCI into earnings when the hedged items affect net income,
using the same revenue or expense category that the hedged item impacts. Based
on market prices at March 31, 2009, it is expected that approximately
$6.6 million of pre-tax unrealized gains will be reclassified into the
Consolidated Statement of Income during the next twelve months. The net amount
of pre-tax gains recognized in earnings for the ineffective portion of cash flow
hedges was $0.3 million for the quarter ended March 31, 2009 and $2.5
million for the six months ended March 31, 2009. The net amount of
pre-tax losses recognized in earnings for the ineffective portion of cash flow
hedges was $0.6 million for the quarter ended March 31, 2008 and $0.3
million for the six months ended March 31, 2008. 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.


The
Company’s derivative instruments consist primarily of NYMEX positions. The NYMEX
is the primary national commodities exchange on which natural gas derivatives
are traded. NYMEX-traded contracts are supported by the financial and credit
quality of the clearing members of the NYMEX and have nominal credit risk. Open
NYMEX natural gas futures positions at March 31, 2009 were as
follows:





Laclede
      Gas Company
                  
                  Laclede
      Energy
                    Resources,
      Inc.MMBtu
                    (millions)
                  
                  Avg.
      Price
                    Per
                    MMBtu
                  
                  MMBtu
                    (millions)
                  
                  Avg.
      Price
                    Per
                    MMBtuOpen
      short futures positionsFiscal
      2009
                  
                  
                  
                  
                  
                  
                  0.76
                  
                  $
                  6.97Fiscal
      2010
                  
                  
                  
                  
                  
                  
                  2.35
                  
                  
                  6.56Open
      long futures positionsFiscal
      2009
                  
                  8.53
                  
                  $
                  8.59
                  
                  0.12
                  
                  $
                  9.56Fiscal
      2010
                  
                  14.55
                  
                  
                  8.78Fiscal
      2011
                  
                  6.58
                  
                  
                  8.55Fiscal
      2012
                  
                  0.60
                  
                  
                  8.31





19
 Table of Contents





At
March 31, 2009, Laclede Gas also had 17.5 million MMBtu of other price risk
mitigation in place through the use of NYMEX natural gas option-based
strategies.





The
      Effect of Derivative Instruments on the Statements of Consolidated Income
      and Comprehensive Income(Thousands)
                            Three
      Months Ended March 31, 2009Derivatives
      in SFAS No. 133 Cash Flow Hedging Relationships
                            
                            Amount
      of Gain/(Loss) Recognized in OCI on Derivative (Effective
      Portion)
                            
                            Location
      of Gain/(Loss) Reclassified from Accumulated OCI Into Income
                              (Effective
      Portion)
                            
                            Amount
      of Gain/(Loss) Reclassified from Accumulated OCI Into Income (Effective
      Portion)
                            
                            Location
      of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion And
      Amount Excluded from Effectiveness Testing)
                            
                            Amount
      of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and
      Amount Excluded from Effectiveness Testing)NYMEX
                              natural
      gas contracts
                            
                            $
                            4,896
                            
                            Non-Regulated
                              Gas
      Marketing
                              Operating
      Revenues
                            
                            $
                            4,410
                            
                            Non-Regulated
                              Gas
      Marketing
                              Operating
      Revenues
                            
                            $
                            182Non-Regulated
                              Gas
      Marketing
                              Operating
      Expenses
                            
                            
                            (2,115
                            )
                            Non-Regulated
                              Gas
      Marketing
                              Operating
      Expenses
                            
                            
                            67NYMEX
                              gasoline
      and heating oil
                              contracts
                            
                            
                            106
                            
                            Other
      Regulated
                              Gas
      Distribution
                              Operating
      Expenses
                            
                            
                            —
                            
                            Other
      Regulated
                              Gas
      Distribution
                              Operating
      Expenses
                            
                            
                            31Total
                            
                            $
                            5,002
                            
                            
                            
                            $
                            2,295
                            
                            
                            
                            $
                            280





Derivatives
      Not Designated as Hedging Instruments under SFAS No. 133*
                        
                        Location
      of Gain/(Loss) Recognized in Income on Derivative
                        
                        Amount
      of Gain/(Loss) Recognized in Income on DerivativeNatural
      gas commodity contracts
                        
                        Non-Regulated
      Gas Marketing Operating Revenues
                        
                        
                        $
                        164NYMEX
      gasoline and heating oil contracts
                        
                        Other
      Income and (Income
                          Deductions)
      – Net
                        
                        
                        
                        7$
                        171





*
              Gains
      and losses on Laclede Gas’ NYMEX natural gas derivative instruments, which
      are not designated as hedging instruments under SFAS No. 133, are deferred
      and recorded as regulatory assets or regulatory liabilities pursuant to
      SFAS No. 71. These gains and losses are excluded from the table above
      because they have no direct impact on the Consolidated Statement of
      Income.





20
 Table of Contents





Fair
      Value of Derivative Instruments in the Consolidated Balance Sheet at March
      31, 2009Asset
      Derivatives
                      
                      Liability
      Derivatives(Thousands)
                      
                      Balance
      Sheet Location
                      
                      Fair
                        Value
                      *
                      Balance
      Sheet Location
                      
                      Fair
                        Value
                      *Derivatives
      designated as hedging instruments under SFAS No. 133NYMEX
      natural gas contracts
                      
                      Derivative
      Instrument Assets
                      $
                      5,278
                      
                      Derivative
      Instrument Assets
                      $
                      714NYMEX
      gasoline and
                        heating
      oil contracts
                      
                      Derivative
      Instrument Assets
                      
                      137
                      
                      Derivative
      Instrument Assets
                      
                      —Sub-total
                      
                      
                      
                      5,415
                      
                      
                      
                      714Derivatives
      not designated as hedging instruments under
                        SFAS
      No. 133NYMEX
      natural gas contracts
                      
                      Derivative
      Instrument Assets
                      
                      5,099
                      
                      Derivative
      Instrument Assets
                      
                      112,215Natural
      gas commodity
                        contracts
                      
                      Derivative
      Instrument Assets
                      
                      156
                      
                      Other
      Current Liabilities
                      
                      —NYMEX
      gasoline and
                        heating
      oil contracts
                      
                      Derivative
      Instrument Assets
                      
                      7
                      
                      Derivative
      Instrument Assets
                      
                      —Sub-total
                      
                      
                      
                      5,262
                      
                      
                      
                      112,215Total
      derivatives
                      
                      
                      $
                      10,677
                      
                      
                      $
                      112,929





*
                The
      fair values of Asset Derivatives and Liability Derivatives exclude the
      fair value of cash margin receivables or payables with counterparties
      subject to netting arrangements. At March 31, 2009, the amounts
      excluded were $135.9 million in receivables and $3.0 million in payables,
      all of which were associated with NYMEX contracts. Fair value amounts of
      derivative contracts (including the fair value amounts of cash margin
      receivables and payables) for which there is a legal right to set off are
      presented net on the Consolidated Balance Sheet. As such, the gross
      balances presented in the table above are not indicative of the Company’s
      net economic exposure. Refer to Note 5, Fair Value
      Measurements, for information on the valuation of derivative
      instruments.








7.
            CONCENTRATIONS
      OF CREDIT RISK





A
significant portion of LER’s revenues and related accounts receivable are from
wholesale sales made to customers that are (or are associated with) major energy
producers or utility companies. Such sales are typically made on an unsecured
credit basis with payment due the month following delivery. These concentrations
of sales to major energy producers and utility companies have the potential to
affect the Company’s overall exposure to credit risk, either positively or
negatively, in that each of these two groups of wholesale customers may be
affected similarly by changes in economic, industry, or other conditions. To
manage this risk, as well as credit risk from large customers in other
industries, LER has established procedures to determine the creditworthiness of
its customers. These include obtaining credit ratings and credit reports,
analyzing customer financial statements to assess financial condition, and
considering the industry environment in which the customer operates. This
information is monitored on an ongoing basis. In some instances, LER may require
credit assurances such as prepayments, letters of credit, or parental
guarantees. In addition, LER may enter into netting arrangements to mitigate
credit risk with counterparties in the energy industry from which LER both sells
and purchases natural gas. Accounts receivable amounts are closely monitored and
provisions for uncollectible amounts are accrued when losses are probable. To
date, losses have not been significant. LER records accounts receivable,
accounts payable, and prepayments for physical sales and purchases of natural
gas on a gross basis. The amount included in accounts receivable attributable to
major energy producers and their marketing affiliates amounted to $31.2 million,
or 49.9% of LER’s total accounts receivable at March 31, 2009. Net
receivable amounts from these customers on the same date, reflecting netting
arrangements, were $14.1 million. Accounts receivable attributable to utility
companies and their marketing affiliates comprised $10.3 million of LER’s total
accounts receivable, or 16.4% at March 31, 2009 and net receivable
amounts from these customers, reflecting netting arrangements, were $4.3
million.


21
 Table of Contents








8.
            OTHER
      INCOME AND (INCOME DEDUCTIONS) –
NET





Three
      Months Ended
                    
                    Six
      Months EndedMarch
      31,
                    
                    March
      31,(Thousands)
                    
                    2009
                    
                    2008
                    
                    2009
                    
                    2008Interest
      income
                    
                    $
                    663
                    
                    $
                    1,047
                    
                    $
                    1,802
                    
                    $
                    2,820Other
      income
                    
                    
                    926
                    
                    
                    183
                    
                    
                    1,337
                    
                    
                    720Other
      income deductions
                    
                    
                    (1,342
                    )
                    
                    (154
                    )
                    
                    (2,153
                    )
                    
                    185Other
      Income and (Income Deductions) – Net
                    
                    $
                    247
                    
                    $
                    1,076
                    
                    $
                    986
                    
                    $
                    3,725





The
decrease in Other Income and (Income Deductions) – Net for the quarter ended
March 31, 2009, compared with the quarter ended
March 31, 2008, was primarily due to the effect of a benefit from the
reversal of certain tax-related expenses recognized during the quarter ended
March 31, 2008 and lower interest income, partially offset by higher
net investment income.


The
decrease in Other Income and (Income Deductions) – Net for the six months ended
March 31, 2009, compared with the six months ended
March 31, 2008, was primarily due to lower interest income, higher net
investment losses, and the effect of benefits recognized during the six months
ended March 31, 2008 from the reversal of certain tax-related expenses
and proceeds received related to the Company’s interest, as a policyholder, in
the sale of a mutual insurance company.








9.
            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. 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.


22
 Table of Contents





Non-Regulated
              
              Regulated
              
              
              
              UnallocatedGas
              
              Gas
              
              
              
              &(Thousands)
              
              Distribution
              
              Marketing
              
              Other
              
              Eliminations
              
              ConsolidatedThree
      Months EndedMarch
      31, 2009Revenues
      from externalcustomers
              
              $
              440,173
              
              $
              210,069
              
              $
              752
              
              $
              —
              
              $
              650,994Intersegment
      revenues
              
              
              295
              
              
              7,520
              
              
              259
              
              
              —
              
              
              8,074Total
      Operating Revenues
              
              
              440,468
              
              
              217,589
              
              
              1,011
              
              
              —
              
              
              659,068Income
      from continuingoperations
              
              
              22,170
              
              
              8,498
              
              
              143
              
              
              —
              
              
              30,811Total
      assets of continuingoperations
              
              
              1,609,714
              
              
              170,656
              
              
              131,667
              
              
              (127,081
              )
              
              1,784,956Six
      Months EndedMarch
      31, 2009Revenues
      from externalcustomers
              
              $
              796,796
              
              $
              515,202
              
              $
              1,607
              
              $
              —
              
              $
              1,313,605Intersegment
      revenues
              
              
              1,773
              
              
              17,427
              
              
              519
              
              
              —
              
              
              19,719Total
      Operating Revenues
              
              
              798,569
              
              
              532,629
              
              
              2,126
              
              
              —
              
              
              1,333,324Income
      from continuingoperations
              
              
              38,318
              
              
              23,199
              
              
              600
              
              
              —
              
              
              62,117Total
      assets of continuingoperations
              
              
              1,609,714
              
              
              170,656
              
              
              131,667
              
              
              (127,081
              )
              
              1,784,956Three
      Months EndedMarch
      31, 2008Revenues
      from externalcustomers
              
              $
              507,031
              
              $
              237,748
              
              $
              971
              
              $
              —
              
              $
              745,750Intersegment
      revenues
              
              
              58
              
              
              1,639
              
              
              259
              
              
              —
              
              
              1,956Total
      Operating Revenues
              
              
              507,089
              
              
              239,387
              
              
              1,230
              
              
              —
              
              
              747,706Income
      (Loss) from continuingoperations
              
              
              25,331
              
              
              4,861
              
              
              38
              
              
              (170
              )
              
              30,060Total
      assets of continuingoperations
              
              
              1,454,369
              
              
              152,256
              
              
              175,976
              
              
              (76,737
              )
              
              1,705,864Six
      Months EndedMarch
      31, 2008Revenues
      from externalcustomers
              
              $
              826,705
              
              $
              416,408
              
              $
              2,011
              
              $
              —
              
              $
              1,245,124Intersegment
      revenues
              
              
              1,276
              
              
              4,777
              
              
              519
              
              
              —
              
              
              6,572Total
      Operating Revenues
              
              
              827,981
              
              
              421,185
              
              
              2,530
              
              
              —
              
              
              1,251,696Income
      (Loss) from continuingoperations
              
              
              41,078
              
              
              10,515
              
              
              267
              
              
              (264
              )
              
              51,596Total
      assets of continuingoperations
              
              
              1,454,369
              
              
              152,256
              
              
              175,976
              
              
              (76,737
              )
              
              1,705,864





23
 Table of Contents





10.
            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 March 31, 2009 are estimated
at approximately $1.6 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 into 2014. At March 31, 2009, the maximum
guarantees under these leases are $1.8 million. As of
March 31, 2009, 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 March 31, 2009, the carrying value of the liability
recognized for these guarantees was $0.3 million.


Laclede
Group had guarantees totaling $82.5 million for performance and payment of
certain wholesale gas supply purchases by LER, as of March 31, 2009.
Since that date, total guarantees issued by Laclede Group on behalf of LER
increased by $6.0 million bringing the total to $88.5 million in guarantees
outstanding at April 29, 2009. No amounts have been recorded for these
guarantees in the financial statements. As of March 31, 2009,
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.


As
reported in the Company’s Form 10-K
for the fiscal year ended September 30, 2008, Laclede Gas has
identified three sites on which manufactured gas plant operations took place
where the Utility faces the risk of environmental liabilities. One site is
currently owned by an agency of the City of Saint Louis (the owner agency). An
affiliated City agency (the development agency) has selected a developer with
whom it is negotiating a final site development contract which contemplates
remediation and redevelopment of the property. In conjunction with the
redevelopment, Laclede Gas and another former site owner have entered into an
agreement with the owner and development agencies as well as their parent
agency, the private developer of the property, and an environmental consultant
(Remediation Agreement). Under the Remediation Agreement, the development agency
and the private developer agreed to remediate the site, and Laclede Gas and the
other former owner are to be released by the involved City agencies, the private
developer, and the environmental consultant from certain liabilities for the
past and current environmental condition of the property. Also under that
agreement Laclede Gas and the former site owner agreed to pay, at the closing of
the transaction, a small percentage of the cost of remediation (subject to a
maximum amount). The transactions contemplated by the Remediation Agreement are
expected to close during the fourth quarter of fiscal year 2009. The amount
Laclede Gas expects to pay under the Remediation Agreement is not material and
will not have a material impact on the future financial condition or results of
operations of Laclede Gas or the Company.


On
December 28, 2006, the MoPSC Staff proposed a disallowance of $7.2
million related to Laclede Gas’ recovery of its purchased gas costs applicable
to fiscal 2005. On September 14, 2007, the Staff withdrew its pursuit
of $5.5 million of the disallowance it had originally proposed. The remaining
$1.7 million pertains to Laclede Gas’ purchase of gas from its marketing
affiliate, LER. Laclede Gas believes that the remaining portion of the proposed
disallowance lacks merit and is vigorously opposing the adjustment in
proceedings before the MoPSC. As such, no amount has been recorded in the
financial statements for this proposed disallowance.


The
MoPSC Staff has also proposed disallowances of gas costs relating to Laclede Gas
purchases of gas supply from LER for fiscal years 2006 and 2007. On
December 31, 2007, the MoPSC Staff proposed a disallowance of $2.8
million applicable to fiscal 2006, and on December 31, 2008, the MoPSC
Staff proposed a disallowance of $1.5 million applicable to fiscal 2007. Laclede
Gas believes that these proposed disallowances also lack merit and is vigorously
opposing them in proceedings before the MoPSC. As such, no amount has been
recorded in the financial statements for these proposed
disallowances.


24
 Table of Contents


In
the December 31, 2007 filing, the MoPSC Staff also 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 February 11, 2009, the FERC Staff
submitted follow-up questions to the Company’s August and September 2008
responses, to which the Company responded on February 25, 2009. On
March 2, 2009, FERC Staff requested clarification of certain aspects
of the Company’s February 25, 2009 response, which the Company
clarified on March 4, 2009.


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 March 31, 2009, 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.


25
 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 derivative 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.

















26
 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 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.





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 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 ensures 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.


27
 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 derivative 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 derivative 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).





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 March 31, 2009





Earnings





Overview
      – Net Income (Loss) by Operating Segment
                
                
                
                Quarter
      EndedMarch
      31,(Millions,
      after-tax)
                
                
                
                
                2009
                
                
                
                
                2008Regulated
      Gas Distribution
                
                
                
                $
                22.2
                
                
                
                $
                25.3Non-Regulated
      Gas Marketing
                
                
                
                
                8.5
                
                
                
                
                4.9Other
                
                
                
                
                0.1
                
                
                
                
                (0.1
                )Income
      from Continuing Operations
                
                
                
                
                30.8
                
                
                
                
                30.1Income
      from Discontinued Operations
                
                
                
                
                —
                
                
                
                
                21.3Net
      Income
                
                
                
                $
                30.8
                
                
                
                $
                51.4





Laclede
Group’s consolidated net income was $30.8 million for the quarter ended
March 31, 2009, compared with $51.4 million for the quarter ended
March 31, 2008. Basic and diluted earnings per share for the quarter
ended March 31, 2009 were $1.41 and $1.40, respectively, compared with
basic and diluted earnings per share of $2.38 and $2.37, respectively, reported
for the same quarter last year. The decrease was primarily due to the effect of
the one-time gain realized on the sale of SM&P on March 31, 2008.
Basic and diluted earnings per share for the quarter ended
March 31, 2008 included $0.99 and $0.98, respectively, attributable to
the sale and operations of SM&P. This effect was partially offset by higher
year-over-year income from continuing operations.





Income
from Continuing Operations





Laclede
Group’s income from continuing operations was $30.8 million for the quarter
ended March 31, 2009, compared with $30.1 million for the quarter
ended March 31, 2008. Basic and diluted earnings per share from
continuing operations were $1.41 and $1.40, respectively, for the quarter ended
March 31, 2009, compared with basic and diluted earnings per share of
$1.39 for the quarter ended March 31, 2008. Earnings per share
increased compared to last year primarily due to improved results reported by
Laclede Group’s Non-Regulated Gas Marketing segment, partially offset by lower
earnings recorded by Laclede Group’s Regulated Gas Distribution segment.
Variations in income from continuing operations were primarily attributable to
the factors described below.


28
 Table of Contents





Regulated
Gas Distribution net income decreased by $3.1 million for the quarter ended
March 31, 2009, compared with the quarter ended
March 31, 2008. The decrease in net income was primarily due to the
following factors, quantified on a pre-tax basis:





•
            increases
      in operation and maintenance expenses, excluding the provision for
      uncollectible accounts, totaling $4.0 million; and,•
            the
      effect of the recognition of previously unrecognized tax benefits and the
      reversal of related expenses recorded during the quarter ended
      March 31, 2008, totaling
  $1.1 million.





These
factors were partially offset by:





•
            a
      lower provision for uncollectible accounts totaling $1.3
      million;•
            higher
      income from off-system sales and capacity release totaling $1.0 million;
      and,•
            higher
      Infrastructure System Replacement Surcharge (ISRS) revenues totaling $0.9
      million.





The
Non-Regulated Gas Marketing segment reported an increase in earnings of $3.6
million compared with the same period last year. This increase was primarily due
to LER’s higher margins on sales of natural gas, which resulted partly from
depressed supply prices in the Mid-continent due to increased shale gas supply
production and pipeline constraints, and increased sales volumes, primarily
attributable to significantly increased firm pipeline transportation capacity.
These factors were partially offset by the effect of a benefit from the reversal
of certain tax-related expenses totaling $1.4 million during the quarter ended
March 31, 2008.





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
March 31, 2009 were $440.5 million, or $66.6 million less than
the same period last year. Temperatures experienced in the Utility’s service
area during the quarter were 9.3% warmer than the same quarter last year and
6.2% warmer than normal. Total system therms sold and transported were
0.40 billion for the quarter ended March 31, 2009 compared with
0.45 billion for the same period last year. Total off-system therms sold and
transported were 0.08 billion for the quarter ended March 31, 2009
compared with 0.06 billion for the same period last year. The decrease in
Regulated Gas Distribution Operating Revenues was primarily attributable to the
following factors:





(Millions)Lower
      system sales volumes and other variations
                            
                            $
                            (43.8
                            )Lower
      prices charged for off-system sales
                            
                            
                            (38.3
                            )Higher
      off-system sales volumes
                            
                            
                            24.5Lower
      wholesale gas costs passed on to Utility customers (subject to prudence
      review by the MoPSC)
                            
                            
                            (9.9
                            )Higher
      ISRS revenues
                            
                            
                            0.9Total
      Variation
                            
                            $
                            (66.6
                            )





29
 Table of Contents





Regulated
Gas Distribution Operating Expenses





Regulated
Gas Distribution Operating Expenses for the quarter ended
March 31, 2009 decreased $61.9 million from the same quarter last
year. Natural and propane gas expense decreased $64.0 million, or 17.0%, from
last year’s level, primarily attributable to decreased volumes purchased for
sendout, lower rates charged by our suppliers, and lower off-system gas expense.
Other operation and maintenance expenses increased $2.7 million, or 6.0%,
primarily due to higher maintenance charges, increases in compensation expenses,
and higher group insurance charges, partially offset by a lower provision for
uncollectible accounts. Taxes, other than income taxes, decreased $1.0 million,
or 3.6%, primarily due to decreased gross receipts taxes (attributable to lower
revenues).





Non-Regulated
Gas Marketing Operating Revenues and Operating Expenses





Non-Regulated
Gas Marketing Operating Revenues decreased $21.8 million primarily due to
decreased per unit gas sales prices by LER, partially offset by 53.5% higher
sales volumes. The decrease in Non-Regulated Gas Marketing Operating Expenses
totaling $29.5 million was primarily associated with lower prices charged by
suppliers, partially offset by increased volumes purchased.





Other
Income and (Income Deductions) - Net





Other
Income and (Income Deductions) – Net decreased $0.8 million primarily due to the
effect of a benefit from the reversal of certain tax-related expenses, pursuant
to Financial Accounting Standards Board Interpretation No. 48 (FIN 48),
“Accounting for Uncertainty in Income Taxes,” during the quarter ended
March 31, 2008 and lower interest income, partially offset by higher
net investment income.





Interest
Charges





The
$0.3 million increase in interest charges was primarily due to higher interest
on long-term debt, primarily attributable to the issuance of $80.0 million
principal amount of 6.35% First Mortgage Bonds on September 23, 2008.
This increase was largely offset by lower interest on short-term debt. Average
short-term interest rates were 1.0% for the quarter ended
March 31, 2009 compared with 4.1% for the quarter ended
March 31, 2008. Average short-term borrowings were $256.7 million for
the quarter ended March 31, 2009 compared with $217.5 million for the
quarter ended March 31, 2008.





Income
Taxes





The
$1.5 million increase in income taxes was primarily due to higher pre-tax income
and the recognition of previously unrecognized tax benefits recorded during the
quarter ended March 31, 2008, pursuant to FIN 48.








Six
Months Ended March 31, 2009





Earnings





Overview
      – Net Income by Operating Segment
              
              
              
              Six
      Months EndedMarch
      31,(Millions,
      after-tax)
              
              
              
              
              2009
              
              
              
              
              2008Regulated
      Gas Distribution
              
              
              
              $
              38.4
              
              
              
              $
              41.1Non-Regulated
      Gas Marketing
              
              
              
              
              23.2
              
              
              
              
              10.5Other
              
              
              
              
              0.5
              
              
              
              
              —Income
      from Continuing Operations
              
              
              
              
              62.1
              
              
              
              
              51.6Income
      from Discontinued Operations
              
              
              
              
              —
              
              
              
              
              20.7Net
      Income
              
              
              
              $
              62.1
              
              
              
              $
              72.3





Laclede
Group’s consolidated net income was $62.1 million for the six months ended
March 31, 2009, compared with $72.3 million for the six months
ended March 31, 2008. Basic and diluted earnings per share were $2.84
and $2.82, respectively, for the six months ended March 31, 2009
compared with basic and diluted earnings per share of $3.35 and $3.34,
respectively, reported for the same period last year. Earnings per share
decreased due to the effect of the gain on sale and operations of SM&P
totaling $0.96 per share (basic and diluted), for the six months ended
March 31, 2008. This effect was partially offset by increased income
from continuing operations.


30
 Table of Contents





Income
from Continuing Operations





Laclede
Group’s income from continuing operations was $62.1 million for the six months
ended March 31, 2009, compared with $51.6 million for the six months
ended March 31, 2008. Basic and diluted earnings per share from
continuing operations were $2.84 and $2.82, respectively, for the six months
ended March 31, 2009, compared with basic and diluted earnings per
share of $2.39 and $2.38, respectively, for the six months ended
March 31, 2008. Earnings per share increased compared to last year
primarily due to improved results reported by Laclede Group’s Non-Regulated Gas
Marketing segment, partially offset by lower earnings recorded by Laclede
Group’s Regulated Gas Distribution segment. Variations in income from continuing
operations were primarily attributable to the factors described
below.





Regulated
Gas Distribution net income decreased by $2.7 million for the six months ended
March 31, 2009, compared with the six months ended
March 31, 2008. The decrease in net income was primarily due to the
following factors, quantified on a pre-tax basis:





•
            increases
      in operation and maintenance expenses, excluding the provision for
      uncollectible accounts, totaling $5.2 million; and,•
            the
      effect of the recognition of previously unrecognized tax benefits and the
      reversal of related expenses recorded during the six months ended
      March 31, 2008, totaling
  $1.1 million.





These
factors were partially offset by:





•
            higher
      ISRS revenues totaling $1.7 million;•
            higher
      income from off-system sales and capacity release totaling $1.2 million;
      and,•
            a
      lower provision for uncollectible accounts totaling $1.1
      million.





The
Non-Regulated Gas Marketing segment reported an increase in earnings of $12.7
million compared with the same period last year. This increase was primarily due
to LER’s increased sales volumes primarily attributable to significantly
increased firm pipeline transportation capacity and higher margins on sales of
natural gas, which resulted partly from depressed supply prices in the
Mid-continent due to increased shale gas supply production and pipeline
constraints. These factors were partially offset by the effect of a benefit from
the reversal of certain tax-related expenses totaling $1.4 million during the
six months ended March 31, 2008.





Regulated
Gas Distribution Operating Revenues





Regulated
Gas Distribution Operating Revenues for the six months ended
March 31, 2009 were $798.6 million, or $29.4 million less than
the same period last year. Temperatures experienced in the Utility’s service
area during the six months ended March 31, 2009 were 0.8% warmer than
the same period last year and 1.7% warmer than normal. Total system therms sold
and transported were 0.71 billion for the six months ended
March 31, 2009 compared with 0.72 billion for the same period last
year. Total off-system therms sold and transported were 0.12 billion for the six
months ended March 31, 2009 compared with 0.11 billion for the same
period last year. The decrease in Regulated Gas Distribution Operating Revenues
was primarily attributable to the following factors:





(Millions)Lower
      prices charged for off-system sales
                            
                            $
                            (36.5
                            )Higher
      off-system sales volumes
                            
                            
                            12.8Lower
      system sales volumes and other variations
                            
                            
                            (5.8
                            )Higher
      ISRS revenues
                            
                            
                            1.7Lower
      wholesale gas costs passed on to Utility customers (subject to prudence
      review by the MoPSC)
                            
                            
                            (1.6
                            )Total
      Variation
                            
                            $
                            (29.4
                            )





31
 Table of Contents





Regulated
Gas Distribution Operating Expenses





Regulated
Gas Distribution Operating Expenses for the six months ended
March 31, 2009 decreased $26.4 million from the same period last year.
Natural and propane gas expense decreased $32.0 million, or 5.3%, from last
year’s level, primarily attributable to lower off-system gas expense, decreased
volumes purchased for sendout, and lower rates charged by our suppliers. Other
operation and maintenance expenses increased $4.1 million, or 4.7%, primarily
due to higher maintenance charges, increases in compensation expenses, and
higher group insurance charges, partially offset by a lower provision for
uncollectible accounts.





Non-Regulated
Gas Marketing Operating Revenues and Operating Expenses





Non-Regulated
Gas Marketing Operating Revenues increased $111.4 million primarily due to 68.8%
higher sales volumes, partially offset by decreased per unit gas sales prices by
LER. The increase in Non-Regulated Gas Marketing Operating Expenses totaling
$89.2 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 $2.7 million primarily due to
lower interest income, higher net investment losses, and the effect of benefits
recognized during the six months ended March 31, 2008 from the
reversal of certain tax-related expenses, pursuant to FIN 48, and proceeds
received related to the Company’s interest, as a policyholder, in the sale of a
mutual insurance company.





Interest
Charges





The
$0.3 million decrease in interest charges was primarily due to lower interest on
short-term debt, largely offset by an increase in interest on long-term debt
primarily attributable to the issuance of $80.0 million principal amount of
6.35% First Mortgage Bonds on September 23, 2008. Average short-term
interest rates were 2.1% for the six months ended March 31, 2009
compared with 4.7% for the six months ended March 31, 2008. Average
short-term borrowings were $259.7 million for the six months ended
March 31, 2009 compared with $236.4 million for the six months ended
March 31, 2008.





Income
Taxes





The
$6.9 million increase in income taxes was primarily due to higher pre-tax income
and the effect of the recognition of previously unrecognized tax benefits
recorded during the six months ended March 31, 2008 (pursuant to FIN
48), partially offset by the effects of various property-related items and a
benefit associated with an amended return.





Labor
Agreement





The
Missouri Natural Division of Laclede Gas has a labor agreement with Local 884 of
the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy,
Allied-Industrial and Service Workers International Union, which represents
approximately 5% of Laclede Gas’ employees. On April 15, 2009, a new
four-year labor agreement was reached replacing the prior agreement which
expired on that same date. The new agreement, which expires at midnight on
April 14, 2013, includes revisions to the defined benefit pension plan
formula, changes in wage rates and work rules, and other modifications that
enable the Utility to provide high quality service to its customers and control
operating costs while continuing to provide competitive wages, pension, and
healthcare benefits to its employees.





32
 Table of Contents





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 February 9, 2009, Public Counsel
appealed the Circuit Court’s affirmation of the MoPSC’s April 17, 2008
Order to the Court of Appeals for the Western District of Missouri.





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. The remaining
$1.7 million pertains to Laclede Gas’ purchase of gas from its marketing
affiliate, LER. Laclede Gas believes that the remaining portion of the proposed
disallowance lacks merit and is vigorously opposing the adjustment in
proceedings before the MoPSC. As such, no amount has been recorded in the
financial statements for this proposed disallowance.





The
MoPSC Staff has also proposed disallowances of gas costs relating to Laclede Gas
purchases of gas supply from LER for fiscal years 2006 and 2007. On
December 31, 2007, the MoPSC Staff proposed a disallowance of $2.8
million applicable to fiscal 2006, and on December 31, 2008, the MoPSC
Staff proposed a disallowance of $1.5 million applicable to fiscal 2007. Laclede
Gas believes that these proposed disallowances also lack merit and is vigorously
opposing them in proceedings before the MoPSC. As such, no amount has been
recorded in the financial statements for these proposed
disallowances.





In
the December 31, 2007 filing, the MoPSC Staff also 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 February 11, 2009, the FERC Staff
submitted follow-up questions to the Company’s August and September 2008
responses, to which the Company responded on February 25, 2009. On
March 2, 2009, FERC Staff requested clarification of certain aspects
of the Company’s February 25, 2009 response, which the Company
clarified on March 4, 2009.





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. On April 15, 2009, the Commission
issued its Order rejecting the Utility’s tariffs. Laclede Gas has filed for
rehearing of the Commission’s Order and is pursuing other alternatives for
addressing this issue.





On
November 21, 2008, the Utility made an ISRS filing with the Commission
designed to increase revenues by $1.9 million annually. After the Utility
updated the filing, on February 4, 2009, the MoPSC approved an annual
increase of $2.1 million that became effective February 6, 2009. On
April 28, 2009, the Utility made an ISRS filing with the Commission
designed to increase revenues by $2.5 million annually. This filing is pending
Commission approval.





33
 Table of Contents





CRITICAL
ACCOUNTING POLICIES





Our
discussion and analysis of our financial condition, results of operations,
liquidity, and capital resources is based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. Generally accepted
accounting principles require that we make estimates and judgments that affect
the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. We evaluate our estimates on an
ongoing basis. We base our estimates on historical experience and on various
other assumptions that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates. Our critical accounting policies
used in the preparation of our Consolidated Financial Statements are described
in Item 7 of our Annual Report on Form 10-K
for the fiscal year ended September 30, 2008 and include the
following:





•
            Allowances
      for doubtful accounts•
            Employee
      benefits and postretirement obligations•
            Regulated
      operations





There
were no significant changes to these critical accounting policies during the six
months ended March 31, 2009. For discussion of other significant
accounting policies, see Note 1 to the Consolidated Financial Statements
included in the Company’s Form 10-Kfor 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.








FINANCIAL
CONDITION








CREDIT
RATINGS





As
of March 31, 2009, 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.





34
 Table of Contents





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 derivative 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 provided by operating activities for the six months ended
March 31, 2009 was $98.8 million, compared with $130.8 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 derivative
instruments. Those variations were partially offset by increased LER operating
cash flows (attributable to higher operating income) and a reduction in cash
paid for income taxes this year.





Net
cash used in investing activities for the six months ended
March 31, 2009 was $28.0 million compared with net cash provided by
investing activities of $55.5 million for the six months ended
March 31, 2008. The variation is primarily attributable to the
proceeds from the sale of SM&P recorded last year.





Net
cash provided by financing activities was $8.0 million for the six months ended
March 31, 2009 compared with net cash used in financing activities of
$93.5 million for the six months ended March 31, 2008. The variation
primarily reflects a net increase in the issuance of short-term debt this year
and the effect of the maturity of long-term debt last 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 syndicated 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 expired in March 2009. Including both lines of credit, the
largest portion provided by a single bank was 26.8%. During the six months ended
March 31, 2009, Laclede Gas utilized both its syndicated line of
credit and commercial paper for short-term funding. Commercial paper outstanding
at March 31, 2009 was $198.8 million, while outstanding bank line
advances were $40.0 million. The weighted average interest rate on these
short-term borrowings was 0.7% per annum at March 31, 2009. Based on
total short-term borrowings at March 31, 2009, a change in interest
rate of 100 basis points would increase or decrease pre-tax earnings and cash
flows of Laclede Group by approximately $2.4 million on an annual basis.
Portions of such increases or decreases may be offset through the application of
PGA carrying costs. Although Laclede Gas borrowed funds from Laclede Group from
time to time within the six months ended March 31, 2009, there were no
such borrowings outstanding at the end of the period. 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 six months ended
March 31, 2009. Excluding borrowings from Laclede Group, the Utility’s
maximum borrowings for the period were $309.9 million.





Laclede
Gas’ lines of credit include covenants limiting total debt, including short-term
debt, to no more than 70% of total capitalization and requiring earnings before
interest, taxes, depreciation, and amortization (EBITDA) to be at least 2.25
times interest expense. On March 31, 2009, total debt was 60% of total
capitalization.For the
twelve months ended March 31, 2009, EBITDA was 3.88 times interest
expense.


35
 Table of Contents





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 54% on
March 31, 2009. 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 six months ended
March 31, 2009.





Long-term
Debt





At
March 31, 2009, 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 $371.1 million remained available under this authorization
as of March 31, 2009. During the six months ended
March 31, 2009, pursuant to this authority, the Utility sold 1,198
shares of its common stock to Laclede Group for $41.3 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
March 31, 2009, there were 391,370 shares remaining available for
issuance under this Form S-3.


On
March 31, 2009, Laclede Gas redeemed all of its outstanding 5% Series
B and 4.56% Series C preferred stock, totaling $0.6 million, at its par value of
$25 per share in addition to the dividend paid on that same date.





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 into 2014. At March 31, 2009, 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 March 31, 2009, the
carrying value of the liability recognized for these guarantees was $0.3
million.





Laclede
Group had guarantees totaling $82.5 million for performance and payment of
certain wholesale gas supply purchases by LER, as of March 31, 2009.
Since that date, total guarantees issued by Laclede Group on behalf of LER
increased by $6.0 million bringing the total to $88.5 million in guarantees
outstanding at April 29, 2009. No amounts have been recorded for these
guarantees in the financial statements.





Other





Utility
capital expenditures were $25.7 million for the six months ended
March 31, 2009, compared with $26.4 million for the same period
last year. Non-utility capital expenditures were $0.9 million for the six months
ended March 31, 2009, compared with $1.3 million for the six months
ended March 31, 2008.





Consolidated
capitalization at March 31, 2009 consisted of 57.8% Laclede Group
common stock equity and 42.2% Laclede Gas long-term debt.


36
 Table of Contents





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 March 31, 2009 and at September 30, 2008,
such as Accounts receivable - net, Gas stored underground, Notes payable,
Accounts payable, Regulatory assets and Regulatory liabilities, and Delayed and
Advance customer billings. The Consolidated Balance Sheet at
March 31, 2008 is presented to facilitate comparison of these items
with the corresponding interim period of the preceding fiscal year.








CONTRACTUAL
OBLIGATIONS





As
of March 31, 2009, 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
                      
                      
                      521.8
                      
                      
                      12.3
                      
                      
                      48.4
                      
                      
                      45.1
                      
                      
                      416.0Operating
      Leases (a)
                      
                      
                      15.8
                      
                      
                      2.7
                      
                      
                      8.1
                      
                      
                      3.6
                      
                      
                      1.4Purchase
      Obligations – Natural Gas (b)
                      
                      
                      1,625.4
                      
                      
                      287.8
                      
                      
                      826.7
                      
                      
                      466.8
                      
                      
                      44.1Purchase
      Obligations – Other (c)
                      
                      
                      108.1
                      
                      
                      10.0
                      
                      
                      25.5
                      
                      
                      17.6
                      
                      
                      55.0Total
      (d)
                      
                      $
                      2,661.1
                      
                      $
                      312.8
                      
                      $
                      933.7
                      
                      $
                      558.1
                      
                      $
                      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 March 31, 2009 New York Mercantile Exchange (NYMEX)
      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 $1.5 million during the remainder of
      fiscal year 2009. Laclede Gas anticipates a $0.7 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 $6.6 million to the qualified
      trusts and $0.2 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.





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MARKET RISK





Laclede
Gas’ commodity price risk, which arises from market fluctuations in the price of
natural gas, is primarily managed through the operation of its PGA Clause. The
PGA Clause allows Laclede Gas to flow through to customers, subject to prudence
review, the cost of purchased gas supplies. The Utility is allowed the
flexibility to make up to three discretionary PGA changes during each year, in
addition to its mandatory November PGA change, so long as such changes are
separated by at least two months. The Utility is able to mitigate, to some
extent, changes in commodity prices through the use of physical storage supplies
and regional supply diversity. Laclede Gas also has a risk management policy
that allows for the purchase of natural gas derivative instruments with the goal
of managing its 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
derivative instruments are allowed to be passed on to the Utility’s customers
through the operation of its PGA Clause. Accordingly, Laclede Gas does not
expect any adverse earnings impact as a result of the use of these derivative
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, as well as other variations in
the timing of collections of gas costs, are recovered through the PGA Clause.
For more information about the Utility’s natural gas derivative instruments, see
Note 6 to the Consolidated Financial
Statements.





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 NYMEX futures contracts to lock in margins. At
March 31, 2009, LER’s unmatched positions are not material to Laclede
Group’s financial position or results of operations. For details related to
LER’s derivatives and hedging activities, see Note 6 to the
Consolidated Financial Statements.





LER
has concentrations of credit risk in that a significant portion of its revenues
and related accounts receivable are from wholesale sales made to customers that
are (or are associated with) major energy producers or utility companies. These
concentrations of sales to major energy producers and utility companies have the
potential to affect the Company’s overall exposure to credit risk, either
positively or negatively, in that each of these two groups of wholesale
customers may be affected similarly by changes in economic, industry or other
conditions. For more information on these concentrations of credit risk,
including how LER manages these risks, see Note 7 to the
Consolidated Financial Statements.





The
Company is also subject to interest rate risk associated with its long-term and
short-term debt issuances. Refer to the Liquidity and Capital Resources section
of this Management’s Discussion and Analysis for information about the effect of
changes in interest rates.








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. For changes during the
six months ended March 31, 2009, see Note 10to
the Consolidated Financial Statements of this report.








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.





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 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 38 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 second fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.














39
 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 and Note 10to the Consolidated Financial Statements of this
report. 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 33 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
February 10, 2009, the Board of Directors of Laclede Gas approved the
sale of 11 shares of Laclede Gas common stock to Laclede Group. The proceeds
from the sale, totaling $0.4 million were used to reduce short-term
borrowings. Exemption from registration was claimed under Section 4(2) of the
Securities Act of 1933.





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





The
annual meeting of shareholders of The Laclede Group, Inc. was held on
January 29, 2009. Below are the matters voted upon at the
meeting.





The
following individuals were elected to the Board of Directors of The Laclede
Group:





Director
                  Votes
      in Favor
                  Votes
      AgainstArnold
      W. Donald
                  19,110,884
                  896,314Anthony
      V. Leness
                  19,491,749
                  515,449William
      E. Nasser
                  19,410,065
                  597,133





The
other matters received the following votes:





Proposal
                    Votes
      In Favor
                    Votes
      Against
                    Abstain
                    Broker
                      Non-VotesRatify
      appointment of Deloitte & Touche LLP as independent registered public
      accountant for fiscal year 2009
                    19,505,666
                    387,903
                    
                    113,627
                    NAApprove
      amendments to the Company’s Restricted Stock Plan for Non-Employee
      Directors
                    13,539,581
                    1,588,084
                    
                    217,912
                    4,661,621





Item 5. Other Information





LER
and CenterPoint Energy Gas Transmission Company on March 31, 2009
executed an amendment and restatement of the Firm (Rate Schedule FT)
Transportation Service Agreement TSA No. 1006667 effective
April 1, 2009. Under this amendment and restatement, the term of the
contract was extended to October 31, 2013. The contract is included as
exhibit 10.2 to this Form 10-Q.








Item 6. Exhibits





(a)
            See
      Exhibit
Index

















40
 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.




The
      Laclede Group, Inc.Dated:
                  
                  April
      29, 2009
                  
                  By:
                  /s/
      Mark D. WaltermireMark
      D. WaltermireChief
      Financial Officer(Authorized
      Signatory and Chief Financial
Officer)




















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 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:
                  
                  April
      29, 2009
                  
                  By:
                  /s/
      Mark D. WaltermireMark
      D. WaltermireSenior
      Vice President andChief
      Financial Officer(Authorized
      Signatory and Chief Financial
Officer)

















42
 Table of Contents








INDEX TO
EXHIBITS








Exhibit
      No.10.1
            -
            Restricted
      Stock Plan for Non-Employee Directors as amended and effective
      January 29, 2009, incorporated by reference from appendix A to
      the Company’s proxy statement, filed December 22, 2008 (File No.
      1-16681).10.2
            -
            Amended
      and Restated Firm (Rate Schedule FT) Transportation Service Agreement
      between Laclede Energy Resources, Inc. and CenterPoint Energy Gas
      Transmission Company TSA #1006667.12
            -
            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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