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 June 30, 2008


OR


[    
      ]
            TRANSITION
      REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF
      1934




Commission
      File Number
            Exact
      Name of Registrant as Specified in its Charter and Principal Office
      Address and Telephone Number
            State
      of Incorporation
            I.R.S.
              Employer
      Identification Number1-16681
            The
      Laclede Group, Inc.
              720
      Olive Street
              St.
      Louis, MO 63101
              314-342-0500
            Missouri
            74-29765041-1822
            Laclede
      Gas Company
              720
      Olive Street
              St.
      Louis, MO 63101
              314-342-0500
            Missouri
            43-0368139





Indicate
by check mark whether the registrants (1) have 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.





Yes
            [
      X ]
            No
            [    
      ]





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act):




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




Indicate
by check mark whether the registrant 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
            August 5,
      2008The Laclede Group,
      Inc.:
            Common
      Stock ($1.00 Par Value)
            21,971,760Laclede Gas
      Company:
            Common
      Stock ($1.00 Par Value)
            10,391  *


*
100% owned by The Laclede Group, Inc.


























TABLE
      OF CONTENTS
            Page
      No.PART
      1.  FINANCIAL INFORMATIONItem
      1
            Financial
      StatementsThe
      Laclede Group, Inc.:Statements
      of Consolidated Income
            4Statements
      of Consolidated Comprehensive Income
            5Consolidated
      Balance Sheets
            6-7Statements
      of Consolidated Cash Flows
            8Notes
      to Consolidated Financial Statements
            9-22Laclede
      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. 6-13Item
      2
            Management’s
      Discussion and Analysis of Financial Condition andResults
      of Operations (The Laclede Group, Inc.)
            23-35Management’s
      Discussion and Analysis of Financial Condition andResults
      of Operations (Laclede Gas Company)
            Ex.
      99.1, p. 14-23Item
      3
            Quantitative
      and Qualitative Disclosures About Market Risk
            36Item
      4
            Controls
      and Procedures
            36PART
      II.  OTHER INFORMATIONItem
      1
            Legal
      Proceedings
            37Item
      2
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            37Item
      5
            Other
      Information
            37Item
      6
            Exhibits
            37SIGNATURES
      – The Laclede Group, Inc.
            38SIGNATURES
      – Laclede Gas Company
            39INDEX
      TO EXHIBITS
            40








FILING FORMAT


This
Quarterly Report on Form 10-Q is a combined report being filed by two separate
registrants: The Laclede Group, Inc. (Laclede Group or the Company) and Laclede
Gas Company (Laclede Gas or the Utility).








2





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, 2007.








3


Item
1. Financial Statements
  THE
      LACLEDE GROUP, INC.STATEMENTS
      OF CONSOLIDATED INCOME(UNAUDITED)Three
      Months Ended
              
              
              
              Nine
      Months EndedJune
      30,
              
              
              
              June
      30,(Thousands,
      Except Per Share Amounts)
              
              
              2008
              
              
              2007
              
              
              
              
              2008
              
              
              2007Operating
      Revenues:Regulated
      Gas Distribution
              
              $
              189,598
              
              $
              185,696
              
              
              
              $
              1,017,579
              
              $
              1,027,777Non-Regulated
      Gas Marketing
              
              
              314,646
              
              
              218,771
              
              
              
              
              735,831
              
              
              548,088Other
              
              
              1,244
              
              
              1,753
              
              
              
              
              3,774
              
              
              4,187Total
      Operating Revenues
              
              
              505,488
              
              
              406,220
              
              
              
              
              1,757,184
              
              
              1,580,052Operating
      Expenses:RegulatedNatural
      and propane gas
              
              
              112,896
              
              
              121,490
              
              
              
              
              713,263
              
              
              746,589Other
      operation expenses
              
              
              34,285
              
              
              29,283
              
              
              
              
              108,487
              
              
              99,779Maintenance
              
              
              6,543
              
              
              5,830
              
              
              
              
              18,592
              
              
              17,488Depreciation
      and amortization
              
              
              8,819
              
              
              8,565
              
              
              
              
              26,295
              
              
              25,630Taxes,
      other than income taxes
              
              
              14,549
              
              
              13,360
              
              
              
              
              60,485
              
              
              60,467Total
      Regulated Operating Expenses
              
              
              177,092
              
              
              178,528
              
              
              
              
              927,122
              
              
              949,953Non-Regulated
      Gas Marketing
              
              
              308,035
              
              
              212,948
              
              
              
              
              714,928
              
              
              531,497Other
              
              
              1,102
              
              
              1,589
              
              
              
              
              3,815
              
              
              4,398Total
      Operating Expenses
              
              
              486,229
              
              
              393,065
              
              
              
              
              1,645,865
              
              
              1,485,848Operating
      Income
              
              
              19,259
              
              
              13,155
              
              
              
              
              111,319
              
              
              94,204Other
      Income and (Income Deductions) – Net
              
              
              (836
              )
              
              1,027
              
              
              
              
              2,889
              
              
              5,403Interest
      Charges:Interest
      on long-term debt
              
              
              4,876
              
              
              5,626
              
              
              
              
              14,877
              
              
              16,877Interest
      on long-term debt to unconsolidated affiliate trust
              
              
              347
              
              
              69
              
              
              
              
              486
              
              
              208Other
      interest charges
              
              
              1,189
              
              
              1,826
              
              
              
              
              7,408
              
              
              8,199Total
      Interest Charges
              
              
              6,412
              
              
              7,521
              
              
              
              
              22,771
              
              
              25,284Income
      from Continuing Operations Before Income Taxesand
      Dividends on Laclede Gas Redeemable Preferred Stock
              
              
              12,011
              
              
              6,661
              
              
              
              
              91,437
              
              
              74,323Income
      Tax Expense
              
              
              2,902
              
              
              1,888
              
              
              
              
              30,713
              
              
              26,110Dividends
      on Laclede Gas Redeemable Preferred Stock
              
              
              8
              
              
              10
              
              
              
              
              27
              
              
              33Income
      from Continuing Operations
              
              
              9,101
              
              
              4,763
              
              
              
              
              60,697
              
              
              48,180Income
      from Discontinued Operations, Netof
      Income Tax (Note 2)
              
              
              158
              
              
              4,499
              
              
              
              
              20,819
              
              
              988Net
      Income
              
              $
              9,259
              
              $
              9,262
              
              
              
              $
              81,516
              
              $
              49,168Average
      Number of Common Shares Outstanding
              
              
              21,701
              
              
              21,478
              
              
              
              
              21,614
              
              
              21,434Basic
      Earnings Per Share of Common Stock:Income
      from Continuing Operations
              
              $
              0.42
              
              $
              0.22
              
              
              
              $
              2.81
              
              $
              2.24Income
      from Discontinued Operations
              
              
              0.01
              
              
              0.21
              
              
              
              
              0.96
              
              
              0.05Net
      Income
              
              $
              0.43
              
              $
              0.43
              
              
              
              $
              3.77
              
              $
              2.29Diluted
      Earnings Per Share of Common Stock:Income
      from Continuing Operations
              
              $
              0.41
              
              $
              0.22
              
              
              
              $
              2.80
              
              $
              2.24Income
      from Discontinued Operations
              
              
              0.01
              
              
              0.21
              
              
              
              
              0.96
              
              
              0.05Net
      Income
              
              $
              0.42
              
              $
              0.43
              
              
              
              $
              3.76
              
              $
              2.29Dividends
      Declared Per Share of Common Stock
              
              $
              0.375
              
              $
              0.365
              
              
              
              $
              1.125
              
              $
              1.095See
      Notes to Consolidated Financial
Statements.
 
 
  4
  
 
 THE
      LACLEDE GROUP, INC.STATEMENTS
      OF CONSOLIDATED COMPREHENSIVE INCOME(UNAUDITED)Three
      Months Ended
              
              
              
              Nine
      Months EndedJune
      30,
              
              
              
              June
      30,(Thousands)
              
              
              2008
              
              
              2007
              
              
              
              
              2008
              
              
              2007Net
      Income
              
              $
              9,259
              
              $
              9,262
              
              
              
              $
              81,516
              
              $
              49,168Other
      Comprehensive Income (Loss), Before Tax:Net
      gains (losses) on cash flow hedging derivative
instruments:Net
      hedging gain (loss) arising during period
              
              
              (10,388
              )
              
              5,194
              
              
              
              
              (16,266
              )
              
              3,222Reclassification
      adjustment for (gains) losses includedin
      net income
              
              
              3,256
              
              
              (2,464
              )
              
              
              
              (1,184
              )
              
              (4,384
              )Net
      unrealized gains (losses) on cash flow hedgingderivative
      instruments
              
              
              (7,132
              )
              
              2,730
              
              
              
              
              (17,450
              )
              
              (1,162
              )Amortization
      of actuarial loss included in net periodicpension
      cost
              
              
              43
              
              
              —
              
              
              
              
              129
              
              
              —Other
      Comprehensive Income (Loss), Before Tax
              
              
              (7,089
              )
              
              2,730
              
              
              
              
              (17,321
              )
              
              (1,162
              )Income
      Tax Expense (Benefit) Related to Items ofOther
      Comprehensive Income (Loss)
              
              
              (2,739
              )
              
              1,055
              
              
              
              
              (6,692
              )
              
              (449
              )Other
      Comprehensive Income (Loss), Net of Tax
              
              
              (4,350
              )
              
              1,675
              
              
              
              
              (10,629
              )
              
              (713
              )Comprehensive
      Income
              
              $
              4,909
              
              $
              10,937
              
              
              
              $
              70,887
              
              $
              48,455See Notes to
      Consolidated Financial Statements.
 
 
 
 
 
 
 
 
 
 
  5
  
 
 THE
      LACLEDE GROUP, INC.CONSOLIDATED
      BALANCE SHEETS(UNAUDITED)June
      30,
              
              
              
              Sept.
      30,
              
              
              
              June
      30,(Thousands)
              
              2008
              
              
              
              2007
              
              
              
              2007ASSETSUtility
      Plant
              
              $
              1,215,336
              
              
              
              $
              1,187,828
              
              
              
              $
              1,176,954Less:  Accumulated
      depreciation and amortization
              
              
              402,229
              
              
              
              
              394,034
              
              
              
              
              392,250Net
      Utility Plant
              
              
              813,107
              
              
              
              
              793,794
              
              
              
              
              784,704Non-utility
      property
              
              
              3,952
              
              
              
              
              4,065
              
              
              
              
              4,050Other
      investments
              
              
              43,226
              
              
              
              
              43,635
              
              
              
              
              43,309Property
      and investments of discontinued operations
              
              
              —
              
              
              
              
              42,601
              
              
              
              
              42,748Other
      Property and Investments
              
              
              47,178
              
              
              
              
              90,301
              
              
              
              
              90,107Current
      Assets:Cash
      and cash equivalents
              
              
              32,971
              
              
              
              
              52,746
              
              
              
              
              36,365Accounts
      receivable:Gas
      customers – billed and unbilled
              
              
              103,602
              
              
              
              
              102,224
              
              
              
              
              104,038Other
              
              
              126,871
              
              
              
              
              57,861
              
              
              
              
              79,241Allowances
      for doubtful accounts
              
              
              (14,107
              )
              
              
              
              (11,232
              )
              
              
              
              (15,591
              )Delayed
      customer billings
              
              
              18,389
              
              
              
              
              —
              
              
              
              
              11,621Inventories:Natural
      gas stored underground at LIFO cost
              
              
              84,205
              
              
              
              
              138,256
              
              
              
              
              55,301Propane
      gas at FIFO cost
              
              
              19,907
              
              
              
              
              19,950
              
              
              
              
              19,950Materials,
      supplies, and merchandise at average cost
              
              
              5,699
              
              
              
              
              4,990
              
              
              
              
              5,656Derivative
      instrument assets
              
              
              18,948
              
              
              
              
              31,057
              
              
              
              
              23,379Unamortized
      purchased gas adjustments
              
              
              3,341
              
              
              
              
              12,813
              
              
              
              
              13,387Deferred
      income taxes
              
              
              9,245
              
              
              
              
              —
              
              
              
              
              6,255Prepayments
      and other
              
              
              19,847
              
              
              
              
              27,914
              
              
              
              
              26,848Current
      assets of discontinued operations
              
              
              —
              
              
              
              
              30,756
              
              
              
              
              32,851Total
      Current Assets
              
              
              428,918
              
              
              
              
              467,335
              
              
              
              
              399,301Deferred
      Charges:Prepaid
      pension cost
              
              
              —
              
              
              
              
              —
              
              
              
              
              55,101Regulatory
      assets
              
              
              267,574
              
              
              
              
              285,054
              
              
              
              
              168,458Other
              
              
              4,409
              
              
              
              
              4,669
              
              
              
              
              6,223Total
      Deferred Charges
              
              
              271,983
              
              
              
              
              289,723
              
              
              
              
              229,782Total
      Assets
              
              $
              1,561,186
              
              
              
              $
              1,641,153
              
              
              
              $
              1,503,894
 
 
 
  6
  
  THE
      LACLEDE GROUP, INC.CONSOLIDATED
      BALANCE SHEETS (Continued)(UNAUDITED)June
      30,
              
              
              
              Sept.
      30,
              
              
              
              June
      30,(Thousands,
      except share amounts)
              
              2008
              
              
              
              2007
              
              
              
              2007CAPITALIZATION
      AND LIABILITIESCapitalization:Common
      stock (70,000,000 shares authorized, 21,961,795,
                21,645,637,
      and 21,605,135 shares issued, respectively)
              
              $
              21,962
              
              
              
              $
              21,646
              
              
              
              $
              21,605Paid-in
      capital
              
              
              144,955
              
              
              
              
              136,061
              
              
              
              
              134,277Retained
      earnings
              
              
              324,694
              
              
              
              
              268,761
              
              
              
              
              276,052Accumulated
      other comprehensive income (loss)
              
              
              (8,772
              )
              
              
              
              1,857
              
              
              
              
              2,942Total
      Common Stock Equity
              
              
              482,839
              
              
              
              
              428,325
              
              
              
              
              434,876Redeemable
      preferred stock (less current sinking fund
                requirements)
      – Laclede Gas
              
              
              467
              
              
              
              
              627
              
              
              
              
              627Long-term
      debt to unconsolidated affiliate trust
              
              
              —
              
              
              
              
              46,400
              
              
              
              
              46,400Long-term
      debt (less current portion) – Laclede Gas
              
              
              309,167
              
              
              
              
              309,122
              
              
              
              
              309,101Total
      Capitalization
              
              
              792,473
              
              
              
              
              784,474
              
              
              
              
              791,004Current
      Liabilities:Notes
      payable
              
              
              58,600
              
              
              
              
              211,400
              
              
              
              
              102,100Accounts
      payable
              
              
              191,402
              
              
              
              
              99,109
              
              
              
              
              123,568Advance
      customer billings
              
              
              —
              
              
              
              
              25,440
              
              
              
              
              —Current
      portion of long-term debt and preferred stock
              
              
              160
              
              
              
              
              40,160
              
              
              
              
              40,160Wages
      and compensation accrued
              
              
              13,267
              
              
              
              
              11,532
              
              
              
              
              9,811Dividends
      payable
              
              
              8,326
              
              
              
              
              7,970
              
              
              
              
              7,951Customer
      deposits
              
              
              14,923
              
              
              
              
              15,899
              
              
              
              
              17,322Interest
      accrued
              
              
              6,204
              
              
              
              
              11,103
              
              
              
              
              6,595Taxes
      accrued
              
              
              26,313
              
              
              
              
              20,922
              
              
              
              
              33,660Deferred
      income taxes current
              
              
              —
              
              
              
              
              2,644
              
              
              
              
              —Other
              
              
              6,257
              
              
              
              
              5,756
              
              
              
              
              5,301Current
      liabilities of discontinued operations
              
              
              —
              
              
              
              
              21,730
              
              
              
              
              18,273Total
      Current Liabilities
              
              
              325,452
              
              
              
              
              473,665
              
              
              
              
              364,741Deferred
      Credits and Other Liabilities:Deferred
      income taxes
              
              
              233,368
              
              
              
              
              223,750
              
              
              
              
              232,610Unamortized
      investment tax credits
              
              
              4,030
              
              
              
              
              4,200
              
              
              
              
              4,259Pension
      and postretirement benefit costs
              
              
              71,164
              
              
              
              
              63,678
              
              
              
              
              20,471Asset
      retirement obligations
              
              
              27,300
              
              
              
              
              26,125
              
              
              
              
              25,899Regulatory
      liabilities
              
              
              84,436
              
              
              
              
              39,589
              
              
              
              
              37,100Other
              
              
              22,963
              
              
              
              
              22,554
              
              
              
              
              23,885Deferred
      credits and other liabilities of discontinued operations
              
              
              —
              
              
              
              
              3,118
              
              
              
              
              3,925Total
      Deferred Credits and Other Liabilities
              
              
              443,261
              
              
              
              
              383,014
              
              
              
              
              348,149Total
      Capitalization and Liabilities
              
              $
              1,561,186
              
              
              
              $
              1,641,153
              
              
              
              $
              1,503,894See Notes to
      Consolidated Financial Statements.
 
 
 
  7
  
  THE
      LACLEDE GROUP, INC.STATEMENTS
      OF CONSOLIDATED CASH FLOWS(UNAUDITED)Nine
      Months EndedJune
      30,(Thousands)
              
              2008
              
              
              
              2007Operating
      Activities:Net
      Income
              
              $
              81,516
              
              
              
              $
              49,168Adjustments
      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
              
              
              27,828
              
              
              
              
              28,879Deferred
      income taxes and investment tax credits
              
              
              (6,247
              )
              
              
              
              (20,124
              )Other
      – net
              
              
              3,225
              
              
              
              
              1,529Changes
      in assets and liabilities:Accounts
      receivable – net
              
              
              (67,513
              )
              
              
              
              (34,762
              )Unamortized
      purchased gas adjustments
              
              
              9,472
              
              
              
              
              30,994Deferred
      purchased gas costs
              
              
              72,856
              
              
              
              
              38,022Accounts
      payable
              
              
              92,780
              
              
              
              
              26,640Delayed
      customer billings - net
              
              
              (43,829
              )
              
              
              
              (43,064
              )Taxes
      accrued
              
              
              5,391
              
              
              
              
              18,142Natural
      gas stored underground
              
              
              54,051
              
              
              
              
              82,175Other
      assets and liabilities
              
              
              8,215
              
              
              
              
              (25,607
              )Net
      cash provided by operating activities
              
              
              193,254
              
              
              
              
              151,992Investing
      Activities:Proceeds
      from sale of discontinued operations
              
              
              83,554
              
              
              
              
              —Capital
      expenditures
              
              
              (41,503
              )
              
              
              
              (43,020
              )Other
      investments
              
              
              (76
              )
              
              
              
              (131
              )Proceeds
      from unconsolidated affiliate trust’s redemption of its common
      securities
              
              
              1,400
              
              
              
              
              —Net
      cash provided by (used in) investing activities
              
              
              43,375
              
              
              
              
              (43,151
              )Financing
      Activities:Maturity
      of first mortgage bonds
              
              
              (40,000
              )
              
              
              
              —Redemption
      of long-term debt to unconsolidated affiliate trust
              
              
              (46,400
              )
              
              
              
              —Repayment
      of short-term debt – net
              
              
              (152,800
              )
              
              
              
              (105,200
              )Issuance
      of common stock
              
              
              6,863
              
              
              
              
              5,353Dividends
      paid
              
              
              (24,197
              )
              
              
              
              (23,310
              )Preferred
      stock reacquired
              
              
              (160
              )
              
              
              
              (159
              )Other
              
              
              290
              
              
              
              
              62Net
      cash used in financing activities
              
              
              (256,404
              )
              
              
              
              (123,254
              )Net
      Decrease in Cash and Cash Equivalents
              
              
              (19,775
              )
              
              
              
              (14,413
              )Cash
      and Cash Equivalents at Beginning of Period
              
              
              52,746
              
              
              
              
              50,778Cash
      and Cash Equivalents at End of Period
              
              $
              32,971
              
              
              
              $
              36,365Supplemental
      Disclosure of Cash Paid During the Period for:Interest
              
              $
              30,109
              
              
              
              $
              30,731Income
      taxes
              
              
              40,924
              
              
              
              
              20,418See Notes to
      Consolidated Financial Statements.
 
 
 
  8


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 2007 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.


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


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 June 30, 2008 and
2007, for the Utility, were $10.9 million and $7.2 million, respectively. The
amount of accrued unbilled revenue at September 30, 2007 was $11.9
million.


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


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


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


GROSS RECEIPTS TAXES- Gross
receipts taxes associated with Laclede Gas’ natural gas utility service are
imposed on the Utility and billed to its customers. These amounts are recorded
gross in the Statements of Consolidated Income. Amounts recorded in Regulated
Gas Distribution Operating Revenues for the quarters ended
June 30, 2008 and 2007 were $9.0 million and $8.1 million,
respectively. Amounts recorded in Regulated Gas Distribution Operating Revenues
for the nine months ended June 30, 2008 and 2007 were $47.2 million
and $46.9 million, respectively. Gross receipts taxes are expensed by the
Utility and included in the Taxes, Other Than Income Taxes
line.


9


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, 2007 for
descriptions of these plans.


During
the nine months ended June 30, 2008, the Company awarded 74,100 shares
of performance-contingent restricted stock to executive officers at a weighted
average grant date fair value of $29.32 per share. This number of shares
represents the maximum shares that can be earned pursuant to the terms of the
awards. The shares were awarded on December 5, 2007 and have a
performance period ending in September 2010, during which participants are
entitled to receive full dividends and voting rights on 49,400 of these shares
based on the target level of performance. The number of shares that will
ultimately vest is dependent upon the attainment of certain levels of earnings
and dividend growth performance goals; further, under the terms of the award,
the Compensation Committee (Committee) of the Board of Directors may reduce by
up to 50% the number of shares that vest if the Company’s total shareholder
return (TSR) during the performance period ranks in the bottom quartile relative
to a comparator group of companies. This TSR provision is considered a market
condition under generally accepted accounting principles and is discussed
further below.


During
the nine months ended June 30, 2008, the Company made a separate award
of 15,000 shares of performance-contingent restricted stock to an executive
officer at a weighted average grant date fair value of $33.26 per share. This
number of shares represents the maximum shares that can be earned pursuant to
the terms of the award. The shares were awarded on December 5, 2007
and have a performance period ending in September 2009, during which the
participant is entitled to receive full dividends and voting rights on 10,000 of
these shares based on the target level of performance. The number of shares that
will ultimately vest is dependent upon the attainment of certain business
development performance metrics and succession management objectives and is not
subject to the aforementioned TSR provision.


The
weighted average grant date fair value of performance-contingent restricted
stock awarded during the nine months ended June 30, 2007 was $34.95
per share.


Performance-contingent
restricted stock activity for the nine months ended June 30, 2008 is
presented below:





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





During
the nine months ended June 30, 2008, the Company awarded 23,250 shares
of time-vested restricted stock to executives and key employees at a weighted
average grant date fair value of $34.25 per share. These shares were awarded on
December 5, 2007 and vest in December 2010. In the interim,
participants receive full dividends and voting rights.


During
the nine months ended June 30, 2008, the Company made a special award
of 15,000 time-vested restricted stock units to an executive officer at a
weighted average grant date fair value of $28.49 per share. Each restricted
stock unit represents a contingent right to receive one share of Laclede Group
common stock. The units were awarded on February 14, 2008 and vest in
December 2011. The participant is required to retain the shares acquired
upon vesting for twelve months from the date of delivery of the shares. No
dividends are paid or accrue during the vesting period. Furthermore, the
participant has no voting rights in the interim.


During
the nine months ended June 30, 2008, the Company awarded 12,500 shares
of time-vested restricted stock to non-employee directors at a weighted average
grant date fair value of $33.77 per share. These shares were awarded on January
 31, 2008. The weighted average fair value of restricted stock awarded
to non-employee directors during the nine months ended June 30, 2007
was $32.74 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.


10


Time-vested
restricted stock and time-vested restricted stock unit activity for the nine
months ended June 30, 2008 is presented below:





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





No
stock options were granted during the nine months ended June 30, 2008.
The weighted average fair value of stock options granted during the nine months
ended June 30, 2007 was $8.07 per option.


Stock
option activity for the nine months ended June 30, 2008 is presented
below:





WeightedAverageWeighted
            
            
            Remaining
            
            
            AggregateAverage
            
            
            Contractual
            
            
            IntrinsicExercise
            
            
            Term
            
            
            ValueShares
            
            
            Price
            
            
            (Years)
            
            
            ($000)Outstanding
      at September 30, 2007
            
            617,100
            
            
            $
            30.04Granted
            
            —
            
            
            $
            —Exercised
            
            (157,000
            )
            
            $
            27.98Forfeited
            
            (15,000
            )
            
            $
            30.88Expired
            
            (7,750
            )
            
            $
            31.14Outstanding
      at June 30, 2008
            
            437,350
            
            
            $
            30.73
            
            
            6.6
            
            
            $
            4,217Fully
      Vested and Expected to Vest
              at
      June 30, 2008
            
            424,705
            
            
            $
            30.67
            
            
            6.6
            
            
            $
            4,119Exercisable
      at June 30, 2008
            
            256,725
            
            
            $
            29.42
            
            
            6.0
            
            
            $
            2,812





The
closing price of the Company’s common stock was $40.37 at
June 30, 2008.


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


The
fair value of awards of performance-contingent and time-vested restricted stock
and restricted stock units, not subject to the TSR provision, is estimated using
the closing price of the Company’s stock on the date of the grant. For those
awards that do not pay dividends during the vesting period, the estimate of fair
value is reduced by the present value of the dividends expected to be paid on
the Company’s common stock during the performance period, discounted using an
appropriate U.S. Treasury yield. For shares subject to the TSR provision, the
estimated impact of this market condition is reflected in the grant date fair
value per share of the awards. Accordingly, compensation cost is not reversed to
reflect any actual reductions in the awards that may result from the TSR
provision. However, if the Company’s TSR during the performance period ranks in
the bottom quartile relative to a comparator group of companies and the
Committee elects not to reduce the award (or reduce by a lesser amount), this
election would be accounted for as a modification of the original award and
additional compensation cost would be recognized at that time. The grant date
fair value per share of the awards subject to the TSR provision awarded during
the nine months ended June 30, 2008 was valued by a Monte Carlo
simulation model that assessed the probabilities of various TSR
outcomes.


11


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





Three
      Months Ended
            
            Nine
      Months EndedJune
      30,
            
            June
      30,(Thousands)
            
            2008
            
            2007
            
            2008
            
            2007Total
      compensation cost
            
            $
            508
            
            $
            584
            
            $
            1,930
            
            $
            1,816Compensation
      cost capitalized
            
            
            (112
            )
            
            (127
            )
            
            (410
            )
            
            (388
            )Compensation
      cost recognized in net income
            
            
            396
            
            
            457
            
            
            1,520
            
            
            1,428Income
      tax benefit recognized in net income
            
            
            (153
            )
            
            (177
            )
            
            (587
            )
            
            (552
            )Compensation
      cost recognized in net income,net
      of income tax
            
            $
            243
            
            $
            280
            
            $
            933
            
            $
            876





As
of June 30, 2008, there was $4.6 million of total unrecognized
compensation cost related to nonvested share-based compensation arrangements
(options and restricted stock). That cost is expected to be recognized over a
weighted average period of 2.5 years.


NEW ACCOUNTING STANDARDS - In
June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation Number 48 (FIN 48), “Accounting for Uncertainty in Income Taxes.”
FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with FASB Statement No. 109,
“Accounting for Income Taxes.” Under FIN 48, the Company may recognize the tax
benefit from a tax position only if it is at least more likely than not that the
tax position will be sustained on examination by the taxing authorities, based
on the technical merits of the position. The tax benefits recognized in the
financial statements from such a position should be measured based on the
largest benefit that has a greater than fifty percent likelihood of being
realized upon settlement with the taxing authorities. FIN 48 also provides
guidance on derecognition, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. The Company adopted the provisions
of FIN 48 as of October 1, 2007. For details regarding the cumulative
effect of adoption and other pertinent information, see Note 7, Income
Taxes.


In
September 2006, the 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.” Except
as described below, SFAS No. 157 is effective for the Company as of the
beginning of fiscal year 2009. In February 2008, the FASB issued two
Staff Positions that amend SFAS No. 157. The first FASB Staff Position (FSP),
No. FAS 157-1, excludes from the scope of SFAS No. 157 accounting pronouncements
that address fair value measurements for purposes of lease classification and
measurement. The second FSP, No. FAS 157-2, delays the effective date of SFAS
No. 157 for nonfinancial assets and nonfinancial liabilities, except for items
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). Application of SFAS No. 157 to these items
will be effective for the Company as of the beginning of fiscal year 2010. The
Company is currently evaluating the potential impact of this Statement, as
amended by these Staff Positions, on its consolidated financial
statements.


In
September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Postretirement Plans.” As discussed in Note 2
to the Consolidated Financial Statements included in the Company’s Fiscal
Year 2007 Form 10-K, Laclede Group adopted the recognition and disclosure
provisions of this Statement effective September 30, 2007. The
Statement also requires that plan assets and benefit obligations be measured as
of the date of the employer’s fiscal year-end statement of financial position.
This requirement is effective for the Company as of the end of fiscal year 2009.
In conjunction with adoption of this provision of SFAS No. 158, the Company will
be required to change its valuation date for its pension and other
postretirement plans from June 30 to September 30. The Company is
currently evaluating the impact of adoption of the change in measurement date on
its consolidated financial statements.


12


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


In
June 2007, the FASB ratified the consensus reached in Emerging Issues Task
Force (EITF) Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends
on Share-Based Payment Awards.” This Issue addresses how an entity should
recognize the tax benefit received on dividends that are (a) paid to employees
holding equity-classified nonvested shares, equity-classified nonvested share
units, or equity-classified outstanding share options and (b) charged to
retained earnings under SFAS No. 123(R). The Task Force reached a consensus that
such tax benefits should be recognized as an increase in additional paid-in
capital. This EITF Issue also addresses how the accounting for these tax
benefits is affected if an entity’s estimate of forfeitures changes in
subsequent periods. This EITF Issue is effective for Laclede Group as of the
beginning of fiscal year 2009. The Company is currently evaluating the
provisions of this EITF Issue.


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


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


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


In
May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles.” SFAS No. 162 identifies the sources of
accounting principles and the framework for selecting principles to be used in
the preparation and presentation of financial statements in accordance with
generally accepted accounting principles. This statement will be effective 60
days after the Securities and Exchange Commission approves the Public Company
Accounting Oversight Board’s amendments to AU Section 411, “The Meaning of
Present Fairly in Conformity With Generally Accepted Accounting Principles.” The
Company does not anticipate that the adoption of SFAS No. 162 will have any
effect on its consolidated financial statements.


13


In
May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No. 60.” This Statement
provides clarification to the guidance in SFAS No. 60, “Accounting and Reporting
by Insurance Enterprises,” and expands disclosure requirements. This Statement
is effective for Laclede Group as of the beginning of fiscal year 2010.
Because SFAS No. 163 is primarily applicable to insurance enterprises that issue
financial guarantee insurance contracts, the Company does not anticipate that
the adoption of this Statement will have any effect on its consolidated
financial statements.


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








2.
            DISCONTINUED
      OPERATIONS





On
March 31, 2008, the Company completed the sale of 100% of its interest
in its wholly-owned subsidiary, SM&P, to Stripe Acquisition, Inc. (an
affiliate of Kohlberg Management VI, LLC) for $85 million in cash, subject to
certain closing and post-closing adjustments. SM&P is an underground
facilities locating and marking business that comprised Laclede Group’s
Non-Regulated Services operating segment. The sales agreement included
representations, warranties, and indemnification provisions customary for such
transactions and was filed as an exhibit to the March 31, 2008 Form
10-Q. For information concerning Laclede Group’s obligations under these
provisions, see Note 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 June 30, 2007,
discontinued operations includes pre-tax interest expense of $0.9 million. For
the nine months ended June 30, 2008 and 2007, discontinued operations
includes pre-tax interest expense of $1.6 million and $2.5 million,
respectively. Discontinued operations does not include general corporate
overheads. Income from Discontinued Operations reported in the Statements
of Consolidated Income consists of the following:





Three
      Months Ended
            
            Nine
      Months EndedJune
      30,
            
            June
      30,(Thousands)
            
            2008
            
            2007
            
            2008
            
            2007Operating
      revenues
            
            $
            —
            
            $
            51,707
            
            $
            65,423
            
            $
            118,270Income
      (loss) from operations
            
            
            —
            
            
            7,363
            
            
            (9,387
            )
            
            1,799Gain
      on disposal
            
            
            —
            
            
            —
            
            
            44,491
            
            
            —Pre-tax
      income
            
            
            —
            
            
            7,363
            
            
            35,104
            
            
            1,799Income
      tax expense (benefit)
            
            
            (158
            )
            
            2,864
            
            
            14,285
            
            
            811Income
      from Discontinued Operations
            
            $
            158
            
            $
            4,499
            
            $
            20,819
            
            $
            988





Income
from Discontinued Operations for the quarter ended June 30, 2008 was
$0.2 million due to minor income tax adjustments related to the gain on
disposal.


14


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





Sept.
      30,
            
            June
      30,(Thousands)
            
            2007
            
            2007AssetsProperty
      and Investments:Goodwill
            
            $
            33,595
            
            $
            33,595Property,
      plant, and equipment – net
            
            
            7,204
            
            
            7,420Other
      investments
            
            
            1,802
            
            
            1,733Total
      Property and Investments
            
            
            42,601
            
            
            42,748Current
      Assets:Accounts
      receivable – net
            
            
            28,816
            
            
            30,639Other
            
            
            1,940
            
            
            2,212Total
      Current Assets
            
            
            30,756
            
            
            32,851Total
      Assets
            
            $
            73,357
            
            $
            75,599LiabilitiesCurrent
      Liabilities:Accounts
      payable
            
            $
            7,720
            
            $
            4,998Wages
      and compensation accrued
            
            
            3,950
            
            
            5,879Other
            
            
            10,060
            
            
            7,396Total
      Current Liabilities
            
            
            21,730
            
            
            18,273Deferred
      credits and other liabilities
            
            
            3,118
            
            
            3,925Total
      Liabilities
            
            $
            24,848
            
            $
            22,198








3.
            EARNINGS
      PER SHARE





SFAS
No. 128, “Earnings Per Share,” 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 nine months ended
June 30, 2008, there were no shares attributable to antidilutive
outstanding stock options or time-vested restricted stock excluded from the
calculation of diluted earnings per share. For the quarter and nine months ended
June 30, 2007, there were 207,500 and 114,500 antidilutive shares,
respectively. 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 nine months ended June 30, 2008, 149,000 shares of
nonvested performance-contingent restricted stock were excluded from the
calculation of diluted earnings per share. For both the quarter and nine months
ended June 30, 2007, 110,000 shares were excluded.


15





Three
      Months Ended
            
            Nine
      Months EndedJune
      30,
            
            June
      30,(Thousands,
      Except Per Share Amounts)
            
            
            2008
            
            
            2007
            
            
            2008
            
            
            2007Basic
      EPS:Income
      from Continuing Operations
            
            $
            9,101
            
            $
            4,763
            
            $
            60,697
            
            $
            48,180Weighted
      Average Shares Outstanding
            
            
            21,701
            
            
            21,478
            
            
            21,614
            
            
            21,434Earnings
      Per Share of Common Stock fromContinuing
      Operations
            
            $
            0.42
            
            $
            0.22
            
            $
            2.81
            
            $
            2.24Diluted
      EPS:Income
      from Continuing Operations
            
            $
            9,101
            
            $
            4,763
            
            $
            60,697
            
            $
            48,180Weighted
      Average Shares Outstanding
            
            
            21,701
            
            
            21,478
            
            
            21,614
            
            
            21,434Dilutive
      Effect of Stock Optionsand
      Restricted Stock
            
            
            114
            
            
            41
            
            
            93
            
            
            49Weighted
      Average Diluted Shares
            
            
            21,815
            
            
            21,519
            
            
            21,707
            
            
            21,483Earnings
      Per Share of Common Stock fromContinuing
      Operations
            
            $
            0.41
            
            $
            0.22
            
            $
            2.80
            
            $
            2.24








4.
            PENSION
      PLANS AND OTHER POSTRETIREMENT
BENEFITS





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


Pension
costs for the quarters ending June 30, 2008 and 2007 were $1.5 million
and $1.4 million, respectively, including amounts charged to construction.
Pension costs for the nine months ended June 30, 2008 and 2007 were
$4.6 million and $4.1 million, respectively, including amounts charged to
construction.


The
net periodic pension costs include the following components:





Three
      Months Ended
            
            Nine
      Months EndedJune
      30,
            
            June
      30,(Thousands)
            
            2008
            
            2007
            
            2008
            
            2007Service
      cost – benefits earnedduring
      the period
            
            $
            3,243
            
            $
            3,106
            
            $
            9,728
            
            $
            9,317Interest
      cost on projectedbenefit
      obligation
            
            
            4,670
            
            
            4,482
            
            
            14,010
            
            
            13,447Expected
      return on plan assets
            
            
            (5,162
            )
            
            (5,074
            )
            
            (15,487
            )
            
            (15,222
            )Amortization
      of prior service cost
            
            
            272
            
            
            284
            
            
            816
            
            
            851Amortization
      of actuarial loss
            
            
            791
            
            
            920
            
            
            2,373
            
            
            2,761Sub-total
            
            
            3,814
            
            
            3,718
            
            
            11,440
            
            
            11,154Loss
      on lump sum settlement
            
            
            —
            
            
            —
            
            
            —
            
            
            945Regulatory
      adjustment
            
            
            (2,280
            )
            
            (2,364
            )
            
            (6,840
            )
            
            (8,037
            )Net
      pension cost
            
            $
            1,534
            
            $
            1,354
            
            $
            4,600
            
            $
            4,062





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 nine months ended
June 30, 2008. Lump sum payments recognized as settlements during the
nine months ended June 30, 2007 were $2.8 million.


16


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


SM&P
maintains a non-qualified, defined benefit plan with four participants that was
frozen to new participants in 2002. The plan is a non-qualified plan and
therefore has no assets held in trust. Net pension cost related to the plan is
not material. The Company sold 100% of its interest in SM&P on
March 31, 2008, and the liabilities for this plan remain with
SM&P.


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 the quarters ended June 30, 2008 and
2007 were $1.9 million and $2.0 million, respectively, including amounts charged
to construction. Postretirement benefit costs for the nine months ended
June 30, 2008 and 2007 were $5.7 million and $5.9 million,
respectively, including amounts charged to construction.


Net
periodic postretirement benefit costs consisted of the following
components:





Three
      Months Ended
            
            Nine
      Months EndedJune
      30,
            
            June
      30,(Thousands)
            
            2008
            
            2007
            
            2008
            
            2007Service
      cost – benefits earnedduring
      the period
            
            $
            1,140
            
            $
            1,016
            
            $
            3,420
            
            $
            3,047Interest
      cost on accumulatedpostretirement
      benefit obligation
            
            
            977
            
            
            899
            
            
            2,931
            
            
            2,699Expected
      return on plan assets
            
            
            (509
            )
            
            (430
            )
            
            (1,528
            )
            
            (1,292
            )Amortization
      of transition obligation
            
            
            34
            
            
            34
            
            
            102
            
            
            102Amortization
      of prior service cost
            
            
            (582
            )
            
            (582
            )
            
            (1,746
            )
            
            (1,746
            )Amortization
      of actuarial loss
            
            
            746
            
            
            811
            
            
            2,238
            
            
            2,434Sub-total
            
            
            1,806
            
            
            1,748
            
            
            5,417
            
            
            5,244Regulatory
      adjustment
            
            
            104
            
            
            222
            
            
            314
            
            
            668Net
      postretirement benefit cost
            
            $
            1,910
            
            $
            1,970
            
            $
            5,731
            
            $
            5,912





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








5.
            FINANCIAL
      INSTRUMENTS





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


Settled
and open futures positions were as follows at
June 30, 2008:





Position
      Month
            
            MMBtu
              (millions)
            
            Average
              Price
      per
              MMBtuSettled
      short positions
            
            July
      2008
            
            1.07
            
            $
            12.12Settled
      long positions
            
            July
      2008
            
            0.16
            
            
            10.82Open
      short futures positions
            
            August
      2008
            
            1.12
            
            
            11.67September
      2008
            
            0.45
            
            
            9.40October
      2008
            
            0.18
            
            
            9.82November
      2008
            
            0.81
            
            
            10.02December
      2008
            
            0.34
            
            
            9.55January
      2009
            
            0.31
            
            
            9.76February
      2009
            
            0.31
            
            
            9.74March
      2009
            
            0.27
            
            
            9.69April
      2009
            
            0.03
            
            
            10.72November
      2009
            
            0.10
            
            
            8.80December
      2009
            
            0.15
            
            
            8.83January
      2010
            
            0.15
            
            
            8.83February
      2010
            
            0.15
            
            
            8.83March
      2010
            
            0.10
            
            
            8.80Open
      long futures positions
            
            August
      2008
            
            0.06
            
            
            7.60September
      2008
            
            0.06
            
            
            7.60October
      2008
            
            0.06
            
            
            7.60November
      2008
            
            0.06
            
            
            7.60December
      2008
            
            0.06
            
            
            7.60April
      2009
            
            0.30
            
            
            8.94





The
above futures contracts are derivative instruments, and management has
designated these items as cash flow hedges of forecasted transactions. The fair
values of the instruments are recognized on the Consolidated Balance Sheets. The
change in the fair value of the effective portion of these hedge instruments is
recorded, net of tax, in Other Comprehensive Income. Accumulated Other
Comprehensive Income is a component of Total Common Stock Equity. These amounts
will reduce or be charged to Non-Regulated Gas Marketing Operating Revenues or
Expenses in the Statements of Consolidated Income as the hedged transactions
occur. As of June 30, 2008, it is expected that approximately $10.0
million of pre-tax unrealized losses will be reclassified into the Consolidated
Statement of Income during the next twelve months. The ineffective portions of
these hedge instruments are charged or credited to Non-Regulated Gas Marketing
Operating Revenues or Expenses. The net amount of pre-tax losses recognized in
earnings for the ineffective portion of cash flow hedges was $0.9 million for
the quarter ended June 30, 2008 and $1.3 million for the nine months
ended June 30, 2008. The net amount of pre-tax gains recognized in
earnings for the ineffective portion of cash flow hedges was $0.5 million for
the quarter ended June 30, 2007. The net amount of ineffectiveness
recognized for the nine months ended June 30, 2007 was not material.
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.


18





6.
            LONG-TERM
      DEBT TO UNCONSOLIDATED AFFILIATE
TRUST





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


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








7.
            INCOME
      TAXES





The
Company adopted the provisions of FIN 48, “Accounting for Uncertainty in Income
Taxes,” as of October 1, 2007. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with FASB Statement No. 109, “Accounting for Income Taxes.”
Pursuant to FIN 48, the Company may recognize the tax benefit from a tax
position only if it is at least more likely than not that the tax position will
be sustained on examination by the taxing authorities, based on the technical
merits of the position.


Upon
adoption of FIN 48, the Company recognized a reduction to beginning retained
earnings as a cumulative-effect adjustment totaling $1.1 million, reclassified
$2.5 million of income tax liabilities from current to non-current liabilities,
and increased its liabilities for accrued interest and penalties. Total
unrecognized tax benefits as of October 1, 2007 were $2.1 million, all
of which would have favorably impacted the effective tax rate, if recognized.
The Company recognizes potential accrued interest and penalties related to its
uncertain tax positions as interest expense and other income deductions,
respectively. Potential interest and penalties accrued (net of income tax
benefit) associated with the Company’s uncertain tax positions were $1.5 million
at October 1, 2007. Unrecognized tax benefits, accrued interest
payable, and accrued penalties payable are included in the Other line of the
Deferred Credits and Other Liabilities section of the Consolidated Balance
Sheets.


The
Company is subject to U.S. federal income tax as well as income tax of state and
local jurisdictions. The Company is no longer subject to examination for fiscal
years prior to 2005. The federal statute of limitations remains open until
June 15, 2009 and 2010 for fiscal years 2005 and 2006, respectively.
However, during the quarter ended March 31, 2008, the Company
effectively settled an audit with the Internal Revenue Service for those
periods. Completion of the audit represents an event requiring the Company to
re-evaluate its uncertain tax positions. As a result, the Company recognized
fiscal years 2005 and 2006 unrecognized tax benefits of $1.0 million, which
favorably impacted the effective tax rate, and reversed $1.6 million of accrued
interest and penalties (net of income tax benefit). During the quarter ended
June 30, 2008, the statute of limitations for the Company’s fiscal
year 2004 expired. As a result, previously unrecognized tax benefits of
$0.3 million were recognized by the Company, which favorably impacted the
effective tax rate, and $0.1 million of related accrued interest and penalties
were reversed (net of income tax benefit).


Total
FIN 48 unrecognized tax benefits at June 30, 2008 were $0.9 million,
all of which would favorably impact the effective tax rate, if recognized.
Potential interest and penalties associated with these liabilities were
immaterial. The Company does not expect to make any significant tax payment
related to any of the above obligations within the next twelve
months.





19





8.
            OTHER
      INCOME AND (INCOME DEDUCTIONS) –
NET





Three
      Months Ended
            
            Nine
      Months EndedJune
      30,
            
            June
      30,(Thousands)
            
            2008
            
            2007
            
            2008
            
            2007Allowance
      for funds used during construction
            
            $
            (21
            )
            $
            (2
            )
            $
            (46
            )
            $
            (18
            )Interest
      income
            
            
            738
            
            
            835
            
            
            3,558
            
            
            4,072Other
      income
            
            
            472
            
            
            376
            
            
            1,192
            
            
            922Other
      income deductions
            
            
            (2,025
            )
            
            (182
            )
            
            (1,815
            )
            
            427Other
      Income and (Income Deductions) – Net
            
            $
            (836
            )
            $
            1,027
            
            $
            2,889
            
            $
            5,403





The
decrease in Other Income and (Income Deductions) – Net for the nine months ended
June 30, 2008, compared with the nine months ended
June 30, 2007, was primarily due to higher investment losses, a loss
on the redemption of long-term debt (primarily unamortized issuance costs),
lower income associated with carrying costs applied to under-recoveries of gas
costs, and reduced income associated with changes in the cash surrender value of
life insurance policies. These factors were partially offset by a reversal of
tax-related expenses and additional proceeds related to the Company’s interest,
as a policyholder, in the sale of a mutual insurance company. Carrying costs on
under-recoveries of gas costs are recovered through the Utility’s Purchased Gas
Adjustment (PGA) Clause.








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, “Accounting for the Effects of
Certain Types of Regulation.” Those types of transactions include sales of
natural gas from Laclede Gas to LER, sales of natural gas from LER to Laclede
Gas, and transportation services provided by Laclede Pipeline Company to Laclede
Gas. These revenues are shown on the Intersegment Revenues lines in the table
under Regulated Gas Distribution, Non-Regulated Gas Marketing, and Other
columns, respectively.


Previously,
SM&P comprised the Non-Regulated Services segment and its financial
information was presented separately. As discussed in Note 2, Discontinued
Operations, the Company sold SM&P on March 31, 2008. Accordingly,
financial information for this segment has been reclassified and reported as
discontinued operations in the Consolidated Financial Statements. Under
generally accepted accounting principles, general corporate overhead expenses
may not be reported in discontinued operations. Amounts of such expenses that
were previously reported by SM&P but that are required to be reported in
continuing operations are reflected in the Unallocated & Eliminations column
of the table below. Prior periods reported in the table below have been
reclassified to conform to the current-period presentation of segment
information.


20





Non-Regulated
            
            Regulated
            
            
            
            UnallocatedGas
            
            Gas
            
            
            
            &(Thousands)
            
            Distribution
            
            Marketing
            
            Other
            
            Eliminations
            
            ConsolidatedThree
      Months EndedJune
      30, 2008Revenues
      from externalcustomers
            
            $
            189,597
            
            $
            311,609
            
            $
            984
            
            $
            —
            
            $
            502,190Intersegment
      revenues
            
            
            1
            
            
            3,037
            
            
            260
            
            
            —
            
            
            3,298Total
      operating revenues
            
            
            189,598
            
            
            314,646
            
            
            1,244
            
            
            —
            
            
            505,488Income
      (loss) from continuingoperations
            
            
            5,501
            
            
            4,267
            
            
            (667
            )
            
            —
            
            
            9,101Total
      assets of continuingoperations
            
            
            1,382,002
            
            
            177,893
            
            
            113,369
            
            
            (112,078
            )
            
            1,561,186Nine
      Months EndedJune
      30, 2008Revenues
      from externalcustomers
            
            $
            1,016,302
            
            $
            728,017
            
            $
            2,995
            
            $
            —
            
            $
            1,747,314Intersegment
      revenues
            
            
            1,277
            
            
            7,814
            
            
            779
            
            
            —
            
            
            9,870Total
      operating revenues
            
            
            1,017,579
            
            
            735,831
            
            
            3,774
            
            
            —
            
            
            1,757,184Income
      (loss) from continuingoperations
            
            
            46,579
            
            
            14,782
            
            
            (400
            )
            
            (264
            )
            
            60,697Total
      assets of continuingoperations
            
            
            1,382,002
            
            
            177,893
            
            
            113,369
            
            
            (112,078
            )
            
            1,561,186Three
      Months EndedJune
      30, 2007Revenues
      from externalcustomers
            
            $
            168,673
            
            $
            213,036
            
            $
            1,493
            
            $
            —
            
            $
            383,202Intersegment
      revenues
            
            
            17,023
            
            
            5,735
            
            
            260
            
            
            —
            
            
            23,018Total
      operating revenues
            
            
            185,696
            
            
            218,771
            
            
            1,753
            
            
            —
            
            
            406,220Income
      (loss) from continuingoperations
            
            
            846
            
            
            3,854
            
            
            292
            
            
            (229
            )
            
            4,763Total
      assets of continuingoperations
            
            
            1,288,098
            
            
            130,417
            
            
            78,208
            
            
            (68,428
            )
            
            1,428,295Nine
      Months EndedJune
      30, 2007Revenues
      from externalcustomers
            
            $
            992,383
            
            $
            508,561
            
            $
            3,408
            
            $
            —
            
            $
            1,504,352Intersegment
      revenues
            
            
            35,394
            
            
            39,527
            
            
            779
            
            
            —
            
            
            75,700Total
      operating revenues
            
            
            1,027,777
            
            
            548,088
            
            
            4,187
            
            
            —
            
            
            1,580,052Income
      (loss) from continuingoperations
            
            
            37,214
            
            
            10,971
            
            
            580
            
            
            (585
            )
            
            48,180Total
      assets of continuingoperations
            
            
            1,288,098
            
            
            130,417
            
            
            78,208
            
            
            (68,428
            )
            
            1,428,295








21





10.
            COMMITMENTS
      AND CONTINGENCIES





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
14 to the Consolidated Financial Statements included in the Company’s Fiscal
Year 2007 Form 10-K for information relative to environmental matters
generally. There have been no significant changes relative to environmental
matters during the nine months ended June 30, 2008.


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


On
December 31, 2007, the MoPSC Staff filed a memorandum with the
Commission proposing a disallowance of $2.8 million related to Laclede Gas’
recovery of its purchased gas costs applicable to fiscal 2006. Laclede Gas
believes that the MoPSC Staff’s position lacks merit and intends to vigorously
oppose the adjustment in proceedings before the MoPSC. In addition, the MoPSC’s
Staff’s memorandum 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 will be provided by the Company.


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 June 30, 2008, the carrying amount of
the liability recognized for these indemnification obligations was $0.2 million,
based on the Company’s assessment of risk.


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


Laclede
Gas has several operating leases for the rental of vehicles that contain
provisions requiring Laclede Gas to guarantee certain amounts related to the
residual value of the leased property. These leases have various terms, the
longest of which extends through 2014. At June 30, 2008, the maximum
guarantees under these leases were $1.7 million. However, the Utility estimates
that the residual value of the leased vehicles will be adequate to satisfy most
of the guaranteed amounts. At June 30, 2008, the carrying value of the
liability recognized for these guarantees was $0.3 million.


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 June 30, 2008 are estimated
at approximately $2.7 billion. Additional contracts are generally entered into
prior to or during the heating season.


Laclede
Group had guarantees totaling $57.5 million for performance and payment of
certain wholesale gas supply purchases by LER, as of June 30, 2008.
Since that date, total guarantees issued by Laclede Group on behalf of LER
increased by $1.0 million bringing the total to $58.5 million in guarantees
outstanding at August 4, 2008. No amounts have been recorded for these
guarantees in the financial statements.








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


22


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 spikes in natural gas
      prices;•
            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 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.











23


THE
LACLEDE GROUP, INC.





RESULTS
OF OPERATIONS





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





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





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





Other
subsidiaries provide less than 10% of consolidated revenues.





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





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


24





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





Laclede
Group continues to develop its other subsidiaries. LER continues to focus on
growing its markets on a long-term and sustainable basis by providing both
on-system Utility transportation customers and customers outside of Laclede Gas’
traditional service area with another choice in non-regulated natural gas
suppliers. Nevertheless, income from LER’s operations is subject to fluctuations
in market conditions.





Quarter
Ended June 30, 2008





Earnings





Overview
      – Net Income (Loss) by Operating Segment
            
            Quarter
      EndedJune
      30,(Millions,
      After-tax)
            
            
            2008
            
            
            
            
            2007Regulated
      Gas Distribution
            
            $
            5.5
            
            
            
            $
            0.9Non-Regulated
      Gas Marketing
            
            
            4.3
            
            
            
            
            3.9Other
            
            
            (0.7
            )
            
            
            
            —Income
      from Continuing Operations
            
            
            9.1
            
            
            
            
            4.8Income
      from Discontinued Operations
            
            
            0.2
            
            
            
            
            4.5Net
      Income
            
            $
            9.3
            
            
            
            $
            9.3





Laclede
Group’s consolidated net income was $9.3 million for both the quarters ended
June 30, 2008 and June 30, 2007. Basic and diluted earnings
per share were $0.43 and $0.42, respectively, for the quarter ended
June 30, 2008, compared with basic and diluted earnings per share of
$0.43 for the quarter ended June 30, 2007. Results for the quarter
ended June 30, 2007 included the effect of SM&P’s seasonal
operating income, reported as discontinued operations this year as a result of
the sale of SM&P on March 31, 2008. Consolidated net income was
unchanged from the same period last year despite the absence of earnings this
year from SM&P, the impact of which was offset by higher income reported by
both Laclede Group’s regulated gas distribution and non-regulated gas marketing
segments.





Income
from Continuing Operations





Laclede
Group’s income from continuing operations was $9.1 million for the quarter ended
June 30, 2008, compared with $4.8 million for the quarter ended
June 30, 2007. Basic and diluted earnings per share from continuing
operations were $0.42 and $0.41, respectively, for the quarter ended
June 30, 2008, compared with basic and diluted earnings per share of
$0.22 for the quarter ended June 30, 2007. Earnings results reported
by both Laclede Group’s regulated gas distribution and non-regulated gas
marketing segments increased over the quarter ended June 30, 2007.
Variations in income from continuing operations were primarily attributable to
the factors described below.





Regulated
Gas Distribution net income increased by $4.6 million for the quarter ended
June 30, 2008, compared with the quarter ended
June 30, 2007. The increase in net income was primarily due to the
following factors, quantified on a pre-tax basis:





•
            the
      benefit of the general rate increase, effective August 1, 2007,
      totaling $8.7 million; and,•
            interim
      benefits of a rate design change, effective August 1, 2007, and
      other variations totaling $5.1
million.





25





These
factors were partially offset by:





•
            increases
      in operation and maintenance expenses, excluding the provision for
      uncollectible accounts, totaling $3.1 million;•
            an
      increase in the provision for uncollectible accounts, totaling $2.6
      million; and,•
            lower
      income from off-system sales and capacity release, totaling $2.0 million,
      primarily due to a reduction in the Utility’s share of such income
      (pursuant to the 2007 rate case).





The
Non-Regulated Gas Marketing segment reported an increase in earnings of $0.4
million, compared with the same quarter last year, primarily due to higher
margins on sales of natural gas by LER and slightly higher sales
volumes.





Regulated
Operating Revenues and Operating Expenses





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
June 30, 2008 were $189.6 million, or $3.9 million more than the same
quarter last year. Temperatures experienced in the Utility’s service area during
the quarter were 16.1% colder than the same quarter last year and 28.4% colder
than normal. Total system therms sold and transported were 0.13 billion for the
quarter ended June 30, 2008, compared with 0.14 billion for the same
quarter last year. Total off-system therms sold and transported were 0.03
billion for the quarter ended June 30, 2008, compared with 0.05
billion for the same quarter last year. The increase in regulated operating
revenues was primarily attributable to the following factors:





Quarter
      Ended(Millions)
            June
      30, 2008Lower
      off-system sales volumes
            
            $
            (15.4
            )Higher
      prices charged for off-system sales
            
            
            11.2General
      rate increase, effective August 1, 2007
            
            
            8.7Higher
      charges for system gas sales and other variations
            
            
            4.0Lower
      wholesale gas costs passed on to Utility customers (subject to prudence
      review by the MoPSC)
            
            
            (4.0
            )Lower
      Infrastructure System Replacement Surcharge (ISRS)
revenues
            
            
            (0.6
            )Total
      Variation
            
            $
            3.9





Regulated
operating expenses for the quarter ended June 30, 2008 decreased $1.4
million from the same quarter last year. Natural and propane gas expense
decreased $8.6 million, or 7.1%, from last year’s level, primarily attributable
to lower rates charged by our suppliers, lower off-system gas expense, and lower
system volumes purchased for sendout. Other operation and maintenance expenses
increased $5.7 million, or 16.3%, primarily due to a higher provision for
uncollectible accounts, increased maintenance and distribution charges, higher
legal fees, and increased group insurance charges. These factors were partially
offset by decreased injuries and damages expenses. Taxes, other than income,
increased $1.2 million, or 8.9%, primarily due to higher gross receipts taxes
(attributable to the increased revenues).





Non-Regulated
Gas Marketing Operating Revenues and Operating Expenses





Non-regulated
gas marketing operating revenues increased $95.9 million, primarily due to
increased per unit gas sales prices charged by LER and increased sales volumes.
The increase in non-regulated gas marketing operating expenses totaling $95.1
million was primarily associated with higher prices charged by suppliers and
increased volumes purchased.





Other
Income and (Income Deductions) – Net





The
$1.9 million decrease in other income and (income deductions) – net was
primarily due to a loss on the redemption of long-term debt (primarily
unamortized issuance costs), higher investment losses, and lower income
associated with carrying costs applied to under-recoveries of gas costs.
Carrying costs on under-recoveries of gas costs are recovered through the
Utility’s PGA Clause.


26





Interest
Charges





The
$1.1 million decrease in interest charges was primarily due to a reduction in
interest on long-term debt resulting from the November 2007 maturity of $40
million principal amount of 7 1/2% First Mortgage Bonds.





Income
Taxes





The
$1.0 million increase in income taxes was primarily due to higher pre-tax
income, partially offset by the recognition of previously unrecognized tax
benefits recorded pursuant to Financial Accounting Standards Board
Interpretation No. 48 (FIN 48), “Accounting for Uncertainty in Income Taxes,”
and the net effect of various property-related deductions.





Income
from Discontinued Operations





Laclede
Group closed on the sale of 100% of its interest in SM&P on
March 31, 2008. Income from discontinued operations for the quarter
ended June 30, 2007 was $4.5 million, attributable to SM&P’s
seasonal operating income. Basic and diluted earnings per share from
discontinued operations for the quarter ended June 30, 2007 were
$0.21.





Nine
Months Ended June 30, 2008





Earnings





Overview
      – Net Income (Loss) by Operating Segment
            
            Nine
      Months EndedJune
      30,(Millions,
      After-tax)
            
            
            2008
            
            
            
            
            2007Regulated
      Gas Distribution
            
            $
            46.6
            
            
            
            $
            37.2Non-Regulated
      Gas Marketing
            
            
            14.8
            
            
            
            
            11.0Other
            
            
            (0.7
            )
            
            
            
            —Income
      from Continuing Operations
            
            
            60.7
            
            
            
            
            48.2Income
      from Discontinued Operations
            
            
            20.8
            
            
            
            
            1.0Net
      Income
            
            $
            81.5
            
            
            
            $
            49.2





Laclede
Group’s consolidated net income was $81.5 million for the nine months ended
June 30, 2008, compared with $49.2 million for the nine months ended
June 30, 2007. Basic and diluted earnings per share were $3.77 and
$3.76, respectively, for the nine months ended June 30, 2008, compared
with basic and diluted earnings per share of $2.29 for the nine months ended
June 30, 2007. Earnings per share increased compared to last year
largely due to the one-time gain realized on the sale of Laclede Group’s
wholly-owned subsidiary, SM&P. Earnings results reported by both Laclede
Group’s regulated gas distribution segment and its non-regulated gas marketing
segment also increased over the nine months ended
June 30, 2007.





Income
from Continuing Operations





Laclede
Group’s income from continuing operations was $60.7 million for the nine months
ended June 30, 2008, compared with $48.2 million for the nine months
ended June 30, 2007. Basic and diluted earnings per share from
continuing operations were $2.81 and $2.80, respectively, for the nine months
ended June 30, 2008, compared with basic and diluted earnings per
share of $2.24 for the nine months ended June 30, 2007. Earnings
results reported by both Laclede Group’s regulated gas distribution segment and
its non-regulated gas marketing segment increased over the same period last
year. Variations in income from continuing operations were primarily
attributable to the factors described below.


27





Regulated
Gas Distribution net income increased by $9.4 million for the nine months ended
June 30, 2008, compared with the nine months ended
June 30, 2007. The increase in net income was primarily due to the
following factors, quantified on a pre-tax basis:





•
            the
      benefit of the general rate increase, effective August 1, 2007,
      totaling $30.4 million;•
            the
      effect of higher system gas sales volumes and other variations totaling
      $2.3 million; and,•
            the
      recognition of previously unrecognized tax benefits and the reversal of
      related expenses, totaling $1.5
million.





These
factors were partially offset by:





•
            lower
      income from off-system sales and capacity release, totaling $9.5 million,
      primarily due to a reduction in the Utility’s share of such income
      (pursuant to the 2007 rate case);•
            an
      increase in the provision for uncollectible accounts, totaling $4.9
      million; and,•
            increases
      in operation and maintenance expenses, excluding the provision for
      uncollectible accounts, totaling $4.9
million.





The
Non-Regulated Gas Marketing segment reported an increase in earnings of $3.8
million for the nine months ended June 30, 2008, compared with the
same period last year, primarily due to higher margins on sales of natural gas
by LER, increased sales volumes, and the reversal of tax-related
expenses.





Regulated
Operating Revenues and Operating Expenses





Regulated
gas distribution operating revenues for the nine months ended
June 30, 2008 were $1.0 billion, or $10.2 million less than the same
period last year. Temperatures experienced in the Utility’s service area during
the nine months ended June 30, 2008 were 6.8% colder than the same
period last year, but 0.6% warmer than normal. Total system therms sold and
transported were 0.85 billion for the nine months ended June 30, 2008,
compared with 0.82 billion for the same period last year. Total off-system
therms sold and transported were 0.14 billion for the nine months ended
June 30, 2008, compared with 0.21 billion for the same period last
year. Increases and decreases in the cost of gas associated with system gas
sales volumes have no direct effect on net revenues and net income. The decrease
in regulated operating revenues was primarily attributable to the following
factors:





Nine
      MonthsEnded(Millions)
            June
      30, 2008Lower
      off-system sales volumes
            
            $
            (48.6
            )Lower
      wholesale gas costs passed on to Utility customers (subject to prudence
      review by the MoPSC)
            
            
            (47.2
            )Higher
      system sales volumes, primarily due to colder weather, and other
      variations
            
            
            34.0General
      rate increase, effective August 1, 2007
            
            
            30.4Higher
      prices charged for off-system sales
            
            
            22.8Lower
      ISRS revenues
            
            
            (1.6
            )Total
      Variation
            
            $
            (10.2
            )





Regulated
operating expenses for the nine months ended June 30, 2008 decreased
$22.8 million from the same period last year. Natural and propane gas expense
decreased $33.3 million, or 4.5%, from last year’s level, primarily attributable
to lower rates charged by our suppliers and lower off-system gas expense,
partially offset by increased system volumes purchased for sendout. Other
operation and maintenance expenses increased $9.8 million, or 8.4%, primarily
due to a higher provision for uncollectible accounts, increased maintenance and
distribution expenses, higher legal fees, increased pension costs, the effect of
a gain on the disposal of assets recorded last year, and higher wage rates.
Depreciation and amortization expense increased $0.7 million, or 2.6%, primarily
due to additional depreciable property.





Non-Regulated
Gas Marketing Operating Revenues and Operating Expenses





Non-regulated
gas marketing operating revenues increased $187.7 million, primarily due to
higher per unit gas sales prices charged by LER and increased sales volumes. The
increase in non-regulated gas marketing operating expenses totaling $183.4
million was primarily associated higher prices charged by suppliers and
increased volumes purchased.


28





Other
Income and (Income Deductions) – Net





The
$2.5 million decrease in other income and (income deductions) – net was
primarily due to higher investment losses, a loss on the redemption of long-term
debt (primarily unamortized issuance costs), lower income associated with
carrying costs applied to under-recoveries of gas costs, and reduced income
associated with changes in the cash surrender value of life insurance policies.
These factors were partially offset by a reversal of tax-related expenses and
additional proceeds related to the Company’s interest, as a policyholder, in the
sale of a mutual insurance company. Carrying costs on under-recoveries of gas
costs are recovered through the Utility’s PGA Clause.





Interest
Charges





The
$2.5 million decrease in interest charges was primarily due to a reduction in
interest on long-term debt resulting from the November 2007 maturity of $40
million principal amount of 7 1/2% First Mortgage Bonds and the reversal of
tax-related expenses.





Income
Taxes





The
$4.6 million increase in income taxes was primarily due to higher pre-tax
income, partially offset by the recognition of previously unrecognized tax
benefits recorded pursuant to FIN 48.





Income
from Discontinued Operations





The
sale of SM&P on March 31, 2008 resulted in after-tax earnings of
approximately $26 million, net of associated costs of disposal. Income from
discontinued operations for the nine months ended June 30, 2008 was
$20.8 million, consisting of the net effect of the sale and SM&P’s seasonal
operating loss through the March 31 sale date. Income from discontinued
operations was $1.0 million for the same period last year, reflecting SM&P’s
operating income for the period. Basic and diluted earnings per share from
discontinued operations were $0.96 for the nine months ended
June 30, 2008, compared with basic and diluted earnings per share of
$0.05 for the same period last year.





Labor
Agreement





Laclede
Gas’ labor agreement with Locals 11-6 and 11-194 of the United Steel, Paper and
Forestry, Rubber, Manufacturing, Energy, Allied-Industrial and Service Workers
International Union (Union), which represents approximately 65% of Laclede Gas’
employees, expired at midnight, July 31, 2008. On
August 4, 2008, Laclede Gas and Union representatives reached a new
four-year labor agreement replacing the prior agreement. The new contract will
expire at midnight on July 31, 2012.








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. Laclede Gas believes that Public Counsel’s appeal is without
merit and intends to vigorously oppose the appeal.


29





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





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





On
December 31, 2007, the MoPSC Staff filed a memorandum with the
Commission proposing a disallowance of $2.8 million related to Laclede Gas’
recovery of its purchased gas costs applicable to fiscal 2006. Laclede Gas
believes that the MoPSC Staff’s position lacks merit and intends to vigorously
oppose the adjustment in proceedings before the MoPSC. In addition, the MoPSC’s
Staff’s memorandum 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
will be provided by the Company.





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. Such filing is pending before the
MoPSC.








CRITICAL
ACCOUNTING POLICIES





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





Allowances
      for doubtful accounts – Estimates of the collectibility of trade accounts
      receivable are based on historical trends, age of receivables, economic
      conditions, credit risk of specific customers, and other factors. The
      Utility’s provision for uncollectible accounts is dependent on the
      regulatory treatment provided for such costs. As approved by the MoPSC,
      the Utility is allowed to defer for future recovery certain costs
      associated with amendments to the Cold Weather Rule.Employee
      benefits and postretirement obligations – Pension and postretirement
      obligations are calculated by actuarial consultants that utilize several
      statistical factors and other assumptions related to future events, such
      as discount rates, returns on plan assets, compensation increases, and
      mortality rates. For the Utility, the amount of expense recognized and the
      amounts reflected in other comprehensive income are dependent upon the
      regulatory treatment provided for such costs, as discussed further below.
      Certain liabilities related to group medical benefits and workers’
      compensation claims, portions of which are self-insured and/or contain
      “stop-loss” coverage with third-party insurers to limit exposure, are
      established based on historical
trends.





30





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





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





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





31





For
further discussion of significant accounting policies, see Note 1 to the
Consolidated Financial Statements included in the Company’s Form 10-K for the
fiscal year ended September 30, 2007.








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 June 30, 2008, credit ratings for outstanding securities for
Laclede Group and Laclede Gas issues were as follows:





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





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








CASH
FLOWS





The
Company’s short-term borrowing requirements typically peak during colder months
when Laclede Gas borrows money to cover the lag between when it purchases its
natural gas and when its customers pay for that gas. Changes in the wholesale
cost of natural gas, 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 can cause significant variations in the Utility’s cash
provided by or used in operating activities.





Net
cash provided by operating activities for the nine months ended
June 30, 2008 was $193.3 million, compared with $152.0 million for the
same period last year. The variation is primarily attributable to differences in
the timing of the collections of gas cost under the Utility’s PGA Clause,
including the effects of this year’s reduction in net cash payments associated
with the Utility’s use of natural gas financial instruments, and higher
operating income this year. These variations are partially offset by an increase
in cash paid for income taxes.





Net
cash provided by investing activities for the nine months ended
June 30, 2008 was $43.4 million, compared with net cash used in
investing activities of $43.2 million for the nine months ended
June 30, 2007. The variation is primarily attributable to the proceeds
from the sale of SM&P recorded this year.





Net
cash used in financing activities was $256.4 million for the nine months ended
June 30, 2008, compared with $123.3 million for the nine months ended
June 30, 2007. The variation is primarily attributable to increased
repayments of short-term debt, the redemption of the Company’s long-term debt to
an unconsolidated affiliate trust, and the maturity of long-term debt this year.
The Company used a portion of the proceeds from the aforementioned sale of
SM&P to fund the redemption of the long-term debt to the unconsolidated
affiliate trust.





32





LIQUIDITY
AND CAPITAL RESOURCES





As
indicated above, the Company’s short-term borrowing requirements typically peak
during the colder months. These short-term cash requirements have traditionally
been met through the sale of commercial paper supported by lines of credit with
banks. Laclede Gas has a line of credit in place of $320 million. During the
second quarter, the expiration of this line was extended one year to
December 2011 from December 2010. In November 2007, the Utility
established a seasonal line of credit of $40 million, which expired in
March 2008. The Utility had short-term borrowings aggregating to a maximum
of $304.5 million at any one time during the nine months ended
June 30, 2008. Short-term commercial paper borrowings outstanding at
June 30, 2008 were $58.6 million. The weighted average interest rate
on these short-term borrowings was 3.0% per annum at June 30, 2008.
Based on total short-term borrowings at June 30, 2008, a change in
interest rates of 100 basis points would increase or decrease pre-tax earnings
and cash flows of Laclede Group by approximately $0.6 million on an annual
basis. Portions of such increases or decreases may be offset through the
application of PGA carrying costs. In addition, Laclede Gas had borrowings from
Laclede Group totaling $44.4 million at June 30, 2008.





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 June 30, 2008, total debt was 53% of total
capitalization. For the twelve months ended June 30, 2008, EBITDA was
3.97 times interest expense.





Laclede
Gas has on file with the Securities and Exchange Commission (SEC) an effective
shelf registration on Form S-3 for issuance of $350 million of securities. The
full amount of this shelf registration 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. In May 2008,
pursuant to this authority, the Utility sold 26 shares of its common stock to
Laclede Group for $0.9 million, leaving $493.3 million remaining under this
authorization as of the date of this filing. The amount, timing, and type of
additional financing to be issued will depend on cash requirements and market
conditions.





On
November 1, 2007, Laclede Gas paid at maturity $40 million principal
amount of 7 1/2% First Mortgage Bonds. This maturity was funded through
short-term borrowings. At June 30, 2008, Laclede Gas had fixed-rate
long-term debt totaling $310 million. While these long-term debt issues are
fixed-rate, they are subject to changes in fair value as market interest rates
change. However, increases or decreases in fair value would impact earnings and
cash flows only if Laclede Gas were to reacquire any of these issues in the open
market prior to maturity.





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





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





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 2008, 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 43% on
June 30, 2008. These lines were previously used to provide letters of
credit on behalf of SM&P, and have been used to provide for seasonal funding
needs of the various other subsidiaries from time to time. Just prior to the
SM&P sale, the letters of credit provided on behalf of SM&P totaled $2.8
million. Such letters have been released and extinguished. There were no
borrowings under Laclede Group’s lines during the quarter.





Laclede
Gas has several operating leases for the rental of vehicles that contain
provisions requiring Laclede Gas to guarantee certain amounts related to the
residual value of the leased property. These leases have various terms, the
longest of which extends through 2014. At June 30, 2008, the maximum
guarantees under these leases were $1.7 million. However, the Utility estimates
that the residual value of the leased vehicles will be adequate to satisfy most
of the guaranteed amounts. At June 30, 2008, the carrying value of the
liability recognized for these guarantees was $0.3 million.


33


Laclede
Group had guarantees totaling $57.5 million for performance and payment of
certain wholesale gas supply purchases by LER, as of June 30, 2008.
Since that date, total guarantees issued by Laclede Group on behalf of LER
increased by $1.0 million bringing the total to $58.5 million in guarantees
outstanding at August 4, 2008. No amounts have been recorded for these
guarantees in the financial statements.





Utility
capital expenditures were $40.2 million for the nine months ended
June 30, 2008, compared with $41.5 million for the same period last
year. Non-utility capital expenditures were $1.3 million for the nine months
ended June 30, 2008, compared with $1.5 million for the same period
last year.





Consolidated
capitalization at June 30, 2008, excluding current obligations of
preferred stock, consisted of 60.9% Laclede Group common stock equity, 0.1%
Laclede Gas preferred stock equity, and 39.0% Laclede Gas long-term
debt.





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





The
seasonal nature of Laclede Gas’ sales affects the comparison of certain balance
sheet items at June 30, 2008 and at September 30, 2007, 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 June 30, 2007 is
presented to facilitate comparison of these items with the corresponding interim
period of the preceding fiscal year.








CONTRACTUAL
OBLIGATIONS





As
of June 30, 2008, Laclede Group had contractual obligations with
payments due as summarized below (in millions):





Payments
      due by periodRemaining
            
            
            
            
            
            Fiscal
      YearsContractual
      Obligations
            
            Total
            
            Fiscal
      Year
              2008
            
            Fiscal
      Years
              2009-2010
            
            Fiscal
      Years
              2011-2012
            
            2013
      and
              thereafterPrincipal
      Payments on Long-Term Debt
            
            $
            310.0
            
            $
            —
            
            $
            —
            
            $
            25.0
            
            $
            285.0Interest
      Payments on Long-Term Debt
            
            
            382.4
            
            
            1.2
            
            
            39.0
            
            
            36.5
            
            
            305.7Operating
      Leases (a)
            
            
            11.1
            
            
            1.3
            
            
            7.6
            
            
            2.2
            
            
            —Purchase
      Obligations – Natural Gas (b)
            
            
            2,706.3
            
            
            375.7
            
            
            1,621.9
            
            
            590.6
            
            
            118.1Purchase
      Obligations – Other (c)
            
            
            119.1
            
            
            6.4
            
            
            25.9
            
            
            19.2
            
            
            67.6Total
      (d)
            
            $
            3,528.9
            
            $
            384.6
            
            $
            1,694.4
            
            $
            673.5
            
            $
            776.4





(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 June 30, 2008 New York Mercantile Exchange futures prices.
      Laclede Gas recovers the costs related to its purchases, transportation,
      and storage of natural gas through the operation of its PGA Clause,
      subject to prudence review; however, variations in the timing of
      collections of gas costs from customers affect short-term cash
      requirements. Additional contractual commitments are generally entered
      into prior to or during the heating season.(c)
            These
      purchase obligations reflect miscellaneous agreements for the purchase of
      materials and the procurement of services necessary for normal
      operations.(d)
            The
      categories of Capital Leases and Other Long-Term liabilities have been
      excluded from the table above because there are no applicable amounts of
      contractual obligations under these categories. Also, commitments related
      to pension and postretirement benefit plans have been excluded from the
      table above. The Company does not expect to make any contributions to its
      qualified, trusteed pension plans during the remainder of fiscal
      year 2008. Laclede Gas anticipates a $0.1 million contribution
      relative to its non-qualified pension plans during the remainder of fiscal
      year 2008. With regard to the postretirement benefits, the Company
      anticipates Laclede Gas will contribute $4.1 million to the qualified
      trusts and $0.1 million directly to participants from Laclede Gas’ funds
      during the remainder of fiscal year 2008. 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.





34





MARKET
RISK





Laclede
Gas adopted a risk management policy that provides for the purchase of natural
gas financial instruments with the goal of managing price risk associated with
purchasing natural gas on behalf of its customers. This policy prohibits
speculation. Costs and cost reductions, including carrying costs, associated
with the Utility’s use of natural gas financial instruments are allowed to be
passed on to the Utility’s customers through the operation of its PGA Clause,
through which the MoPSC allows the Utility to recover gas supply costs.
Accordingly, Laclede Gas does not expect any adverse earnings impact as a result
of the use of these financial instruments. At June 30, 2008, the
Utility held 7.4 million MMBtu of futures contracts at an average price of $9.03
per MMBtu. Additionally, 13.8 million MMBtu of other price risk mitigation was
in place through the use of option-based strategies. These positions have
various expiration dates, the longest of which extends through
March 2009.





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








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 14 to the Consolidated
Financial Statements included in the Company’s Form 10-K for the fiscal year
ended September 30, 2007. There have been no significant changes
relative to environmental matters during the nine months ended
June 30, 2008.








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.





35


Item
3. Quantitative and Qualitative Disclosures About Market Risk





For
this discussion, see the “Market Risk” subsection in Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations, on
page 35 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 third fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.














36


PART
II. OTHER INFORMATION





Item
1. Legal Proceedings





For
a description of environmental matters and legal proceedings, see Note 14 to the
Consolidated Financial Statements included in the Company’s Form 10-K for the
fiscal year ended September 30, 2007. 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 29 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
May 12, 2008, the Board of Directors of Laclede Gas approved the sale
of 26 shares of Laclede Gas common stock to Laclede Group. The proceeds from the
sale, totaling $0.9 million, were used to reduce short-term borrowings.
Exemption from registration was claimed under Section 4(2) of the Securities Act
of 1933.




Item 5. Other
Information




(a)
            On
      August 1, 2008, Laclede Group executed an amendment to its $40
      million line of credit with U.S. Bank, National Association to extend its
      term for an additional year, expiring on August 3, 2009. In
      addition, the parties amended certain terms related to rates and fees. The
      amendment is filed with this Form 10-Q as exhibit
      10.1.




Item
6. Exhibits





(a)
            See
      Exhibit Index





























37





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:
            
            August
      4, 2008
            
            By:
            /s/
      Mark D. WaltermireMark
      D. WaltermireChief
      Financial Officer(Authorized
      Signatory and Chief Financial
Officer)




















38





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:
            
            August
      4, 2008
            
            By:
            /s/
      Mark D. WaltermireMark
      D. WaltermireSenior
      Vice President andChief
      Financial Officer(Authorized
      Signatory and Chief Financial
Officer)

















39








INDEX TO
EXHIBITS








Exhibit
      No.10.1
            -
            Second
      Amendment to Amended and Restated Revolving Credit Agreement between the
      Company and U.S. Bank, National Association executed on
      August 1, 2008.12
            -
            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.











40