Fair Value Measurements

We report certain assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We record cash and cash equivalents, accounts receivable and accounts payable at carrying value, which substantially approximates fair value due to the short-term nature of these assets and liabilities. For other financial assets and liabilities, we primarily use quoted market prices and other observable market pricing information to minimize the use of unobservable pricing inputs in our measurements when determining fair value. The methods used to determine fair value for our assets and liabilities are fully described in Note 2.

Fair value measurements also apply to the valuation of our pension and post-retirement plan assets. The fair value of these assets is presented in Note 6.

Quantitative Disclosures

Financial Instruments

The classification of our fair value measurements requires judgment regarding the degree to which market data are observable or corroborated by observable market data. The following tables summarize, by level within the fair value hierarchy, our assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2014 and 2013. As required under authoritative accounting literature, assets and liabilities are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement.



	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)⁽¹⁾		Significant Other Unobservable Inputs (Level 3)		Netting and Cash Collateral⁽²⁾			September 30, 2014
	(In thousands)
Assets:
Financial instruments
Regulated distribution segment	$	—	$	36,140	$	—	$	—		$	36,140
Nonregulated segment	25		68,998		—		(46,298		)	22,725
Total financial instruments	25		105,138		—		(46,298		)	58,865
Hedged portion of gas stored underground	40,492		—		—		—			40,492
Available-for-sale securities
Money market funds	—		2,185		—		—			2,185
Registered investment companies	44,014		—		—		—			44,014
Bonds	—		33,414		—		—			33,414
Total available-for-sale securities	44,014		35,599		—		—			79,613
Total assets	$	84,531	$	140,737	$	—	$	(46,298	)	$	178,970
Liabilities:
Financial instruments
Regulated distribution segment	$	—	$	21,856	$	—	$	—		$	21,856
Nonregulated segment	12		72,044		—		(72,056		)	—
Total liabilities	$	12	$	93,900	$	—	$	(72,056	)	$	21,856



	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)⁽¹⁾		Significant Other Unobservable Inputs (Level 3)		Netting and Cash Collateral⁽³⁾			September 30, 2013
	(In thousands)
Assets:
Financial instruments
Regulated distribution segment	$	—	$	111,191	$	—	$	—		$	111,191
Nonregulated segment	745		115,135		—		(105,751		)	10,129
Total financial instruments	745		226,326		—		(105,751		)	121,320
Hedged portion of gas stored underground	44,758		—		—		—			44,758
Available-for-sale securities
Money market funds	—		4,428		—		—			4,428
Registered investment companies	40,094		—		—		—			40,094
Bonds	—		28,160		—		—			28,160
Total available-for-sale securities	40,094		32,588		—		—			72,682
Total assets	$	85,597	$	258,914	$	—	$	(105,751	)	$	238,760
Liabilities:
Financial instruments
Regulated distribution segment	$	—	$	1,543	$	—	$	—		$	1,543
Nonregulated segment	158		130,422		—		(130,580		)	—
Total liabilities	$	158	$	131,965	$	—	$	(130,580	)	$	1,543

⁽¹⁾

Our Level 2 measurements consist of over-the-counter options and swaps, which are valued using a market-based approach in which observable market prices are adjusted for criteria specific to each instrument, such as the strike price, notional amount or basis differences, municipal and corporate bonds, which are valued based on the most recent available quoted market prices and money market funds which are valued at cost.

⁽²⁾

This column reflects adjustments to our gross financial instrument assets and liabilities to reflect netting permitted under our master netting agreements and the relevant authoritative accounting literature. In addition, as of September 30, 2014 we had $25.8 million of cash held in margin accounts to collateralize certain financial instruments. Of this amount, $3.1 million was used to offset current and noncurrent risk management liabilities under master netting agreements and the remaining $22.7 million is classified as current risk management assets.

⁽³⁾

This column reflects adjustments to our gross financial instrument assets and liabilities to reflect netting permitted under our master netting agreements and the relevant authoritative accounting literature. In addition, as of September 30, 2013 we had $24.8 million of cash held in margin accounts to collateralize certain financial instruments. Of this amount, $14.7 million was used to offset current and noncurrent risk management liabilities under master netting agreements and the remaining $10.1 million is classified as current risk management assets.

Available-for-sale securities are comprised of the following:



	Amortized Cost		Gross Unrealized Gain		Gross Unrealized Loss			Fair Value
	(In thousands)
As of September 30, 2014
Domestic equity mutual funds	$	26,633	$	10,136	$	—		$	36,769
Foreign equity mutual funds	5,382		1,863		—			7,245
Bonds	33,266		161		(13		)	33,414
Money market funds	2,185		—		—			2,185
	$	67,466	$	12,160	$	(13	)	$	79,613
As of September 30, 2013
Domestic equity mutual funds	$	27,043	$	7,476	$	(23	)	$	34,496
Foreign equity mutual funds	4,536		1,062		—			5,598
Bonds	28,016		168		(24		)	28,160
Money market funds	4,428		—		—			4,428
	$	64,023	$	8,706	$	(47	)	$	72,682

At September 30, 2014 and 2013, our available-for-sale securities included $46.2 million and $44.5 million related to assets held in separate rabbi trusts for our supplemental executive retirement plans as discussed in Note 6. At September 30, 2014 we maintained investments in bonds that have contractual maturity dates ranging from October 2014 through September 2018. During the years ended September 30, 2014 and 2013, we recognized gains of $1.3 million and $2.2 million on the sale of certain assets in the rabbi trusts.

Other Fair Value Measures

In addition to the financial instruments above, we have several financial and nonfinancial assets and liabilities subject to fair value measures. These financial assets and liabilities include cash and cash equivalents, accounts receivable, accounts payable and debt. The nonfinancial assets and liabilities include asset retirement obligations and pension and post-retirement plan assets. We record cash and cash equivalents, accounts receivable, accounts payable and debt at carrying value. For cash and cash equivalents, accounts receivable and accounts payable, we consider carrying value to materially approximate fair value due to the short-term nature of these assets and liabilities.

Atmos Gathering Company (AGC) owns and operates the Park City and Shrewsbury gathering systems in Kentucky. The Park City gathering system consists of a 23-mile low pressure pipeline and a nitrogen removal unit that was constructed in 2008. The Shrewsbury production, gathering and processing assets were acquired in 2008 at which time we sold the production assets to a third party. As a result of the sale of the production assets, we obtained a 10-year production payment note under which we were to be paid from future production generated from the assets.

As discussed in Note 10, AGC was involved in a lawsuit with the Park City gathering system. Due to the lawsuit and a low natural gas price environment, the assets have generated operating losses. As a result of these developments and management’s decision to focus our nonregulated operations on delivered gas and transportation services, in fiscal 2012, we performed an impairment assessment of these assets and determined the assets to be impaired. We reduced the carrying value of the assets to their estimated fair value of approximately $0.5 million and recorded a pre-tax noncash impairment loss of approximately $5.3 million. We used a combination of a market and income approach in a weighted average discounted cash flow analysis that included significant inputs such as our weighted average cost of capital and assumptions regarding future natural gas prices. This is a Level 3 fair value measurement because the inputs used are unobservable. Based on this analysis, we determined the assets to be impaired.

Our debt is recorded at carrying value. The fair value of our debt is determined using third party market value quotations, which are considered Level 1 fair value measurements for debt instruments with a recent, observable trade or Level 2 fair value measurements for debt instruments where fair value is determined using the most recent available quoted market price. The following table presents the carrying value and fair value of our debt as of September 30, 2014:



	September 30, 2014
	(In thousands)
Carrying Amount	$	2,460,000
Fair Value	$	2,769,541