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 9 below.

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, 2011 and 2010. 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, 2011
			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, 2011
		(In thousands)
Assets:
Financial instruments
	Natural gas distribution segment	$	-	$	1,841	$	-	$	-	$	1,841
	Nonregulated segment		15,262		97,396		-		(95,156)		17,502
Total financial instruments			15,262		99,237		-		(95,156)		19,343

Hedged portion of gas stored underground			47,940		-		-		-		47,940
Available-for-sale securities
	Money market funds		-		1,823		-		-		1,823
	Registered investment companies		36,444		-		-		-		36,444
	Bonds		-		14,366		-		-		14,366
Total available-for-sale securities			36,444		16,189		-		-		52,633
Total assets		$	99,646	$	115,426	$	-	$	(95,156)	$	119,916

Liabilities:
Financial instruments
	Natural gas distribution segment	$	-	$	81,118	$	-	$	-	$	81,118
	Nonregulated segment		22,091		115,617		-		(123,943)		13,765
Total liabilities		$	22,091	$	196,735	$	-	$	(123,943)	$	94,883

			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, 2010
			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, 2010
		(In thousands)
Assets:
Financial instruments
	Natural gas distribution segment	$	-	$	2,266	$	-	$	-	$	2,266
	Nonregulated segment		18,544		42,462		-		(41,760)		19,246
Total financial instruments			18,544		44,728		-		(41,760)		21,512

Hedged portion of gas stored underground			57,507		-		-		-		57,507
Available-for-sale securities
	Money market funds		-		499		-		-		499
	Registered investment companies		40,967		-		-		-		40,967
Total available-for-sale securities			40,967		499		-		-		41,466
Total assets		$	117,018	$	45,227	$	-	$	(41,760)	$	120,485

Liabilities:
Financial instruments
	Natural gas distribution segment	$	-	$	51,866	$	-	$	-	$	51,866
	Nonregulated segment		41,430		31,950		-		(66,649)		6,731
Total liabilities		$	41,430	$	83,816	$	-	$	(66,649)	$	58,597

(1) Our Level 2 measurements primarily consist of non-exchange-traded financial instruments, such as over-the-counter options and swaps where market data for pricing is observable. The fair values for these assets and liabilities are determined 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. This level also includes municipal and corporate bonds where market data for pricing is observable.

(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, 2011 we had $28.8 million of cash held in margin accounts to collateralize certain financial instruments. Of this amount, $12.4 million was used to offset current risk management liabilities under master netting agreements and the remaining $16.4 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, 2010 we had $24.9 million of cash held in margin accounts to collateralize certain financial instruments. Of this amount, $12.6 million was used to offset current risk management liabilities under master netting agreements and the remaining $12.3 million is classified as current risk management assets.

				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gain		Loss		Value
		(In thousands)
As of September 30, 2011:
	Domestic equity mutual funds	$	27,748	$	4,074	$	-	$	31,822
	Foreign equity mutual funds		4,597		267		(242)		4,622
	Bonds		14,390		10		(34)		14,366
	Money market funds		1,823		-		-		1,823
		$	48,558	$	4,351	$	(276)	$	52,633
As of September 30, 2010:
	Domestic equity mutual funds	$	29,540	$	5,698	$	-	$	35,238
	Foreign equity mutual funds		4,753		976		-		5,729
	Money market funds		499		-		-		499
		$	34,792	$	6,674	$	-	$	41,466

At September 30, 2011 and 2010, our available-for-sale securities included $38.3 million and $41.5 million related to assets held in separate rabbi trusts for our supplemental executive benefit plans as discussed in Note 9. At September 30, 2011 we maintained investments in bonds that have contractual maturity dates ranging from January 2012 through January 2016.

We maintained an investment in one foreign equity mutual fund with a fair value of $2.3 million in an unrealized loss position of $0.2 million as of September 30, 2011. This fund has been in an unrealized loss position for less than twelve months. Because this fund is only used to fund the supplemental plans, we evaluate investment performance over a long-term horizon. Based upon our intent and ability to hold this investment, our ability to direct the source of the payments in order to maximize the life of the portfolio, the short-term nature of the decline in fair value and the fact that this fund continues to receive good ratings from mutual fund rating companies, we do not consider this impairment to be other-than-temporary as of September 30, 2011. We also maintained several bonds with a cumulative fair value of $9.9 million in an unrealized loss position of less than $0.1 million as of September 30, 2011. These bonds have been in an unrealized loss position for less than twelve months. Based upon our intent and ability to hold these investments, our ability to direct the source of the payments in order to maximize the life of the portfolio, the short-term nature of the decline in fair value and the fact that these bonds are investment-grade, we do not consider this impairment to be other-than-temporary as of September 30, 2011.

At September 30, 2010, we did not maintain any investments that were in an unrealized loss position. In fiscal 2009, we recorded a $5.4 million noncash charge to impair certain available-for sale investments during the year ended September 30, 2009 due to the conditions of the financial markets at that time.

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 13, AGC is involved in an ongoing 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, we performed an impairment assessment of these assets during the third fiscal quarter and determined the assets to be impaired. We reduced the carrying value of the assets to their estimated fair value of approximately $6 million and recorded a pre-tax noncash impairment loss of approximately $11 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.

In February 2008, Atmos Pipeline and Storage, LLC, a subsidiary of AEH, announced plans to construct and operate a salt-cavern storage project in Franklin Parish, Louisiana. In March 2010, we entered into an option and acquisition agreement with a third party, which provided the third party with the exclusive option to develop the proposed Fort Necessity salt-dome natural gas storage project. In July 2010, we agreed with the third party to extend the option period to March 2011. In January 2011, the third party developer notified us that it did not plan to commence the activities required to allow it to exercise the option by March 2011; accordingly, the option was terminated. We evaluated our strategic alternatives and concluded the project's returns did not meet our investment objectives. Accordingly, in March 2011, we recorded a $19.3 million pretax noncash impairment loss to write off substantially all of our investment in the project.

Our debt is recorded at carrying value. The fair value of our debt is determined using third party market value quotations. The following table presents the carrying value and fair value of our debt as of September 30, 2011: