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.

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, 2012 and 2011. 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)⁽²⁾		Significant Other Unobservable Inputs (Level 3)		Netting and Cash Collateral ⁽³⁾		September 30, 2012
			Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)⁽²⁾		Significant Other Unobservable Inputs (Level 3)		Netting and Cash Collateral ⁽³⁾		September 30, 2012
		(In thousands)
Assets:
Financial instruments
	Natural gas distribution segment	$	-	$	9,365	$	-	$	-	$	9,365
	Nonregulated segment⁽¹⁾		714		179,835		-		(162,776)		17,773
Total financial instruments			714		189,200		-		(162,776)		27,138

Hedged portion of gas stored underground			67,192		-		-		-		67,192
Available-for-sale securities
	Money market funds		-		1,634		-		-		1,634
	Registered investment companies		40,212		-		-		-		40,212
	Bonds		-		22,552		-		-		22,552
Total available-for-sale securities			40,212		24,186		-		-		64,398
Total assets		$	108,118	$	213,386	$	-	$	(162,776)	$	158,728

Liabilities:
Financial instruments
	Natural gas distribution segment	$	-	$	85,625	$	-	$	-	$	85,625
	Nonregulated segment⁽¹⁾		4,563		191,109		-		(186,451)		9,221
Total liabilities		$	4,563	$	276,734	$	-	$	(186,451)	$	94,846

			Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)⁽²⁾		Significant Other Unobservable Inputs (Level 3)		Netting and Cash Collateral ⁽⁴⁾		September 30, 2011
			Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)⁽²⁾		Significant Other Unobservable Inputs (Level 3)		Netting and Cash Collateral ⁽⁴⁾		September 30, 2011
		(In thousands)
Assets:
Financial instruments
	Natural gas distribution segment	$	-	$	1,841	$	-	$	-	$	1,841
	Nonregulated segment⁽¹⁾		8,502		104,156		-		(95,156)		17,502
Total financial instruments			8,502		105,997		-		(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		$	92,886	$	122,186	$	-	$	(95,156)	$	119,916

Liabilities:
Financial instruments
	Natural gas distribution segment	$	-	$	81,118	$	-	$	-	$	81,118
	Nonregulated segment⁽¹⁾		9,324		128,384		-		(123,943)		13,765
Total liabilities		$	9,324	$	209,502	$	-	$	(123,943)	$	94,883

(1) Certain of the nonregulated segment's financial instruments were reclassified from Level 1 to Level 2 upon further evaluation.

(2) 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.

(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, 2012 we had $23.7 million of cash held in margin accounts to collateralize certain financial instruments. Of this amount, $5.9 million was used to offset current risk management liabilities under master netting agreements and the remaining $17.8 million is classified as current risk management assets.

(4) 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.

				Gross		Gross
		Amortized		Unrealized		Unrealized		Fair
		Cost		Gain		Loss		Value
		(In thousands)
As of September 30, 2012:
	Domestic equity mutual funds	$	25,779	$	8,183	$	-	$	33,962
	Foreign equity mutual funds		5,568		682		-		6,250
	Bonds		22,358		196		(2)		22,552
	Money market funds		1,634		-		-		1,634
		$	55,339	$	9,061	$	(2)	$	64,398
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

At September 30, 2012 and 2011, our available-for-sale securities included $41.8 million and $38.3 million related to assets held in separate rabbi trusts for our supplemental executive benefit plans as discussed in Note 9. At September 30, 2012 we maintained investments in bonds that have contractual maturity dates ranging from October 2012 through July 2016.

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, in fiscal 2011, we performed an impairment assessment of these assets and determined the assets to be impaired at which time we recorded a pre-tax noncash impairment loss of approximately $11 million. Due to developments in the fourth quarter of fiscal 2012, including further operating losses as a result of the lawsuit and management's decision to focus our nonregulated operations on delivered gas and transportation services, 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.

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 pre-tax 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, 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, 2012:

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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