Unaudited Financial Information

These consolidated interim-period financial statements have been prepared in accordance with accounting principles generally accepted in the United States on the same basis as those used for the Company’s audited consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013. In the opinion of management, all material adjustments (consisting of normal recurring accruals) necessary for a fair presentation have been made to the unaudited consolidated interim-period financial statements. These consolidated interim-period financial statements are condensed as permitted by the instructions to Form 10-Q and should be read in conjunction with the audited consolidated financial statements of Atmos Energy Corporation included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013. Because of seasonal and other factors, the results of operations for the six-month period ended March 31, 2014 are not indicative of our results of operations for the full 2014 fiscal year, which ends September 30, 2014.

Except as noted in Note 7 and Note 8, no events have occurred subsequent to the balance sheet date that would require recognition or disclosure in the condensed consolidated financial statements.

Significant accounting policies

Our accounting policies are described in Note 2 to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended September 30, 2013.

During the second quarter of fiscal 2014, we completed our annual goodwill impairment assessment. Based on the assessment performed, we determined that our goodwill was not impaired.

Due to the April 1, 2013 sale of our Georgia distribution operations, prior year financial results for this service area are shown in discontinued operations.

Disclosure requirements for offsetting arrangements for financial instruments became effective for us beginning on October 1, 2013. We have presented these disclosures in Note 8. In connection with the adoption of this standard, prior-year risk management assets and liabilities have been reclassified to conform with the current-year presentation. The adoption of this standard and reclassification did not have an impact on our financial position, results of operations or cash flows. There were no other significant changes to our accounting policies nor were there new accounting standards announced during the six months ended March 31, 2014 that will become applicable to the Company in future periods.

Regulatory assets and liabilities

Accounting principles generally accepted in the United States require cost-based, rate-regulated entities that meet certain criteria to reflect the authorized recovery of costs due to regulatory decisions in their financial statements. As a result, certain costs are permitted to be capitalized rather than expensed because they can be recovered through rates. We record certain costs as regulatory assets when future recovery through customer rates is considered probable. Regulatory liabilities are recorded when it is probable that revenues will be reduced for amounts that will be credited to customers through the ratemaking process. Substantially all of our regulatory assets are recorded as a component of deferred charges and other assets and substantially all of our regulatory liabilities are recorded as a component of deferred credits and other liabilities. Deferred gas costs are recorded either in other current assets or liabilities and the regulatory cost of removal obligation is reported separately.

Significant regulatory assets and liabilities as of March 31, 2014 and September 30, 2013 included the following:



	March 31, 2014		September 30, 2013
	(In thousands)
Regulatory assets:
Pension and postretirement benefit costs⁽¹⁾	$	176,616	$	187,977
Merger and integration costs, net	4,990		5,250
Deferred gas costs	10,004		15,152
Regulatory cost of removal asset	9,716		10,008
Rate case costs	5,037		6,329
Texas Rule 8.209⁽²⁾	40,760		30,364
APT annual adjustment mechanism	4,084		5,853
Recoverable loss on reacquired debt	20,156		21,435
Other	6,393		4,380
	$	277,756	$	286,748
Regulatory liabilities:
Deferred gas costs	$	80,330	$	16,481
Deferred franchise fees	11,523		1,689
Regulatory cost of removal obligation	425,461		427,524
Other	11,683		7,887
	$	528,997	$	453,581


⁽¹⁾	Includes $18.1 million and $17.4 million of pension and postretirement expense deferred pursuant to regulatory authorization.


⁽²⁾	Texas Rule 8.209 is a Railroad Commission rule that allows for the deferral of all expenses associated with capital expenditures incurred pursuant to this rule, including the recording of interest on the deferred expenses until the next rate proceeding (rate case or annual rate filing), at which time investment and costs would be recovered through base rates.

Currently authorized rates do not include a return on certain of our merger and integration costs; however, we recover the amortization of these costs. Merger and integration costs, net, are generally amortized on a straight-line basis over estimated useful lives ranging up to 20 years.