RGC RESOURCES INC Fair Value Disclosure
| 8. | FAIR VALUE |
The following table summarizes the Company’s financial assets and liabilities that are measured at fair value on a recurring basis and the fair value measurements by level within the fair value hierarchy as defined in Note 1 as of September 30, 2025 and 2024, respectively. There have been no changes to the Company's valuation techniques during fiscal years ended September 30, 2025 and 2024.
| Fair Value Measurements - September 30, 2025 | ||||||||||||||||
| Quoted Prices in Active Markets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Interest rate swaps - current | $ | 828,573 | $ | — | $ | 828,573 | $ | — | ||||||||
| Interest rate swaps - noncurrent | $ | 421,511 | — | $ | 421,511 | |||||||||||
| Total | $ | 1,250,084 | $ | — | $ | 1,250,084 | $ | — | ||||||||
| Liabilities: | ||||||||||||||||
| Natural gas purchases | $ | 135,863 | $ | — | $ | 135,863 | $ | — | ||||||||
| Interest rate swaps - current | $ | 57,144 | $ | — | $ | 57,144 | $ | — | ||||||||
| Interest rate swaps - noncurrent | $ | 298,016 | $ | — | $ | 298,016 | $ | — | ||||||||
| Total | $ | 491,023 | $ | — | $ | 491,023 | $ | — | ||||||||
| Fair Value Measurements - September 30, 2024 | ||||||||||||||||
| Quoted Prices in Active Markets | Significant Other Observable Inputs | Significant Unobservable Inputs | ||||||||||||||
| Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Interest rate swaps - current | $ | 871,026 | $ | — | $ | 871,026 | $ | — | ||||||||
| Interest rate swaps - noncurrent | $ | 1,191,526 | $ | — | $ | 1,191,526 | $ | — | ||||||||
| Total | $ | 2,062,552 | $ | — | $ | 2,062,552 | $ | — | ||||||||
| Liabilities: | ||||||||||||||||
| Natural gas purchases | $ | 761,020 | $ | — | $ | 761,020 | $ | — | ||||||||
| Total | $ | 761,020 | $ | — | $ | 761,020 | $ | — | ||||||||
The fair value of the interest rate swaps is determined by using the counterparty's proprietary models that include observable quoted market interest rates and interest rate futures as well as certain assumptions regarding past, present and future market conditions.
See Note 5 for discussion on the fair value assumptions of the Company's investment in the LLC.
Under the asset management contract, a timing difference can exist between the payment for natural gas purchases and the actual receipt of such purchases. Payments are made based on a predetermined monthly volume with the price based on the weighted average first of the month index prices corresponding to the month of the scheduled payment. At September 30, 2025 and 2024, the Company had recorded in accounts payable the estimated fair value of the liability based on the corresponding first of month quoted index prices for which the liability was expected to be settled.
The Company’s non-financial assets and liabilities that are measured at fair value on a nonrecurring basis consist of its AROs. The AROs are measured at fair value at initial recognition based on expected future cash flows to settle the obligation.
The carrying value of cash and cash equivalents, accounts receivable, borrowings under line-of-credit, accounts payable, customer credit balances and customer deposits is a reasonable estimate of fair value due to the short-term nature of these financial instruments. In addition, the carrying amount of the variable rate line-of-credit is a reasonable approximation of its fair value. The following table summarizes the fair value of the Company’s financial assets and liabilities that are not adjusted to fair value in the consolidated financial statements as of September 30, 2025 and 2024.
| Fair Value Measurements - September 30, 2025 | ||||||||||||||||
| Carrying | Quoted Prices in Active Markets | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||
| Amount | Level 1 | Level 2 | Level 3 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Current maturities of long-term debt | $ | 2,846,018 | $ | — | $ | — | $ | 2,846,018 | ||||||||
| Notes payable | 134,258,197 | — | — | 131,605,756 | ||||||||||||
| Total | $ | 137,104,215 | $ | — | $ | — | $ | 134,451,774 | ||||||||
| Fair Value Measurements - September 30, 2024 | ||||||||||||||||
| Carrying | Quoted Prices in Active Markets | Significant Other Observable Inputs | Significant Unobservable Inputs | |||||||||||||
| Amount | Level 1 | Level 2 | Level 3 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Current maturities of long-term debt | $ | 800,000 | $ | — | $ | — | $ | 800,000 | ||||||||
| Notes payable | 136,955,000 | — | — | 135,471,275 | ||||||||||||
| Total | $ | 137,755,000 | $ | — | $ | — | $ | 136,271,275 | ||||||||
The fair value of long-term debt is estimated by discounting the future cash flows of the fixed rate debt based on the underlying Treasury rate or other Treasury instrument with a corresponding maturity period and estimated credit spread extrapolated based on market conditions since the issuance of the debt.
ASC 825, Financial Instruments, requires disclosures regarding concentrations of credit risk from financial instruments. Cash equivalents are investments in high-grade, short-term securities (original maturity less than three months), placed with financially sound institutions. Accounts receivable are from a diverse group of customers including individuals and small and large companies in various industries. The Company maintains certain credit standards with its customers and requires a customer deposit if such evaluation warrants.
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.