ATMOS ENERGY CORP - 10-Q Quarterly Report

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q

(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2002

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-10042

ATMOS ENERGY CORPORATION
(Exact name of registrant as specified in its charter)

TEXAS AND VIRGINIA 75-1743247
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

THREE LINCOLN CENTRE, SUITE 1800
5430 LBJ FREEWAY, DALLAS, TEXAS 75240
(Address of principal executive offices) (Zip Code)

(972) 934-9227
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes [X] No [ ]

Number of shares outstanding of each of the issuer's classes of common
stock, as of January 31, 2003.

See accompanying notes to condensed consolidated financial statements

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ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements
3

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

See accompanying notes to condensed consolidated financial statements

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ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 2002

1. UNAUDITED INTERIM FINANCIAL INFORMATION

In the opinion of management, all material adjustments (consisting of only
normal recurring accruals) necessary for a fair presentation have been made to
the unaudited interim period financial statements. Because of seasonal and other
factors, the results of operations for the three month period ended December 31,
2002 are not indicative of expected results of operations for the year ending
September 30, 2003. These interim financial statements and notes 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
in its Annual Report on Form 10-K for the fiscal year ended September 30, 2002.

Principles of consolidation -- The accompanying condensed consolidated
financial statements include the accounts of Atmos Energy Corporation and its
wholly-owned subsidiaries. All material intercompany transactions have been
eliminated.

Common stock -- As of December 31, 2002, we had 100,000,000 shares of
common stock, no par value (stated at $.005 per share), authorized and
45,304,938 shares outstanding. At September 30, 2002, we had 41,675,932 shares
outstanding.

Goodwill -- Total goodwill was $272.3 million and $185.0 million at
December 31, 2002 and September 30, 2002. Goodwill applicable to the utility
segment was $237.6 million and $150.3 million at December 31, 2002 and September
30, 2002. Goodwill applicable to the natural gas marketing segment was $22.6
million and $21.3 million at December 31, 2002 and September 30, 2002. Goodwill
applicable to the other non-utility segment was $12.1 million and $13.4 million
at December 31, 2002 and September 30, 2002. Goodwill applicable to the utility
and other non-utility segments resulted from the acquisition of the Louisiana
Gas Service Company assets on July 1, 2001 and Mississippi Valley Gas Company on
December 3, 2002 and is not subject to amortization under the provisions of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets." Goodwill applicable to the natural gas marketing segment was
amortized over 20 years through September 30, 2001. Effective October 1, 2001,
goodwill has not been amortized pursuant to the provisions of Statement of
Financial Accounting Standards No. 142.

Under the provisions of Statement of Financial Accounting Standards No.
142, we evaluate our goodwill balance annually in our second quarter or as
impairment indicators arise. The initial evaluation took take place during the
second quarter of fiscal 2002. We use a present value technique based on
discounted cash flows to estimate the fair value of our reporting groups. No
impairment of our goodwill balance was indicated as a result of that evaluation.

Impairment of Long-Lived Assets -- We periodically evaluate whether events
or circumstances have occurred that indicate that other long-lived assets may
not be recoverable or that the remaining useful life may warrant revision. When
such events or circumstances are present, we assess the recoverability of
long-lived assets by determining whether the carrying value will be recovered
through the expected future cash flows. In the event the sum of the expected
future cash flows resulting from the use of the asset is less than the carrying
value of the asset, an impairment loss equal to the excess of the asset's
carrying value over its fair value is recorded. To date, no such impairment has
been recognized.

Revenue recognition -- Sales of natural gas are billed on a monthly cycle
basis; however, the billing cycle periods for certain classes of customers do
not necessarily coincide with accounting periods used for financial reporting
purposes. We follow the revenue accrual method of accounting for natural gas
revenues whereby revenues applicable to gas delivered to customers, but not yet
billed under the cycle billing method, are estimated and accrued and the related
costs are charged to expense.

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ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Accounts receivable and allowance for doubtful accounts -- Accounts
receivable consists of natural gas sales to residential, commercial, industrial,
agricultural and other customers. The allowance for doubtful accounts is
computed based on the aging of outstanding accounts receivable and historical
collections experience and represents in management's opinion, an adequate
allowance to provide for probable uncollectable accounts.

Risk management assets and liabilities, natural gas marketing segment -- We
use storage, transportation and requirements contracts, forwards,
over-the-counter and exchange-traded options, futures and swap contracts to
conduct our risk management activities.

On October 25, 2002, the Emerging Issues Task Force rescinded Issue No.
98-10 "Accounting for Energy Trading and Risk Management Activities" thereby
precluding mark-to-market accounting for inventory and energy trading contracts
that are not derivatives. During the quarter ended December 31, 2002, energy
trading contracts entered into on or before October 25, 2002 were marked to
market pursuant to the provisions of EITF Issue No. 98-10. Energy trading
contracts entered into after October 25, 2002 were accounted for pursuant to the
provisions of Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities." Beginning January 1, 2003,
energy trading contracts will be accounted for pursuant to the provisions of
SFAS No. 133. The cumulative effect of the change in accounting principle will
be reported in accordance with APB Opinion No. 20, "Accounting Changes." The
cumulative noncash charge in the second quarter of fiscal 2003 is estimated to
be between $7.0 million and $9.0 million. As performance under these inventory,
storage and transportation contracts is completed in subsequent periods, the
applicable income will be recognized.

Under the mark-to-market method of accounting, contracts are reflected at
fair value, inclusive of future servicing costs and valuation adjustments, with
resulting unrealized gains and losses recorded as assets or liabilities from
risk management activities on the condensed consolidated balance sheet. Current
period changes in the assets and liabilities from risk management activities are
recognized as net gains or losses on the condensed consolidated statement of
income. Changes in the mark-to-market valuation of assets and liabilities from
risk management activities result primarily from changes in the valuation of the
portfolio of contracts, maturity and settlement of contracts and newly
originated transactions. Market prices and models used to value these
transactions reflect our best estimate considering various factors including
closing exchange and over-the-counter quotations, time value and volatility
factors underlying the contracts. Values are adjusted to reflect the potential
impact of liquidating our positions in an orderly manner over a reasonable
period of time under present market conditions. Changes in market prices
directly affect our estimate of the fair value of these transactions. Certain
contracts within this segment are not subject to EITF Issue No. 98-10 and are
therefore accounted for on the accrual basis.

Risk management assets and liabilities, utility segment -- We have entered
into hedging agreements for the 2002-2003 heating season to protect us and our
customers from unusually large winter period gas price increases. We account for
these activities pursuant to SFAS No. 133. In accordance with Financial
Accounting Standards No. 71 "Accounting for the Effects of Certain Types of
Regulation", current period changes in the assets and liabilities from risk
management activities are recorded as deferred gas costs on the condensed
consolidated balance sheet due to recoverability in rates. Accordingly, there is
no earnings impact as a result of the use of these financial instruments. Upon
maturity, the contracts are recognized in purchased gas cost on the condensed
consolidated statement of income.

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ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Comprehensive income -- The following table presents the components of
comprehensive income, net of related tax, for the three-month periods ended
December 31, 2002 and 2001:

The only components of accumulated other comprehensive income (loss), net of
related tax, relate to unrealized holding gains and losses associated with
certain available for sale investments and the minimum pension liability.

Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Recently issued accounting standards not yet adopted -- On October 25,
2002, the Emerging Issues Task Force rescinded EITF Issue No. 98-10 thereby
precluding mark-to-market accounting for energy trading contracts that are not
derivatives. For more discussion on this issue, see "Risk management assets and
liabilities, natural gas marketing segment" contained in this same footnote.

Reclassifications -- Certain prior year amounts have been reclassified to
conform with the current year presentation.

2. ACQUISITION OF MISSISSIPPI VALLEY GAS COMPANY

On December 3, 2002, we completed the acquisition of Mississippi Valley Gas
Company, Mississippi's largest natural gas utility. We paid approximately $74.7
million cash and $74.7 million in Atmos Energy common stock consisting of
3,386,287 unregistered shares. We also repaid approximately $70.9 million of
Mississippi Valley Gas' outstanding debt. Beginning in December 2002, results of
operations of Mississippi Valley Gas Company have been consolidated with our
results of operations.

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ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the fair values of the assets acquired and
liabilities assumed, in thousands:

Net property, plant and equipment......................... $156,516
Current assets............................................ 43,848
Other intangible assets................................... 11,746
Goodwill.................................................. 87,336
Deferred charges and other assets......................... 10,670
--------
Total assets acquired................................... 310,116
Current liabilities....................................... (47,637)
Noncurrent liabilities.................................... (89,712)
Other acquisition related costs........................... (23,467)
--------
Purchase price.......................................... $149,300
========

Other intangible assets represent the fair value of rights-of-way. The
value assigned to goodwill was based on our belief that the acquisition of the
Mississippi Valley Gas Company will enable us to leverage our existing
technology in order to add value to Atmos. We expect that the goodwill amount
will not be deductible for tax purposes. Other acquisition related costs consist
of $13.1 million of make-whole premiums related to the repayment of Mississippi
Valley Gas' debt and other costs including termination benefits.

The pro forma effects for the quarter ended December 31, 2002 of combining
the results of operations of Mississippi Valley Gas Company with our
consolidated results of operations were a $35.8 million increase in operating
revenues to $437.3 million, a $3.2 million decrease in net income to $22.6
million and a $0.10 decrease in diluted earnings per share to $0.50.

Such pro forma effects for the quarter ended December 31, 2001 were a $59.1
million increase in operating revenues to $330.4 million, a $2.5 million
increase in net income to $23.1 million and a $0.02 increase in diluted earnings
per share to $0.52.

3. CONTINGENCIES

LITIGATION

Colorado-Kansas Division

On September 23, 1999, a suit was filed in the District Court of Stevens
County, Kansas, by Quinque Operating Company, Tom Boles and Robert Ditto,
against more than 200 companies in the natural gas industry including us and our
Colorado-Kansas Division. The plaintiffs, who purport to represent a class
consisting of gas producers, royalty owners, overriding royalty owners, working
interest owners and state taxing authorities, accuse the defendants of
underpaying royalties on gas taken from wells situated on non-federal and
non-Indian lands throughout the United States and offshore waters predicated
upon allegations that the defendants' gas measurements are simply inaccurate and
that the defendants failed to comply with applicable regulations and industry
standards over the last 25 years. Although the plaintiffs do not specifically
allege an amount of damages, they contend that this suit is brought to recover
billions of dollars in revenues that the defendants have allegedly unlawfully
diverted from the plaintiffs to themselves. On April 10, 2000, this case was
consolidated for pre-trial proceedings with other similar pending litigation in
federal court in Wyoming in which we are also a defendant along with over 200
other defendants in the case of In Re Natural Gas Royalties Quitam Litigation.
In January 2001, the federal court elected to remand this case back to the
Kansas state court. A reconsideration of remand was filed, but it was denied.
The state court now has jurisdiction over this proceeding and has issued a
preliminary case management order. On January 13, 2003,

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ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the court held a hearing on the plaintiffs' motion to certify this proceeding as
a class action. The court took the motion under advisement and we are awaiting a
ruling. We believe that the plaintiffs' claims are lacking in merit, and we
intend to vigorously defend this action. While the results of this litigation
cannot be predicted with certainty, we believe the final outcome of such
litigation will not have a material adverse effect on our financial condition,
results of operations or net cash flows.

Texas Division

On February 13, 2002, a suit was filed in the 287th District Court of
Parmer County, Texas by Anderson Brothers, a Partnership, against Atmos Energy
Corporation, et al. The plaintiffs' claims arise out of an alleged breach of
contract by us and by a number of our divisions and subsidiaries concerning the
sale of natural gas used in irrigation activities since 1998 and an alleged
violation of the Texas Agricultural Gas Users Act of 1985. The court has ruled
proper venue to be in Parmer County, Texas. We have been responding to numerous
discovery requests from the plaintiffs. We also filed suit in Travis County,
Texas to have the Texas Agricultural Gas Users Act of 1985 declared
unconstitutional. The court denied our motion for summary judgment which we have
appealed. The plaintiffs seek class action status and to recover unspecified
damages plus attorney's fees. We have denied any liability and intend to
vigorously defend against the plaintiffs' claims. While the results of this
litigation cannot be predicted with certainty, we believe the final outcome of
such litigation will not have a material adverse effect on our financial
condition, results of operations or net cash flows.

We are a plaintiff in a case styled Energas Company, a Division of Atmos
Energy Corporation v. ONEOK Energy Marketing and Trading Company, L.P., ONEOK
Westex Transmission, Inc. and ONEOK Energy Marketing and Trading Company II,
filed in December 2001, pending in the District Court of Lubbock County, Texas,
72nd Judicial District. In this case, we are seeking to collect our receivable
related to approximately 5.0 Bcf of natural gas that we believe was not
delivered. We believe the receivable is fully recoverable.

UNITED CITIES PROPANE GAS, INC.

United Cities Propane Gas, Inc., one of our wholly-owned subsidiaries, is a
party to an action filed in June 2000 which is pending in the Circuit Court of
Sevier County, Tennessee. The plaintiffs' claims arise out of injuries alleged
to have been caused by a low-level propane explosion. The plaintiffs seek to
recover damages of $13.0 million. Discovery activities have begun in this case.
We have denied any liability, and we intend to vigorously defend against the
plaintiffs' claims. While the results of this litigation cannot be predicted
with certainty, we believe the final outcome of such litigation will not have a
material adverse effect on our financial condition, results of operations or net
cash flows.

We are a party to other litigation and claims that arise in the ordinary
course of our business. While the results of such litigation and claims cannot
be predicted with certainty, we believe the final outcome of such litigation and
claims will not have a material adverse effect on our financial condition,
results of operations or net cash flows.

ENVIRONMENTAL MATTERS

Manufactured Gas Plant Sites

We are the owner or previous owner of manufactured gas plant sites in
Johnson City and Bristol, Tennessee and Hannibal, Missouri which were used to
supply gas prior to availability of natural gas. The gas manufacturing process
resulted in certain by-products and residual materials including coal tar. The
manufacturing process used by our predecessors was an acceptable and
satisfactory process at the time such

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ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

operations were being conducted. Under current environmental protection laws and
regulations, we may be responsible for response actions with respect to such
materials if response actions are necessary.

United Cities Gas Company and the Tennessee Department of Environment and
Conservation entered into a consent order effective January 23, 1997, to
facilitate the investigation, removal and remediation of the Johnson City site.
Prior to our merger with United Cities Gas Company in July 1997, United Cities
Gas Company began the implementation of the consent order in the first quarter
of 1997 which we have continued through December 31, 2002. The investigative
phase of the work at the site has been completed. An interim removal action was
completed in June 2001. We installed four groundwater monitoring wells at the
site in 2002 and will submit the analytical results to the Tennessee Department
of Environment and Conservation in March 2003. We have completed a risk
assessment report which is currently under review by the Tennessee Department of
Environment and Conservation. The Tennessee Regulatory Authority granted us
permission to defer, until our next rate case in Tennessee, all costs incurred
in Tennessee in connection with state and federally mandated environmental
control requirements.

In March 2002, the Tennessee Department of Environment and Conservation
contacted us about conducting an investigation at a former manufactured gas
plant located in Bristol, Tennessee. We agreed to perform a preliminary
investigation at the site which was completed in June 2002. The investigation
identified manufactured gas plant residual materials in the soil beneath the
site and we have proposed performing a focused removal action to remove any such
residuals in fiscal 2003. The Tennessee Department of Environment and
Conservation has requested that the focused removal action be conducted pursuant
to a voluntary agreement.

On July 22, 1998, we entered into an Abatement Order on Consent with the
Missouri Department of Natural Resources addressing the former manufactured gas
plant located in Hannibal, Missouri. We agreed to perform a removal action, a
subsequent site evaluation and to reimburse the response costs incurred by the
state of Missouri in connection with the property. The removal action was
conducted and completed in August 1998, and the site evaluation field work was
conducted in August 1999. A risk assessment for the site has been completed and
is currently under review by the Missouri Department of Natural Resources. In
preparation for the risk assessment, we executed and recorded certain site use
limitations including restricting use of the site to commercial and industrial
purposes and prohibiting the withdrawal of groundwater for use as drinking
water. On March 9, 1999, the Missouri Public Service Commission issued an Order
authorizing us to defer the costs associated with this site until March 9, 2001.
A renewal of the Order has been requested. The matter is still pending before
the Commission.

As of December 31, 2002, we had incurred costs of approximately $1.1
million for the investigations of the Johnson City and Bristol, Tennessee and
Hannibal, Missouri sites and had a remaining accrual relating to these sites of
$0.9 million.

Mercury Contamination Sites

We have completed investigation and remediation activities pursuant to
Consent Orders between the Kansas Department of Health and Environment and
United Cities Gas Company. The Orders provided for the investigation and
remediation of mercury contamination at gas pipeline sites which utilize or
formerly utilized mercury meter equipment in Kansas. The Final Interim
Characterization and Remediation Report has been submitted to the Kansas
Department of Health. We have amended the Orders with the Kansas Department of
Health to include all mercury meters that belonged to our Colorado-Kansas
Division before the merger with United Cities Gas Company on July 31, 1997. All
work on these sites has been completed. We will submit a report to the Kansas
Department of Health and Environment describing the results of the work. As of
December 31, 2002, we had incurred costs of $0.1 million for these sites and had
a remaining accrual of $0.3 million for recovery. The Kansas Corporation
Commission has authorized us to defer these costs and seek recovery in a future
rate case.

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ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

We are a party to other environmental matters and claims that arise out of
our ordinary business. While the ultimate results of response actions to these
environmental matters and claims cannot be predicted with certainty, we believe
the final outcome of such response actions will not have a material adverse
effect on our financial condition, results of operations or net cash flows
because we believe that the expenditures related to such response actions will
either be recovered through rates, shared with other parties or adequately
covered by insurance.

4. SHORT-TERM DEBT

At December 31, 2002, short-term debt consisted of $201.6 million of
commercial paper and $3.8 million outstanding under bank credit facilities.

COMMITTED CREDIT FACILITIES

We have short-term committed credit facilities totaling $318.0 million. One
short-term unsecured credit facility is for $300.0 million and serves as a
backup liquidity facility for our commercial paper program. Our commercial paper
is rated A-2 by Standard and Poor's, P-2 by Moody's and F-2 by Fitch. At
December 31, 2002, $201.6 million of commercial paper was outstanding. We have a
second unsecured facility in place for $18.0 million. At December 31, 2002, $3.8
million was outstanding under this credit facility. These credit facilities are
negotiated at least annually and are used for working capital purposes.

On October 7, 2002, we entered into a $150.0 million short-term unsecured
committed credit facility. This credit facility was used to provide initial
funding for the cash portion of the Mississippi Valley Gas acquisition and to
repay Mississippi Valley Gas' existing debt. At December 31, 2002, $147.0
million was outstanding under this credit facility. This amount was classified
as long-term debt due to our intent and ability to refinance the borrowings with
long-term debt. This amount was refinanced in January 2003.

UNCOMMITTED CREDIT FACILITIES

Our Woodward Marketing subsidiary has a $210.0 million uncommitted demand
working capital credit facility. Atmos Energy Holdings, Inc. and Atmos Energy
Marketing, L.L.C., our wholly-owned subsidiaries, are guarantors of all amounts
outstanding under this facility. At December 31, 2002, no amount was outstanding
under this credit facility. Letters of credit totaling $89.0 million reduced the
amount available under this facility. The amount available under this credit
facility is also limited by various covenants, including covenants based on
working capital. Under the most restrictive covenant, the amount available to
Woodward Marketing under this credit facility at December 31, 2002 was $36.0
million. This credit facility expires on February 28, 2003 and is currently
being renegotiated.

We also have an unsecured short-term uncommitted credit line for $20.0
million. There were no borrowings under this uncommitted credit facility at
December 31, 2002. This uncommitted line is renewed or renegotiated at least
annually with varying terms and we pay no fee for the availability of the line.
Borrowings under this line are made on a when- and as-available basis at the
discretion of the bank. This facility is also used for working capital purposes.

In addition, Woodward Marketing has up to $100.0 million available from
Atmos Energy Holdings for its non-utility business. At December 31, 2002, $42.0
million was outstanding. Any outstanding amounts under the Atmos Energy Holdings
facility are subordinated to Woodward Marketing's $210.0 million uncommitted
demand credit facility described above. This intercompany loan is eliminated in
the consolidated financial statements.

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ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. EARNINGS PER SHARE

Basic earnings per share has been computed by dividing net income for the
period by the weighted average number of common shares outstanding during the
period. Diluted earnings per share has been computed by dividing net income for
the period by the weighted average number of common shares outstanding during
the period adjusted for restricted stock and other contingently issuable shares
of common stock. Net income for basic and diluted earnings per share are the
same, as there are no contingently issuable shares of stock whose issuance would
have impacted net income. A reconciliation between basic and diluted weighted
average common shares outstanding follows:

6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

WEATHER INSURANCE

In June 2001, we purchased a three year weather insurance policy with an
option to cancel in the third year. The policy is for our Texas and Louisiana
operations and covers the entire heating season of October to March beginning
with the 2001-2002 heating season. The cost of the three year policy was
approximately $13.2 million which was prepaid and will be amortized over the
appropriate heating seasons based on degree days. The insurance is designed to
protect against weather that is at least seven percent warmer than normal for
the entire heating season. During the quarter ended December 31, 2001, we
recognized $5.9 million in income and $1.9 million in amortization expense
relating to this insurance policy. During the quarter ended December 31, 2002,
weather was not at least seven percent warmer than normal resulting in no income
being recognized under this insurance policy. Amortization expense of $1.9
million was recognized during the quarter ended December 31, 2002.

UTILITY HEDGING ACTIVITIES

Historically we have hedged 20 to 25 percent of our gas supply through the
use of our underground storage assets. For the 2002-2003 heating season, we have
covered approximately 51 percent of our anticipated flowing gas requirements
through storage, financial hedges and fixed forward contracts at a weighted
average cost of less than $4.00 per Mcf. This should provide protection to us
and our customers against potential sharp increases in the price of natural gas
during the 2002-2003 heating season.

In accordance with SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," we use the mark-to-market method to account for our
financial instruments discussed previously. In accordance with SFAS No. 71
"Accounting for the Effects of Certain Types of Regulation", current period
changes in the assets and liabilities from risk management activities are
recorded as deferred gas costs on the condensed consolidated balance sheet as
these costs ultimately will be recovered from ratepayers. Accordingly, there is
no earnings impact as a result of the use of these financial instruments. Upon
maturity, the contracts are recognized in purchased gas cost on the condensed
consolidated statement of income.

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ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NON-UTILITY HEDGING ACTIVITIES

At the close of business on December 31, 2002, we had outstanding contracts
representing 0.5 Bcf of net notional volumes with average contract maturities of
less than two years. These contracts were marked to market. Contracts
representing 92 percent of the fair value of these contracts are scheduled to
mature within three years.

For the three months ended December 31, 2002, our gas trading margin
consisted of a $5.7 million realized trading gain and a $1.1 million unrealized
trading loss. For the three months ended December 31, 2001, our gas trading
margin consisted of a $2.9 million realized trading gain and a $4.3 million
unrealized trading gain.

The principal business of Atmos Energy Marketing, L.L.C., including the
activities of Woodward Marketing, L.L.C. and Trans Louisiana Industrial Gas
Company, Inc., is the overall management of natural gas requirements for
municipalities, local gas utility companies and industrial customers located
primarily in the southeastern and midwestern United States. This business
involves the sale of natural gas by Atmos Energy Marketing to its customers and
the management of storage and transportation contracts for its customers under
contracts generally having one to two-year terms. At December 31, 2002, Atmos
Energy Marketing had a total of 161 municipal customers and 674 industrial
customers. Atmos Energy Marketing also sells natural gas to certain of its
industrial customers on a delivered burner tip basis under contract terms from
30 days to two years. In addition, Atmos Energy Marketing supplies our regulated
operations with a portion of our natural gas requirements on a competitive bid
basis. Any mark-to-market gains or losses on these affiliate contracts are
eliminated in consolidation.

In the management of natural gas requirements for municipal and other local
utilities, Atmos Energy Marketing sells physical natural gas to customers for
future delivery and manages the associated price risk through the use of gas
futures, including forwards, over-the-counter and exchange-traded options, and
swap contracts with counterparties. These financial contracts are
marked-to-market daily at the close of business. Atmos Energy Marketing links
gas futures to physical delivery of natural gas and typically balances its
futures positions at the end of each trading day. Over-the-counter swap
agreements require Atmos Energy Marketing to receive or make payments based on
the difference between a fixed price and the market price of natural gas on the
settlement date. Atmos Energy Marketing uses these futures and swaps to manage
margins on offsetting fixed-price purchase or sale commitments for physical
quantities of natural gas, which are also carried on a mark-to-market basis.
Mark-to-market accounting refers to the measurement of contracts at fair value
determined at the balance sheet date with any gains and losses included in
earnings. Options held to manage price risk provide the right, but not the
requirement, to buy or sell energy commodities at a fixed price. Atmos Energy
Marketing uses options to manage margins and to limit overall price risk
exposure. At any point in time, Atmos Energy Marketing may not have completely
offset its price risk on these activities. See Note 1 for a discussion of a
change in accounting principle related to mark-to-market accounting.

Energy related services provided by Atmos Energy Marketing include the sale
of natural gas to its various customer classes and management of transportation
and storage assets and inventories. More specifically, energy services include
contract negotiation and administration, load forecasting, storage acquisition,
natural gas purchase and delivery and capacity utilization strategies. In
providing these services, Atmos Energy Marketing generates income from its
utility, municipal and industrial customers through negotiated prices based on
the volume of gas supplied to the customer. Atmos Energy Marketing also
generates income by taking advantage of the difference between near-term gas
prices and prices for future delivery as well as the daily movement of gas
prices by utilizing storage and transportation capacity that it controls.

Atmos Energy Marketing manages its financial trading for hedging (risk
management) purposes related to its physical trading positions. With regard to
its physical trading business, Atmos Energy Marketing does engage in limited
speculative natural gas trading for its own account primarily related to its
storage activity,

13

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

subject to a risk management policy established by us which limits the level of
trading loss to a maximum of 25 percent of the budgeted annual operating income
of Atmos Energy Holdings. Physical trading involves utilizing physical assets
(storage and transportation) to sell and deliver gas to customers or to take a
position in the market based on anticipated price movement. Compliance with such
risk management policy is monitored on a daily basis. In addition, Woodward
Marketing's bank credit facility limits trading positions that are not closed at
the end of the day (open positions) to 5.0 Bcf of natural gas. At December 31,
2002, Atmos Energy Marketing's net open positions in its trading operations
totaled 0.5 Bcf. Atmos Energy Marketing's open trading positions are monitored
on a daily basis but are not required to be closed if they remain within the
limits set by the bank loan agreement. In addition to the price risk of any net
open position at the end of each trading day, the financial exposure that
results from intra-day fluctuations of gas prices and the potential for daily
price movements constitutes a risk of loss since the price of natural gas
purchased or sold for future delivery at the beginning of the day may not be
hedged until later in the day.

Financial instruments, which subject Atmos Energy Marketing to counterparty
risk, consist primarily of financial instruments arising from trading and risk
management activities and overnight repurchase agreements that are not insured.
Counterparty risk is the risk of loss from nonperformance by financial
counterparties to a contract. Exchange-traded future and option contracts are
generally guaranteed by the exchanges.

Atmos Energy Marketing's operations are concentrated in the natural gas
industry, and its customers and suppliers may be subject to economic risks
affecting that industry.

From time to time, Woodward Marketing borrows money to fund its natural gas
purchases and to fulfill its obligations to maintain deposit accounts with its
counterparties. See Note 4 of notes to condensed consolidated financial
statements.

7. SEGMENT INFORMATION

Our determination of reportable segments considers the strategic operating
units under which we manage sales of various products and services to customers
in differing regulatory environments. The accounting policies of the segments
are the same as those described in the summary of significant accounting
policies included in Note 1 of notes to consolidated financial statements in our
Annual Report on Form 10-K for the year ended September 30, 2002. All
intersegment sales prices are market based. We evaluate performance based on net
income or loss of the respective operating units.

Included in purchased gas cost were purchases from Atmos Energy Marketing
of $62.4 million and $49.4 million for the quarters ended December 31, 2002 and
2001. Volumes purchased were 15.2 Bcf and 19.3 Bcf in the quarters ended
December 31, 2002 and 2001. These purchases were made in a competitive open
bidding process and reflect market prices. Average prices per Mcf for gas
purchased from Atmos Energy Marketing were $4.10 and $2.56 for the quarters
ended December 31, 2002 and 2001. In addition, we have entered into contracts
with Atmos Energy Marketing to manage a significant portion of our underground
storage facilities. Atmos Energy Marketing has acted as agent in placing
financial instruments for the various divisions that protect us and our
customers from unusually large winter period gas price increases.

In accordance with Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information", we have
identified the Utility, Natural Gas Marketing and Other Non-Utility segments.
For an expanded description of these segments, please refer to Note 1 of notes
to consolidated financial statements in our Annual Report on Form 10-K for the
year ended September 30, 2002. We consider each division within our utility
segment to be a reporting unit of the utility segment and not a reportable
segment. The individual operations that comprise the other non-utility segment
are not currently material to our consolidated financial position or results of
operations and therefore do not require separate

14

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

reporting. Income from our other non-utility segment is generated primarily from
pipeline and storage operations.

Summarized financial information concerning our reportable segments for the
three months ended December 31, 2002 and 2001 are shown in the following table:

A reconciliation of total assets for the reportable segments to total
consolidated assets for December 31, 2002 and 2001 is presented below:

15

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. SUPPLEMENTAL DISCLOSURES

The following supplemental condensed financial statements show our three
operating segments and the elimination of material intercompany transactions.
The following supplemental condensed balance sheet is as of December 31, 2002.

16

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following supplemental condensed statement of income is for the three
months ended December 31, 2002.

Organization -- Atmos Energy Corporation distributes natural gas in 12
states through its regulated utility operating divisions -- Colorado-Kansas
Division, Kentucky Division, Louisiana Division, Mid-States Division,
Mississippi Valley Gas Company Division and Texas Division. Our nonutility
operations are organized under Atmos Energy Holdings, Inc., which includes Atmos
Energy Marketing, L.L.C., Atmos Pipeline and Storage, Inc., Atmos Power Systems,
Inc. and an indirect equity interest in Heritage Propane Partners, L.P. Atmos
Energy Marketing includes the operations of Woodward Marketing and Trans
Louisiana Industrial Gas Company.

Consolidating Financial Statements -- The column headed "Utility" consists
of the operations of Atmos' six operating divisions. The column headed "Natural
Gas Marketing" consists of Atmos Energy Marketing, Woodward Marketing and Trans
Louisiana Industrial Gas Company. The column headed "Other Non-Utility" consists
of our nonutility operations excluding natural gas marketing. Operating revenues
and purchased gas costs from our natural gas marketing operations are shown on a
gross basis in the "Natural Gas Marketing" column. Such natural gas marketing
activities are reclassified in the elimination column as gas trading margin.

Current and noncurrent assets and liabilities from risk management
activities on the supplemental condensed consolidated balance sheet consist of
the fair value, inclusive of future servicing costs and valuation adjustments,
of our storage, transportation and requirements contracts, forwards,
over-the-counter and exchange traded options, futures and swap contracts.

The gas trading margin on the supplemental condensed consolidated statement
of income consists primarily of the difference between revenue arising from
Natural Gas Marketing's sale of physical natural gas to its customers less the
cost to purchase natural gas and current period changes in assets and
liabilities from risk management activities.

Risk management assets and liabilities, natural gas marketing segment -- We
use storage, transportation and requirements contracts, forwards,
over-the-counter and exchange-traded options, futures and swap contracts to
conduct our risk management activities.

17

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On October 25, 2002, the Emerging Issues Task Force rescinded Issue No.
98-10 "Accounting for Energy Trading and Risk Management Activities" thereby
precluding mark-to-market accounting for inventory and energy trading contracts
that are not derivatives. During the quarter ended December 31, 2002, energy
trading contracts entered into on or before October 25, 2002 were marked to
market pursuant to the provisions of EITF Issue No. 98-10. Energy trading
contracts entered into after October 25, 2002 were accounted for pursuant to the
provisions of Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities." Beginning January 1, 2003,
energy trading contracts will be accounted for pursuant to the provisions of
SFAS No. 133. The cumulative effect of the change in accounting principle will
be reported in accordance with APB Opinion No. 20, "Accounting Changes." The
cumulative noncash charge in the second quarter of fiscal 2003 is estimated to
be between $7.0 million and $9.0 million. As performance under these inventory,
storage and transportation contracts is completed in subsequent periods, the
applicable income will be recognized.

Under the mark-to-market method of accounting, contracts are reflected at
fair value, inclusive of future servicing costs and valuation adjustments, with
resulting unrealized gains and losses recorded as assets or liabilities from
risk management activities on the condensed consolidated balance sheet. Current
period changes in the assets and liabilities from risk management activities are
recognized as net gains or losses on the condensed consolidated statement of
income. Changes in the mark-to-market valuation of assets and liabilities from
risk management activities result primarily from changes in the valuation of the
portfolio of contracts, maturity and settlement of contracts and newly
originated transactions. Market prices and models used to value these
transactions reflect our best estimate considering various factors including
closing exchange and over-the-counter quotations, time value and volatility
factors underlying the contracts. Values are adjusted to reflect the potential
impact of liquidating our positions in an orderly manner over a reasonable
period of time under present market conditions. Changes in market prices
directly affect our estimate of the fair value of these transactions. Certain
contracts within this segment are not subject to EITF Issue No. 98-10 and are
therefore accounted for on the accrual basis.

Eliminations -- Included in purchased gas cost in the Utility column are
natural gas purchases from Atmos Energy Marketing. These purchases were made in
a competitive open bidding process and reflect market prices. In addition, we
have entered into contracts with Atmos Energy Marketing to manage a significant
portion of our underground storage facilities. Atmos Energy Marketing has acted
as agent in obtaining hedging agreements for our utility divisions that protect
us and our customers from unusually large winter period gas price increases.

9. SUBSEQUENT EVENT

On January 16, 2003, we closed our offering of $250.0 million aggregate
principal amount of our 5 1/8 percent Senior Notes due 2013. The notes were
offered to investors at 99.915 percent of their principal amount, with a yield
to maturity of 5.136 percent. After reflecting the beneficial impact of an
interest rate hedge on 50 percent of the offering, the effective interest rate
was reduced to 5.07 percent. The proceeds were used to repay debt under an
acquisition credit facility used to finance our acquisition of Mississippi
Valley Gas Company, which closed in December 2002, as well as for general
corporate purposes, including repayment of short-term debt under our commercial
paper program. The remaining proceeds were used to repay unsecured senior notes
held by institutional lenders.

18

INDEPENDENT ACCOUNTANTS' REVIEW REPORT

The Board of Directors
Atmos Energy Corporation

We have reviewed the accompanying condensed consolidated balance sheet of
Atmos Energy Corporation as of December 31, 2002 and the related condensed
consolidated statements of income and cash flows for the three-month periods
ended December 31, 2002 and 2001. These financial statements are the
responsibility of the Company's management.

We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States,
which will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we do
not express such an opinion.

Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with accounting principles
generally accepted in the United States.

We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Atmos Energy
Corporation as of September 30, 2002, and the related consolidated statements of
income, shareholders' equity and cash flows for the year then ended (not
presented herein) and in our report dated November 8, 2002, we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying condensed consolidated balance
sheet as of September 30, 2002 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.

ERNST & YOUNG LLP

Dallas, Texas
February 10, 2003

19

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

INTRODUCTION

The following discussion should be read in conjunction with the condensed
consolidated financial statements contained in this Quarterly Report on Form
10-Q and Management's Discussion and Analysis contained in our Annual Report on
Form 10-K for the year ended September 30, 2002.

We distribute and sell natural gas to approximately 1.7 million
residential, commercial, industrial, agricultural and other customers. We
operate through six divisions in service areas located in Colorado, Georgia,
Illinois, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Tennessee,
Texas and Virginia. Such business is subject to regulation by state and/or local
authorities in each of the states in which we operate. In addition, our business
is affected by seasonal weather patterns, competitive factors within the energy
industry and economic conditions in the areas that we serve. We also transport
natural gas for others through our distribution system.

We provide natural gas storage services and own or hold an interest in
natural gas storage fields in Kansas, Kentucky, Louisiana and Mississippi to
supplement natural gas used by customers in Kansas, Kentucky, Tennessee,
Louisiana, Mississippi and other states. We also provide energy management and
gas marketing services to industrial customers, municipalities and other local
distribution companies. We also construct and operate electrical power
generating plants and associated facilities and may enter into agreements to
either lease or sell such plants. In addition, we market natural gas to
industrial and agricultural customers primarily in West Texas and to industrial
customers in Louisiana.

CAUTIONARY STATEMENT FOR THE PURPOSES OF THE SAFE HARBOR UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

The statements contained in this Quarterly Report on Form 10-Q may contain
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical fact
included in this Report are forward-looking statements made in good faith by the
Company and are intended to qualify for the safe harbor from liability
established by the Private Securities Litigation Reform Act of 1995. When used
in this Report, or any other of the Company's documents or oral presentations,
the words "anticipate," "expect," "estimate," "plans," "believes," "objective,"
"forecast," "goal" or similar words are intended to identify forward-looking
statements. Such forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied in the statements relating to the Company's strategy,
operations, markets, services, rates, recovery of costs, availability of gas
supply and other factors. These risks and uncertainties include the following:
adverse weather conditions such as warmer than normal weather in the Company's
service territories; national, regional and local economic conditions, including
competition from other energy suppliers as well as alternative forms of energy;
regulatory approvals, including the impact of rate proceedings before various
state regulatory commissions; successful completion and integration of future
acquisitions; inflation and increased gas costs, including their effect on
commodity prices for natural gas; increased competition; further deregulation or
"unbundling" of the natural gas distribution industry; hedging and market risk
activities and other uncertainties, all of which are difficult to predict and
many of which are beyond the control of the Company. A discussion of these risks
and uncertainties may be found in the Company's Form 10-K for the year ended
September 30, 2002. Accordingly, while the Company believes these
forward-looking statements to be reasonable, there can be no assurance that they
will approximate actual experience or that the expectations derived from them
will be realized. Further, the Company undertakes no obligation to update or
revise any of its forward-looking statements whether as a result of new
information, future events or otherwise.

WEATHER AND SEASONALITY

Our natural gas distribution business and irrigation sales business is
seasonal and dependent upon weather conditions in our service areas. Natural gas
sales to residential, commercial and public authority customers are affected by
winter heating season requirements. This generally results in higher operating
revenues and net income during the period from October through March of each
year and lower operating revenues and either

20

net losses or lower net income during the period from April through September of
each year. Sales to industrial customers are much less weather sensitive. Sales
to agricultural customers, who typically use natural gas to power irrigation
pumps during the period from March through September, are affected by rainfall
amounts and the price of natural gas. Weather, adjusted for service areas with
weather normalized operations, for the three months ended December 31, 2002 was
five percent colder than normal and 16 percent colder than weather in the
corresponding period of the prior year.

The effects of weather that is above or below normal are partially offset
in the Tennessee and Georgia jurisdictions served by the Mid-States Division, in
the Mississippi jurisdiction served by the Mississippi Valley Gas Company
Division and in the Kentucky jurisdiction served by the Kentucky Division
through weather normalization adjustments. The Georgia Public Service
Commission, the Tennessee Regulatory Authority, the Mississippi Public Service
Commission and the Kentucky Public Service Commission have approved weather
normalization adjustments. The weather normalization adjustments, effective
October through May each year in Georgia, November through May each year in
Mississippi and November through April each year in Tennessee and Kentucky,
allow the Mid-States Division, Mississippi Valley Gas Company Division and
Kentucky Division to increase the base rate portion of customers' bills when
weather is warmer than normal and decrease the base rate when weather is colder
than normal. The net effect of the weather normalization adjustments was a
decrease in revenues of approximately $3.3 million for the three months ended
December 31, 2002, as compared with an increase of approximately $2.8 million
for the three months ended December 31, 2001. Approximately 639,000 or 38
percent of our meters in service are located in Georgia, Tennessee, Mississippi
and Kentucky. We did not have weather normalization adjustments in our other
service areas during the three months ended December 31, 2002.

In June 2001, we purchased a three year weather insurance policy with an
option to cancel in the third year. The policy is for our Texas and Louisiana
operations and covers the entire heating season of October to March beginning
with the 2001-2002 heating season. The cost of the three year policy was
approximately $13.2 million which was prepaid and will be amortized over the
appropriate heating seasons based on degree days. The insurance is designed to
protect against weather that is at least seven percent warmer than normal for
the entire heating season. During the quarter ended December 31, 2001, we
recognized $5.9 million in income and $1.9 million in amortization expense
relating to this insurance policy. During the quarter ended December 31, 2002,
weather was not at least seven percent warmer than normal resulting in no income
being recognized under this insurance policy. Amortization expense of $1.9
million was recognized during the quarter ended December 31, 2002.

Historically we have hedged 20 to 25 percent of our gas supply through the
use of our underground storage assets. For the 2002-2003 heating season, we have
covered approximately 51 percent of our anticipated flowing gas requirements
through storage, financial hedges and fixed forward contracts at a weighted
average cost of less than $4.00 per Mcf. This should provide protection to us
and our customers against potential sharp increases in the price of natural gas
during the 2002-2003 heating season.

COMPLETION OF ACQUISITION OF MISSISSIPPI VALLEY GAS COMPANY

On December 3, 2002, we completed our acquisition of Mississippi Valley Gas
Company, a privately held natural gas utility, for approximately $150.0 million,
which consisted of approximately $74.7 million in cash and 3,386,287
unregistered shares of our common stock. In addition, we paid approximately
$70.9 million to repay outstanding debt of Mississippi Valley Gas Company.
Mississippi Valley Gas Company provides natural gas distribution service to
approximately 261,500 residential, industrial and other customers located
primarily in the northern and central regions of Mississippi.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

General -- Our consolidated financial statements were prepared in
accordance with accounting principles generally accepted in the United States.
Preparation of these financial statements required us to make estimates and
judgments that affected the reported amounts of assets, liabilities, revenues
and expenses and the related disclosures of contingent assets and liabilities.
We based our estimates on historical experience and

21

various other assumptions that we believed to be reasonable under the
circumstances. On an ongoing basis, we evaluate our estimates, including those
related to risk management and trading activities, allowance for doubtful
accounts, goodwill and pension and other post retirement plans. Actual results
may differ from estimates.

Regulation -- Our utility operations are subject to regulation with respect
to rates, service, maintenance of accounting records and various other matters
by the respective regulatory authorities in the states in which we operate. Our
accounting policies recognize the financial effects of the ratemaking and
accounting practices and policies of the various regulatory commissions.
Regulated utility operations are accounted for in accordance with Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects of Certain
Types of Regulation." This statement requires 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.

Risk management assets and liabilities, natural gas marketing segment -- We
use storage, transportation and requirements contracts, forwards,
over-the-counter and exchange-traded options, futures and swap contracts to
conduct our risk management activities.

On October 25, 2002, the Emerging Issues Task Force rescinded Issue No.
98-10 "Accounting for Energy Trading and Risk Management Activities" thereby
precluding mark-to-market accounting for inventory and energy trading contracts
that are not derivatives. During the quarter ended December 31, 2002, energy
trading contracts entered into on or before October 25, 2002 were marked to
market pursuant to the provisions of EITF Issue No. 98-10. Energy trading
contracts entered into after October 25, 2002 were accounted for pursuant to the
provisions of Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities." Beginning January 1, 2003,
energy trading contracts will be accounted for pursuant to the provisions of
SFAS No. 133. The cumulative effect of the change in accounting principle will
be reported in accordance with APB Opinion No. 20, "Accounting Changes." The
cumulative noncash charge in the second quarter of fiscal 2003 is estimated to
be between $7.0 million and $9.0 million. As performance under these inventory,
storage and transportation contracts is completed in subsequent periods, the
applicable income will be recognized.

Allowance for Doubtful Accounts -- For the majority of our receivables, we
establish an allowance for doubtful accounts based on an aging of those
receivable balances. We apply percentages to each aging category based on our
collections experience. On certain other receivables where we are aware of a
specific customer's inability or reluctance to pay, we record an allowance for
doubtful accounts against amounts due to reduce the net receivable balance to
the amount we reasonably expect to collect. We believe our allowance for
doubtful accounts is adequate. However, if circumstances change, our estimate of
the recoverability of accounts receivable could be different.

Goodwill -- At December 31, 2002, we had $272.3 million of goodwill, $237.6
million of which was attributable to our utility segment, $22.6 million was
attributable to our natural gas marketing segment and $12.1 million was
attributable to our other non-utility segment. We evaluate our goodwill balances
for impairment each year during our second fiscal quarter. Our evaluation during
the quarter ended March 31, 2002 resulted in no impairment. If our projections
of estimated future cash flows change, those changes could result in a reduction
in the carrying value of our goodwill.

Pension and Other Postretirement Plans -- Pension and other postretirement
plan expenses and liabilities are determined on an actuarial basis and are
affected by the market value of plan assets, estimates of the expected return on
plan assets and assumed discount rates. Actual changes in the fair market value
of plan assets and differences between the actual return on plan assets and the
expected return on plan assets could have a material effect on the amount of
pension expense ultimately recognized. The assumed return on plan assets is
based on management's expectation of the long-term return on plan assets
portfolio. The discount rate used to compute the present value of plan
liabilities is based generally on rates of high grade corporate bonds with
maturities similar to the average period over which benefits will be paid.

22

FINANCIAL CONDITION

For the three months ended December 31, 2002, net cash used by operating
activities totaled $12.3 million compared with net cash provided by operating
activities of $56.6 million for the three months ended December 31, 2001. The
decrease to net cash used by operating activities from net cash provided by
operating activities was primarily the result of a larger increase in accounts
receivable over the same period a year ago and an increase in other current
assets and prepayments partially offset by decreases in gas stored underground
and other liabilities, a larger increase in accounts payable over the same
period a year ago and an increase in net income. The increase in net income was
due primarily to higher gross profit partially offset by lower gas trading
margin and higher operating expenses.

For the three months ended December 31, 2002, net cash used in investing
activities totaled $109.2 million compared with $43.6 million for the three
months ended December 31, 2001. Major cash flows used in investing activities
for the three months ended December 31, 2002 included capital expenditures of
$35.1 million compared with $28.0 million for the three months ended December
31, 2001. The capital expenditures budget for fiscal 2003, excluding
acquisitions, is expected to be approximately $160.2 million, including the
Mississippi Valley Gas Company Division, as compared with actual capital
expenditures of $132.3 million for fiscal 2002. Budgeted capital projects for
fiscal 2003 include expenditures for additional mains, services, meters and
equipment. Capital expenditures for fiscal 2003 are planned to be financed from
internally generated funds and financing activities as discussed below. For the
three months ended December 31, 2002, investing activities included $74.7
million for the cash portion of the Mississippi Valley Gas Company acquisition
completed in December 2002. For the three months ended December 31, 2001,
investing activities included $15.7 million for the acquisition of
Kentucky-based market area storage and associated pipeline facility assets,
certain natural gas purchase and sales contracts and the outstanding common
stock of Southern Resources, Inc.

For the three months ended December 31, 2002, net cash provided by
financing activities totaled $113.9 million compared with net cash used by
financing activities of $15.4 million for the three months ended December 31,
2001. For the three-month period ended December 31, 2002, short-term debt
increased $59.6 million compared with an increase of $5.9 million for the three
months ended December 31, 2001. The increase for the three months ended December
31, 2002 was due to the need for additional working capital funds as a result of
higher gas prices and weather that was colder than the same period a year ago.
Repayments of long-term debt totaled $15.0 million for the three months ended
December 31, 2002 compared with $13.6 million for the three months ended
December 31, 2001. For the three months ended December 31, 2002, we received
$147.0 million on our bridge loan to fund the cash portion of the Mississippi
Valley Gas Company acquisition in December 2002 and repay Mississippi Valley
Gas' outstanding debt. For the three months ended December 31, 2002, we repaid
$70.9 million of outstanding Mississippi Valley Gas debt in connection with the
acquisition in December 2002 as discussed above. We paid $12.5 million in cash
dividends during the three months ended December 31, 2002 compared with
dividends of $12.1 million during the three months ended December 31, 2001. This
reflects increases in the quarterly dividend rate and in the number of shares
outstanding. During the three months ended December 31, 2002, we issued
3,629,006 shares of common stock. Of these, 3,386,287 shares were issued in
December 2002 for the stock portion of the Mississippi Valley Gas Company
acquisition.

23

The following table presents the number of shares issued for the
three-month periods ended December 31, 2002 and 2001:

We believe that internally generated funds, our credit facilities,
commercial paper program and access to the public debt and equity capital
markets will provide necessary working capital and liquidity for capital
expenditures and other cash needs for the remainder of fiscal 2003.

We have short-term committed credit facilities totaling $318.0 million. One
short-term unsecured credit facility is for $300.0 million and serves as a
backup liquidity facility for our commercial paper program. Our commercial paper
is rated A-2 by Standard and Poor's, P-2 by Moody's and F-2 by Fitch. At
December 31, 2002, $201.6 million of commercial paper was outstanding. We have a
second unsecured facility in place for $18.0 million. At December 31, 2002, $3.8
million was outstanding under this credit facility. These credit facilities are
negotiated at least annually and are used for working capital purposes.

On October 7, 2002, we entered into a $150.0 million short-term unsecured
committed credit facility. This credit facility was used to provide initial
funding for the cash portion of the Mississippi Valley Gas acquisition and to
repay Mississippi Valley Gas' existing debt. At December 31, 2002, $147.0
million was outstanding under this credit facility. This amount was classified
as long-term debt due to our intent and ability to refinance the borrowings with
long-term debt. This amount was refinanced in January 2003.

Our Woodward Marketing subsidiary has a $210.0 million uncommitted demand
working capital credit facility. Atmos Energy Holdings, Inc. and Atmos Energy
Marketing, L.L.C., our wholly-owned subsidiaries, are guarantors of all amounts
outstanding under this facility. At December 31, 2002, no amount was outstanding
under this credit facility. Letters of credit totaling $89.0 million reduced the
amount available under this facility. The amount available under this credit
facility is also limited by various covenants, including covenants based on
working capital. Under the most restrictive covenant, the amount available to
Woodward Marketing under this credit facility at December 31, 2002 was $36.0
million. This credit facility expires on February 28, 2003 and is currently
being renegotiated.

We also have an unsecured short-term uncommitted credit line for $20.0
million. There were no borrowings under this uncommitted credit facility at
December 31, 2002. This uncommitted line is renewed or renegotiated at least
annually with varying terms and we pay no fee for the availability of the line.
Borrowings under this line are made on a when- and as-available basis at the
discretion of the bank. This facility is also used for working capital purposes.

In addition, Woodward Marketing has up to $100.0 million available from
Atmos Energy Holdings for its non-utility business. At December 31, 2002, $42.0
million was outstanding. Any outstanding amounts under the Atmos Energy Holdings
facility are subordinated to Woodward Marketing's $210.0 million uncommitted
demand credit facility described above. This intercompany loan is eliminated in
the consolidated financial statements.

In December 2001, we filed a shelf registration statement with the
Securities and Exchange Commission to issue, from time to time, up to $600.0
million in new common stock and/or debt. In connection with this

24

filing, we filed applications for approval to issue securities with five state
utility commissions and have received approval from all five commissions. The
registration statement was declared effective by the Securities and Exchange
Commission on January 30, 2002. The proceeds from any issuance of securities
under the registration statement are planned to be used for general corporate
purposes, including acquisitions, debt repayment and other business-related
matters. On January 16, 2003, we issued $250.0 million of 5 1/8% Senior Notes
due 2013 under the registration statement reducing the amount available to
$350.0 million. The proceeds were used to repay debt under an acquisition credit
facility used to finance our acquisition of Mississippi Valley Gas Company,
which closed in December 2002, as well as for general corporate purposes,
including repayment of short-term debt under our commercial paper program. The
remaining proceeds were used to repay unsecured senior notes held by
institutional lenders.

The following tables provide information about contractual obligations and
commercial commitments at December 31, 2002.

Our Pension Account Plan was underfunded at September 30, 2002 primarily
due to the result of negative investment returns from plan assets during fiscal
2002 and a decrease in interest rates. A minimum pension liability of
approximately $63.6 million was recorded as of September 30, 2002, reducing
shareholders' equity by $39.4 million (net of tax).

Because of the Pension Account Plan's underfunded status, our actuary has
calculated that we must fund the Plan by a minimum of $5.4 million in order to
meet ERISA requirements, which funding must occur no later than June 30, 2003.
Our actuary advised that if funding is done at this minimum level, future
funding requirements would most likely substantially increase over the next
several years, assuming that no significant improvement occurs in the investment
returns from the plan assets and no significant change in interest rates. We are
currently in the process of determining a recommended total funding amount for
fiscal 2003, which most likely will consist primarily of a contribution to the
Plan of Atmos common stock and cash.

At this time the projected pension liability and future funding
requirements for the Plan for fiscal 2003 and beyond cannot be precisely
estimated because such amounts are subject to change, depending upon the
actuarial value of plan assets and future benefit obligations as of each
subsequent actuarial calculation date.

25

RISK MANAGEMENT AND TRADING ACTIVITIES

We conduct our risk management activities through both our utility and
natural gas marketing segments. The following table shows our risk management
assets and liabilities by segment at December 31, 2002.

In accordance with Financial Accounting Standards No. 71 "Accounting for
the Effects of Certain Types of Regulation", current period changes in the
assets and liabilities from risk management activities related to our utility
segment are recorded as deferred gas costs on the condensed consolidated balance
sheet as these costs will ultimately be recovered from ratepayers. Accordingly,
there is no earnings impact as a result of the use of these financial
instruments. Upon maturity, the contracts are recognized in purchased gas cost
on the condensed consolidated statement of income.

We use storage, transportation and requirements contracts, forwards,
over-the-counter and exchange-traded options, futures and swap contracts to
conduct our risk management activities.

On October 25, 2002, the Emerging Issues Task Force rescinded Issue No.
98-10 "Accounting for Energy Trading and Risk Management Activities" thereby
precluding mark-to-market accounting for inventory and energy trading contracts
that are not derivatives. During the quarter ended December 31, 2002, energy
trading contracts entered into on or before October 25, 2002 were marked to
market pursuant to the provisions of EITF Issue No. 98-10. Energy trading
contracts entered into after October 25, 2002 were accounted for pursuant to the
provisions of Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities." Beginning January 1, 2003,
energy trading contracts will be accounted for pursuant to the provisions of
SFAS No. 133. The cumulative effect of the change in accounting principle will
be reported in accordance with APB Opinion No. 20, "Accounting Changes." The
cumulative noncash charge in the second quarter of fiscal 2003 is estimated to
be between $7.0 million and $9.0 million. As performance under these inventory,
storage and transportation contracts is completed in subsequent periods, the
applicable income will be recognized.

Under the mark-to-market method of accounting, contracts are reflected at
fair value, inclusive of future servicing costs and valuation adjustments, with
resulting unrealized gains and losses recorded as assets or liabilities from
risk management activities on the condensed consolidated balance sheet. Current
period changes in the assets and liabilities from risk management activities are
recognized as net gains or losses on the condensed consolidated statement of
income. Changes in the mark-to-market valuation of assets and liabilities from
risk management activities result primarily from changes in the valuation of the
portfolio of contracts, maturity and settlement of contracts and newly
originated transactions. Market prices and models used to value these
transactions reflect our best estimate considering various factors including
closing exchange and over-the-counter quotations, time value and volatility
factors underlying the contracts. Values are adjusted to reflect the potential
impact of liquidating our positions in an orderly manner over a reasonable
period of time under present market conditions. Changes in market prices
directly affect our estimate of the fair value of these transactions. Certain
contracts within this segment are not subject to EITF Issue No. 98-10 and are
therefore accounted for on the accrual basis.

26

The following table reflects the reasons for the change in fair value of
our non-utility energy trading contract activities for the quarter ending
December 31, 2002 (in thousands).

Fair value of contracts at September 30, 2002............. $ 6,651
Contracts realized/settled.............................. 2,814
Fair value of new contracts............................. 2,858
Other changes in value.................................. (9,343)
-------
Fair value of contracts at December 31, 2002.............. $ 2,980
=======

The fair value of our non-utility energy trading contracts for the quarter
ending December 31, 2002, is segregated below, by time period and fair value
source.

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 2002, COMPARED WITH THREE MONTHS ENDED
DECEMBER 31, 2001

Operating revenues increased by 48 percent to $401.5 million for the three
months ended December 31, 2002 from $271.3 million for the three months ended
December 31, 2001. The most significant factors contributing to the increase in
operating revenues were increased revenues resulting from the Mississippi Valley
Gas acquisition in December 2002, a 14 percent increase in average sales price
due to the increased cost of gas and a 19 percent increase in sales volumes due
to colder weather, excluding the additional sales volumes attributable to the
Mississippi Valley Gas Company Division operations. During the quarter ended
December 2002, temperatures were 16 percent colder than in the corresponding
quarter of the prior year and were five percent colder than the 30-year normal
for the quarter, adjusted for service areas with weather normalized operations.
The total volume of gas sold, excluding the Mississippi Valley Gas Company
Division volumes, for the three months ended December 31, 2002 was 48.8 billion
cubic feet compared with 41.0 billion cubic feet for the three months ended
December 31, 2001. Including the additional sales volumes of 4.9 billion cubic
feet attributable to the Mississippi Valley Gas Company Division operations
acquired in December 2002, total sales volumes for the quarter ended December
31, 2002 were 53.7 billion cubic feet or an increase of 31 percent. The average
cost of gas per Mcf sold increased 27 percent to $5.03 for the three months
ended December 31, 2002 from $3.95 for the three months ended December 31, 2001.
Also adding to the increase in revenues was an increase in our base charges in
Louisiana as a result of our rate stabilization clause filing which became
effective in November 2002.

Gross profit increased to $132.6 million for the three months ended
December 31, 2002 from $109.4 million for the three months ended December 31,
2001. The increase in gross profit was due primarily to the additional gross
profit resulting from the Mississippi Valley Gas acquisition in December 2002,
an increase in volumes sold to weather sensitive customers and the increase in
base charges in Louisiana. Changes in the cost of gas do not directly affect
gross profit because the fluctuations in gas prices are passed through to the
customer.

27

Gas trading margin decreased 36 percent to $4.6 million for the three
months ended December 31, 2002 from $7.2 million for the three months ended
December 31, 2001. The primary reason for the decrease was the impact of
unfavorable natural gas price movements.

Operating expenses increased to $84.5 million for the three months ended
December 31, 2002 from $73.1 million for the three months ended December 31,
2001. Operation and maintenance expense increased due primarily to the addition
of $3.9 million relating to the Mississippi Valley Gas acquisition in December
2002 and higher employee benefits expenses. An increase in the provision for
doubtful accounts of $1.6 million also added to this increase. Taxes other than
income increased $2.7 million due primarily to additional franchise, payroll and
property taxes associated with the Mississippi Valley Gas acquisition in
December 2002.

Operating income increased 21 percent for the three months ended December
31, 2002 to $52.6 million from $43.4 million for the three months ended December
31, 2001. The increase in operating income resulted primarily from the increase
in gross profit described above partially offset by a decrease from our gas
trading margin and an increase in operating expenses.

Miscellaneous income decreased $1.3 million to $4.1 million for the three
months ended December 31, 2002 compared to $5.4 million for the three months
ended December 31, 2001. This decrease was due to the absence during the quarter
ended December 31, 2002 of $5.9 million in income recognized as a result of our
weather insurance policy during the quarter ended December 31, 2001. No income
from this weather insurance policy was recognized during the quarter ended
December 31, 2002 because weather in the covered service areas was colder than
normal during the quarter. However, this decrease was partially offset by a $3.9
million gain associated with a sales-type lease of a distributed generation
plant and an increase of $0.8 million in income from our equity interest in
Heritage Propane Partners, L.P.

Net income increased for the three months ended December 31, 2002 by $5.2
million to $25.8 million from $20.6 million for the three months ended December
31, 2001. This increase in net income resulted primarily from the increase in
operating income discussed above partially offset by the decrease in
miscellaneous income.

UTILITY AND NON-UTILITY OPERATING DATA

Our utility business is composed of our six regulated utility divisions:
Atmos Energy Colorado-Kansas Division, Atmos Energy Kentucky Division, Atmos
Energy Louisiana Division, Atmos Energy Mid-States Division, Mississippi Valley
Gas Company Division and Atmos Energy Texas Division. The non-utility business
includes gas marketing and energy management services, operation of natural gas
storage fields, construction and operation of electrical power generating plants
and associated facilities and non-regulated industrial sales. The following
table of operating statistics summarizes data of the utility and non-utility
segments for the three-month periods ended December 31, 2002 and 2001. For
further information regarding operating results of the segments, see Note 7 of
notes to condensed consolidated financial statements.

28

ATMOS ENERGY CORPORATION

CONSOLIDATED OPERATING STATISTICS

- ---------------

(1) Adjusted for weather normalized operations.

(2) Volumes are reported as metered in million cubic feet (MMcf).

29

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes from the information provided in Item
7A of our Annual Report on Form 10-K for the year ended September 30, 2002.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 3 of notes to condensed consolidated financial statements herein
for a description of legal proceedings.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

(c) On December 3, 2002, through the merger of Mississippi Valley Gas
Company, a Mississippi corporation, with and into the Company, we acquired all
the assets of Mississippi Valley Gas Company. The purchase price of
approximately $150.0 million was paid equally in cash and stock to the former
shareholders of Mississippi Valley Gas Company. In addition, we repaid
approximately $70.9 million of long and short-term debt of Mississippi Valley
Gas Company. The stock portion of the purchase price was paid through the
issuance of a total of 3,386,287 shares of our common stock, which shares were
unregistered. We issued the shares under an exemption from registration under
Section 4(2) of the Securities Act of 1933 and Regulation D thereunder. The
shares are subject to a registration rights agreement and a standstill agreement
among the Company and the former shareholders of Mississippi Valley Gas Company.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

A list of exhibits required by Item 601 of Regulation S-K and filed as part
of this report is set forth in the Exhibits Index, which immediately precedes
such exhibits.

(b) Reports on Form 8-K

The Company filed a Form 8-K Current Report, Item 2, Acquisition or
Disposition of Assets, dated December 3, 2002, announcing that through the
merger of Mississippi Valley Gas Company, a Mississippi corporation, with and
into the Registrant, the Registrant acquired all the assets of Mississippi
Valley Gas Company, effective December 3, 2002. Under Item 7, Financial
Statements and Exhibits, an exhibit was attached: a copy of a related press
release dated December 4, 2002.

The Company filed a Form 8-K/A Current Report (Amendment No. 1), Item 2,
Acquisition or Disposition of Assets, dated December 3, 2002, announcing that
through the merger of Mississippi Valley Gas Company, a Mississippi corporation,
with and into the Registrant, the Registrant acquired all the assets of
Mississippi Valley Gas Company, effective December 3, 2002. Under Item 7,
Financial Statements and Exhibits, exhibits were attached: a Registration Rights
Agreement, dated as of December 3, 2002 and a Standstill Agreement, dated as of
December 3, 2002.

30

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

ATMOS ENERGY CORPORATION
(Registrant)

By: /s/ JOHN P. REDDY
------------------------------------
John P. Reddy
Senior Vice President
and Chief Financial Officer
(Duly authorized signatory)

Date: February 14, 2003

31

CERTIFICATION

I, Robert W. Best, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Atmos Energy
Corporation;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):

a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

By: /s/ ROBERT W. BEST
------------------------------------
Robert W. Best
Chairman, President and Chief
Executive Officer

Date: February 14, 2003

32

CERTIFICATION

I, John P. Reddy, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Atmos Energy
Corporation;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
quarterly report;

4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons performing
the equivalent function):

a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability
to record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.

By: /s/ JOHN P.REDDY
------------------------------------
John P. Reddy
Senior Vice President and
Chief Financial Officer

Date: February 14, 2003

33

EXHIBITS INDEX
ITEM 6(A)

- ---------------

* This exhibit constitutes a "management contract or compensatory plan,
contract or arrangement."

** These certifications pursuant to 18 U.S.C. Section 1350 by the Company's
Chief Executive Officer and Chief Financial Officer, furnished as Exhibits
99.1 and 99.2, respectively, to this Quarterly Report on Form 10-Q, will not
be deemed to be filed with the Commission or incorporated by reference into
any filing by the Company under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates such certifications by reference.

34