ATMOS ENERGY CORP - 10-Q Quarterly Report

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

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 JUNE 30, 2003

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 (I.R.S. Employer
incorporation or organization) Identification No.)

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

(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 August 1, 2003.

See accompanying notes to condensed consolidated financial statements.

1

ATMOS ENERGY CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

2

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

See accompanying notes to condensed consolidated financial statements.

4

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 2003

1. UNAUDITED INTERIM FINANCIAL INFORMATION

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

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

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.
We based our estimates on historical experience and 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.

Common stock -- At June 30, 2003, we had 100,000,000 shares of common
stock, no par value (stated at $.005 per share), authorized and 51,106,074
shares issued and outstanding. At September 30, 2002, we had 41,675,932 shares
issued and outstanding.

Goodwill -- The following table summarizes our goodwill balances as of June
30, 2003 and September 30, 2002:

The increase in the utility segment's goodwill as of June 30, 2003 is
attributable to our acquisition of Mississippi Valley Gas Company on December 3,
2002 as further described in Note 2.

Under the provisions of Statement of Financial Accounting Standards (SFAS)
142, Goodwill and Other Intangible Assets, we annually evaluate our goodwill
balances for impairment during our second fiscal quarter or as impairment
indicators arise. We use a present value technique based on discounted cash
flows to estimate the fair value of our reporting groups. If our projections of
estimated future cash flows change, those changes could result in a reduction in
the carrying value of our goodwill. Our evaluation performed during the quarter
ended March 31, 2003 resulted in no impairment.

5

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

Asset Retirement Obligations -- Effective October 1, 2002, we adopted SFAS
143, Accounting for Asset Retirement Obligations. This Statement addresses
financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. The adoption of this Statement had no material impact to our financial
condition or results of operations based on the perpetual nature of our
franchise agreements and on our experience in the businesses in which we
operate.

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.

Accounts receivable and allowance for doubtful accounts -- Accounts
receivable consists of natural gas sales to residential, commercial, industrial,
agricultural and other customers. 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.

Risk management assets and liabilities, utility segment -- We use a
combination of storage and financial hedges to protect us and our customers
against unusually large winter period gas price increases. The financial hedges
are accounted for under the mark-to-market method pursuant to SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. However, because
these costs will ultimately be recovered through our rates, current period
changes in the assets and liabilities from risk management activities are
recorded as a component of deferred gas costs in accordance with SFAS 71,
Accounting for the Effects of Certain Types of Regulation. Accordingly, there is
no earnings impact as a result of the use of these financial instruments. The
changes in the assets and liabilities from risk management activities are
recognized in purchased gas cost in the income statement when the related costs
are recovered through our rates.

Risk management assets and liabilities, natural gas marketing
segment -- The principal business of Atmos Energy Marketing, L.L.C. (AEM),
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.
AEM also supplies our regulated operations with a portion of our natural gas
requirements on a competitive bid basis. Because AEM's operations are
concentrated in the natural gas industry, its customers and suppliers may be
subject to economic risks affecting that industry. Additionally, AEM's credit
risk has increased due to higher natural gas prices this year as compared with
the prior year. However, this risk is somewhat mitigated because a larger
percentage of our business in the current year is with municipal customers as
compared with the prior year.

In the management of natural gas requirements for municipalities and other
local utilities, AEM sells physical natural gas to customers for future
delivery. AEM manages margins and limits risk exposure on the

6

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

sale of natural gas inventory or the offsetting fixed-price purchase or sale
commitments for physical quantities of natural gas through the use of gas
futures, including forwards, over-the-counter and exchange-traded options and
swap contracts with counterparties. Over-the-counter swap agreements require AEM
to receive or make payments based on the difference between a fixed price and
the market price of natural gas on the settlement date. Options held to manage
price risk provide the right, but not the requirement, to buy or sell energy
commodities at a fixed price. AEM links these gas futures to physical delivery
of natural gas and typically balances its futures positions at the end of each
trading day. However, at any point in time, AEM may not have completely offset
its risk on these activities.

AEM also engages in limited speculative natural gas trading for its own
account primarily related to its storage activity. 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. 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.

These trading activities are subject to a risk management policy which
limits the level of trading loss to a maximum of 25 percent of the budgeted
annual operating income of Atmos Energy Holdings, Inc. Compliance with this 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. AEM's open
trading positions are monitored daily but are not required to be closed if they
remain within the limits set by the bank loan agreement. At June 30, 2003, AEM's
net open positions in its trading operations totaled 0.3 Bcf.

Those futures contracts that are designated as fair value hedges are
recorded at fair value, on the balance sheet with an offsetting adjustment to
the underlying item being hedged. Those financial contracts that are not
designated as hedges are recorded on the balance sheet at fair value with
current period changes in these contracts recorded as net gains or losses in our
gas trading margin on the condensed consolidated statement of income. Any
mark-to-market gains or losses on affiliate contracts are eliminated in
consolidation.

Changes in the valuation of assets and liabilities arising from risk
management activities primarily result 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 an orderly liquidation of our positions 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.

As more fully described in Note 9, on October 25, 2002, the Emerging Issues
Task Force (EITF) issued EITF 02-03, Accounting for Contracts Involved in Energy
Trading and Risk Management, which rescinded EITF 98-10, Accounting for Energy
Trading and Risk Management Activities, and required that all energy trading
contracts entered into after October 25, 2002 be accounted for pursuant to the
provisions of SFAS 133. Prior to the issuance of EITF 02-03, we accounted for
all energy trading contracts under the mark-to-market method in accordance with
EITF 98-10. We recognized a cumulative effect of accounting change of $7.8
million, net of income tax benefit, upon the adoption of EITF 02-03 in the
second quarter of fiscal 2003.

7

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 and nine-month
periods ended June 30, 2003 and 2002:

The only components of accumulated other comprehensive loss relate to
unrealized holding gains and losses associated with certain available for sale
investments and the minimum pension liability.

Stock-based compensation plans -- We have two stock-based compensation
plans that provide for the granting of stock options and restricted stock to
officers, key employees and non-employee directors. The objectives of these
plans include attracting and retaining the best personnel, providing for
additional performance incentives and promoting our success by providing
employees with the opportunity to acquire common stock.

In October 1995, SFAS 123, Accounting for Stock-Based Compensation, was
issued. This statement established a fair value-based method of accounting for
employee stock options or similar equity instruments and encourages, but does
not require, all companies to adopt that method of accounting for all of their
employee stock compensation plans. SFAS 123 allows companies to continue to
measure compensation cost for employee stock options or similar equity
instruments using the intrinsic value method of accounting described in
Accounting Principles Board (APB) Opinion 25, Accounting for Stock Issued to
Employees. We have elected to continue using the intrinsic value method as
prescribed by APB 25. Under this method, no compensation cost for stock options
is recognized for stock option awards granted at or above fair market value.

UNITED CITIES LONG-TERM STOCK PLAN

Prior to the merger with Atmos, certain United Cities Gas Company officers
and key employees participated in the United Cities Long-Term Stock Plan
implemented in 1989. At the time of the merger on July 31, 1997, we adopted this
plan by registering a total of 250,000 shares of our common stock to be issued
under the Long-Term Stock Plan for the Mid-States Division. Under this plan,
incentive stock options, nonqualified stock options, stock appreciation rights,
restricted stock or any combination thereof may be granted to officers and key
employees of the Mid-States Division. Options granted under the plan become
exercisable at a rate of 20 percent per year and expire 10 years after the date
of grant. For the nine months ended June 30, 2003, 13,000 options were exercised
under the plan. For the nine months ended June 30, 2002, no options were
exercised under the plan. At June 30, 2003, there were 6,300 options
outstanding, all of which were fully vested. No incentive stock options,
nonqualified stock options, stock appreciation rights or restricted stock have
been granted under the plan since 1996. Because of the limited activities of
this plan, the pro forma effects of applying SFAS 123 would have less than a
$.01 per diluted share effect on earnings per share or $416 and $895 for the
three months ended June 30, 2003 and 2002 and $1,922 and $3,277 for the nine
months ended June 30, 2003 and 2002.

8

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

LONG-TERM INCENTIVE PLAN

On August 12, 1998, our Board of Directors approved and adopted the 1998
Long-Term Incentive Plan, which became effective October 1, 1998 after approval
by our shareholders. An amendment to this plan increasing the share reserve by
2,500,000 shares was approved by the shareholders at the Company's annual
meeting on February 13, 2002. The Long-Term Incentive Plan represents a part of
our Total Rewards strategy which we developed as a result of a study we
conducted of all employee, executive and non-employee director compensation and
benefits. The Long-Term Incentive Plan is a comprehensive, long-term incentive
compensation plan providing for discretionary awards of incentive stock options,
non-qualified stock options, stock appreciation rights, bonus stock, restricted
stock and performance-based stock to help attract, retain and reward employees
and non-employee directors of Atmos and our subsidiaries.

We are authorized to grant awards for up to a maximum of 4,000,000 shares
of common stock under the Long-Term Incentive Plan subject to certain adjustment
provisions. As of June 30, 2003, only non-qualified stock options, bonus stock
and restricted stock have been issued. The option price is equal to the market
price of our stock at the date of grant. The stock options expire 10 years from
the date of the grant and options vest annually over a service period ranging
from one to three years. Awards of restricted stock are generally valued at the
market price of the Company's common stock on the date of grant and recorded as
unearned compensation within shareholders' equity. The unearned compensation is
amortized to operation and maintenance expense over the vesting period of the
restricted stock.

At June 30, 2003, we had 1,844,967 options outstanding under the Long-Term
Incentive Plan at an exercise price ranging from $14.68 to $25.66. At June 30,
2002, we had 1,557,606 options outstanding under the Long-Term Incentive Plan at
an exercise price ranging from $14.68 to $25.66. A summary of activity for
grants of stock options under the Long-Term Incentive Plan for the nine months
ended June 30, 2003 and 2002 follows:

Restricted stock grants totaled 82,933 shares for the nine months ended
June 30, 2003 and have a weighted average intrinsic value of $21.34 per share.
Restricted stock grants totaled 22,204 shares for the nine months ended June 30,
2002 and have a weighted average intrinsic value of $21.30 per share.

9

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

PRO FORMA FAIR VALUE DISCLOSURES

Had compensation expense for our stock options been recognized based on the
fair value on the grant date under the methodology prescribed by SFAS 123, our
net income(loss) and earnings (loss) per share for the three and nine months
ended June 30, 2003 and 2002 would have been impacted as shown in the following
table:

Recent Accounting Developments -- In January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation (FIN) 46, Consolidation of
Variable Interest Entities, An Interpretation of Accounting Research Bulletin
No. 51. The primary objectives of FIN 46 are to provide guidance on how to
identify entities for which control is achieved through means other than through
voting rights (variable interest entities (VIE)) and how to determine when and
which business enterprises should consolidate the VIE. This new model for
consolidation applies to an entity in which either (1) the equity investors do
not have a controlling financial interest or (2) the equity investment at risk
is insufficient to finance that entity's activities without receiving additional
subordinated financial support from other parties. FIN 46 applies immediately to
VIEs created after January 31, 2003 or to VIEs obtained after that date. For
variable interest held in VIEs acquired prior to February 1, 2003, FIN 46 is
effective July 1, 2003. We believe that the adoption of this interpretation will
not have a material impact on our financial position, results of operations or
net cash flows because Atmos currently does not have any interests in VIEs.

In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies the
accounting and reporting for derivative instruments, including hedges. This
statement amends SFAS 133 for decisions made by the Derivatives Implementation
Group and by the FASB in connection with other projects dealing with financial
instruments, and clarifies other implementation issues. SFAS 149 is effective
for the Company on a prospective basis for contracts entered into or modified
after June 30, 2003. We believe that the adoption of this statement will not
have a material impact on our financial position, results of operations or net
cash flows.

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. Under
SFAS 150, mandatorily redeemable financial instruments, obligations to
repurchase the issuer's shares by transferring assets and certain obligations to
issue a variable number of shares to settle that obligation must be

10

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

classified as liabilities on the balance sheet and initially recorded at fair
value. SFAS 150 is effective for the Company for financial instruments entered
into or modified after May 31, 2003, and on July 1, 2003 for previously existing
financial instruments. The adoption of SFAS 150 will not impact our financial
position, results of operations or net cash flows as we currently do not use any
of the financial instruments subject to this statement.

Reclassifications -- Certain prior period 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 (MVG), Mississippi's largest natural gas utility. We paid approximately
$74.7 million in 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
MVG's outstanding debt. Beginning in December 2002, the results of operations of
MVG have been consolidated with our results of operations.

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.............................................. 43,838
Other intangible assets..................................... 11,746
Goodwill.................................................... 90,007
Deferred charges and other assets........................... 10,670
--------
Total assets acquired..................................... 312,777
Current liabilities......................................... (47,637)
Noncurrent liabilities...................................... (92,613)
Other acquisition related costs............................. (23,227)
--------
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 MVG
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 MVG's debt and other costs including
termination benefits.

The table below reflects the unaudited pro forma results of the Company and
MVG for the three months ended June 30, 2002 as if the acquisition had taken
place at the beginning of fiscal 2002.

11

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The table below reflects the unaudited pro forma results of the Company and
MVG for the nine months ended June 30, 2003 and 2002 as if the acquisition had
taken place at the beginning of fiscal 2002.

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, allege the defendants have
underpaid 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 Qui Tam 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 April 10, 2003, the court denied the
plaintiffs' motion to certify this proceeding as a class action, which ruling
was appealed by the plaintiffs. The plaintiffs have filed a motion with the
court for leave to amend their pleadings to which the defendants have filed an
objection. Oral arguments were held on July 8, 2003, at which time the court
indicated that it will make a ruling on the plaintiffs' motion in due course. 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

12

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

judgment which we have appealed. The plaintiffs seek class action status and to
recover unspecified damages plus attorneys' 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 have signed a definitive purchase agreement that will allow us to
receive certain distribution assets in exchange for a partial reduction of the
outstanding receivable. We continue to seek collection of the remaining
outstanding balance and believe this amount 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 the 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 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 (TDEC) 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 June 30, 2003. The investigative phase
of the work at the site has been completed and an interim removal action was
completed in June 2001. We installed four groundwater monitoring wells at the
site in 2002 and have submitted the analytical results to the TDEC. We have
completed a risk assessment report which is currently under review by the TDEC.
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.

13

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In March 2002, the TDEC 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. The TDEC has requested that the focused
removal action be conducted pursuant to a voluntary agreement. We are in the
process of negotiating the voluntary agreement with TDEC and hope to conduct the
focused removal action later this year.

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.

As of June 30, 2003, 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 $0.8
million.

Mercury Contamination Sites

We have completed investigation and remediation activities pursuant to
Consent Orders between the Kansas Department of Health and Environment (KDHE)
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 KDHE. We
amended the Orders with the KDHE 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. A report describing
the results of the work has been submitted to the KDHE. As of June 30, 2003, we
had incurred costs of $0.3 million for these sites and had a remaining accrual
of $0.2 million for recovery.

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 are adequately
covered by insurance.

OTHER

The limited partnership agreement of U.S. Propane, L.P., an entity in which
we own an approximate 19 percent membership interest, requires that in the event
of liquidation, all limited partners would be required to restore capital
account deficiencies, including any unsatisfied obligations of the partnership.
Under the agreement, our maximum capital account restoration is $4.7 million. As
of June 30, 2003, our capital account was positive.

14

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4. EQUITY OFFERING

On June 23, 2003, we completed a public offering of 4,000,000 shares of our
common stock. The offering was priced at $25.31 per share and generated net
proceeds of approximately $96.8 million. The proceeds were used to partially
fund our pension plan, to repay short-term debt and to fund general corporate
purposes including the purchase of natural gas for storage. We sold an
additional 100,000 shares of our common stock in July 2003 when our underwriters
exercised their overallotment option, which generated net proceeds of
approximately $2.4 million.

5. PENSION PLAN CONTRIBUTION

In June 2003, we contributed into the Atmos Master Retirement Trust for the
benefit of the Atmos Energy Corporation Pension Account Plan $48.6 million in
cash and 1,169,700 shares of Atmos restricted common stock with a value of $28.8
million. Of the total cash contributed, $26.1 million represented a fiscal 2002
contribution, which was deducted on our 2002 tax return. The cash contribution
was financed through a combination of cash on hand and a portion of the net
proceeds received from our June 2003 public offering discussed above.

6. SHORT-TERM DEBT

At June 30, 2003, short-term debt consisted of $0.7 million of commercial
paper.

COMMITTED CREDIT FACILITIES

We have two short-term committed credit facilities totaling $318.0 million.
The first 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
June 30, 2003, $0.7 million of commercial paper was outstanding. We have a
second unsecured facility in place for $18.0 million. At June 30, 2003, there
were no borrowings under this credit facility. These credit facilities are
negotiated at least annually and are used for working capital purposes. In July
2003, we successfully negotiated a renewal of the first credit facility and
increased the level of commitment to $350.0 million. The new facility contains
substantially the same terms as those of the prior facility and will expire in
July 2004.

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 MVG acquisition and to repay MVG's existing
debt. A total of $147.0 million was borrowed under this credit facility during
the first quarter. This amount was refinanced in January 2003 with a portion of
the proceeds of our $250.0 million debt offering, as discussed in Note 7.

UNCOMMITTED CREDIT FACILITIES

Our Woodward Marketing subsidiary has a $210.0 million uncommitted demand
working capital credit facility. Atmos Energy Holdings, Inc. (AEH) and Atmos
Energy Marketing, L.L.C., our wholly-owned subsidiaries, are guarantors of all
amounts outstanding under this facility. At June 30, 2003, no amount was
outstanding under this credit facility, although letters of credit totaling
$99.2 million reduced the amount available. 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 June 30, 2003 was $64.4
million. This credit facility expires on March 31, 2004.

We also have an unsecured short-term uncommitted credit line for $20.0
million. There were no borrowings under this uncommitted credit facility at June
30, 2003. This uncommitted line is renewed or
15

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 a $100.0 million intercompany credit
facility with AEH for its non-utility business. Any outstanding amounts under
this facility are subordinated to Woodward Marketing's $210.0 million
uncommitted demand credit facility described above. At June 30, 2003, $50.0
million was outstanding under this facility. In July 2003, Woodward and AEH
agreed to increase the interest rate on the intercompany credit facility from
LIBOR plus 1.25 percent to LIBOR plus 2.75 percent.

7. LONG-TERM DEBT

On January 16, 2003, we issued $250.0 million of 5 1/8% Senior Notes due
2013 under our existing $600.0 million shelf registration statement. The net
proceeds of $249.3 million were used to repay $147.0 million borrowed under a
short-term acquisition credit facility used to provide the initial financing of
our acquisition of MVG, as well as for general corporate purposes.

In addition, we repaid $54.0 million in unsecured senior notes held by
institutional lenders and short-term debt under our commercial paper program
with a portion of the net proceeds received from the debt offering. The
repayment of the unsecured senior notes resulted in a make-whole premium of $9.3
million.

8. EARNINGS PER SHARE

Basic earnings per share has been computed by dividing net income (loss)
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 (loss) 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 (loss) for basic and
diluted earnings per share are the same, as there is no income impact from
assumed conversions of potentially dilutive securities. A reconciliation between
basic and diluted weighted average common shares outstanding follows:

There were approximately 84,000 options and approximately 122,000 shares of
restricted stock excluded from the computation of diluted earnings per share for
the three months ended June 30, 2003 as their inclusion in the computation would
be anti-dilutive. There were no options or shares of restricted stock excluded
from the computation of diluted earnings per share for the remaining periods
presented above.

16

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. DERIVATIVE INSTRUMENTS AND HEDGING 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 June 30, 2003.

UTILITY HEDGING ACTIVITIES

For the 2002-2003 heating season, we covered approximately 51 percent of
our anticipated flowing gas requirements through a combination of storage,
financial hedges and fixed forward contracts at a weighted average cost of less
than $4.00 per Mcf. This provided a measure of protection to us and our
customers against potential sharp increases in the price of natural gas during
the 2002-2003 heating season.

NON-UTILITY HEDGING ACTIVITIES

Our non-utility hedging activities are conducted through AEM, which include
the activities of Woodward Marketing, L.L.C. and Trans Louisiana Industrial Gas
Company, Inc. AEM manages margins and limits risk exposure on the sale of
natural gas inventory or the offsetting fixed-price purchase or sale commitments
for physical quantities of natural gas through the use of gas futures, including
forwards, over-the-counter and exchange-traded options and swap contracts with
counterparties. At the close of business on June 30, 2003, we had outstanding
contracts representing 0.3 Bcf of net notional volumes with average contract
maturities of less than three years. As of June 30, 2003, contracts representing
99 percent of the fair value of these contracts are scheduled to mature within
three years.

AEM also engages in limited speculative natural gas trading for its own
account primarily related to its storage activity. These trading activities are
subject to a risk management policy which limits the level of trading loss to a
maximum of 25 percent of the budgeted annual operating income of Atmos Energy
Holdings. Compliance with this 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. AEM's open trading positions are monitored daily but are not
required to be closed if they remain within the limits set by the bank loan
agreement. At June 30, 2003, AEM's net open positions in its trading operations
totaled 0.3 Bcf.

For the three months ended June 30, 2003, our gas trading margin consisted
of an $11.9 million realized trading gain and a $4.1 million unrealized trading
loss. For the three months ended June 30, 2002, our gas trading margin consisted
of a $2.8 million realized trading gain and a $9.5 million unrealized trading
gain.

For the nine months ended June 30, 2003, our gas trading margin consisted
of a $7.6 million realized trading gain and a $7.2 million unrealized trading
gain. For the nine months ended June 30, 2002, our gas trading margin consisted
of a $37.1 million realized trading gain and an $8.1 million unrealized trading
loss.

17

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On October 25, 2002, through the issuance of EITF 02-03, Accounting for
Contracts Involved in Energy Trading and Risk Management, the EITF rescinded
EITF 98-10, Accounting for Energy Trading and Risk Management Activities,
thereby precluding the use of 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 98-10. Energy trading
contracts entered into after October 25, 2002 have been prospectively accounted
for pursuant to the provisions of SFAS 133.

Prior to December 31, 2002, we had recorded $12.9 million of unrealized
income related to our storage contracts and certain full requirements contracts
in accordance with EITF 98-10. On January 1, 2003, we reversed this unrealized
income, which was reported as a cumulative effect of a change in accounting
principle in accordance with APB 20, Accounting Changes.

Additionally, beginning January 1, 2003, all energy trading contracts are
being accounted for pursuant to the provisions of SFAS 133. As a result, many of
our index priced contracts qualify for the normal purchases and sales exception
under SFAS 133 and are not marked to market for changes in value subsequent to
December 31, 2002.

Finally, effective January 1, 2003, we designated a portion of our futures
contracts as fair value hedges of the natural gas marketing segment's gas
inventory. Accordingly, the inventory was adjusted to cost as of January 1, 2003
as part of the cumulative effect adjustment, but subsequent changes in fair
value will be recognized as an adjustment to the carrying value of the hedged
inventory.

The cumulative noncash charge in the second quarter of fiscal 2003 was $7.8
million, net of $5.1 million of applicable income tax benefit. As performance
under these inventory, storage and transportation contracts is completed, the
applicable income is recognized. Originally, $6.0 million was expected to be
realized in net income in fiscal 2003, $1.2 million in fiscal 2004 and $0.6
million thereafter. However, actual results to date are less than originally
estimated, due to the extreme market volatility.

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 6 to the condensed consolidated financial statements.

Financial instruments, which subject AEM to counterparty risk, consist
primarily of financial instruments arising from trading and risk management
activities 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.

WEATHER INSURANCE

In June 2001, we purchased a three year weather insurance policy with an
option to cancel the third year of coverage. The insurance was designed for our
Texas and Louisiana operations to protect against weather that was at least
seven percent warmer than normal for the entire heating season of October to
March beginning with the 2001-2002 heating season. The cost of the three year
policy was $13.2 million, which was prepaid and was amortized over the
appropriate heating seasons based on degree days. Because weather was not at
least seven percent warmer than normal, no income was recognized under this
insurance policy during the nine months ended June 30, 2003 and 2002.
Amortization expense of $5.0 million and $4.4 million was recognized during the
nine months ended June 30, 2003 and 2002. Included in the amortization expense
for the nine months ended June 30, 2003 was a third quarter charge of $0.6
million, net of cash received, related to the cancellation of the third year of
coverage on our weather insurance policy primarily as a result of rate relief in
Louisiana and prospects for weather normalization adjustments in Texas.

18

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. 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 to the 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.

In accordance with SFAS 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 to the 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 reporting. Income from our other non-utility segment is generated
primarily from pipeline and storage operations.

Included in purchased gas cost for the utility segment were purchases from
AEM of $80.2 million and $51.0 million for the three months ended June 30, 2003
and 2002 and $272.2 million and $157.2 million for the nine months ended June
30, 2003 and 2002. Volumes purchased were 14.7 Bcf and 14.8 Bcf for the three
months ended June 30, 2003 and 2002 and 50.5 Bcf and 56.7 Bcf for the nine
months ended June 30, 2003 and 2002. These purchases were made in a competitive
open bidding process and reflect market prices. Average prices per Mcf for gas
purchased from AEM were $5.45 and $3.45 for the three months ended June 30, 2003
and 2002 and $5.38 and $2.77 for the nine months ended June 30, 2003 and 2002.
In addition, our regulated utility divisions have entered into contracts with
AEM to manage a significant portion of our regulated utility divisions'
underground storage facilities. AEM has acted as agent in placing financial
instruments for the various regulated utility divisions that partially protect
us and our customers from unusually large winter period gas price increases.

19

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Summarized financial information concerning our reportable segments for the
three and nine months ended June 30, 2003 and 2002 are shown in the following
table:

20

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of total assets for the reportable segments to total
consolidated assets for June 30, 2003 and 2002 is presented below:

21

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. 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 June 30, 2003.

22

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following supplemental condensed statement of income is for the three
months ended June 30, 2003.

The following supplemental condensed statement of income is for the nine
months ended June 30, 2003.

23

ATMOS ENERGY CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 utility 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 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.

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, our
utility divisions have entered into contracts with Atmos Energy Marketing to
manage a significant portion of their underground storage facilities. Atmos
Energy Marketing has acted as agent in obtaining hedging agreements for our
utility divisions that protect them and our utility customers from unusually
large winter period gas price increases.

24

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 June 30, 2003 and the related condensed
consolidated statements of income for the three-month periods and nine-month
periods ended June 30, 2003 and 2002 and the condensed consolidated statements
of cash flows for the nine-month periods ended June 30, 2003 and 2002. 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
August 8, 2003

25

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 in this Quarterly Report on Form 10-Q and
Management's Discussion and Analysis in our Annual Report on Form 10-K for the
year ended September 30, 2002.

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.

OVERVIEW

Atmos Energy Corporation and its subsidiaries are primarily engaged in the
natural gas utility business as well as certain non-utility businesses. Our
operations are divided into three segments: the utility segment, which includes
our regulated natural gas distribution and sales operations; the natural gas
marketing segment, which includes Atmos Energy Marketing, L.L.C., Woodward
Marketing, L.L.C. and Trans Louisiana Industrial Gas Company, Inc.; and our
other non-utility segment, which includes all of our other non-utility
operations.

UTILITY SEGMENT

Our utility business distributes natural gas through sales and
transportation arrangements to approximately 1.7 million residential,
commercial, public authority and industrial customers. Our utility business is
composed of six regulated utility divisions:

- Atmos Energy Colorado-Kansas Division

- Atmos Energy Kentucky Division

- Atmos Energy Louisiana Division

- Atmos Energy Mid-States Division

26

- Mississippi Valley Gas Company Division

- Atmos Energy Texas Division

The service areas of our divisions are located in Colorado, Georgia,
Illinois, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Tennessee,
Texas and Virginia. Our utility business is subject to regulation by state
and/or local authorities in each of the states in which we operate. We receive
gas deliveries in our utility operations through 36 pipeline transportation
companies, both interstate and intrastate, to satisfy our sales requirements.
The pipeline transportation agreements are uninterruptible and many of them have
pipeline no-notice storage service, which provides for daily balancing between
system requirements and physical quantities requested by our customers. We also
transport natural gas for others through our distribution system.

The effects of weather that is above or below normal are offset partially
in the Tennessee and Georgia jurisdictions served by the Mid-States Division, in
the Mississippi jurisdiction served by the Mississippi Valley Gas Company
Division, in the Kentucky jurisdiction served by the Kentucky Division and,
beginning in fiscal 2004, in the Kansas jurisdiction served by the
Colorado-Kansas Division, through weather normalization adjustments (WNA). The
Tennessee Regulatory Authority, the Georgia Public Service Commission, the
Mississippi Public Service Commission and the Kentucky Public Service Commission
have approved WNA. WNA, effective from October through May each year in Georgia,
November through May each year in Mississippi and November through April of each
year in Tennessee and Kentucky, allows us 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. Approximately 659,000 or 39 percent of our
meters in service are located in Tennessee, Georgia, Mississippi and Kentucky.
In May 2003, we received approval from the Kansas Public Service Commission for
WNA in our Kansas jurisdiction served by our Colorado-Kansas Division. The WNA
in Kansas will be effective October through May of each year beginning in fiscal
2004. We do not have WNA in our other service areas.

NATURAL GAS MARKETING SEGMENT

Our natural gas marketing and other non-utility segments, which are
organized under Atmos Energy Holdings, Inc., have operations in 18 states. Atmos
Energy Marketing, L.L.C. (AEM), together with its wholly-owned subsidiaries
Woodward Marketing, L.L.C. and Trans Louisiana Industrial Gas Company, Inc.,
comprise our natural gas marketing segment. AEM provides a variety of natural
gas management services to municipalities, natural gas utility systems and
industrial natural gas consumers primarily in the southeastern and midwestern
states and to our Colorado-Kansas, Kentucky, Louisiana and Mid-States divisions.
These services primarily consist of the furnishing of natural gas supplies at
fixed and market-based prices, load forecasting and management, gas storage and
transportation services, peaking sales and balancing services and gas price
hedging through the use of derivative products. In addition, Trans Louisiana
Industrial Gas Company markets natural gas primarily to commercial customers in
Louisiana.

AEM's management of natural gas requirements involves the sale of natural
gas and the management of storage and transportation contracts under contracts
with customers generally having one to two year terms. At June 30, 2003, AEM had
a total of 589 industrial customers and 140 municipal customers. AEM also sells
natural gas to some of its industrial customers on a delivered burner tip basis
under contract terms from 30 days to two years. In addition, AEM supplies our
regulated operations with a portion of our natural gas requirements on a
competitive bid basis.

OTHER NON-UTILITY SEGMENT

We own or have an interest in underground storage fields in Kansas,
Kentucky, Louisiana and Mississippi which are used to help meet customer
requirements in Kansas, Kentucky, Louisiana, Mississippi, Tennessee and other
states during peak demand periods and to reduce the need to contract for
additional pipeline capacity to meet such peak demand periods. The total storage
capacity that we own is approximately 30.6 Bcf. However, approximately 14.7 Bcf
of gas in the storage facilities must be retained as cushion gas to maintain
reservoir pressure. In addition, we have access to additional storage with a
total capacity of 6.9 Bcf.
27

We normally inject gas into pipeline storage systems and company owned
storage facilities during the summer months and withdraw it in the winter
months. Our underground storage facilities in Kansas, Kentucky, Louisiana and
Mississippi have a combined maximum daily output capacity of approximately
392,000 Mcf.

We purchase our gas supply from various producers and marketers. Supply
arrangements are contracted on an uninterruptible basis with various terms and
at market prices.

We also construct and operate electrical peaking power generating plants
and associated facilities and may enter into agreements to either lease or sell
such plants.

Finally, we own an approximate 19 percent membership interest in U.S.
Propane L.P. (USP), a joint venture formed in February 2000 with other utility
companies. As of June 30, 2003, USP owned all of the general partnership
interest and approximately 26 percent of the limited partnership interest in
Heritage Propane Partners, L.P. a marketer of propane through a nationwide
retail distribution network.

HIGHLIGHTS

- Net loss of $0.2 million or $0.0 per diluted share for the three months
ended June 30, 2003, compared to net income of $3.3 million, or $.08 per
diluted share for the three months ended June 30, 2002. Net income of
$74.1 million or $1.65 per diluted share for the nine months ended June
30, 2003, compared to $65.3 million, or $1.59 per diluted share for the
nine months ended June 30, 2002.

- On December 3, 2002, we completed the acquisition of Mississippi Valley
Gas Company (MVG), a privately held 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 MVG. Our
Mississippi Valley Gas Company Division provides natural gas distribution
service to approximately 283,000 residential, industrial and other
customers located primarily in the northern and central regions of
Mississippi.

- In January 2003, as a result of the adoption of EITF 02-03, we recorded a
cumulative effect adjustment of $12.9 million ($7.8 million, net of
income tax benefit) on the condensed consolidated statements of income.

- On January 16, 2003, we issued $250.0 million of 5 1/8% Senior Notes due
2013. The net proceeds were used to repay debt under a short-term
acquisition credit facility used to partially finance the MVG
acquisition, to repay $54.0 million in unsecured senior notes held by
institutional lenders and short-term debt under our commercial paper
program and to provide funds for general corporate purposes.

- On June 23, 2003, we completed a public offering of 4,000,000 shares of
our common stock. The offering was priced at $25.31 per share and
generated net proceeds of approximately $96.8 million. The proceeds were
used to partially fund our pension plan, to repay short-term debt and to
fund general corporate purposes including the purchase of natural gas for
storage. We sold an additional 100,000 shares of our common stock in July
2003 when our underwriters exercised their overallotment option, which
generated net proceeds of approximately $2.4 million.

- In June 2003, we contributed into the Atmos Master Retirement Trust for
the benefit of the Atmos Energy Corporation Pension Account Plan $48.6
million in cash and 1,169,700 shares of Atmos restricted common stock
with a value of $28.8 million. The cash contribution was financed through
a combination of cash on hand and a portion of the net proceeds received
from our June 2003 public offering discussed previously.

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
28

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 (SFAS) 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, utility segment -- We use a
combination of storage and financial hedges to protect us and our customers
against unusually large winter period gas price increases. The financial hedges
are accounted for under the mark-to-market method pursuant to SFAS 133,
Accounting for Derivative Instruments and Hedging Activities. However, because
these costs will ultimately be recovered through our rates, current period
changes in the assets and liabilities from risk management activities are
recorded as a component of deferred gas costs in accordance with SFAS 71.
Accordingly, there is no earnings impact as a result of the use of these
financial instruments. The changes in the assets and liabilities from risk
management activities are recognized in purchased gas cost in the income
statement when the related costs are recovered through our rates.

Risk management assets and liabilities, natural gas marketing
segment -- The principal business of AEM, 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. AEM also supplies our regulated operations with a
portion of our natural gas requirements on a competitive bid basis. Because
AEM's operations are concentrated in the natural gas industry, its customers and
suppliers may be subject to economic risks affecting that industry.
Additionally, AEM's credit risk has increased due to higher natural gas prices
this year as compared with the prior year. However, this risk is somewhat
mitigated because a larger percentage of our business in the current year is
with municipal customers as compared with the prior year.

In the management of natural gas requirements for municipalities and other
local utilities, AEM sells physical natural gas to customers for future
delivery. AEM manages margins and limits risk exposure on the sale of natural
gas inventory or the offsetting fixed-price purchase or sale commitments for
physical quantities of natural gas through the use of gas futures, including
forwards, over-the-counter and exchange-traded options and swap contracts with
counterparties. Over-the-counter swap agreements require AEM to receive or make
payments based on the difference between a fixed price and the market price of
natural gas on the settlement date. Options held to manage price risk provide
the right, but not the requirement, to buy or sell energy commodities at a fixed
price. AEM links these gas futures to physical delivery of natural gas and
typically balances its futures positions at the end of each trading day.
However, at any point in time, AEM may not have completely offset its price risk
on these activities.

AEM also engages in limited speculative natural gas trading for its own
account primarily related to its storage activity. 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. 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.

These trading activities are subject to a risk management policy which
limits the level of trading loss to a maximum of 25 percent of the budgeted
annual operating income of Atmos Energy Holdings, Inc.
29

Compliance with this 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. AEM's open trading positions are monitored daily but are not required to be
closed if they remain within the limits set by the bank loan agreement. At June
30, 2003, AEM's net open positions in its trading operations totaled 0.3 Bcf.

Those futures contracts that are designated as fair value hedges are
recorded at fair value on the balance sheet with an offsetting adjustment to the
underlying item being hedged. Those financial contracts that are not designated
as hedges are recorded on the balance sheet at fair value with current period
changes in these contracts recorded as net gains or losses in our gas trading
margin on the condensed consolidated statement of income. Any mark-to-market
gains or losses on affiliate contracts are eliminated in consolidation.

Changes in the valuation of assets and liabilities arising from risk
management activities primarily result 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 an orderly liquidation of our positions 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.

As more fully described in Note 9 to the condensed consolidated financial
statements, on October 25, 2002, the Emerging Issues Task Force (EITF) issued
EITF 02-03, Accounting for Contracts Involved in Energy Trading and Risk
Management, which rescinded EITF 98-10, Accounting for Energy Trading and Risk
Management Activities, and required that all energy trading contracts entered
into after October 25, 2002 be accounted for pursuant to the provisions of SFAS
133, Accounting for Derivative Instruments and Hedging Activities. Prior to the
issuance of EITF 02-03, we accounted for all energy trading contracts under the
mark-to-market method in accordance with EITF 98-10. We recognized a cumulative
effect of accounting change of $7.8 million, net of income tax benefit, upon the
adoption of EITF 02-03 in the second quarter of fiscal 2003.

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. Circumstances
which could affect our estimates include, but are not limited to, customer
credit issues, the level of natural gas prices and general economic conditions.

Goodwill -- We annually evaluate our goodwill balances for impairment
during our second fiscal quarter or as impairment indicators arise. We use a
present value technique based on discounted cash flows to estimate the fair
value of our reporting groups. If our projections of estimated future cash flows
change, those changes could result in a reduction in the carrying value of our
goodwill. Our evaluation performed during the quarter ended March 31, 2003
resulted in no impairment.

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 the portfolio of
plan assets. The discount rate used to compute the present value of plan
liabilities generally is based on rates of high grade corporate bonds with
maturities similar to the average period over which benefits will be paid.

30

RESULTS OF OPERATIONS

The primary factors that impact our results of utility operations are
seasonal weather patterns, competitive factors in the energy industry and
economic 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 lower net income or net losses during the period from April
through September of each year. Accordingly, our second fiscal quarter
historically has been our most critical earnings quarter with an average of 76
percent of our net income having been earned in the second quarter during the
three most recently completed fiscal years. 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 primarily affected by rainfall amounts and the price of natural
gas. Changes in the cost of gas impact revenue but do not directly affect our
gross profit from utility operations because the fluctuations in gas prices are
passed through to the customer.

Our non-utility segment generates income from its industrial, utility and
municipal customers through negotiated prices based on the volume of gas
supplied to the customer. It 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.

At times, we maintain a net open position related to our physical storage
when we believe that future changes in prices and market conditions may result
in profitable positions. Net open positions may result in an adverse impact on
our financial condition or results of operations if the market price does not
react in the manner or direction that we expected. Our risk management control
policy contains limits associated with the overall size of open positions.

The following table presents our financial highlights for the three and
nine months ended June 30, 2003 and 2002:

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THREE MONTHS ENDED JUNE 30, 2003, COMPARED WITH THREE MONTHS ENDED JUNE 30,
2002

Gross profit -- Gross profit primarily consists of gas service margins
generated by our six utility operating divisions from the sale of natural gas to
approximately 1.7 million residential, commercial, industrial, agricultural and
other customers in the twelve states that comprise our utility service areas.

Gross profit increased to $87.2 million for the three months ended June 30,
2003 from $73.8 million for the three months ended June 30, 2002. Total
throughput for our utility business was 39.8 billion cubic feet (Bcf) during the
current quarter compared to 36.7 Bcf during the same quarter last year. The
increase in gross profit and total throughput was primarily attributable to the
impact of the MVG acquisition in December 2002, which increased gross profit and
total throughput by $9.2 million and 5.7 Bcf. The increase in gross profit was
also attributable to a $3.6 million increase in our base charges primarily in
Louisiana as a result of our annual rate stabilization clause filing which
became effective in November 2002. Also contributing to the increase in gross
profit was a $2.1 million increase from WNA as a result of weather in our WNA
service areas being warmer than normal for the three months ended June 30, 2003.
These increases were partially offset by warmer weather in the current quarter
as compared to the same quarter last year and wetter than normal weather in West
Texas which adversely impacted our irrigation volumes.

Gas trading margin -- Our gas trading margin represents the realized and
unrealized gains and losses on our gas trading activities. Our gas trading
margin income was $7.9 million for the three months ended June 30, 2003 compared
to income of $12.3 million for the three months ended June 30, 2002. Our gas
trading margin included a realized gain of $11.9 million from the sale of 65.0
Bcf of natural gas to our customers compared with a realized gain of $2.8
million from the sale of 64.7 Bcf of natural gas for the three months ended June
30, 2002. The decrease in our gas trading margin was primarily attributable to
unfavorable differences between our physical inventory and financial contract
valuations during the current quarter as compared with the prior year quarter
and the recognition of smaller gains from inventory sales as compared with the
same quarter last year.

Operating expenses -- Operating expenses, which include operation and
maintenance expense, provision for doubtful accounts, depreciation and
amortization expense and taxes other than income taxes, increased 21 percent to
$81.0 million for the three months ended June 30, 2003 from $66.9 million for
the three months ended June 30, 2002. Operation and maintenance expense
increased primarily due to the addition of $11.7 million relating to the MVG
acquisition in December 2002 partially offset by a $3.2 million reduction in
labor costs attributable to lower incentive payment accruals and a $1.5 million
decrease in the provision for doubtful accounts attributable to improved cash
collections as compared with the prior year quarter. Taxes other than income
taxes increased $4.0 million primarily due to additional franchise, payroll and
property taxes associated with the MVG assets acquired in December 2002.

Miscellaneous income (expense) -- Miscellaneous income for the three months
ended June 30, 2003 was $0.7 million, compared with expense of $0.2 million for
the three months ended June 30, 2002. The $0.9 million change primarily was
attributable to higher equity earnings from our indirect equity interest in
Heritage Propane Partners, L.P. partially offset by a $0.6 million charge
associated with the cancellation of our weather insurance policy during the
quarter.

Interest charges -- Interest charges increased 16 percent for the three
months ended June 30, 2003 to $16.0 million from $13.8 million for the three
months ended June 30, 2002. The increase was primarily attributable to a higher
average outstanding debt balance resulting from the financing obtained to fund
the acquisition of MVG.

NINE MONTHS ENDED JUNE 30, 2003, COMPARED WITH NINE MONTHS ENDED JUNE 30, 2002

Gross profit -- Gross profit increased to $420.4 million for the nine
months ended June 30, 2003 from $333.1 million for the nine months ended June
30, 2002. Total throughput was 211.8 Bcf during the nine months ended June 30,
2003 compared to 176.3 Bcf during the same period last year. The increase in
gross profit and total throughput was primarily attributable to the impact of
the MVG acquisition in December 2002, which increased gross profit and total
throughput by $59.3 million and 27.4 Bcf. The increase in gross

32

profit was also attributable to a $13.6 million net increase resulting from
increased throughput and rates (excluding MVG) and a $10.4 million increase in
our base charges primarily in Louisiana as a result of our annual rate
stabilization clause filing which became effective in November 2002. These
increases were partially offset by a $3.9 million decrease in revenues from WNA
as a result of weather in our WNA service areas being colder than normal for the
nine months ended June 30, 2003.

Gas trading margin -- Our gas trading margin represents the realized and
unrealized gains and losses on our gas trading activities. Our gas trading
margin income was $14.8 million for the nine months ended June 30, 2003 compared
to income of $29.0 million for the nine months ended June 30, 2002. Our gas
trading margin included a realized gain of $7.6 million from the sale of 234.5
Bcf of natural gas to our customers for the nine months ended June 30, 2003
compared with a realized gain of $37.1 million from the sale of 211.0 Bcf of
natural gas for the nine months ended June 30, 2002.

We were required to buy gas during a period of rising prices to meet our
contractual requirements with our customers due to several factors, which
decreased our gas trading margin for the nine months ended June 30, 2003. First,
we anticipated a decline in natural gas prices during the period December 2002
through March 2003; therefore, we elected to keep gas in storage and to buy
flowing gas to meet our customer needs. We were also unable to withdraw planned
volumes from storage due to contractual and regulatory limitations relating to
our storage facilities to meet our non-utility customer needs. Additionally, we
experienced situations of open short positions and were not sufficiently hedged
on other transactions, which contributed to the decrease in our gas trading
margin. Finally, we recognized smaller gains from inventory sales in the current
quarter as compared with the same quarter last year.

We continue to take steps to eliminate or minimize any future negative
impact of the events that caused the lower-than-expected earnings from our
natural gas marketing segment during the nine months ended June 30, 2003. In
July 2003, we entered into a leasing arrangement for a 1 Bcf salt storage
facility that will help us to manage our price risk related to customer demand
volatility. This facility provides increased flexibility because it allows us to
inject and withdraw gas on a monthly basis. The lease will commence in November
2003 and will remain in effect for the next five heating seasons. Annual lease
payments will approximate $2.0 million. We continue to evaluate new contracts
which transfer the risk of volatile gas prices to our customers and provide
higher margins and additional storage to increase supply during sustained
periods of cold weather.

Operating expenses -- Operating expenses, which include operation and
maintenance expense, provision for doubtful accounts, depreciation and
amortization expense and taxes other than income taxes, increased 22 percent to
$260.6 million for the nine months ended June 30, 2003 from $213.2 million for
the nine months ended June 30, 2002. Operation and maintenance expense increased
primarily due to the addition of $26.2 million related to the MVG acquisition in
December 2002 and a $5.1 million increase in the provision for doubtful accounts
as a result of higher revenues. This increase was partially offset by a $3.2
million reduction in labor costs attributable to lower incentive payment
accruals. Taxes other than income taxes increased $14.4 million primarily due to
additional franchise, payroll and property taxes associated with the MVG assets
acquired in December 2002.

Miscellaneous income (expense) -- Miscellaneous income for the nine months
ended June 30, 2003 was $3.3 million, compared with an expense of $0.9 million
for the nine months ended June 30, 2002. The $4.2 million change was primarily
attributable to a $3.9 million gain associated with a sales-type lease of a
distributed electric generation plant which was recognized in the first quarter
of 2003 and improved earnings from our indirect investment in Heritage Propane
L.P. partially offset by a $0.6 million charge associated with the cancellation
of our weather insurance policy during the third quarter.

Interest charges -- Interest charges increased 8 percent for the nine
months ended June 30, 2003 to $47.7 million from $44.3 million for the nine
months ended June 30, 2002. The increase was primarily attributable to a higher
average outstanding debt balance resulting from the financing obtained to fund
the acquisition of MVG.

33

Cumulative effect of change in accounting principle -- On January 1, 2003,
we recorded a cumulative effect of a change in accounting principle to reflect a
change in the way we account for our storage and transportation contracts.
Previously we accounted for those contracts under EITF 98-10 which required us
to record estimated future gains on our storage and transportation contracts at
the time we entered into the contracts and to mark those contracts to market
value each month. Effective January 1, 2003, we no longer mark those contracts
to market. As a result, we expensed $7.8 million, net of applicable income tax
benefit, as a cumulative effect of a change in accounting principle.

CONSOLIDATED OPERATING STATISTICS

The following table shows our consolidated operating statistics for the
three-month and nine-month periods ended June 30, 2003 and 2002. See Note 10 to
the interim condensed consolidated financial statements for additional
information regarding the operating results of our segments.

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

(1) Adjusted for weather normalized operations.

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

34

The following table shows our utility operating income (loss) by division
for the nine months ended June 30, 2003 and 2002. These results of our utility
operating income are presented for financial reporting purposes and may not be
appropriate for rate-making purposes.

LIQUIDITY AND CAPITAL RESOURCES

Our working capital and liquidity for capital expenditures and other cash
needs are provided from internally generated funds, borrowings under our credit
facilities and commercial paper program and funds raised from the public debt
and equity capital markets. We believe that these sources of funds will provide
the necessary working capital and liquidity for capital expenditures and other
cash needs for the remainder of fiscal 2003.

CASH FLOWS

Our internally generated funds may change in the future due to a number of
factors, some of which we cannot control. These include regulatory changes, the
price for our products and services, the demand for such products and services,
margin requirements resulting from significant changes in commodity prices,
operational risks and other factors.

For the nine months ended June 30, 2003, we generated operating cash flow
of $117.3 million compared with $301.7 million during the nine months ended June
30, 2002. The decrease in operating cash flow was primarily attributable to
increases in accounts receivable and deferred gas costs coupled with lower cash
receipts in margin accounts and decreases in other current liabilities as
compared with the prior year period. These factors were partially offset by a
decrease in gas stored underground, an increase in accounts payable and higher
net income.

For the nine months ended June 30, 2003, we invested $188.0 million
compared with $114.3 million for the nine months ended June 30, 2002. Capital
expenditures were $113.5 million during the nine months ended June 30, 2003
compared to $89.8 million for the nine months ended June 30, 2002. Capital
projects for fiscal 2003 include expenditures for additional mains, services,
meters and equipment and approximately $24.0 million for Mississippi Valley Gas
Company Division capital expenditures. Capital expenditures for fiscal 2003,
excluding acquisitions, are expected to be approximately $150.0 million to
$160.0 million compared to actual capital expenditures of $132.3 million for
fiscal 2002.

Our cash flows used for investing activities for the nine months ended June
30, 2003 included $74.7 million for the cash portion of the Mississippi Valley
Gas Company acquisition completed in December 2002. Cash flows used for
investing activities for the nine months ended June 30, 2002 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. In addition, cash flows
used for investing activities for the nine months ended June 30, 2002 included
expenditures for the acquisition of assets to be leased of $6.9 million.

35

For the nine months ended June 30, 2003, our financing activities provided
$41.2 million of cash compared with $195.6 million of cash used for the nine
months ended June 30, 2002. Our significant financing activities are summarized
as follows:

- We received $147.0 million from a short-term acquisition credit facility
which was used to fund the $74.7 million cash portion of the purchase
price for MVG in December 2002 and to repay $70.9 million of MVG's
outstanding debt.

- On January 16, 2003, we issued $250.0 million of 5 1/8% Senior Notes due
2013. The net proceeds of $249.3 million were used to refinance the
short-term acquisition credit facility of $147.0 million, to repay $54.0
million in unsecured senior notes held by institutional lenders and
short-term debt under our commercial paper program and to provide funds
for general corporate purposes.

- On June 23, 2003, we sold 4,000,000 shares of our common stock in a
public offering. The offering was priced at $25.31 per share and
generated net proceeds of approximately $96.8 million. The net proceeds
were used to finance a portion of our pension plan contribution, repay
short-term debt and to provide for general corporate purposes. We sold an
additional 100,000 shares of our common stock in July 2003 when our
underwriters exercised their overallotment option, which generated net
proceeds of approximately $2.4 million.

- During the nine months ended June 30, 2003 total short-term debt
decreased by $145.1 million as compared with a decrease of $155.8 million
for the nine months ended June 30, 2002.

- We repaid $72.3 million of long-term debt during the nine months ended
June 30, 2003 as compared with $16.9 million for the nine months ended
June 30, 2002.

- We paid $39.9 million in cash dividends during the nine months ended June
30, 2003 compared with dividends of $36.4 million during the nine months
ended June 30, 2002. This change reflects increases in the quarterly
dividend rate and in the number of shares outstanding.

During the nine months ended June 30, 2003, we issued 9,430,142 shares of
common stock. Of these shares, 3,386,287 shares were issued in December 2002 for
the stock portion of the MVG acquisition, 4,000,000 shares were issued in June
2003 related to our equity offering and 1,169,700 shares were issued in June
2003 for the stock contribution to our pension plan. The following table shows
the number of shares issued for the nine month periods ended June 30, 2003 and
2002:

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

(1) We issued an additional 100,000 common shares in July 2003 when our
underwriters exercised their overallotment option.

36

SHELF REGISTRATION

In December 2001, we filed a shelf registration statement with the
Securities and Exchange Commission (SEC) to issue, from time to time, up to
$600.0 million in new common stock and/or debt. The registration statement was
declared effective by the SEC on January 30, 2002. As discussed above, on
January 16, 2003, we issued $250.0 million of 5 1/8% Senior Notes due 2013 under
the registration statement. The net proceeds of $249.3 million were used to
repay debt under an acquisition credit facility used to finance our acquisition
of MVG, to repay $54.0 million in unsecured senior notes held by institutional
lenders and short-term debt under our commercial paper program and to provide
funds for general corporate purposes. Additionally, as noted above, we sold
4,000,000 shares of our common stock in June 2003 and an additional 100,000
shares of our common stock in July 2003 under the registration statement. After
the debt offering and these common stock sales, approximately $246.0 million
remains available under the shelf registration statement.

CREDIT FACILITIES

We maintain both committed and uncommitted credit facilities. Our credit
capacity and the amount of unused borrowing capacity are affected by the
seasonal nature of the natural gas business and our short-term borrowing
requirements, which are typically highest during colder months. Our working
capital needs can vary significantly due to changes in the price of natural gas
charged by suppliers and the increased gas supplies required to meet customers'
needs during periods of cold weather.

Committed Credit Facilities

We have two short-term committed credit facilities totaling $318.0 million.
The first short-term unsecured credit facility is for $300.0 million and serves
as a backup liquidity facility for our commercial paper program. At June 30,
2003, $0.7 million of commercial paper was outstanding. We have a second
unsecured facility in place for $18.0 million. At June 30, 2003, there were no
borrowings under this credit facility. These credit facilities are negotiated at
least annually and are used for working capital purposes. In July 2003, we
successfully negotiated a renewal of the first credit facility and increased the
level of commitment to $350.0 million. The new facility contains substantially
the same terms as those of the prior facility and will expire in July 2004.

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 MVG acquisition and to repay MVG's existing
debt. A total of $147.0 million was borrowed under this credit facility during
the first quarter. This amount was refinanced in January 2003 with a portion of
the proceeds of our $250.0 million debt offering, as discussed above.

The availability of funds under our credit facilities is subject to
conditions specified therein, which we currently meet. These conditions include
our compliance with financial covenants and the continued accuracy of
representations and warranties contained in these agreements. We are required by
the financial covenants in our $300.0 million credit facility to maintain a
ratio of total debt to total capitalization, as defined therein, of no greater
than 70 percent. At June 30, 2003, our total debt to total capitalization ratio
as defined was 56 percent.

Uncommitted Credit Facilities

Our Woodward Marketing subsidiary has a $210.0 million uncommitted demand
working capital credit facility. Atmos Energy Holdings, Inc. (AEH) and Atmos
Energy Marketing, L.L.C., our wholly-owned subsidiaries, are guarantors of all
amounts outstanding under this facility. At June 30, 2003, no amount was
outstanding under this credit facility, although letters of credit totaling
$99.2 million reduced the amount available. 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 June 30, 2003 was $64.4
million. This credit facility expires on March 31, 2004.

37

We also have an unsecured short-term uncommitted credit line for $20.0
million. There were no borrowings under this uncommitted credit facility at June
30, 2003. 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 a $100.0 million intercompany credit
facility with AEH for its non-utility business. Any outstanding amounts under
this facility are subordinated to Woodward Marketing's $210.0 million
uncommitted demand credit facility described above. At June 30, 2003, $50.0
million was outstanding under this facility. In July 2003, Woodward and AEH
agreed to increase the interest rate on the intercompany credit facility from
LIBOR plus 1.25 percent to LIBOR plus 2.75 percent.

CREDIT RATING

Our credit ratings directly affect our ability to obtain short-term and
long-term financing, in addition to the cost of such financing. In determining
our credit ratings, the rating agencies consider a number of quantitative
factors, including debt to total capitalization, operating cash flow relative to
outstanding debt, operating cash flow coverage of interest and pension
liabilities and funding status. In addition, the rating agencies consider
qualitative factors such as consistency of our earnings over time, the quality
of our management and business strategy, the risk associated with our utility
and non-utility businesses and the regulatory structures that govern our rates
in the states where we operate.

Our debt is rated by three rating agencies: Standard & Poor's Corporation
(S&P), Moody's Investors Service (Moody's) and Fitch Ratings, Inc. (Fitch). Our
current debt ratings are as follows:

Our credit ratings may be revised or withdrawn at any time by the rating
agencies, and each rating should be evaluated independently of any other rating.
There can be no assurance that a rating will remain in effect for any given
period of time or that a rating will not be lowered, or withdrawn entirely, by a
rating agency if, in its judgment, circumstances so warrant.

On January 10, 2003, S&P changed the outlook on our long-term debt rating
from "stable" to "negative." In its press release explaining this action, S&P
cited, among other factors, their concern that we have not made significant
progress in reducing our debt to total capitalization ratio. Since S&P changed
its outlook, we have issued equity and substantially reduced our leverage.
Moody's and Fitch each continue to maintain a "stable" outlook for our ratings.

We do not have any trigger events in our debt instruments that are tied to
changes in specified credit ratings or stock price, and we have not entered into
any transactions that would require us to issue equity based on our credit
rating or other trigger events.

38

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following tables provide information about contractual obligations and
commercial commitments at June 30, 2003.

AEM has commitments to purchase physical quantities of natural gas under
contracts indexed to the forward Nymex strip or under fixed price contracts. AEM
is committed to purchase 61.6 Bcf within one year and 4.7 Bcf within 1 to 3
years under indexed contracts. AEM is committed to purchase 2.6 Bcf within one
year and 0.1 Bcf within 1 to 3 years under fixed price contracts with prices
ranging from $3.00 to $6.70.

PENSION AND POSTRETIREMENT BENEFITS OBLIGATIONS

Our Pension Account Plan was underfunded at September 30, 2002 primarily
due to negative investment returns from plan assets during fiscal 2002, lump sum
distributions to participants and a decrease in interest rates. A minimum
pension liability of $63.6 million before applicable income taxes was recorded
as of September 30, 2002, which decreased shareholders' equity by $39.4 million.

In June 2003, we contributed into the Atmos Master Retirement Trust for the
benefit of the Atmos Energy Corporation Pension Account Plan $48.6 million in
cash and 1,169,700 shares of Atmos restricted common stock with a value of $28.8
million. Of the total cash contributed, $26.1 million represented a 2002
contribution, which was deducted on our 2002 tax return. The cash contribution
was financed through a combination of cash on hand and a portion of the net
proceeds received from the sale of 4,000,000 shares of our common stock in our
June 2003 public offering as discussed previously. As a result of this
contribution and improved investment returns during fiscal 2003, we anticipate
that the plan will be adequately funded as of September 30, 2003. At this time,
we anticipate that additional contributions approximating $10-$15 million will
be required for fiscal 2004.

The projected pension liability and future funding requirements for the
Plan are subject to change, depending upon the actuarial value of plan assets
from time to time and future benefit obligations as of each subsequent actuarial
calculation date.

RECENT ACCOUNTING DEVELOPMENTS

In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation (FIN) 46, Consolidation of Variable Interest Entities, An
Interpretation of Accounting Research Bulletin No. 51. The primary objectives of
FIN 46 are to provide guidance on how to identify entities for which control is
achieved through means other than through voting rights (variable interest
entities (VIE)) and how to determine when and which business enterprises should
consolidate the VIE. This new model for consolidation applies to an entity in
which either (1) the equity investors do not have a controlling financial
interest or (2) the equity investment at risk is insufficient to finance that
entity's activities without receiving additional subordinated financial support
from other parties. FIN 46 applies immediately to VIEs created after January 31,
2003 or to VIEs obtained after that date. For variable interests held in VIEs
acquired prior to February 1, 2003, FIN 46 is effective July 1, 2003. We believe
that the adoption of this interpretation will not

39

have a material impact on our financial position, results of operations or net
cash flows because Atmos currently does not have any interests in VIEs.

In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends and clarifies the
accounting and reporting for derivative instruments, including hedges. This
statement amends SFAS 133 for decisions made by the Derivatives Implementation
Group and by the FASB in connection with other projects dealing with financial
instruments, and clarifies other implementation issues. SFAS 149 is effective
for the Company on a prospective basis for contracts entered into or modified
after June 30, 2003. We believe that the adoption of this statement will not
have a material impact on our financial position, results of operations or net
cash flows.

In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. Under
SFAS 150, mandatorily redeemable financial instruments, obligations to
repurchase the issuer's shares by transferring assets and certain obligations to
issue a variable number of shares to settle that obligation must be classified
as liabilities on the balance sheet and initially recorded at fair value. SFAS
150 is effective for the Company for financial instruments entered into or
modified after May 31, 2003, and on July 1, 2003 for previously existing
financial instruments. The adoption of SFAS 150 will not impact our financial
position, results of operations or net cash flows as we currently do not use any
of the financial instruments subject to this statement.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We conduct our risk management activities through both our utility and
natural gas marketing segments. Our utility segment hedging activities are
designed to protect us and our customers against unusually large winter period
gas price increases and include the use of financial hedges and fixed forward
contracts. Our natural gas marketing segment hedging activities are designed to
manage margins on the sale of natural gas inventory or the offsetting
fixed-price purchase or sale commitments for physical quantities of natural gas
through the use of gas futures, including forwards, over-the-counter and
exchange-traded options and swap contracts with counterparties. The following
table shows our risk management assets and liabilities by segment at June 30,
2003.

On October 25, 2002, through the issuance of EITF 02-03, the EITF rescinded
EITF 98-10, Accounting for Energy Trading and Risk Management Activities,
thereby precluding mark-to-market accounting for our natural gas marketing
segment inventory and energy trading contracts that are not derivatives.
Beginning January 1, 2003, energy trading contracts are being accounted for
pursuant to the provisions of SFAS 133, Accounting for Derivative Instruments
and Hedging Activities. The cumulative effect of the change in accounting
principle was reported in accordance with APB Opinion 20, Accounting Changes.
The cumulative noncash charge recorded in the second quarter of fiscal 2003 was
$7.8 million, net of tax benefit. As performance under these inventory, storage
and transportation contracts is completed, the applicable income is recognized.
Originally, $6.0 million was expected to be realized in net income in fiscal
2003, $1.2 million in fiscal 2004 and $0.6 million thereafter. However, actual
results to date are less than originally estimated, due to the extreme market
volatility.

40

The following table shows the components of the change in fair value of our
natural gas marketing energy trading contract activities for the three months
ended June 30, 2003 (in thousands).

Fair value of contracts at March 31, 2003................... $ 8,262
Contracts realized/settled................................ (6,667)
Fair value of new contracts............................... 630
Other changes in value.................................... 5,049
-------
Fair value of contracts at June 30, 2003.................... $ 7,274
=======

The following table shows the components of the change in fair value of our
natural gas marketing energy trading contract activities for the nine months
ended June 30, 2003 (in thousands).

Fair value of contracts at September 30, 2002............... $ 6,651
Contracts realized/settled................................ 4,910
Fair value of new contracts............................... 5,261
Other changes in value.................................... (749)
Cumulative effect of accounting change.................... (8,799)
-------
Fair value of contracts at June 30, 2003.................... $ 7,274
=======

The fair value of our natural gas marketing energy trading contracts at
June 30, 2003, is segregated below, by time period and fair value source.

Atmos Energy Marketing also engages in limited speculative natural gas
trading for its own account primarily related to its storage activity. 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. 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.

These trading activities are subject to a risk management policy which
limits the level of trading loss to a maximum of 25 percent of the budgeted
annual operating income of Atmos Energy Holdings. Compliance with this 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. AEM's open
trading positions are monitored daily but are not required to be closed if they
remain within the limits set by the bank loan agreement. At June 30, 2003, AEM's
net open positions in its trading operations totaled 0.3 Bcf.

In June 2001, we purchased a three year weather insurance policy with an
option to cancel the third year of coverage. The insurance was designed for our
Texas and Louisiana operations to protect against weather that was at least
seven percent warmer than normal for the entire heating season of October to
March

41

beginning with the 2001-2002 heating season. The cost of the three year policy
was $13.2 million, which was prepaid and was amortized over the appropriate
heating seasons based on degree days. Because weather was not at least seven
percent warmer than normal, no income was recognized under this insurance policy
during the nine months ended June 30, 2003 and 2002. Amortization expense of
$5.0 million and $4.4 million was recognized during the nine months ended June
30, 2003 and 2002. Included in the amortization expense for the nine months
ended June 30, 2003 was a third quarter charge of $0.6 million, net of cash
received, related to the cancellation of the third year of coverage on our
weather insurance policy primarily as a result of rate relief in Louisiana and
prospects for weather normalization adjustments in Texas.

Other than the changes in our risk management activities and weather
insurance, there have been no significant changes in our market risks since
September 30, 2002.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including the Chairman, President and Chief Executive Officer and Senior Vice
President and Chief Financial Officer, of the effectiveness of our disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14(a). Based upon that
evaluation, the Chairman, President and Chief Executive Officer, and Senior Vice
President and Chief Financial Officer have concluded that our disclosure
controls and procedures continue to be effective.

Such disclosure controls and procedures are controls and procedures
designed to ensure that all information required to be disclosed in our reports
filed under the Exchange Act is recorded, processed, summarized and reported
within the time periods set forth in applicable Securities and Exchange
Commission forms, rules and regulations. In addition, we have reviewed our
internal controls over financial reporting and have concluded that there has
been no change in such internal control during the third quarter of 2003 that
has materially affected or is reasonably likely to materially affect the
Company's internal control over financial reporting.

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 June 30, 2003, we issued to the Company's Master Retirement Trust
for the benefit of the Company's Pension Account Plan, a total of 1,169,700
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 between the Company and the Asset Manager for the Directed Fund
in the Master Retirement Trust, a copy of which is attached hereto as Exhibit
4.1.

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 9 and Item 12, dated May
5, 2003, stating that the Company announced in a news release that members of
its leadership team would speak at the American Gas Association Financial Forum
in Scottsdale, Arizona on May 5, 2003. In the release, the Company also
42

announced that the presentation would be presented live on its website and that
during the presentation, the Company would confirm its previous earnings
guidance for the second quarter of the 2003 fiscal year and for the entire 2003
fiscal year.

The Company filed a Form 8-K Current Report, Item 9 and Item 12, dated May
13, 2003, stating that the Company announced in a news release concerning
financial results for the fiscal 2003 second quarter and six month period ended
March 31, 2003, that its officers would discuss such financial results on May
14, 2003 at 7:00 a.m. CDT. In the release, the Company also announced that the
presentation would be webcast live and that slides for the broadcast would also
be available on its website.

The Company filed a Form 8-K Current Report, Item 5, Other Events, dated
June 18, 2003 that the Company and Merrill Lynch, Pierce Fenner & Smith
Incorporated, executed a Purchase Agreement in connection with the sale of a
total of 4,000,000 shares of the Company's common stock, a copy of which was
attached to the Form 8-K as Exhibit 1.1. Under Item 7, Financial Statements and
Exhibits, the following were attached as exhibits: Purchase Agreement dated June
18, 2003, Opinion of Gibson, Dunn & Crutcher LLP, Dallas, Texas, Opinion of
Hunton & Williams, Richmond, Virginia, Consent of Gibson, Dunn & Crutcher LLP,
Dallas, Texas, Consent of Hunton & Williams, Richmond, Virginia and the news
release dated June 18, 2003.

43

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: August 14, 2003

44

EXHIBITS INDEX
ITEM 6(a)

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

* These certifications pursuant to 18 U.S.C. Section 1350 by the Company's Chief
Executive Officer and Chief Financial Officer, furnished as Exhibits 32.1 and
32.2, 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.