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<SEC-DOCUMENT>0000950134-02-005745.txt : 20020515
<SEC-HEADER>0000950134-02-005745.hdr.sgml : 20020515
<ACCEPTANCE-DATETIME>20020515161014
ACCESSION NUMBER:		0000950134-02-005745
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20020331
FILED AS OF DATE:		20020515

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			ATMOS ENERGY CORP
		CENTRAL INDEX KEY:			0000731802
		STANDARD INDUSTRIAL CLASSIFICATION:	NATURAL GAS DISTRIBUTION [4924]
		IRS NUMBER:				751743247
		STATE OF INCORPORATION:			TX
		FISCAL YEAR END:			0930

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-10042
		FILM NUMBER:		02652434

	BUSINESS ADDRESS:	
		STREET 1:		1800 THREE LINCOLN CTR
		STREET 2:		5430 LBJ FREEWAY
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75240
		BUSINESS PHONE:		9729349227

	MAIL ADDRESS:	
		STREET 1:		1800 THREE LINCOLN CTR
		STREET 2:		5430 LBJ FREEWAY
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75240

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	ENERGAS CO
		DATE OF NAME CHANGE:	19881024
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>d96933e10-q.txt
<DESCRIPTION>FORM 10-Q FOR QUARTER ENDED MARCH 31, 2002
<TEXT>
<PAGE>
                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 March 31, 2002

         OR

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

For the transition period from                   to
                               -----------------    ------------------

Commission File Number 1-10042

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

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

           Three Lincoln Centre, Suite 1800
           5430 LBJ Freeway, Dallas, Texas                       75240
       (Address of principal executive offices)                (Zip Code)

                                 (972) 934-9227
              (Registrant's telephone number, including area code)

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

Number of shares outstanding of each of the issuer's classes of common stock, as
of May 1, 2002.

<Table>
<Caption>
                   Class                                  Shares Outstanding
                   -----                                  ------------------
<S>                                                       <C>
                No Par Value                                   41,294,762
</Table>


<PAGE>


PART 1.   FINANCIAL INFORMATION
Item 1.   Financial Statements

                            ATMOS ENERGY CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<Table>
<Caption>
                                                           March 31,     September 30,
                                                              2002            2001
                                                          -----------    -------------
                                                          (Unaudited)
<S>                                                       <C>             <C>
ASSETS
Property, plant and equipment                             $ 2,178,997     $ 2,109,867
    Less accumulated depreciation and amortization            810,193         774,469
                                                          -----------     -----------
        Net property, plant and equipment                   1,368,804       1,335,398
Current assets
    Cash and cash equivalents                                   3,113          15,263
    Cash held on deposit in margin account                     26,611          66,666
    Accounts receivable, net                                  226,259         124,046
    Inventories                                                 5,420           6,041
    Gas stored underground                                     55,906          89,555
    Assets from risk management activities                     11,311          95,968
    Deferred gas cost                                              --          10,999
    Other current assets and prepayments                        5,271          15,713
                                                          -----------     -----------
        Total current assets                                  333,891         424,251
Intangible assets                                              11,423          12,125
Goodwill                                                       65,228          64,745
Noncurrent assets from risk management activities              11,590          29,771
Deferred charges and other assets                             169,466         169,890
                                                          -----------     -----------
                                                          $ 1,960,402     $ 2,036,180
                                                          ===========     ===========

SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity
    Common stock                                          $       206     $       204
    Additional paid-in capital                                498,887         489,948
    Retained earnings                                         132,945          95,132
    Accumulated other comprehensive income (loss)              (1,159)         (1,420)
                                                          -----------     -----------
        Shareholders' equity                                  630,879         583,864
Long-term debt                                                678,985         692,399
                                                          -----------     -----------
        Total capitalization                                1,309,864       1,276,263
Current liabilities
    Current maturities of long-term debt                       20,413          20,695
    Short-term debt                                            42,561         201,247
    Accounts payable and accrued liabilities                  163,112          84,471
    Taxes payable                                              47,387          11,620
    Customers' deposits                                        31,760          32,351
    Liabilities from risk management activities                10,129         119,484
    Deferred gas cost                                          35,488              --
    Other current liabilities                                  42,275          41,161
                                                          -----------     -----------
        Total current liabilities                             393,125         511,029
Deferred income taxes                                         131,183         138,934
Noncurrent liabilities from risk management activities          6,682           7,412
Deferred credits and other liabilities                        119,548         102,542
                                                          -----------     -----------
                                                          $ 1,960,402     $ 2,036,180
                                                          ===========     ===========
</Table>

See accompanying notes to condensed consolidated financial statements


                                       2
<PAGE>


                            ATMOS ENERGY CORPORATION
             CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                      (In thousands, except per share data)


<Table>
<Caption>
                                                      Three months ended
                                                           March 31
                                                    -----------------------
                                                       2002          2001
                                                    ---------     ---------
<S>                                                 <C>           <C>
Operating revenues                                  $ 379,481     $ 675,113
Purchased gas cost                                    229,598       536,789
                                                    ---------     ---------
    Gross profit                                      149,883       138,324

Gas trading margin                                      9,604            --

Operating expenses
    Operation and maintenance                          42,254        34,984
    Depreciation and amortization                      20,039        15,905
    Taxes, other than income                           10,861        13,544
                                                    ---------     ---------
        Total operating expenses                       73,154        64,433
                                                    ---------     ---------
Operating income                                       86,333        73,891

Equity in earnings of Woodward Marketing, L.L.C            --         6,022
Miscellaneous income (expense)                         (6,112)          317
Interest charges, net                                  14,489         9,817
                                                    ---------     ---------
Income before income taxes                             65,732        70,413

Income taxes                                           24,354        26,339
                                                    ---------     ---------
        Net income                                  $  41,378     $  44,074
                                                    =========     =========
Basic net income per share                          $    1.01     $    1.14
                                                    =========     =========
Diluted net income per share                        $    1.01     $    1.13
                                                    =========     =========
Cash dividends declared per share                   $    .295     $    .290
                                                    =========     =========

Weighted average shares outstanding:
    Basic                                              41,040        38,815
                                                    =========     =========
    Diluted                                            41,135        38,919
                                                    =========     =========
</Table>


See accompanying notes to condensed consolidated financial statements


                                       3
<PAGE>


                            ATMOS ENERGY CORPORATION
             CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
                      (In thousands, except per share data)

<Table>
<Caption>
                                                         Six months ended
                                                             March 31
                                                    ---------------------------
                                                       2002            2001
                                                    -----------     -----------
<S>                                                 <C>             <C>
Operating revenues                                  $   650,823     $ 1,117,903
Purchased gas cost                                      391,575         869,631
                                                    -----------     -----------
    Gross profit                                        259,248         248,272

Gas trading margin                                       16,767              --

Operating expenses
    Operation and maintenance                            84,782          70,943
    Depreciation and amortization                        40,513          31,686
    Taxes, other than income                             20,941          22,811
                                                    -----------     -----------
        Total operating expenses                        146,236         125,440
                                                    -----------     -----------
Operating income                                        129,779         122,832

Equity in earnings of Woodward Marketing, L.L.C              --           8,062
Miscellaneous income (expense)                             (711)         (2,070)
Interest charges, net                                    30,481          22,063
                                                    -----------     -----------
Income before income taxes                               98,587         106,761

Income taxes                                             36,576          39,715
                                                    -----------     -----------
        Net income                                  $    62,011     $    67,046
                                                    ===========     ===========
Basic net income per share                          $      1.51     $      1.87
                                                    ===========     ===========
Diluted net income per share                        $      1.51     $      1.87
                                                    ===========     ===========
Cash dividends declared per share                   $      .590     $      .580
                                                    ===========     ===========

Weighted average shares outstanding:
    Basic                                                40,937          35,780
                                                    ===========     ===========
    Diluted                                              41,032          35,879
                                                    ===========     ===========
</Table>


See accompanying notes to condensed consolidated financial statements


                                       4
<PAGE>


                            ATMOS ENERGY CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (In thousands)

<Table>
<Caption>
                                                                    Six months ended
                                                                         March 31
                                                                -----------------------
                                                                   2002          2001
                                                                ---------     ---------
<S>                                                             <C>           <C>
Cash Flows From Operating Activities
    Net income                                                  $  62,011     $  67,046
    Adjustments to reconcile net income to
      net cash provided by operating activities:
      Depreciation and amortization:
          Charged to depreciation and
            amortization                                           40,513        31,686
          Charged to other accounts                                 1,364         1,475
      Deferred income taxes (benefit)                              (7,905)      (31,018)
      Other                                                        (1,115)           --
      Net assets/liabilities from risk management activities       (5,229)           --
      Net change in operating assets and liabilities              163,212        45,839
                                                                ---------     ---------
          Net cash provided by operating activities               252,851       115,028

Cash Flows From Investing Activities
    Capital expenditures                                          (60,869)      (42,507)
    Acquisitions                                                  (15,747)           --
    Retirements of property, plant and
        equipment, net                                               (746)          745
    Proceeds from sale of assets, net                                  --         6,625
                                                                ---------     ---------
          Net cash used in investing activities                   (77,362)      (35,137)

Cash Flows From Financing Activities
    Net decrease in short-term debt                              (158,686)     (197,060)
    Cash dividends paid                                           (24,198)      (20,567)
    Repayment of long-term debt                                   (13,696)      (10,778)
    Issuance of common stock                                        8,941         6,715
    Proceeds from equity offering, net                                 --       142,043
                                                                ---------     ---------
          Net cash used by financing activities                  (187,639)      (79,647)
                                                                ---------     ---------
Net increase (decrease) in cash and cash equivalents              (12,150)          244
Cash and cash equivalents at beginning
    of period                                                      15,263         7,379
                                                                ---------     ---------
Cash and cash equivalents at end
    of period                                                   $   3,113     $   7,623
                                                                =========     =========
</Table>


See accompanying notes to condensed consolidated financial statements


                                       5
<PAGE>


                            ATMOS ENERGY CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2002

1. Unaudited Interim Financial Information

In the opinion of management, all material adjustments (consisting of only
normal recurring accruals) necessary for a fair presentation have been made to
the unaudited interim period financial statements. Because of seasonal and other
factors, the results of operations for the six month period ended March 31, 2002
are not indicative of expected results of operations for the year ending
September 30, 2002. These interim financial statements and notes are condensed
as permitted by the instructions to Form 10-Q and should be read in conjunction
with the audited consolidated financial statements of Atmos Energy Corporation
in its Annual Report on Form 10-K for the fiscal year ended September 30, 2001.

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

Prior to April 1, 2001, we owned a 45 percent interest in Woodward Marketing,
L.L.C. and accounted for that ownership using the equity method of accounting
for investments. Beginning April 1, 2001, we owned 100 percent of Woodward
Marketing and accounted for that ownership on a consolidated basis.

Common stock - As of March 31, 2002, we had 100,000,000 shares of common stock,
no par value (stated at $.005 per share), authorized and 41,241,912 shares
outstanding. At September 30, 2001, we had 40,791,501 shares outstanding.

Goodwill - Total goodwill was $65.2 million and $64.7 million at March 31, 2002
and September 30, 2001. Goodwill applicable to the utility segment was $36.9
million at March 31, 2002 and September 30, 2001. Goodwill applicable to the
non-regulated segment was $28.3 million and $27.8 million at March 31, 2002 and
September 30, 2001. Goodwill applicable to the utility segment resulted from the
acquisition of the Louisiana Gas Service Company assets on July 1, 2001 and is
not subject to amortization under the provisions of Statement of Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"). Goodwill applicable to the non-regulated segment was amortized over 20
years until September 30, 2001. Effective October 1, 2001, goodwill applicable
to the non-regulated segment was not amortized under the provisions of SFAS No.
142. The proforma effect on goodwill amortization of adopting SFAS No. 142 is
not material.

Under the provisions of SFAS No. 142, we evaluate our goodwill balance annually
for impairment. The initial evaluation took place during the second quarter of
our current fiscal year. No impairment of our goodwill balance was indicated as
a result of this evaluation.


                                       6
<PAGE>


Impairment of Intangible Assets - We periodically evaluate whether events or
circumstances have occurred that indicate that the value of intangible assets
may have been impaired. When such events or circumstances are present, we assess
the value of intangible assets by determining whether the carrying amount 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 amount, an impairment loss equal to the excess of the asset's carrying
value over its fair value is recorded. To date, no such impairment has been
recognized.

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

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

Risk management assets and liabilities, utility segment - Our business units
entered into financial instruments for the 2001-2002 heating season. The purpose
of entering into these financial instruments was to protect us and our customers
from unusually large winter period gas price increases. We use the
mark-to-market method to account for these activities in accordance with
Statement of Financial Accounting Standards No. 133. In accordance with
Financial Accounting Standards No. 71 "Accounting for the Effects of Certain
Types of Regulation", current period changes in the assets and liabilities from
risk management activities were recorded as deferred gas costs on the condensed
consolidated balance sheet as these costs will ultimately be recovered from
ratepayers. Accordingly, there was no earnings impact as a result of the use of
these financial instruments. Upon maturity, the contracts were recognized in
purchased gas cost.

Risk management assets and liabilities, non-regulated segment - We use storage,
transportation and requirements contracts, forwards, over-the-counter and
exchange-traded options, futures and swap contracts to conduct our risk
management activities. We use the mark-to-market method to account for these
activities in accordance with Emerging Issues Task Force Issue No. 98-10,
"Accounting for Energy Trading and Risk Management Activities." Under this
method, the aforementioned contracts are reflected at fair value, inclusive of
future servicing costs and valuation adjustments, with resulting


                                       7
<PAGE>


unrealized gains and losses recorded as assets or liabilities from risk
management activities on the consolidated balance sheet. Current period changes
in the assets and liabilities from risk management activities are recognized as
net gains or losses on the condensed consolidated statement of income as gas
trading margin. Changes in the assets and liabilities from risk management
activities result primarily from changes in the valuation of the portfolio of
contracts, maturity and settlement of contracts and newly originated
transactions. Market prices used to value these transactions reflect our best
estimate considering various factors including closing exchange and
over-the-counter quotations, time value and volatility factors underlying the
contracts. Values are adjusted to reflect the potential impact of liquidating
our positions in an orderly manner over a reasonable period of time under
present market conditions. Changes in market prices directly affect our estimate
of the fair value of these transactions. Current period changes in assets and
liabilities from risk management activities do not impact cash in the current
period. Cash is impacted when outstanding contracts are closed.

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


<Table>
<Caption>
                                                              Three months ended
                                                                    March 31
                                                             ---------------------
                                                               2002         2001
                                                             --------     --------
                                                                 (In thousands)
<S>                                                          <C>          <C>
Net income                                                   $ 41,378     $ 44,074
Unrealized holding losses on investments                         (376)        (759)
Reclassification for losses on derivative financial
    instruments included in net income                             --        3,634
                                                             --------     --------
Comprehensive income                                         $ 41,002     $ 46,949
                                                             ========     ========
</Table>

<Table>
<Caption>
                                                               Six months ended
                                                                   March 31
                                                             ---------------------
                                                               2002         2001
                                                             --------     --------
                                                                (In thousands)
<S>                                                          <C>          <C>
Net income                                                   $ 62,011     $ 67,046
Unrealized holding gains (losses) on investments                  261       (2,281)
Derivative financial instruments:
    Unrealized losses on derivative financial instruments          --       (3,634)
    Less: reclassification for losses included in
      net income                                                   --        3,634
                                                             --------     --------
Comprehensive income                                         $ 62,272     $ 64,765
                                                             ========     ========
</Table>

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


                                       8
<PAGE>


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

Recently issued accounting standards not yet adopted - In August 2001, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." This Statement addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. The provisions of this Statement
are effective for financial statements issued for fiscal years beginning after
December 15, 2001. We are currently in the process of evaluating the impact the
adoption of this Statement will have on our financial condition, results of
operations and net cash flows.

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

2. Contingencies

Litigation

Greeley Gas 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 Greeley Gas
Division. The original plaintiffs have since withdrawn from the case and on
December 31, 2001, were substituted with Will Price, Stixon Petroleum Inc., Tom
Boles and The Cooper Clark Foundation as plaintiffs. The plaintiffs, who purport
to represent a class consisting of gas producers, royalty owners, overriding
royalty owners, working interest owners and state taxing authorities, accuse the
defendants of underpaying royalties on gas taken from wells situated on
non-federal and non-Indian lands throughout the United States and offshore
waters predicated upon allegations that the defendants' gas measurements are
simply inaccurate and that the defendants failed to comply with applicable
regulations and industry standards over the last 25 years. Although the
plaintiffs do not specifically allege an amount of damages, they contend that
this suit is brought to recover billions of dollars in revenues that the
defendants have allegedly unlawfully diverted from the plaintiffs to themselves.
On April 10, 2000, this case was consolidated for pre-trial proceedings with
other similar pending litigation in federal court in Wyoming in which we are
also a defendant along with over 200 other defendants in the case of In Re
Natural Gas Royalties Quitam Litigation. In January 2001, the federal court
remanded this case back to the Kansas state court. A reconsideration of remand
was filed, but it was denied.


                                       9
<PAGE>


The Kansas state court now has jurisdiction over this proceeding and has issued
a preliminary case management order. 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 because we believe
that we have adequate insurance and/or reserves to cover any damages that may
ultimately be awarded.

Energas Division

On May 18, 2001, a suit was filed in the 99th District Court of Lubbock County,
Texas, by the City of Lubbock, Texas, and the West Texas Municipal Agency
against Stewart & Stevenson Energy Products, Inc., a division of GE Packaged
Power, Inc. ("GE") and our Energas Division. The action arises out of (i) the
construction and installation of a gas-fired electric generating facility
designed and installed by GE and (ii) the design and installation by our Energas
Division of the natural gas pipeline that provides natural gas to the facility.
The plaintiffs allege that they incurred damages as a result of certain
corrosive products that were introduced into the facility's turbine that damaged
the turbine and necessitated repair costs of approximately $0.9 million and
consequential damages of approximately $4.7 million, as a result of electric
power purchases made by the plaintiffs from other sources while the facility was
inoperative or operating below specifications. The causes of action asserted by
the plaintiffs against the Energas Division include breach of contract, breach
of warranty and negligence. 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 because we believe that we
have adequate insurance and/or reserves to cover any damages that may ultimately
be awarded.

On February 13, 2002, an action was filed and is pending in the 287th District
Court of Parmer County 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 member 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 plaintiffs seek
class action status and to recover unspecified damages plus attorney's fees. We
have denied any liability and intend to vigorously defend against the
plaintiffs' claims.

Atmos Energy Louisiana Gas Division

Prior to our acquisition of the assets of Louisiana Gas Service Company, a
division of Citizens Communications Company, on July 1, 2001, Louisiana Gas
Service Company was involved in a proceeding with the Louisiana Public Service
Commission relating to past costs associated with the purchase of gas that it
charged to its customers. Subsequent to our acquisition of the Louisiana Gas
assets on July 1, 2001, we agreed to take responsibility for assuring the
payment of refunds and/or credits to ratepayers that


                                       10
<PAGE>


may arise from Citizens Communications' past activities with respect to
purchased gas costs. On April 10, 2002, the Louisiana Public Service Commission
issued a Report of Proceedings in which it approved a Stipulation and Agreement
between Citizens Communications, Atmos and the Commission Staff. This
Stipulation and Agreement resulted in no refunds being due to customers.

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 because we believe that we have adequate insurance and/or reserves to
cover any damages that may ultimately be awarded.

We are a party to other litigation and claims that arise out of 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 because we believe that we have adequate
insurance and/or reserves to cover any damages that may ultimately be awarded.

Environmental Matters

Manufactured Gas Plant Sites

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

United Cities Gas Company and the Tennessee Department of Environment and
Conservation entered into a consent order effective January 23, 1997, to
facilitate the investigation, removal and remediation of the Johnson City site.
United Cities began the implementation of the consent order in the first quarter
of 1997 which has continued through March 31, 2002. The investigative phase of
the work at the site has been completed. An interim removal action was completed
in June 2001. United Cities is in the process of conducting a risk assessment at
the site.


                                       11
<PAGE>


In February 2002, the Tennessee Department of Environment and Conservation
contacted our United Cities Gas Division concerning the former manufactured gas
plant in Bristol, Tennessee. In May 2002, our United Cities Gas Division
completed a preliminary assessment of this location to learn more about the
history and operation of the manufactured gas plant, including limited sampling
activities. Our United Cities Gas Division is in the process of identifying and
locating other potentially responsible parties and intends to contact them in an
effort to have them join in any future remedial activities at the site.

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. Through our United Cities Gas Division, 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 is currently being performed. On March 9, 1999, the
Missouri Public Service Commission issued an Order authorizing us to defer the
costs associated with this site until March 9, 2001. A renewal of the Order has
been requested. The matter is still pending before the Commission.

As of March 31, 2002, we had incurred costs of approximately $0.9 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 and United Cities
Gas Company. The Orders provided for the investigation and remediation of
mercury contamination at gas pipeline sites which utilize or formerly utilized
mercury meter equipment in Kansas. The Final Interim Characterization and
Remediation Report has been submitted to the Kansas Department of Health. We
have agreed to amendments of the Orders with the Kansas Department of Health to
include all mercury meters that belonged to our Greeley Gas Division before the
merger with United Cities Gas Company on July 31, 1997. These sites will be
investigated in 2002 and any necessary remediation will be performed. As of
March 31, 2002, we had incurred costs of $0.1 million for these sites and had a
remaining accrual of $0.3 million for recovery. The Kansas Corporation
Commission has authorized us to defer these costs and seek recovery in a future
rate case.

We are a party to other environmental matters and claims, including those
discussed above, that arise out of the ordinary course of our 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


                                       12
<PAGE>


we believe that the expenditures related to such response actions will either be
recovered through rates, shared with other parties or covered by adequate
insurance or reserves.

3. Short-term Debt

At March 31, 2002, short-term debt was comprised of $31.1 million of commercial
paper and $11.5 million outstanding under bank credit facilities.

Committed credit facilities

We have short-term committed credit facilities totaling $318.0 million. One
short-term unsecured credit facility is for $300.0 million with an option to
increase the amount by $100.0 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 and P-2 by Moody's. At March 31, 2002, $31.1 million of commercial
paper was outstanding. We have a second facility in place for $18.0 million. At
March 31, 2002, $11.5 million was outstanding under this credit facility. These
credit facilities are negotiated at least annually and are used for working
capital purposes.

Uncommitted credit facilities

Our Woodward Marketing subsidiary has an uncommitted demand credit facility for
$125.0 million which is used for its non-regulated business. Atmos Energy
Marketing, LLC, our wholly-owned subsidiary, is the sole guarantor of all
amounts outstanding under this facility. At March 31, 2002, no amount was
outstanding under this credit facility. Related letters of credit totaling $56.8
million reduced the amount available under this facility. This facility is used
for working capital purposes.

We also have unsecured short-term uncommitted credit lines from two banks
totaling $40.0 million. No amounts were outstanding under these credit
facilities at March 31, 2002. The uncommitted lines are renewed or renegotiated
at least annually with varying terms and we pay no fee for the availability of
the lines. Borrowings under these lines are made on a when- and as-available
basis at the discretion of the banks. These facilities are also used for working
capital purposes.

In addition, Woodward Marketing has up to $100.0 million of credit available
from Atmos Energy Marketing, LLC for its non-regulated business. At March 31,
2002, $28.5 million was outstanding. This intercompany facility is subordinated
in terms of repayment to the $125.0 million uncommitted demand credit facility
described above.

4. Earnings Per Share

Basic earnings per share has been computed by dividing net income for the period
by the weighted average number of common shares outstanding during the period.
Diluted earnings per share has been computed by dividing net income for the
period by the weighted average number of common shares outstanding during the
period adjusted for


                                       13
<PAGE>


the assumed exercise of restricted stock and other contingently issuable shares
of common stock. Net income for basic and diluted earnings per share are the
same, as there are no contingently issuable shares of stock whose issuance would
have impacted net income. A reconciliation between basic and diluted weighted
average common shares outstanding follows:

<Table>
<Caption>
                                             For the three months ended
                                                     March 31
                                             --------------------------
                                              2002                 2001
                                             ------               ------
                                                    (In thousands)
<S>                                          <C>                <C>
Weighted average common shares - basic       41,040               38,815
Effect of dilutive securities:
    Restricted stock                             67                   92
    Stock options                                28                   12
                                             ------               ------
Weighted average common shares - assuming
    dilution                                 41,135               38,919
                                             ======               ======
</Table>


<Table>
<Caption>
                                              For the six months ended
                                                       March 31
                                             --------------------------
                                              2002                 2001
                                             ------               ------
                                                    (In thousands)
<S>                                          <C>                <C>
Weighted average common shares - basic       40,937               35,780
Effect of dilutive securities:
    Restricted stock                             67                   92
    Stock options                                28                    7
                                             ------               ------
Weighted average common shares - assuming
    dilution                                 41,032               35,879
                                             ======               ======
</Table>

5. Derivative Instruments and Hedging Activities

Effective October 1, 2000, we adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended. This Statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that all
derivative financial instruments be recognized in the financial statements and
measured at fair value regardless of the purpose or intent for holding them.
Changes in the fair value of derivative financial instruments are either
recognized periodically in income or as deferred gas costs, depending on the
classification of the derivative. Derivative instruments may be classified as
either fair value hedges or cash flow hedges. The cumulative effect of the
change in accounting for the adoption of this Statement did not have a material
impact on our financial position, results of operations or net cash flows.


                                       14
<PAGE>


Weather Hedges and Insurance

In July 2000, we entered into an agreement to purchase weather hedges for our
Texas and Louisiana operations effective for the 2000-2001 heating season. The
hedges were designed to help mitigate the effects of weather that was at least
seven percent warmer than normal in both Texas and Louisiana while preserving
any upside. The cost of the weather hedges was approximately $4.9 million which
was amortized over the 2000-2001 heating season. No income was recognized for
the 2000-2001 heating season for these weather hedges due to the colder than
normal weather.

In June 2001, we purchased a three year weather insurance policy with an option
to cancel in the third year if we obtain weather protection in our rate
structures. The policy is for our Texas and Louisiana operations and covers the
entire heating season of October to March beginning with the 2001-2002 heating
season. The cost of the three year policy was approximately $13.2 million which
was prepaid and is being amortized over the appropriate heating seasons based on
degree days. The insurance is designed to protect against weather that is at
least seven percent warmer than normal. During the first quarter of fiscal 2002,
we recognized $5.9 million in income and during the second quarter of fiscal
2002, we recognized $5.9 million in expense resulting in no income being
recognized for the 2001-2002 heating season on this insurance policy due to the
weather not being at least seven percent warmer than normal. Amortization
expense of $4.4 million was recognized during the 2001-2002 heating season
related to this policy.

Utility Hedging Activities

Historically we have effectively hedged 20 percent of the gas supply required
during our annual October through March hating season by utilizing our
underground storage assets. For the 2001-2002 heating season, we covered
approximately 64 percent of our anticipated flowing gas requirements through
storage and futures and fixed forward contracts.

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

Non-Regulated Hedging Activities

At the close of business on March 31, 2002, we had outstanding contracts
representing (3.7) Bcf of net notional volumes with average contract maturities
of less than two years. These contracts were marked to market. Contracts
representing 75 percent of the fair value of these contracts are scheduled to
mature within one year. Contracts representing



                                       15
<PAGE>


27 percent of the remaining fair value are scheduled to mature within three
years. The $17.6 million mark-to-market loss associated with these positions was
recorded as unrealized trading margin on the condensed consolidated statement of
income for the six months ended March 31, 2002.

Effective April 1, 2001, natural gas sales from our natural gas trading
operations have been netted against purchased gas costs and shown as gas trading
margin on the consolidated statements of income. For the three months ended
March 31, 2002, our gas trading margin consisted of a $31.5 million realized
trading gain and a $21.9 million unrealized trading loss. For the six months
ended March 31, 2002, our gas trading margin consisted of a $34.4 million
realized trading gain and a $17.6 million unrealized trading loss.

We acquired a 45 percent interest in Woodward Marketing, L.L.C. in 1997 as a
result of the merger of Atmos and United Cities Gas Company, which had acquired
that interest in 1995. On April 1, 2001, we acquired the 55 percent interest
that we did not own from J.D. Woodward and others for 1,423,193 restricted
shares of our common stock. Immediately following the acquisition, Mr. Woodward
was elected as a Senior Vice President of Atmos in charge of all non-regulated
business activities, a position he has held since April 1, 2001. Prior to that
time, Mr. Woodward had not been an officer or employee of Atmos.

The principal business of Woodward Marketing, including the activities of 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 southwestern and midwestern United States.
This business involves the sale of natural gas by Woodward Marketing to its
customers and the management of storage and transportation contracts for its
customers under contracts generally having one to two-year terms. At March 31,
2002, Woodward Marketing had a total of 94 municipal and local gas utility
customers and 297 industrial customers. Woodward Marketing also sells natural
gas to certain of its industrial customers on a delivered burner tip basis under
contract terms from 30 days to two years. In addition, Woodward Marketing
supplies us with a portion of our natural gas requirements on a competitive bid
basis.

In the management of natural gas requirements for municipal and other local
utilities, Woodward Marketing sells physical natural gas to those customers for
future delivery and hedges the associated price risk through the use of gas
futures, including forwards, over-the-counter and exchange-traded options, and
swap contracts with counterparties. These financial contracts are
marked-to-market daily at the close of business. Woodward Marketing links gas
futures to physical delivery of natural gas and balances its futures positions
at the end of each trading day. Over-the-counter swap agreements require
Woodward Marketing to receive or make payments based on the difference between a
fixed price and the market price of natural gas on the settlement date. Woodward
Marketing uses these futures and swaps to manage margins on offsetting
fixed-price purchase or sale commitments for physical quantities of natural gas,
which


                                       16
<PAGE>


are also carried on a mark-to-market basis. Options held to hedge price risk
provide the right, but not the requirement, to buy or sell energy commodities at
a fixed price. Woodward Marketing uses options to manage margins and to limit
overall price risk exposure.

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

Woodward Marketing also engages in limited speculative natural gas trading for
its own account, subject to a risk management policy established by us which
limits the level of trading loss in any fiscal year to a maximum of 25 percent
of the budgeted annual operating income of Woodward Marketing. Compliance with
such risk management policy is monitored on a daily basis. In addition, Woodward
Marketing's bank credit facility limits trading positions that are not closed at
the end of the day (open positions) to 5.0 Bcf of natural gas. At March 31,
2002, Woodward Marketing's net open positions in its trading operations totaled
(3.7) Bcf. In its speculative trading, Woodward Marketing's open trading
positions are monitored on a daily basis but are not required to be closed if
they remain within the limits set by the bank loan agreement. In some prior
years, Woodward Marketing experienced losses in its speculative trading
business. The financial exposure that results from the daily fluctuations of gas
prices and the potential for daily price movements constitutes a risk of loss
since the price of natural gas purchased for future delivery at the beginning of
the day may not be hedged until later in the day. Effective in May 2002,
Woodward Marketing's trading for speculative purposes was discontinued.

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

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

6. Segment Information

Our determination of reportable segments considers, in part, 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


                                       17
<PAGE>


described in the summary of significant accounting policies included in Note 1
of notes to consolidated financial statements in our Annual Report on Form 10-K
for the year ended September 30, 2001. All intersegment sales prices are market
based. We evaluate performance based on net income or loss of the respective
operating units.

In accordance with Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information", we have
identified the Utility and Non-regulated segments. For an expanded description
of these segments, refer to Note 1 of notes to consolidated financial statements
in our Annual Report on Form 10-K for the year ended September 30, 2001. We
consider each business unit within our utility segment to be a reporting unit of
the utility segment and not a reportable segment. Our chief executive officer
makes decisions about allocating resources to the utility segment as a whole and
not to individual reporting units. The individual operations that comprise the
non-regulated segment are not currently material to our consolidated financial
position or results of operations and therefore do not require separate
reporting. Prior to April 1, 2001, we owned a 45 percent interest in Woodward
Marketing and accounted for that ownership using the equity method of accounting
for investments. Beginning April 1, 2001, we own 100 percent of Woodward
Marketing and account for that ownership on a consolidated basis.




                                       18
<PAGE>

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

<Table>
<Caption>
                                                         Non-
                                        Utility        Regulated         Total
                                      -----------     -----------     -----------
                                                     (In thousands)
For the three months ended
March 31, 2002:
- --------------
<S>                                   <C>             <C>             <C>
Operating revenues for reportable
    segments                          $   376,811     $     9,664     $   386,475
Elimination of intersegment
    revenues                                 (309)         (6,685)         (6,994)
                                      -----------     -----------     -----------
      Total operating revenues            376,502           2,979         379,481

Net income                                 36,687           4,691          41,378

March 31, 2001:
- --------------
Operating revenues for reportable
    segments                          $   647,292     $    28,945     $   676,237
Elimination of intersegment
    revenues                                 (364)           (760)         (1,124)
                                      -----------     -----------     -----------
      Total operating revenues            646,928          28,185         675,113

Net income                                 35,941           8,133          44,074
</Table>

<Table>
<Caption>
                                                         Non-
                                        Utility        Regulated         Total
                                      -----------     -----------     -----------
                                                     (In thousands)
As of and for the six months ended
March 31, 2002:
- --------------
<S>                                   <C>             <C>             <C>
Operating revenues for reportable
    segments                          $   641,967     $    17,299     $   659,266
Elimination of intersegment
    revenues                                 (948)         (7,495)         (8,443)
                                      -----------     -----------     -----------
      Total operating revenues            641,019           9,804         650,823

Net income                                 53,521           8,490          62,011

Total assets                            1,833,446         284,172       2,117,618

March 31, 2001:
- --------------
Operating revenues for reportable
    segments                          $ 1,075,754     $    44,912     $ 1,120,666
Elimination of intersegment
    revenues                               (1,117)         (1,646)         (2,763)
                                      -----------     -----------     -----------
      Total operating revenues          1,074,637          43,266       1,117,903

Net income                                 58,779           8,267          67,046

Total assets                            1,353,452         115,229       1,468,681
</Table>


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

<Table>
<Caption>
                                                March 31
                                        ---------------------------
                                            2002           2001
                                        -----------     -----------
                                              (In thousands)
<S>                                     <C>             <C>
Total assets for reportable segments    $ 2,117,618     $ 1,468,681
Elimination of intercompany accounts       (157,216)        (16,555)
                                        -----------     -----------
    Total consolidated assets           $ 1,960,402     $ 1,452,126
                                        ===========     ===========
</Table>


                                       19
<PAGE>


7. Supplemental Disclosures

The following supplemental condensed financial statements show Atmos Energy
Corporation, consisting of Atmos' regulated natural gas divisions; Atmos Energy
Holdings, consisting of Atmos' non-regulated subsidiaries; and the elimination
of material intercompany transactions. The following supplemental condensed
balance sheet is as of March 31, 2002.

<Table>
<Caption>
                                            Atmos Energy     Atmos Energy
                                            Corporation        Holdings       Eliminations     Consolidated
                                            ------------     ------------     ------------     ------------
                                                                   (In thousands)
<S>                                         <C>              <C>              <C>              <C>
ASSETS
Property, plant and equipment, net          $  1,301,630     $     67,174     $         --     $  1,368,804
Investment in subsidiaries                       114,817           (5,754)        (109,063)              --
Current assets
    Cash and cash equivalents                     (5,575)           8,688               --            3,113
    Cash held on deposit in margin
      account                                     11,710           14,901               --           26,611
    Accounts receivable, net                     140,225          115,742          (29,708)         226,259
    Inventories                                    5,154              266               --            5,420
    Gas stored underground                        27,454           28,452               --           55,906
    Assets from risk management
      activities                                      --           29,756          (18,445)          11,311
    Other current assets and prepayments           3,508            1,763               --            5,271
    Intercompany receivables                      64,247          (64,247)              --               --
                                            ------------     ------------     ------------     ------------
        Total current assets                     246,723          135,321          (48,153)         333,891
Intangible assets                                     --           11,423               --           11,423
Goodwill                                          36,880           28,348               --           65,228
Noncurrent assets from risk
  management activities                               --           11,590               --           11,590
Deferred charges and other assets                133,396           36,070               --          169,466
                                            ------------     ------------     ------------     ------------
                                            $  1,833,446     $    284,172     $   (157,216)    $  1,960,402
                                            ============     ============     ============     ============

SHAREHOLDERS' EQUITY AND LIABILITIES
Shareholders' equity                        $    630,879     $    114,817     $   (114,817)    $    630,879
Long-term debt                                   675,687            3,298               --          678,985
                                            ------------     ------------     ------------     ------------
        Total capitalization                   1,306,566          118,115         (114,817)       1,309,864
Current liabilities
    Current maturities of long-term debt          19,307            1,106               --           20,413
    Short-term debt                               42,561               --               --           42,561
    Liabilities from risk management
      activities                                      --           24,082          (13,953)          10,129
    Deferred gas cost                             34,100            1,388               --           35,488
    Other current liabilities                    213,934           99,046          (28,446)         284,534
                                            ------------     ------------     ------------     ------------
        Total current liabilities                309,902          125,622          (42,399)         393,125
Deferred income taxes                            118,297           12,886               --          131,183
Noncurrent liabilities from risk
  management activities                               --            6,682               --            6,682
Deferred credits and other liabilities            98,681           20,867               --          119,548
                                            ------------     ------------     ------------     ------------
                                            $  1,833,446     $    284,172     $   (157,216)    $  1,960,402
                                            ============     ============     ============     ============
</Table>


                                       20
<PAGE>


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

<Table>
<Caption>
                                  Atmos Energy     Atmos Energy
                                  Corporation        Holdings       Eliminations     Consolidated
                                  ------------     ------------     ------------     ------------
                                                          (In thousands)
<S>                               <C>              <C>              <C>              <C>
Operating revenues                $    376,811     $    286,037     $   (283,367)    $    379,481
Purchased gas cost                     231,668          251,322         (253,392)         229,598
                                  ------------     ------------     ------------     ------------
    Gross profit                       145,143           34,715          (29,975)         149,883
Gas trading margin                          --          (19,065)          28,669            9,604
Operating expenses                      66,003            7,151               --           73,154
                                  ------------     ------------     ------------     ------------
Operating income                        79,140            8,499           (1,306)          86,333

Miscellaneous income (expense)          (6,767)           1,756           (1,101)          (6,112)
Interest charges, net                  (14,500)          (1,090)           1,101          (14,489)
                                  ------------     ------------     ------------     ------------
Income before income taxes              57,873            9,165           (1,306)          65,732

Income taxes                            21,186            3,623             (455)          24,354
                                  ------------     ------------     ------------     ------------
        Net income                $     36,687     $      5,542     $       (851)    $     41,378
                                  ============     ============     ============     ============
</Table>

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

<Table>
<Caption>
                                  Atmos Energy     Atmos Energy
                                  Corporation        Holdings       Eliminations     Consolidated
                                  ------------     ------------     ------------     ------------
                                                         (In thousands)
<S>                               <C>              <C>              <C>              <C>
Operating revenues                $    641,967     $    547,948     $   (539,092)    $    650,823
Purchased gas cost                     391,605          501,520         (501,550)         391,575
                                  ------------     ------------     ------------     ------------
    Gross profit                       250,362           46,428          (37,542)         259,248
Gas trading margin                          --          (23,989)          40,756           16,767
Operating expenses                     134,528           11,709               (1)         146,236
                                  ------------     ------------     ------------     ------------
Operating income                       115,834           10,730            3,215          129,779

Miscellaneous income (expense)            (845)           2,614           (2,480)            (711)
Interest charges, net                  (30,389)          (2,572)           2,480          (30,481)
                                  ------------     ------------     ------------     ------------
Income before income taxes              84,600           10,772            3,215           98,587

Income taxes                            31,079            4,234            1,263           36,576
                                  ------------     ------------     ------------     ------------
        Net income                $     53,521     $      6,538     $      1,952     $     62,011
                                  ============     ============     ============     ============
</Table>


Organization - Atmos Energy Corporation distributes natural gas in 11 states
through its operating divisions - Atmos Energy Louisiana, Energas Company,
Greeley Gas Company, United Cities Gas Company and Western Kentucky Gas Company.
Our nonutility operations are organized under Atmos Energy Holdings, Inc., which
includes Atmos Energy Marketing, Atmos Pipeline and Storage, Atmos Power Systems
and an indirect equity interest in Heritage Propane Partners, L.P. Atmos Energy
Marketing includes the operations of Woodward Marketing.

Consolidating Financial Statements - The column headed "Atmos Energy
Corporation" includes operations of Atmos' five operating divisions. The column
headed "Atmos


                                       21
<PAGE>


Energy Holdings" comprises our nonutility operations. Operating revenues and
purchased gas costs from our natural gas marketing operations are shown on a
gross basis in the Atmos Energy Holdings column. Such natural gas marketing
activities are reclassified in the elimination column as gas trading margin.

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

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

Risk management assets and liabilities, Atmos Energy Holdings - We use storage,
transportation and requirements contracts, forwards, over-the-counter and
exchange-traded options, futures and swap contracts to conduct our risk
management activities. We use the mark-to-market method to account for these
activities in accordance with Emerging Issues Task Force Issue No. 98-10,
"Accounting for Energy Trading and Risk Management Activities" and EITF 00-17,
"Measuring the Fair Value of Energy-Related Contracts in Applying Issue No.
98-10." Under this method, the aforementioned contracts are reflected at fair
value, inclusive of future servicing costs and valuation adjustments, with
resulting unrealized gains and losses recorded as assets or liabilities from
risk management activities on the condensed consolidated balance sheet. Current
period changes in the assets and liabilities from risk management activities are
recognized as gas trading margins on the condensed consolidated statement of
income. Changes in the mark-to-market valuation of assets and liabilities from
risk management activities result primarily from changes in the valuation of the
portfolio of contracts, maturity and settlement of contracts and newly
originated transactions. Market prices and models used to value these
transactions reflect our best estimate considering various factors including
closing exchange and over-the-counter quotations, time value and volatility
factors underlying the contracts. Values are adjusted to reflect the potential
impact of liquidating our positions in an orderly manner over a reasonable
period of time under present market conditions. Changes in market prices
directly affect our estimate of the fair value of these transactions.

Related Party - Included in purchased gas cost in the Atmos Energy Corporation
column are natural gas purchases from Woodward Marketing. These purchases were
made in a competitive open bidding process and reflect market prices. In
addition, we have entered into contracts with Woodward Marketing to manage a
significant portion of our underground storage facilities. Woodward Marketing
has acted as agent in placing financial instruments for the various business
units that protect us and our customers from unusually large winter period gas
price increases.


                                       22
<PAGE>


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 March 31, 2002 and the related condensed consolidated
statements of income and cash flows for the three-month periods and six-month
periods ended March 31, 2002 and 2001. These financial statements are the
responsibility of the Company's management.

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

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

We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Atmos Energy
Corporation as of September 30, 2001, 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 2, 2001, 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, 2001 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
May 10, 2002


                                       23
<PAGE>


Item 2. Management's Discussion and Analysis of Financial Condition and
        Results of Operations

Introduction

The following discussion should be read in conjunction with the condensed
consolidated financial statements contained in this Quarterly Report on Form
10-Q and Management's Discussion and Analysis contained in our Annual Report on
Form 10-K for the year ended September 30, 2001.

We distribute and sell natural gas to approximately 1.4 million residential,
commercial, industrial, agricultural and other customers. We operate through
five divisions in service areas located in Colorado, Georgia, Illinois, Iowa,
Kansas, Kentucky, Louisiana, Missouri, Tennessee, Texas and Virginia. Such
business is subject to regulation by state and/or local authorities in each of
the states in which we operate. In addition, our business is affected by
seasonal weather patterns, competitive factors within the energy industry and
economic conditions in the areas that we serve. We also transport natural gas
for others through our distribution system.

We provide natural gas storage services and own or hold an interest in natural
gas storage fields in Kansas, Kentucky and Louisiana to supplement natural gas
used by customers in Kansas, Kentucky, Tennessee, Louisiana and other states. We
also provide energy management and gas marketing services to industrial
customers, municipalities and other local distribution companies. We also
provide electrical power generation to meet peak load demands for a municipality
regulated by the Tennessee Valley Authority. In addition, we market natural gas
to industrial and agricultural customers primarily in West Texas and to
industrial customers in Louisiana.

Cautionary Statement for the Purposes of the Safe Harbor under the Private
Securities Litigation Reform Act of 1995

The statements contained in this Quarterly Report on Form 10-Q may contain
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934. All statements other than statements of historical fact
included in this Report are forward-looking statements made in good faith by the
Company and are intended to qualify for the safe harbor from liability
established by the Private Securities Litigation Reform Act of 1995. When used
in this Report, or any other of the Company's documents or oral presentations,
the words "anticipate," "expect," "estimate," "plans," "believes," "objective,"
"forecast," "goal" or similar words are intended to identify forward-looking
statements. Such forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied in the statements relating to the Company's strategy,
operations, markets, services, rates, recovery of costs, availability of gas
supply and other factors. These risks and uncertainties include the following:
adverse weather conditions such as warmer than normal weather in the Company's
service territories; national, regional and local


                                       24
<PAGE>


economic conditions, including competition from other energy suppliers as well
as alternative forms of energy; recent national events; regulatory approvals,
including the impact of rate proceedings before various state regulatory
commissions; successful completion and integration of pending acquisition;
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, 2001.
Accordingly, while the Company believes these forward-looking statements to be
reasonable, there can be no assurance that they will approximate actual
experience or that the expectations derived from them will be realized. Further,
the Company undertakes no obligation to update or revise any of its
forward-looking statements whether as a result of new information, future events
or otherwise.

Weather and Seasonality

Our natural gas distribution business and irrigation sales business is seasonal
and dependent upon weather conditions in our service areas. Natural gas sales to
residential, commercial and public authority customers are affected by winter
heating season requirements. This generally results in higher operating revenues
and net income during the period from October through March of each year and
lower operating revenues and either net losses or lower net income during the
period from April through September of each year. Sales to industrial customers
are much less weather sensitive. Sales to agricultural customers, who typically
use natural gas to power irrigation pumps during the period from March through
September, are affected by rainfall amounts and the price of natural gas.
Weather, adjusted for service areas with weather normalized operations, for the
six months ended March 31, 2002 was 6 percent warmer than normal and 20 percent
warmer than weather in the corresponding period of the prior year.

The effects of weather that is above or below normal are partially offset in the
Tennessee and Georgia jurisdictions served by the United Cities Gas Division and
in the Kentucky jurisdiction served by the Western Kentucky Gas Division through
weather normalization adjustments. The Georgia Public Service Commission, the
Tennessee Regulatory Authority and the Kentucky Public Service Commission have
approved weather normalization adjustments. The weather normalization
adjustments, effective October through May each year in Georgia, and November
through April each year in Tennessee and Kentucky, allow the United Cities Gas
Division and Western Kentucky Gas Division to increase the base rate portion of
customers' bills when weather is warmer than normal and decrease the base rate
when weather is colder than normal. The net effect of the weather normalization
adjustments was an increase in revenues of approximately $5.7 million for the
six months ended March 31, 2002, as compared with a decrease of approximately
$2.6 million for the six months ended March 31, 2001. Approximately 374,000 or
27 percent of our meters in service are located in Georgia, Tennessee and
Kentucky. We did not have weather normalization adjustments in our other service
areas during the six months ended March 31, 2002.


                                       25
<PAGE>


In July 2000, we entered into an agreement to purchase weather hedges for our
Texas and Louisiana operations effective for the 2000-2001 heating season. The
hedges were designed to help mitigate the effects of weather that was at least
seven percent warmer than normal in both Texas and Louisiana while preserving
any upside. The cost of the weather hedges was approximately $4.9 million which
was amortized over the 2000-2001 heating season. The cost of the weather hedges
was more than offset by the positive effects of colder weather on our gross
profit.

In June 2001, we purchased a three year weather insurance policy with an option
to cancel in the third year if we obtain weather protection in our rate
structures. The policy is for our Texas and Louisiana operations and covers the
entire heating season of October to March beginning with the 2001-2002 heating
season. The cost of the three year policy was approximately $13.2 million which
was prepaid and is being amortized over the appropriate heating seasons based on
degree days. The insurance is designed to protect against weather that is at
least seven percent warmer than normal. During the first quarter of fiscal 2002,
we recognized $5.9 million in income and during the second quarter of fiscal
2002, we recognized $5.9 million in expense resulting in no income being
recognized for the 2001-2002 heating season on this insurance policy due to the
weather not being at least seven percent warmer than normal. Amortization
expense of $4.4 million was recognized during the 2001-2002 heating season
related to this policy.

Historically we have effectively hedged 20 percent of the gas supply required
during our annual October through March heating season by utilizing our
underground storage assets. For the 2001-2002 heating season, we covered
approximately 64 percent of our anticipated flowing gas requirements through
storage and futures and fixed forward contracts.

Status of Pending Acquisition

In September 2001, we entered into a definitive agreement to acquire Mississippi
Valley Gas Company, a privately held natural gas utility, for $150.0 million,
consisting of $75.0 million cash and $75.0 million of Atmos common stock. In
addition, we will repay outstanding debt of Mississippi Valley Gas, net of
working capital, of approximately $45.0 million. Mississippi Valley Gas provides
natural gas distribution service to more than 261,500 residential, commercial,
industrial and other customers located primarily in the northern and central
regions of Mississippi. The acquisition is subject to state and federal
regulatory approval. It is anticipated that the acquisition will be completed by
the end of fiscal 2002.

Critical Accounting Policies and Estimates

General - Our condensed 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


                                       26
<PAGE>


of contingent assets and liabilities. We based our estimates on historical
experience and various other assumptions that we believed to be reasonable under
the circumstances. On an on-going basis, we evaluate our estimates, including
those related to risk management and trading activities, allowance for doubtful
accounts, deferred income tax assets, intangible assets and goodwill. Actual
results may differ from estimates.

Risk Management and Trading Activities - We use storage, transportation and
requirements contracts, forwards, over-the-counter and exchange-traded options,
futures and swap contracts to conduct our risk management and trading
activities. Changes in the assets and liabilities from risk management
activities result primarily from changes in the valuation of the portfolio of
contracts, maturity and settlement of contracts, and newly originated
transactions. The market prices and models used to value these transactions
reflect management's best estimate considering various factors including closing
exchange and over-the-counter quotations, the time value of money and volatility
factors underlying the contracts. We adjust the values to reflect the potential
impact of liquidating our positions in an orderly manner over a reasonable
period of time under present market conditions. Changes in market prices
directly affect management's estimate of the fair value of these transactions.
Assumptions different from those used would impact these carrying values.

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 its receivable balance, 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.

Deferred Income Tax Assets - We have deferred income tax assets consisting of
employee and retiree benefit liabilities not currently deductible, credit
carryforwards and other items treated as expenses for book purposes but not
currently deductible for tax purposes. We have not recorded any valuation
allowance for these deferred income tax assets because we believe that it is
more likely than not that our deferred income tax assets will be realized.
Realization of these assets is based on estimates of future taxable income.
Those estimates were prepared using the same assumptions used to prepare
internal forecasts. We estimate that the credit carryforwards will be utilized
before they expire. If our estimates of taxable income are reduced in the
future, a valuation allowance could be required.

Intangible Assets - We acquired intangible assets valued at approximately $12.0
million in fiscal year 2001. Those intangible assets relate to the value
assigned to relationships with certain of our industrial customers and are being
amortized over 10 years. If our assumptions of the useful lives of those assets
change, the amount of amortization expense would be impacted.


                                       27
<PAGE>


Goodwill - At March 31, 2002, we had $65.2 million of goodwill, $36.9 million of
which was attributable to our utility segment and $28.3 million was attributable
to our non-regulated segment. We evaluate our goodwill balances for impairment
each year during our second fiscal quarter. Our evaluation during the quarter
ended March 31, 2002 resulted in no impairment. If our projections of estimated
future cash flows change, those changes could result in a reduction in the
carrying value of our goodwill.

FINANCIAL CONDITION

For the six months ended March 31, 2002, net cash provided by operating
activities in the statement of cash flows totaled $252.9 million compared with
$115.0 million for the six months ended March 31, 2001. The increase in net cash
provided by operating activities was primarily the result of a smaller increase
in accounts receivable compared to the previous period, a decrease in cash held
on deposit in margin accounts, a decrease in deferred gas costs and a larger
increase in accounts payable and deferred credits and other liabilities compared
to the previous period. This increase was partially offset by a smaller increase
in taxes payable and a decrease in net income. In addition, an increase in
depreciation and amortization and a smaller deferred income tax benefit added to
the increase in net cash provided by operating activities. These increases were
offset by the reduction in the net change in our assets/liabilities from risk
management activities. The decrease in net income was due primarily to higher
operating expenses and interest expense. These higher expenses were partially
offset by an increase in gross profit as well as an increase in income from our
gas marketing activities.

For the six months ended March 31, 2002, net cash used in investing activities
totaled $77.4 million compared with $35.1 million for the six months ended March
31, 2001. Major cash flows used in investing activities for the six months ended
March 31, 2002 included capital expenditures of $60.9 million compared with
$42.5 million for the six months ended March 31, 2001. The revised capital
expenditures budget for fiscal 2002, excluding acquisitions, is expected to be
in the range of $125.0 million to $130.0 million as compared with actual capital
expenditures of $113.1 million for fiscal 2001. Budgeted capital projects for
fiscal 2002 include expenditures for additional mains, services, meters and
equipment. In fiscal 2002, we plan to complete the Mississippi Valley Gas
Company acquisition for $75.0 million cash, $75.0 million of Atmos common stock
and the repayment of approximately $45.0 million of long-term debt. Capital
expenditures and acquisitions for fiscal 2002 are planned to be financed from
internally generated funds and financing activities as discussed below. For the
six months ended March 31, 2002, investing activities included $15.7 million, in
our non-regulated operations, for the acquisition of Kentucky-based market area
storage and associated pipeline facility assets and the gas marketing assets of
Innovative Gas Services, Inc. and common stock of Southern Resources, Inc. For
the six months ended March 31, 2001, we received net proceeds of $6.6 million in
connection with the sale of certain utility assets.

For the six months ended March 31, 2002, net cash used by financing activities
totaled $187.6 million compared with $79.6 million for the six months ended
March 31, 2001. For the six-month period ended March 31, 2002, short-term debt
decreased $158.7


                                       28
<PAGE>


million compared with a decrease of $197.1 million for the six months ended
March 31, 2001. The decrease for the six months ended March 31, 2002 was due
primarily to more effective collection experience of customer accounts
receivable balances which increased the amount of cash available to repay
short-term debt. The decrease for the six months ended March 31, 2001 was due to
the net proceeds of approximately $142.0 million from the equity offering in
December 2000 being used to reduce the amount of short-term debt outstanding.
Repayments of long-term debt totaled $13.7 million for the six months ended
March 31, 2002 compared with $10.8 million for the six months ended March 31,
2001. We paid $24.2 million in cash dividends during the six months ended March
31, 2002 compared with dividends paid of $20.6 million during the six months
ended March 31, 2001. This reflects increases in the quarterly dividend rate and
in the number of shares outstanding. During the six months ended March 31, 2002,
we issued 450,411 shares of common stock.

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

<Table>
<Caption>
                                               Six months ended
                                                   March 31
                                            ----------------------
                                              2002          2001
                                            ---------    ---------
<S>                                         <C>          <C>
Shares issued:
    Employee Stock Ownership Plan             151,577       94,002
    Direct Stock Purchase Plan                255,566      198,878
    Outside Directors Stock-for-Fee Plan        1,237        1,117
    United Cities Long-Term Stock Plan             --        3,700
    Long-Term Incentive Plan                   42,031        4,668
    Equity Offering                                --    6,741,500
                                            ---------    ---------
      Total shares issued                     450,411    7,043,865
                                            =========    =========
</Table>

We believe that internally generated funds, our credit facilities, commercial
paper program and access to the public debt and equity capital markets will
provide necessary working capital and liquidity for capital expenditures and
other cash needs for the remainder of fiscal 2002.

We have short-term committed credit facilities totaling $318.0 million. One
short-term unsecured credit facility is for $300.0 million with an option to
increase the amount by $100.0 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 and P-2 by Moody's. At March 31, 2002, $31.1 million of commercial
paper was outstanding. We have a second facility in place for $18.0 million. At
March 31, 2002, $11.5 million was outstanding under this credit facility. These
credit facilities are negotiated at least annually and are used for working
capital purposes.

Our Woodward Marketing subsidiary has an uncommitted demand credit facility for
$125.0 million which is used for its non-regulated business. Atmos Energy
Marketing, LLC, our wholly-owned subsidiary, is the sole guarantor of all
amounts outstanding


                                       29
<PAGE>


under this facility. At March 31, 2002, no amount was outstanding under this
credit facility. Related letters of credit totaling $56.8 million reduced the
amount available under this facility. This facility is used for working capital
purposes.

We also have unsecured short-term uncommitted credit lines from two banks
totaling $40.0 million. No amounts were outstanding under these credit
facilities at March 31, 2002. The uncommitted lines are renewed or renegotiated
at least annually with varying terms and we pay no fee for the availability of
the lines. Borrowings under these lines are made on a when- and as-available
basis at the discretion of the banks. These facilities are also used for working
capital purposes.

In addition, Woodward Marketing has up to $100.0 million of credit available
from Atmos Energy Marketing LLC. At March 31, 2002, $28.5 million was
outstanding. This intercompany facility is subordinated in terms of repayment to
the $125.0 million uncommitted demand credit facility described above.

In December 2001, we filed a shelf registration statement with the Securities
and Exchange Commission to issue, from time to time, up to $600.0 million in new
common stock and/or debt. In connection with this filing, we have filed
applications for approval to issue securities with five state utility
commissions. We expect to receive all required regulatory approvals by the end
of the fiscal third quarter. The registration statement was declared effective
by the Securities and Exchange Commission on January 30, 2002. Once it is
approved by the various state utility commissions, we will be authorized to
issue securities to investors and lenders. The proceeds are planned to be used
for general corporate purposes, including acquisitions, debt repayment and other
business-related matters.

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

<Table>
<Caption>
                                                Payments Due by Period
                             -------------------------------------------------------------
                                          Less than                               After 5
                               Total        1 year     1-3 years    4-5 years      years
                             ---------    ---------    ---------    ---------    ---------
                                                    (In thousands)
<S>                          <C>          <C>          <C>          <C>          <C>
CONTRACTUAL OBLIGATIONS

Long Term Debt               $ 699,398    $  20,413    $  36,733    $  27,393    $ 614,859
Capital Lease Obligations        6,630          876        1,752        1,276        2,726
Operating Leases                66,467        9,250       16,713       15,624       24,880
                             ---------    ---------    ---------    ---------    ---------
Total Contractual
    Obligations              $ 772,495    $  30,539    $  55,198    $  44,293    $ 642,465
                             =========    =========    =========    =========    =========
</Table>


                                       30
<PAGE>


<Table>
<Caption>
                                                Payments Due by Period
                             -------------------------------------------------------------
                                          Less than                               After 5
                               Total        1 year     1-3 years    4-5 years      years
                             ---------    ---------    ---------    ---------    ---------
                                                    (In thousands)
<S>                          <C>          <C>          <C>          <C>          <C>
OTHER COMMERCIAL
  COMMITMENTS

Lines of Credit              $ 318,000    $ 318,000    $      --    $      --    $      --
</Table>

One short-term unsecured credit facility for $300.0 million included in the
total lines of credit above serves as a backup liquidity facility for our
commercial paper program. Any amounts outstanding on our commercial paper reduce
the amount available under this facility.

Risk Management and Trading Activities

We conduct our risk management activities through both our utility and
non-regulated segments. See Note 5 to the consolidated financial statements for
a description of our risk management activities. The following table shows our
risk management assets and liabilities by segment at March 31, 2002.

<Table>
<Caption>
                                       Utility     Non-Regulated       Total
                                       --------    -------------     --------
                                                   (In thousands)
<S>                                    <C>             <C>           <C>
Assets from risk management
    activities, current                $     --        $11,311       $ 11,311
Assets from risk management
    activities, noncurrent                   --         11,590         11,590
Liabilities from risk management
    activities, current                      --        (10,129)       (10,129)
Liabilities from risk management
    activities, noncurrent                   --         (6,682)        (6,682)
                                       --------       --------       --------
Net assets (liabilities)               $    -         $  6,090       $  6,090
                                       ========       ========       ========
</Table>

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

To conduct our risk management and trading activities, Atmos Energy Marketing, a
unit of our non-regulated segment, uses natural gas storage, transportation and
requirements contracts, forwards, over-the-counter and exchange-traded options,
futures and swap contracts. The mark-to-market method is used to account for
these activities, as prescribed in EITF Issue No. 98-10 and EITF Issue 00-17.
Under these methods, the aforementioned contracts are reflected at fair value,
inclusive of future servicing costs and valuation adjustments, with resulting
unrealized gains and losses recorded as "Assets


                                       31
<PAGE>


from risk management activities" and "Liabilities from risk management
activities" on the balance sheet. Current period changes in the assets and
liabilities from risk management activities are recognized as net gains or
losses on the condensed consolidated statement of income as gas trading margin.
Changes in assets and liabilities from risk management activities result
primarily from changes in valuation of the portfolio of contracts, maturity and
settlement of contracts, and newly originated transactions. Effective in May
2002, Woodward Marketing's trading for speculative purposes was discontinued.

Market prices are primarily used to value these transactions. In addition, a
market price based model is used for valuing certain storage and transportation
contracts. These values reflect management's best estimate considering various
factors, including closing exchange and over-the-counter quotations, time value,
and volatility factors underlying the contracts. The values are adjusted to
reflect the potential impact of liquidating our position in an orderly manner
over a reasonable time frame under present market conditions. Changes in market
prices directly affect management's estimate of the fair value of these
transactions.

The following table reflects the reasons for the change in fair value of our
non-regulated energy trading contract activities for the three months ending
March 31, 2002 (in thousands).

<Table>
<S>                                              <C>
Fair value of contracts at December 31, 2001     $ 34,210
    Contracts realized/settled                    (23,771)
    Fair value of new contracts                    (8,503)
    Changes in fair value in valuation
      techniques/assumptions                        8,698
    Other changes in value                         (4,544)
                                                 --------
Fair value of contracts at March 31, 2002        $  6,090
                                                 ========
</Table>


The following table reflects the reasons for the change in fair value of our
non-regulated energy trading contract activities for the six months ending March
31, 2002 (in thousands).

<Table>
<S>                                              <C>
Fair value of contracts at September 30, 2001    $ 28,349
    Contracts realized/settled                    (13,203)
    Fair value of new contracts                    (4,880)
    Changes in fair value in valuation
      techniques/assumptions                        8,698
    Other changes in value                        (12,874)
                                                 --------
Fair value of contracts at March 31, 2002        $  6,090
                                                 ========
</Table>


                                       32
<PAGE>


The fair value of our non-regulated energy trading contracts at March 31, 2002,
is segregated below, by time period and fair value source.

<Table>
<Caption>
                                           Fair Value of Contracts at March 31, 2002
                               --------------------------------------------------------------------
                               Maturity                                     Maturity
                               Less than      Maturity       Maturity       excess of    Total Fair
                               1 year         1-3 years      4-5 years       5 years       Value
                              ----------     ----------     ----------     ----------    ----------
                                                          (In thousands)
<S>                           <C>            <C>            <C>            <C>           <C>
SOURCE OF FAIR VALUE
Prices actively quoted        $  (15,415)    $     (749)    $       --     $       --    $  (16,164)
Prices provided by
    other external sources        15,313          3,804            273             66        19,456
Prices based on models
    and other valuation
    methods                        4,647         (1,416)          (433)            --         2,798
                              ----------     ----------     ----------     ----------    ----------
Total Fair Value              $    4,545     $    1,639     $     (160)    $       66    $    6,090
                              ==========     ==========     ==========     ==========    ==========
</Table>

RESULTS OF OPERATIONS

Three Months Ended March 31, 2002, Compared with Three Months Ended March 31,
2001

Operating revenues decreased by 44 percent to $379.5 million for the three
months ended March 31, 2002 from $675.1 million for the three months ended March
31, 2001. The most significant factors contributing to the decrease in operating
revenues were a 45 percent decrease in average sales price due to the decreased
cost of gas and a 11 percent decrease in sales volumes due to warmer weather,
excluding the additional sales volumes attributable to the Louisiana Gas Service
operations acquired in July 2001. During the quarter ended March 31, 2002,
temperatures were 12 percent warmer than in the corresponding quarter of the
prior year and were 2 percent warmer than the 30-year normal for the quarter,
adjusted for service areas with weather normalized operations. The total volume
of gas sold, excluding the Louisiana Gas Service volumes, for the three months
ended March 31, 2002 was 55.4 billion cubic feet compared with 62.0 billion
cubic feet for the three months ended March 31, 2001. However, the decrease in
sales volumes was offset by the additional sales volumes of 8.1 billion cubic
feet attributable to the Louisiana Gas Service operations acquired in July 2001.
The average sales price per Mcf sold decreased $4.74 or 45 percent to $5.74
primarily due to a decrease in the average cost of gas. The average cost of gas
per Mcf sold decreased 57 percent to $3.65 for the three months ended March 31,
2002 from $8.53 for the three months ended March 31, 2001. However, the decrease
in operating revenues was partially offset by increased revenues resulting from
the Louisiana Gas Service acquisition in July 2001.

Gross profit increased to $149.9 million for the three months ended March 31,
2002 from $138.3 million for the three months ended March 31, 2001. The increase
in gross profit was due primarily to the additional gross profit resulting from
the Louisiana Gas Service acquisition in July 2001 partially offset by a
decrease in volumes sold to weather


                                       33
<PAGE>


sensitive customers. Changes in the cost of gas do not directly affect gross
profit because the fluctuations in gas prices are passed through to the
customer.

On April 1, 2001, we completed our acquisition of the remaining 55 percent
interest in Woodward Marketing, L.L.C. that we did not already own. As a result
of this acquisition, the revenues and expenses of Woodward Marketing are now
shown on a consolidated basis. For the three months ended March 31, 2002, Atmos
Energy Marketing, which includes the operations of Woodward Marketing, had
income of $9.6 million in gas trading margin.

Operating expenses increased to $73.2 million for the three months ended March
31, 2002 from $64.4 million for the three months ended March 31, 2001. Operation
and maintenance expense increased due primarily to the addition of $6.3 million
relating to the Louisiana Gas Service acquisition in July 2001 and an increase
of $3.1 million in pension costs. In addition, operation and maintenance expense
increased due to the full consolidation of Woodward Marketing's operations
beginning April 1, 2001. A decrease in the provision for doubtful accounts of
$3.9 million partially offset this increase. The decrease in the provision for
doubtful accounts was attributable to the lower gas commodity prices during the
second quarter of fiscal 2002 as well as our effective recovery of customer
receivable balances. Depreciation and amortization increased $4.1 million due to
the addition of the assets from the Louisiana Gas Service acquisition in July
2001.

Operating income increased 17 percent for the three months ended March 31, 2002
to $86.3 million from $73.9 million for the three months ended March 31, 2001.
The increase in operating income resulted primarily from the increase in gross
profit and the income from our gas trading margin described above partially
offset by an increase in operating expenses.

Miscellaneous income (expense) was $(6.1) million for the three months ended
March 31, 2002 compared to $0.3 million for the three months ended March 31,
2001. The $6.4 million change was due primarily to $5.9 million in expense
recognized as a result of the weather insurance policy covering our Texas and
Louisiana operations. Weather in our Texas and Louisiana operations was not at
least seven percent warmer than normal which is required to generate income from
the weather insurance coverage.

Interest expense increased $4.7 million, or 48 percent, for the three months
ended March 31, 2002 compared with the three months ended March 31, 2001 due
primarily to the interest expense on the $350.0 million debt offering in May
2001.

Net income decreased for the three months ended March 31, 2002 by $2.7 million
to $41.4 million from $44.1 million for the three months ended March 31, 2001.
This decrease in net income resulted primarily from the change in miscellaneous
income (expense) and the increase in interest expense discussed above partially
offset by the increase in operating income.


                                       34
<PAGE>


Six Months Ended March 31, 2002, Compared with Six Months Ended March 31, 2001

Operating revenues decreased by 42 percent to $650.8 million for the six months
ended March 31, 2002 from $1.1 billion for the six months ended March 31, 2001.
The most significant factors contributing to the decrease in operating revenues
were a 37 percent decrease in average sales price due to the decreased cost of
gas and a 19 percent decrease in sales volumes due to warmer weather, excluding
the additional sales volumes attributable to the Louisiana Gas Service
operations acquired in July 2001. During the six-month period ended March 2002,
temperatures were 20 percent warmer than in the corresponding period of the
prior year and were 6 percent warmer than the 30-year normal, adjusted for
service areas with weather normalized operations. The total volume of gas sold,
excluding the Louisiana Gas Service volumes, for the six months ended March 31,
2002 was 92.2 billion cubic feet compared with 114.5 billion cubic feet for the
six months ended March 31, 2001. However, the decrease in sales volumes was
partially offset by the additional sales volumes of 12.2 billion cubic feet
attributable to the Louisiana Gas Service operations acquired in July 2001. The
average sales price per Mcf sold decreased $3.47 or 37 percent to $5.97
primarily due to a decrease in the average cost of gas. The average cost of gas
per Mcf sold decreased 50 percent to $3.75 for the six months ended March 31,
2002 from $7.50 for the six months ended March 31, 2001. However, the decrease
in operating revenues was partially offset by increased revenues resulting from
the Louisiana Gas Service acquisition in July 2001.

Gross profit increased to $259.2 million for the six months ended March 31, 2002
from $248.3 million for the six months ended March 31, 2001. The increase in
gross profit was due primarily to the additional gross profit resulting from the
Louisiana Gas Service acquisition in July 2001 partially offset by a decrease in
volumes sold to weather sensitive customers. Changes in the cost of gas do not
directly affect gross profit because the fluctuations in gas prices are passed
through to the customer.

On April 1, 2001, we completed our acquisition of the remaining 55 percent
interest in Woodward Marketing, L.L.C. that we did not already own. As a result
of this acquisition, the revenues and expenses of Woodward Marketing are now
shown on a consolidated basis. For the six months ended March 31, 2002, Atmos
Energy Marketing, which includes the operations of Woodward Marketing, had
income of $16.8 million in gas trading margin.

Operating expenses increased to $146.2 million for the six months ended March
31, 2002 from $125.4 million for the six months ended March 31, 2001. Operation
and maintenance expense increased due primarily to the addition of $15.5 million
relating to the Louisiana Gas Service acquisition in July 2001 and an increase
of $6.2 million in pension costs. In addition, operation and maintenance expense
increased due to the full consolidation of Woodward Marketing's operations
beginning April 1, 2001. A decrease in the provision for doubtful accounts of
$11.1 million partially offset this increase. The decrease in the provision for
doubtful accounts was attributable to the lower gas commodity prices during the
first six months of fiscal 2002 as well as our effective recovery of customer
receivable balances. Depreciation and amortization increased $8.8 million due to
the addition of the assets from the Louisiana Gas Service acquisition in July
2001.


                                       35
<PAGE>


Operating income increased 6 percent for the six months ended March 31, 2002 to
$129.8 million from $122.8 million for the six months ended March 31, 2001. The
increase in operating income resulted primarily from the increase in gross
profit and the income from our gas trading margin described above partially
offset by an increase in operating expenses.

Miscellaneous expense decreased $1.4 million to $0.7 million for the six months
ended March 31, 2002 compared to $2.1 million for the six months ended March 31,
2001. The primary reason for the decrease was due to an increase of $0.7 million
in net recoveries related to our performance based-ratemaking mechanisms and the
recognition of $0.5 million related to a large industrial contract we received
in during 2002.

Interest expense increased $8.4 million, or 38 percent, for the six months ended
March 31, 2002 compared with the six months ended March 31, 2001 due primarily
to the interest expense on the $350.0 million debt offering in May 2001.

Net income decreased for the six months ended March 31, 2002 by $5.0 million to
$62.0 million from $67.0 million for the six months ended March 31, 2001. This
decrease in net income resulted primarily from the increase in interest expense
discussed above partially offset by the increase in operating income.

UTILITY AND NON-REGULATED OPERATING DATA

Our utility business is composed of our five regulated utility divisions: Atmos
Energy Louisiana Gas Division, Energas Division, Greeley Gas Division, United
Cities Gas Division, Western Kentucky Gas Division and Shared Services. The
non-regulated business includes gas marketing and energy management services,
operation of natural gas storage fields, construction and operation of
electrical power generating plants and associated facilities and non-regulated
industrial sales. The following tables of operating statistics summarizes data
of the utility and non-regulated segments for the three-month and six month
periods ended March 31, 2002 and 2001. Heating degree days are presented as
adjusted for weather-normalized operations. Prior periods have been adjusted to
reflect current period presentation. For further information regarding operating
results of the segments, see Note 6 of notes to condensed consolidated financial
statements.


                                       36
<PAGE>


                            ATMOS ENERGY CORPORATION
                        CONSOLIDATED OPERATING STATISTICS

<Table>
<Caption>
                                                    Three months ended
                                                         March 31
                                                   ---------------------
                                                     2002         2001
                                                   --------     --------
<S>                                                <C>          <C>
HEATING DEGREE DAYS
    Actual, adjusted for WNA (weighted average)       1,877        2,136
    Percent of normal                                    98%         111%

SALES VOLUMES - MMcf (1)
    Residential                                      39,458       36,487
    Commercial                                       15,722       15,252
    Public authority and other                        2,646        2,737
    Industrial (including agricultural)               5,627        7,504
                                                   --------     --------
      Total                                          63,453       61,980
Transportation volumes - MMcf (1)                    19,183       17,403
                                                   --------     --------
Total throughput - MMcf (1)                          82,636       79,383
                                                   ========     ========
OPERATING REVENUES (000's)
Gas sales revenues
    Residential                                    $238,062     $394,270
    Commercial                                       89,745      161,646
    Public authority and other                       13,208       26,790
    Industrial (including agricultural)              23,233       66,890
                                                   --------     --------
      Total gas sales revenues                      364,248      649,596
Transportation revenues                              11,294        8,378
Other revenues                                        3,939       17,139
                                                   --------     --------
Total operating revenues                           $379,481     $675,113
                                                   ========     ========
Cost of gas (excluding non-regulated)              $231,668     $528,564
                                                   ========     ========

Average gas sales revenues per Mcf                 $   5.74     $  10.48
Average transportation revenue per Mcf             $    .59     $    .48
Average cost of gas per Mcf sold                   $   3.65     $   8.53
</Table>

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


                                       37
<PAGE>


                            ATMOS ENERGY CORPORATION
                        CONSOLIDATED OPERATING STATISTICS

<Table>
<Caption>
                                                        Six months ended
                                                             March 31
                                                   -------------------------
                                                      2002           2001
                                                   ----------     ----------
<S>                                                <C>            <C>
METERS IN SERVICE, end of period
    Residential                                     1,247,431        975,627
    Commercial                                        122,885        105,581
    Public authority and other                          7,353          7,470
    Industrial (including agricultural)                12,995         16,280
                                                   ----------     ----------
      Total meters                                  1,390,664      1,104,958
                                                   ==========     ==========
HEATING DEGREE DAYS
    Actual, adjusted for WNA (weighted average)         3,092          3,849
    Percent of normal                                      94%           117%

SALES VOLUMES - MMcf (1)
    Residential                                        62,290         65,300
    Commercial                                         26,740         28,518
    Public authority and other                          4,645          5,620
    Industrial (including agricultural)                10,735         15,089
                                                   ----------     ----------
      Total                                           104,410        114,527
Transportation volumes - MMcf (1)                      35,251         32,901
                                                   ----------     ----------
Total throughput - MMcf (1)                           139,661        147,428
                                                   ==========     ==========
OPERATING REVENUES (000's)
Gas sales revenues
    Residential                                    $  395,990     $  644,104
    Commercial                                        158,341        272,274
    Public authority and other                         24,362         48,870
    Industrial (including agricultural)                44,854        116,210
                                                   ----------     ----------
      Total gas sales revenues                        623,547      1,081,458
Transportation revenues                                20,093         15,116
Other revenues                                          7,183         21,329
                                                   ----------     ----------
Total operating revenues                           $  650,823     $1,117,903
                                                   ==========     ==========
Cost of gas (excluding non-regulated)              $  391,605     $  859,384
                                                   ==========     ==========

Average gas sales revenues per Mcf                 $     5.97     $     9.44
Average transportation revenue per Mcf             $      .57     $      .46
Average cost of gas per Mcf sold                   $     3.75     $     7.50
</Table>

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


                                       38
<PAGE>


Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes from the information provided in Item 7A of
our Annual Report on Form 10-K for the year ended September 30, 2001.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

See Note 2 of notes to condensed consolidated financial statements herein for a
description of legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders

At the Annual Meeting of Shareholders of Atmos Energy Corporation on February
13, 2002, 37,506,477 votes were cast as follows:

<Table>
<Caption>
                                   VOTES          VOTES
                                    FOR          WITHHELD
                                 ----------     ---------
<S>                              <C>            <C>
Class I Directors:

Travis W. Bain II                35,587,658     1,918,819
Dan Busbee                       35,599,976     1,906,501
Richard K. Gordon                34,741,702     2,764,775
Gene C. Koonce                   34,769,582     2,736,895
</Table>

The other directors will continue to serve until the expiration of their terms.
The term of the Class II directors, Richard W. Cardin, Thomas C. Meredith, Carl
S. Quinn and Richard Ware II will expire in 2003. The term of the Class III
directors, Robert W. Best, Thomas J. Garland, Phillip E. Nichol and Charles K.
Vaughan will expire in 2004. The term of the Class I directors, listed above,
will expire in 2005.

Proposal to approve the amendment to the 1998 Long-Term Incentive Plan:

<Table>
<Caption>
                    VOTES          VOTES         VOTES          BROKER
                     FOR         AGAINST       ABSTAINING      NON-VOTES
                 ----------     ----------     ----------     ----------
<S>              <C>            <C>            <C>            <C>
                 21,583,813     10,328,659      726,247        4,867,758
</Table>

Proposal to approve the amendment to the Annual Incentive Plan for Management:

<Table>
<Caption>
                    VOTES          VOTES         VOTES          BROKER
                     FOR         AGAINST       ABSTAINING      NON-VOTES
                 ----------     ----------     ----------     ----------
<S>              <C>            <C>            <C>            <C>
                 31,920,949      4,766,872      818,656            --
</Table>


                                       39
<PAGE>


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

         None.


                                       40
<PAGE>


                                   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)


Date:  May 14, 2002                              By: /s/ F.E. MEISENHEIMER
                                                     ---------------------------
                                                        F.E. Meisenheimer
                                                  Vice President and Controller
                                                    (Chief Accounting Officer
                                                  and duly authorized signatory)


                                       41
<PAGE>

                                 EXHIBITS INDEX
                                    Item 6(a)

<Table>
<Caption>
Exhibit                                                                     Page
 Number            Description                                             Number
- -------            -----------                                             ------
<S>                <C>                                                     <C>

  10.1     Atmos Energy Corporation 1998 Long-Term Incentive Plan
           (as amended and restated February 14, 2002)

  10.2     Atmos Energy Corporation Annual Incentive Plan for
           Management (as amended and restated February 14, 2002)

    12     Computation of ratio of earnings to fixed charges

    15     Letter regarding unaudited interim financial information
</Table>


                                       42

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>d96933ex10-1.txt
<DESCRIPTION>1998 LONG-TERM INCENTIVE PLAN
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.1










                            ATMOS ENERGY CORPORATION

                          1998 LONG-TERM INCENTIVE PLAN





















                           EFFECTIVE: OCTOBER 1, 1998
                   (AS AMENDED AND RESTATED FEBRUARY 14, 2002)





<PAGE>
                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                        PAGE
                                                                                                        ----
<S>                  <C>                                                                                 <C>
ARTICLE 1            PURPOSE..............................................................................1

ARTICLE 2            DEFINITIONS..........................................................................2

ARTICLE 3            ADMINISTRATION.......................................................................8

ARTICLE 4            ELIGIBILITY..........................................................................9

ARTICLE 5            SHARES SUBJECT TO PLAN...............................................................9

ARTICLE 6            GRANT OF AWARDS.....................................................................10
                             6.1   In General............................................................10
                             6.2   Maximum ISO Grants....................................................10
                             6.3   Maximum Individual Grants.............................................10
                             6.4   Restricted Stock/Restricted Stock Units...............................10
                             6.5   SAR...................................................................13
                             6.6   Tandem Awards.........................................................13
                             6.7   Performance Based Awards..............................................13
                             6.8   Bonus Stock...........................................................14
                             6.9   Other Stock Based Awards..............................................15

ARTICLE 7            OPTION PRICE; SAR PRICE.............................................................16

ARTICLE 8            AWARD PERIOD; VESTING...............................................................16
                             8.1   Award Period..........................................................16
                             8.2   Vesting...............................................................17

ARTICLE 9            TERMINATION OF SERVICE..............................................................17

ARTICLE 10           EXERCISE OF INCENTIVE...............................................................17
                              10.1   In General..........................................................17
                              10.2   Disqualifying Disposition of ISO....................................19

ARTICLE 11           SPECIAL PROVISIONS APPLICABLE TO COVERED PARTICIPANTS...............................20

ARTICLE 12           AMENDMENT OR DISCONTINUANCE.........................................................22


ARTICLE 13           TERM................................................................................23
</Table>


                                        i
<PAGE>

<Table>
<S>                  <C>                                                                                <C>
ARTICLE 14           CAPITAL ADJUSTMENTS.................................................................23

ARTICLE 15           RECAPITALIZATION, MERGER AND CONSOLIDATION; CHANGE IN CONTROL.......................24

ARTICLE 16           LIQUIDATION OR DISSOLUTION..........................................................26

ARTICLE 17           INCENTIVES IN SUBSTITUTION FOR INCENTIVES GRANTED BY OTHER CORPORATIONS.............26

ARTICLE 18           MISCELLANEOUS PROVISIONS............................................................27
                             18.1   Investment Intent....................................................27
                             18.2   No Right to Continued Employment.....................................27
                             18.3   Indemnification of Board and Committee...............................27
                             18.4   Effect of the Plan...................................................27
                             18.5   Compliance With Other Laws and Regulations...........................27
                             18.6   Tax Requirements.....................................................28
                             18.7   Assignability........................................................28
                             18.8   Use of Proceeds......................................................29
                             18.9   Governing Law........................................................29
                             18.10  Successors and Assigns...............................................29
                             18.11  Effective Date.......................................................29
                             18.12  Legend...............................................................29
</Table>



                                       ii
<PAGE>



                            ATMOS ENERGY CORPORATION
                          1998 LONG-TERM INCENTIVE PLAN
                   (AS AMENDED AND RESTATED FEBRUARY 14, 2002)


         The Atmos Energy Corporation 1998 Long-Term Incentive Plan (hereinafter
called the "Plan") was adopted by the Board of Directors of Atmos Energy
Corporation, a Texas and Virginia corporation (hereinafter called the "Company")
on August 12, 1998 to be effective October 1, 1998, and was approved by the
Company's shareholders on February 10, 1999. The Plan was amended by the Board
of Directors on August 8, 2001 to provide for an increase of 2,500,000
additional shares available for issuance under the Plan, which amendment was
approved by the Company's shareholders on February 13, 2002.

                                    ARTICLE 1

                                     PURPOSE

         The purpose of the Plan is to attract and retain the services of able
persons as employees of the Company and its Subsidiaries and as Non-employee
Directors (as herein defined), to provide such persons with a proprietary
interest in the Company through the granting of incentive stock options,
non-qualified stock options, stock appreciation rights, or restricted stock, and
to motivate employees and Non-employee Directors using performance-related
incentives linked to longer-range performance goals and the interests of the
Company's shareholders, whether granted singly, or in combination, or in tandem,
that will

                  (a) increase the interest of such persons in the Company's
         welfare;

                  (b) furnish an incentive to such persons to continue their
         services for the Company; and

                  (c) provide a means through which the Company may attract able
         persons as employees and Non-employee Directors.

         With respect to Reporting Participants, the Plan and all transactions
under the Plan are intended to comply with all applicable conditions of Rule
16b-3 promulgated under the Securities Exchange Act of 1934 (the "1934 Act"). To
the extent any provision of the Plan or action by the Committee fails to so
comply, it shall be deemed null and void ab initio, to the extent permitted by
law and deemed advisable by the Committee. Further, any Awards granted


1

<PAGE>

under the Plan to a Non-employee Director shall be solely to compensate said
Director for his services to the Company as a Non-employee Director.


                                    ARTICLE 2

                                   DEFINITIONS

         For the purpose of the Plan, unless the context requires otherwise, the
following terms shall have the meanings indicated:

         2.1 "Award" means the grant of any Incentive Stock Option,
Non-qualified Stock Option, SAR, Restricted Stock, Restricted Stock Unit,
Performance Unit, Performance Share, Bonus Stock or other Stock Unit Award
whether granted singly, in combination or in tandem (each individually referred
to herein as an "Incentive"). "Award" also means any Incentive to which an award
under the Management Incentive Plan is made or converted.

         2.2 "Award Agreement" means a written agreement between a Participant
and the Company, which sets out the terms of the grant of an Award.

         2.3 "Award Period" means the period during which one or more Incentives
granted under an Award may be exercised or earned.

         2.4 "Board" means the Board of Directors of the Company.

         2.5 "Bonus Stock" means an Award granted pursuant to Section 6.8 of the
Plan expressed as a share of Common Stock which may or may not be subject to
restrictions.

         2.6 (a) "Change in Control" of the Company shall be deemed to have
occurred if:

                  (i) Any "Person" (as defined in Section 2.6(b)(i) below),
         other than (1) the Company or any of its Subsidiaries, (2) a trustee or
         other fiduciary holding securities under an employee benefit plan of
         the Company or any of its Affiliates, (3) an underwriter temporarily
         holding securities pursuant to an offering of such securities, or (4) a
         corporation owned, directly or indirectly, by the shareholders of the
         Company in substantially the same proportions as their ownership of
         stock of the Company, is or becomes the "beneficial owner" (as defined
         in Section 2.6(b)(ii) below), directly or indirectly, of securities of
         the Company (not including in the securities

                                       2

<PAGE>

         beneficially owned by such person any securities acquired directly from
         the Company or its Affiliates) representing 33-1/3% or more of the
         combined voting power of the Company's then outstanding securities, or
         33-1/3% or more of the then outstanding common stock of the Company,
         excluding any Person who becomes such a beneficial owner in connection
         with a transaction described in subparagraph (iii)(A) below.

                  (ii) During any period of two consecutive years (the
         "Period"), individuals who at the beginning of the Period constitute
         the Board of Directors of the Company and any "new director" (as
         defined in Section 2.6(b)(iii) below) cease for any reason to
         constitute a majority of the Board of Directors.

                  (iii) There is consummated a merger or consolidation of the
         Company or any direct or indirect subsidiary of the Company with any
         other corporation, except if:

                           (A) the merger or consolidation would result in the
                  voting securities of the Company outstanding immediately prior
                  thereto continuing to represent (either by remaining
                  outstanding or by being converted into voting securities of
                  the surviving entity or any parent thereof) at least sixty
                  percent (60%) of the combined voting power of the voting
                  securities of the Company or such surviving entity or any
                  parent thereof outstanding immediately after such merger or
                  consolidation; or

                           (B) the merger or consolidation is effected to
                  implement a recapitalization of the Company (or similar
                  transaction) in which no Person is or becomes the beneficial
                  owner, directly or indirectly, of securities of the Company
                  (not including in the securities beneficially owned by such
                  Person any securities acquired directly from the Company or
                  its Affiliates other than in connection with the acquisition
                  by the Company or its Affiliates of a business) representing
                  60% or more of the combined voting power of the Company's then
                  outstanding securities;


                                      3
<PAGE>

                  (iv) The shareholders of the Company approve a plan of
         complete liquidation or dissolution of the Company or an agreement for
         the sale or disposition by the Company of all or substantially all the
         Company's assets, other than a sale or disposition by the Company of
         all or substantially all of the Company's assets to an entity, at least
         60% of the combined voting power of the voting securities of which are
         owned by the stockholders of the Company in substantially the same
         proportions as their ownership of the Company immediately prior to such
         sale.

         (b) Definitions. For purposes of Section 2.6(a) above,

                  (i) "Person" shall have the meaning given in Section 3(a)(9)
         of the 1934 Act as modified and used in Sections 13(d) and 14(d) of the
         1934 Act.

                  (ii) "Beneficial owner" shall have the meaning provided in
         Rule 13d-3 under the 1934 Act.

                  (iii) "New director" shall mean an individual whose election
         by the Company's Board of Directors or nomination for election by the
         Company's shareholders was approved by a vote of at least two-thirds
         (2/3) of the directors then still in office who either were directors
         at the beginning of the Period or whose election or nomination for
         election was previously so approved or recommended. However, "new
         director" shall not include a director whose initial assumption of
         office is in connection with an actual or threatened election contest,
         including but not limited to a consent solicitation relating to the
         election of directors of the Company.

                  (iv) "Affiliate" shall have the meaning set forth in Rule
         12b-2 promulgated under Section 12 of the 1934 Act.

         2.7 "Code" means the Internal Revenue Code of 1986, as amended,
together with the published rulings, regulations, and interpretations duly
promulgated thereunder.

         2.8 "Committee" means the committee appointed or designated by the
Board to administer the Plan in accordance with Article 3 of this Plan.

         2.9 "Common Stock" means the common stock, with no par value (stated
value of $.005 per share), which the Company is currently authorized to issue or
may in the future be authorized to issue.


                                       4
<PAGE>

         2.10 "Company" means Atmos Energy Corporation, a Texas and Virginia
corporation, and any successor entity.

         2.11 "Covered Participant" means a Participant who is a "covered
employee" as defined in Section 162(m)(3) of the Code, and the regulations
promulgated thereunder, or who the Committee believes will be such a covered
employee for a Performance Period, and who the Committee believes will have
remuneration in excess of $1,000,000 for the Performance Period, as provided in
Section 162(m) of the Code.

         2.12 "Date of Grant" means the effective date on which an Award is made
to a Participant as set forth in the applicable Award Agreement; provided,
however, that solely for purposes of Section 16 of the 1934 Act and the rules
and regulations promulgated thereunder, the Date of Grant of an Award shall be
the date of stockholder approval of the Plan if such date is later than the
effective date of such Award as set forth in the Award Agreement.

         2.13 "Employee" means common law employee (as defined in accordance
with the Regulations and Revenue Rulings then applicable under Section 3401(c)
of the Code) of the Company or any Subsidiary of the Company.

         2.14 "Fair Market Value" of a share of Common Stock is the mean of the
highest and lowest prices per share on the New York Stock Exchange Consolidated
Tape, or such reporting service as the Board may select, on the appropriate
date, or in the absence of reported sales on such day, the most recent previous
day for which sales were reported.

         2.15 "Incentive Stock Option" or "ISO" means an incentive stock option
within the meaning of Section 422 of the Code, granted pursuant to this Plan.

         2.16 "Management Incentive Plan" means the Atmos Energy Corporation
Annual Incentive Plan for Management, as amended from time to time.

         2.17 "Non-employee Director" means a member of the Board who is not an
Employee and who satisfies the requirements of Rule 16b-3(b)(3) promulgated
under the 1934 Act or any successor provision.

         2.18 "Non-qualified Stock Option" or "NQSO" means a non-qualified stock
option, granted pursuant to this Plan.

         2.19 "Option Price" means the price which must be paid by a Participant
upon exercise of a Stock Option to purchase a share of Common Stock.


                                       5
<PAGE>

         2.20 "Participant" shall mean an Employee or Non-employee Director to
whom an Award is granted under this Plan.

         2.21 "Performance Award" means a performance-based Award, which may be
in the form of either Performance Shares or Performance Units.

         2.22 "Performance Criteria" or "Performance Goals" or "Performance
Measures" mean the objectives established by the Committee for a Performance
Period, for the purpose of determining when an Award subject to such objectives
is earned.

         2.23 "Performance Period" means the time period designated by the
Committee during which performance goals must be met.

         2.24 "Performance Share" means an Award, designated as a Performance
Share, granted to a Participant pursuant to Section 6.7 hereof, the value of
which is determined, in whole or in part, by the value of Common Stock in a
manner deemed appropriate by the Committee and described in the Agreement.

         2.25 "Performance Unit" means an Award, designated as a Performance
Unit, granted to a Participant pursuant to Section 6.7 hereof, the value of
which is determined, in whole or in part, by the attainment of pre-established
goals relating to Company financial or operating performance as deemed
appropriate by the Committee and described in the Award Agreement.

         2.26 "Plan" means The Atmos Energy Corporation 1998 Long-Term Incentive
Plan, as amended from time to time.

         2.27 "Reporting Participant" means a Participant who is subject to the
reporting requirements of Section 16 of the 1934 Act.

         2.28 "Restricted Stock" means shares of Common Stock issued or
transferred to a Participant pursuant to Section 6.4 of this Plan which are
subject to restrictions or limitations set forth in this Plan and in the related
Award Agreement.

         2.29 "Restricted Stock Unit" means a fixed or variable dollar
denominated right to acquire Common Stock, which may or may not be subject to
restrictions, contingently awarded under Section 6.4 of the Plan.

         2.30 "Retirement" means any Termination of Service solely due to
retirement upon attainment of age 65, or permitted early retirement as
determined by the Committee.


                                       6
<PAGE>

         2.31 "SAR" means the right to receive a payment, in cash and/or
Common Stock, equal to the excess of the Fair Market Value of a specified number
of shares of Common Stock on the date the SAR is exercised over the SAR Price
for such shares.

         2.32 "SAR Price" means the Fair Market Value of each share of Common
Stock covered by an SAR, determined on the Date of Grant of the SAR.

         2.33 "Stock Option" means a Non-qualified Stock Option or an Incentive
Stock Option.

         2.34 "Stock Unit Award" means awards of Common Stock or other awards
pursuant to Section 6.9 hereof that are valued in whole or in part by reference
to, or are otherwise based on, shares of Common Stock or other securities of the
Company.

         2.35 "Subsidiary" means (i) any corporation in an unbroken chain of
corporations beginning with the Company, if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing a majority of
the total combined voting power of all classes of stock in one of the other
corporations in the chain, (ii) any limited partnership, if the Company or any
corporation described in item (i) above owns a majority of the general
partnership interest and a majority of the limited partnership interests
entitled to vote on the removal and replacement of the general partner, and
(iii) any partnership or limited liability company, if the partners or members
thereof are composed only of the Company, any corporation listed in item (i)
above or any limited partnership listed in item (ii) above. "Subsidiaries" means
more than one of any such corporations, limited partnerships, partnerships or
limited liability companies.

         2.36 "Termination of Service" occurs when a Participant who is an
Employee or Non-employee Director shall cease to serve as an Employee or
Non-employee Director for any reason.

         2.37 "Total and Permanent Disability" means a Participant is qualified
for long-term disability benefits under The Atmos Energy Corporation Group
Long-Term Disability Plan as in effect from time to time; or, if such Plan is
not then in existence, that the Participant, because of ill health, physical or
mental disability or any other reason beyond his or her control, is unable to
perform his or her duties of employment for a period of six (6) continuous
months, as determined in good faith by the Committee; provided that, with
respect to any Incentive Stock Option, Total and Permanent Disability shall have
the meaning given it under the rules governing Incentive Stock Options under the
Code.


                                       7
<PAGE>
                                    ARTICLE 3

                                 ADMINISTRATION

         The Plan shall be administered by the Human Resources Committee of the
Board (the "Committee") unless otherwise determined by the Board. If said Human
Resources Committee does not so serve, the Committee shall consist of not fewer
than two persons; any member of the Committee may be removed at any time, with
or without cause, by resolution of the Board; and any vacancy occurring in the
membership of the Committee may be filled by appointment by the Board.

         All actions to be taken by the Committee under this Plan, insofar as
such actions affect compliance with Section 162(m) of the Code, shall be limited
to those members of the Board who are Non-employee Directors and who are
"outside directors" under Section 162(m). The Committee shall select one of its
members to act as its Chairman. A majority of the Committee shall constitute a
quorum, and the act of a majority of the members of the Committee present at a
meeting at which a quorum is present shall be the act of the Committee.

         The Committee shall determine and designate from time to time the
eligible persons to whom Awards will be granted and shall set forth in each
related Award Agreement the Award Period, the Date of Grant, and such other
terms, provisions, limitations, and performance requirements, as are approved by
the Committee, but not inconsistent with the Plan, including, but not limited
to, any rights of the Committee to cancel or rescind any such Award. The
Committee shall determine whether an Award shall include one type of Incentive,
two or more Incentives granted in combination, or two or more Incentives granted
in tandem (that is, a joint grant where exercise of one Incentive results in
cancellation of all or a portion of the other Incentive).

         The Committee, in its discretion, shall (i) interpret the Plan, (ii)
prescribe, amend, and rescind any rules and regulations necessary or appropriate
for the administration of the Plan, and (iii) make such other determinations and
take such other action as it deems necessary or advisable in the administration
of the Plan. Any interpretation, determination, or other action made or taken by
the Committee shall be final, binding, and conclusive on all interested parties.

         With respect to restrictions in the Plan that are based on the
requirements of Rule 16b-3 promulgated under the 1934 Act, Section 422 of the
Code, Section 162(m) of the Code, the rules of any exchange or inter-dealer
quotation system upon which the Company's securities are listed or quoted, or
any other applicable law, rule or restriction (collectively, "applicable law"),
to the extent that any such restrictions are no longer required by applicable
law,


                                        8
<PAGE>

the Committee shall have the sole discretion and authority to grant Awards
that are not subject to such mandated restrictions and/or to waive any such
mandated restrictions with respect to outstanding Awards.


                                    ARTICLE 4

                                   ELIGIBILITY

         Any Employee (including an Employee who is also a director or an
officer) and any Non-employee Director is eligible to participate in the Plan.
The Committee, upon its own action, may grant, but shall not be required to
grant, an Award to any Employee or any Non-employee Director. Awards may be
granted by the Committee at any time and from time to time to new Participants,
or to then Participants, or to a greater or lesser number of Participants, and
may include or exclude previous Participants, as the Committee shall determine.
Except as required by this Plan, different Awards need not contain similar
provisions. The Committee's determinations under the Plan (including without
limitation determinations of which Employees or Non-employee Directors, if any,
are to receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the agreements evidencing same) need not be
uniform and may be made by it selectively among Employees and Non-employee
Directors who receive, or are eligible to receive, Awards under the Plan.


                                    ARTICLE 5

                             SHARES SUBJECT TO PLAN

         Subject to adjustment as provided in Articles 14 and 15, the maximum
number of shares of Common Stock that may be delivered pursuant to Awards
granted under the Plan is (a) 4,000,000 shares; plus (b) shares of Common Stock
previously subject to Awards which are forfeited, terminated, cancelled or
rescinded, settled in cash in lieu of Common Stock, or exchanged for Awards that
do not involve Common Stock, or expired unexercised.

         Shares to be issued may be made available from authorized but unissued
Common Stock, Common Stock held by the Company in its treasury, or Common Stock
purchased by the Company on the open market or otherwise. During the term of
this Plan, the Company will at all times reserve and keep available the number
of shares of Common Stock that shall be sufficient to satisfy the requirements
of this Plan.


                                       9

<PAGE>
                                    ARTICLE 6

                                 GRANT OF AWARDS

         6.1 IN GENERAL. The grant of an Award shall be authorized by the
Committee and shall be evidenced by an Award Agreement setting forth the
Incentive or Incentives being granted, the total number of shares of Common
Stock subject to the Incentive(s), the Option Price (if applicable), the Award
Period, the Date of Grant, and such other terms, provisions, limitations, and
performance objectives, as are approved by the Committee, but not inconsistent
with the Plan. The Company shall execute an Award Agreement with a Participant
after the Committee approves the issuance of an Award. Any Award granted
pursuant to this Plan must be granted within ten (10) years of the date of
adoption of this Plan. The grant of an Award to a Participant shall not be
deemed either to entitle the Participant to, or to disqualify the Participant
from, receipt of any other Award under the Plan.

         If the Committee establishes a purchase price for an Award, the
Participant must accept such Award within a period of 30 days (or such shorter
period as the Committee may specify) after the Date of Grant by executing the
applicable Award Agreement and paying such purchase price.

         6.2 MAXIMUM ISO GRANTS. The Committee may not grant Incentive Stock
Options under the Plan to any Employee which would permit the aggregate Fair
Market Value (determined on the Date of Grant) of the Common Stock with respect
to which Incentive Stock Options (under this and any other plan of the Company
and its Subsidiaries) are exercisable for the first time by such Employee during
any calendar year to exceed $100,000. To the extent any Stock Option granted
under this Plan, which is designated as an Incentive Stock Option exceeds this
limit or otherwise fails to qualify as an Incentive Stock Option, such Stock
Option shall be a Non-qualified Stock Option. The Committee may not grant
Incentive Stock Options to Non-employee Directors.

         6.3 MAXIMUM INDIVIDUAL GRANTS. No Participant may receive during any
fiscal year of the Company Awards of Stock Options and SARs covering an
aggregate of more than five hundred thousand (500,000) shares of Common Stock.

         6.4 RESTRICTED STOCK/RESTRICTED STOCK UNITS. If Restricted Stock and/or
Restricted Stock Units are granted to a Participant under an Award, the
Committee shall set forth in the related Award Agreement: (i) the number of
shares of Common Stock and/or the number of Restricted Stock Units awarded, (ii)
the price, if any, to be paid by the Participant for such Restricted Stock
and/or Restricted Stock Units, (iii) the time or times within which such Award
may be subject to forfeiture, (iv) specified Performance Goals


                                       10
<PAGE>

of the Company, a Subsidiary, any division thereof or any group of Employees of
the Company, or other criteria, which the Committee determines must be met in
order to remove any restrictions (including vesting) on such Award, and (v) all
other terms, limitations, restrictions, and conditions of the Restricted Stock
and/or Restricted Stock Units, which shall be consistent with this Plan. The
provisions of Restricted Stock and/or Restricted Stock Units need not be the
same with respect to each Participant.

                  (a) Legend on Shares. Each Participant who is awarded
         Restricted Stock shall be issued a stock certificate or certificates in
         respect of such shares of Common Stock. Such certificate(s) shall be
         registered in the name of the Participant, and shall bear an
         appropriate legend referring to the terms, conditions, and restrictions
         applicable to such Restricted Stock, substantially as provided in
         Section 18.12 of the Plan. The Committee may require that the stock
         certificates evidencing shares of Restricted Stock be held in custody
         by the Company until the restrictions thereon shall have lapsed, and
         that the Participant deliver to the Committee a stock power or stock
         powers, endorsed in blank, relating to the shares of Restricted Stock.

                  (b) Restrictions and Conditions. Shares of Restricted Stock
         and Restricted Stock Units shall be subject to the following
         restrictions and conditions:

                           (i) Subject to the other provisions of this Plan and
                  the terms of the particular Award Agreements, during such
                  period as may be determined by the Committee commencing on the
                  Date of Grant (the "Restriction Period"), the Participant
                  shall not be permitted to sell, transfer, pledge or assign
                  shares of Restricted Stock and/or Restricted Stock Units.
                  Except for these limitations, the Committee may in its sole
                  discretion, remove any or all of the restrictions on such
                  Restricted Stock and/or Restricted Stock Units whenever it may
                  determine that, by reason of changes in applicable laws or
                  other changes in circumstances arising after the date of the
                  Award, such action is appropriate.

                           (ii) Except as provided in subparagraph (i) above,
                  the Participant shall have, with respect to his or her
                  Restricted Stock, all of the rights of a stockholder of the
                  Company, including the right to vote the shares, and the right
                  to receive any dividends thereon. Certificates for shares of
                  Common Stock free of restriction under this Plan shall be
                  delivered to the Participant promptly after, and

                                       11
<PAGE>
                  only after, the Restriction Period shall expire without
                  forfeiture in respect of such shares of Common Stock.
                  Certificates for the shares of Common Stock forfeited under
                  the provisions of the Plan and the applicable Award Agreement
                  shall be promptly returned to the Company by the forfeiting
                  Participant. Each Award Agreement shall require that (x) each
                  Participant, by his or her acceptance of Restricted Stock,
                  shall irrevocably grant to the Company a power of attorney to
                  transfer any shares so forfeited to the Company and agrees to
                  execute any documents requested by the Company in connection
                  with such forfeiture and transfer, and (y) such provisions
                  regarding returns and transfers of stock certificates with
                  respect to forfeited shares of Common Stock shall be
                  specifically performable by the Company in a court of equity
                  or law.

                           (iii) The Restriction Period of Restricted Stock
                  and/or Restricted Stock Units shall commence on the Date of
                  Grant and, subject to Article 15 of the Plan, unless otherwise
                  established by the Committee in the Award Agreement setting
                  forth the terms of the Restricted Stock and/or Restricted
                  Stock Units, shall expire upon satisfaction of the conditions
                  set forth in the Award Agreement; such conditions may provide
                  for vesting based on (i) length of continuous service, (ii)
                  achievement of specific business objectives, (iii) increases
                  in specified indices, (iv) attainment of specified growth
                  rates, or (v) other comparable Performance Measurements, as
                  may be determined by the Committee in its sole discretion.

                           (iv) Subject to the provisions of the particular
                  Award Agreement, upon Termination of Service for any reason
                  during the Restriction Period, the nonvested shares of
                  Restricted Stock and/or Restricted Stock Units shall be
                  forfeited by the Participant. In the event a Participant has
                  paid any consideration to the Company for such forfeited
                  Restricted Stock and/or Restricted Stock Units, the Company
                  shall, as soon as practicable after the event causing
                  forfeiture (but in any event within 5 business days), pay to
                  the Participant, in cash, an amount equal to the total
                  consideration paid by the Participant for such forfeited
                  shares and/or units. Upon any forfeiture, all rights of a
                  Participant with respect to the forfeited shares of the
                  Restricted Stock shall cease and terminate, without any
                  further obligation on the part of the Company.


                                       12
<PAGE>

         6.5 SAR. An SAR shall entitle the Participant at his election to
surrender to the Company the SAR, or portion thereof, as the Participant shall
choose, and to receive from the Company in exchange therefor cash in an amount
equal to the excess (if any) of the Fair Market Value (as of the date of the
exercise of the SAR) per share over the SAR Price per share specified in such
SAR, multiplied by the total number of shares of the SAR being surrendered. In
the discretion of the Committee, the Company may satisfy its obligation upon
exercise of an SAR by the distribution of that number of shares of Common Stock
having an aggregate Fair Market Value (as of the date of the exercise of the
SAR) equal to the amount of cash otherwise payable to the Participant, with a
cash settlement to be made for any fractional share interests, or the Company
may settle such obligation in part with shares of Common Stock and in part with
cash.

         6.6 TANDEM AWARDS. The Committee may grant two or more Incentives in
one Award in the form of a "tandem award," so that the right of the Participant
to exercise one Incentive shall be canceled if, and to the extent, the other
Incentive is exercised. For example, if a Stock Option and an SAR are issued in
a tandem Award, and the Participant exercises the SAR with respect to 100 shares
of Common Stock, the right of the Participant to exercise the related Stock
Option shall be canceled to the extent of 100 shares of Common Stock.

         6.7 PERFORMANCE BASED AWARDS.

                  (a) Grant of Performance Awards. The Committee may issue
         Performance Awards in the form of either Performance Units or
         Performance Shares to Participants subject to the Performance Goals and
         Performance Period as it shall determine. The terms and conditions of
         each Performance Award will be set forth in the related Award
         Agreement. The Committee shall have complete discretion in determining
         the number and value of Performance Units or Performance Shares granted
         to each Participant. Participants receiving Performance Awards are not
         required to pay the Company thereof (except for applicable tax
         withholding) other than the rendering of services.

                  (b) Value of Performance Awards. The Committee shall set
         performance goals in its discretion for each Participant who is granted
         a Performance Award. Such Performance Goals may be particular to a
         Participant, may relate to the performance of the Subsidiary which
         employs him or her, may be based on the division which employs him or
         her, may be based on the performance of the Company generally, or a
         combination of the foregoing. The Performance Goals may be based on
         achievement of balance sheet or income statement objectives, or any
         other

                                       13
<PAGE>

         objectives established by the Committee. The Performance Goals may be
         absolute in their terms or measured against or in relationship to other
         companies comparably, similarly or otherwise situated. The extent to
         which such Performance Goals are met will determine the value of the
         Performance Unit or Performance Share to the Participant.

                  (c) Form of Payment. Payment of the amount to which a
         Participant shall be entitled upon the settlement of a Performance
         Award shall be made in a lump sum or installments in cash, shares of
         Common Stock, or a combination thereof as determined by the Committee.

         6.8 BONUS STOCK. The Committee may award shares of Bonus Stock to
Participants under the Plan without cash consideration. The Committee shall
determine and indicate in the related Award Agreement whether such shares of
Bonus Stock awarded under the Plan shall be unencumbered of any restrictions
(other than those advisable to comply with law) or shall be subject to
restrictions and limitations similar to those referred to in Section 6.7 hereof.
In the event the Committee assigns any restrictions on the shares of Bonus Stock
awarded under the Plan, then such shares shall be subject to at least the
following restrictions:

                  (a) No shares of Bonus Stock may be sold, transferred,
         pledged, assigned or otherwise alienated or hypothecated if such shares
         are subject to restrictions which have not lapsed or have not been
         vested.

                  (b) If any condition of vesting of the shares of Bonus Stock
         are not met, all such shares subject to such vesting shall be delivered
         to the Company (in a manner determined by the Committee) within 60 days
         of the failure to meet such conditions without any payment from the
         Company.


                                       14
<PAGE>
         6.9 OTHER STOCK BASED AWARDS.

                  (a) Grant of Other Stock Based Awards. The Committee may issue
         to Participants, either alone or in addition to other Awards made under
         the Plan, Stock Unit Awards which may be in the form of Common Stock or
         other securities. The value of each such Award shall be based, in whole
         or in part, on the value of the underlying Common Stock or other
         securities. The Committee, in its sole and complete discretion, may
         determine that an Award, either in the form of a Stock Unit Award under
         this Section 6.9 or as an Award granted pursuant to the other
         provisions of this Article 6, may provide to the Participant (i)
         dividends or dividend equivalents (payable on a current or deferred
         basis) and (ii) cash payments in lieu of or in addition to an Award.
         The Committee shall determine the terms, restrictions, conditions,
         vesting requirements, and payment rules (all of which are sometimes
         hereinafter collectively referred to as "rules") of the Award and shall
         set forth those rules in the related Award Agreement.

                  (b) Rules. The Committee, in its sole and complete discretion,
         may grant a Stock Unit Award subject to the following rules:

                           (i) Common Stock or other securities issued pursuant
                  to Stock Unit Awards may not be sold, transferred, pledged,
                  assigned or otherwise alienated or hypothecated by a
                  Participant until the expiration of at least six months from
                  the Award Date, except that such limitation shall not apply in
                  the case of death or disability of the Participant. To the
                  extent Stock Unit Awards are deemed to be derivative
                  securities within the meaning of Rule 16b-3 under the 1934
                  Act, a Participant's rights with respect to such Awards shall
                  not vest or be exercisable until the expiration of at least
                  six months from the Award Date. To the extent a Stock Unit
                  Award granted under the Plan is deemed to be a derivative
                  security within the meaning of Rule 16b-3 under the 1934 Act,
                  it may not be sold, transferred, pledged, assigned, or
                  otherwise alienated or hypothecated, otherwise than by will or
                  by laws of descent and distribution. All rights with respect
                  to such Stock Unit Awards granted to a Participant under the
                  Plan shall be exercisable during his or her lifetime only by
                  such Participant or his or her guardian or legal
                  representative.


                                       15
<PAGE>
                           (ii) Stock Unit Awards may require the payment of
                  cash consideration by the Participant in receipt of the Award
                  or provide that the Award, and any Common Stock or other
                  securities issued in conjunction with the Award be delivered
                  without the payment of cash consideration.

                           (iii) The Committee, in its sole and complete
                  discretion, may establish certain Performance Criteria that
                  may relate in whole or in part to receipt of the Stock Unit
                  Awards.

                           (iv) Stock Unit Awards may be subject to a deferred
                  payment schedule and/or vesting over a specified employment
                  period.

                           (v) The Committee as a result of certain
                  circumstances, may waive or otherwise remove, in whole or in
                  part, any restriction or condition imposed on a Stock Unit
                  Award at the time of Award.


                                    ARTICLE 7

                             OPTION PRICE; SAR PRICE

         The Option Price for any share of Common Stock which may be purchased
under a Stock Option and the SAR Price for any share of Common Stock subject to
an SAR shall be at least One Hundred Percent (100%) of the Fair Market Value of
the share on the Date of Grant. If an Incentive Stock Option is granted to an
Employee who owns or is deemed to own (by reason of the attribution rules of
Section 424(d) of the Code) more than 10% of the combined voting power of all
classes of stock of the Company (or any parent or Subsidiary), the Option Price
shall be at least 110% of the Fair Market Value of the Common Stock on the Date
of Grant.

                                    ARTICLE 8

                              AWARD PERIOD; VESTING

         8.1 AWARD PERIOD. Subject to the other provisions of this Plan,
the Committee may, in its discretion, provide that an Incentive may not be
exercised in whole or in part for any period or periods of time or beyond any
date specified in the Award Agreement. Except as provided in the Award
Agreement, an Incentive may be exercised in whole or in part at any time during
its term. The Award Period for an Incentive shall be reduced or terminated upon
Termination of Service in accordance with this Article 8


                                       16
<PAGE>
and Article 9. No Incentive granted under the Plan may be exercised at any time
after the end of its Award Period. No portion of any Incentive may be exercised
after the expiration of ten (10) years from its Date of Grant. However, if an
Employee owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company (or any parent or Subsidiary) and an Incentive Stock Option
is granted to such Employee, the term of such Incentive Stock Option (to the
extent required by the Code at the time of grant) shall be no more than five (5)
years from the Date of Grant.

         8.2 VESTING. The Committee, in its sole discretion, may determine that
an Incentive will be immediately exercisable, in whole or in part, or that all
or any portion may not be exercised until a date, or dates, subsequent to its
Date of Grant, or until the occurrence of one or more specified events, subject
in any case to the terms of the Plan. If the Committee imposes conditions upon
exercise, then subsequent to the Date of Grant, the Committee may, in its sole
discretion, accelerate the date on which all or any portion of the Incentive may
be exercised.


                                    ARTICLE 9

                             TERMINATION OF SERVICE

         In the event of Termination of Service of a Participant, an Incentive
may only be exercised as determined by the Committee and provided in the Award
Agreement.


                                   ARTICLE 10

                              EXERCISE OF INCENTIVE

         10.1 IN GENERAL. A vested Incentive may be exercised during its
Award Period, subject to limitations and restrictions set forth therein and in
Article 9. A vested Incentive may be exercised at such times and in such amounts
as provided in this Plan and the applicable Award Agreement, subject to the
terms, conditions, and restrictions of the Plan.

         In no event may an Incentive be exercised or shares of Common Stock be
issued pursuant to an Award if a necessary listing or quotation of the shares of
Common Stock on a stock exchange or inter-dealer quotation system or any
registration under state or federal securities laws required under the
circumstances has not been accomplished. No Incentive may be exercised for a
fractional share of Common Stock. The granting of an Incentive shall impose no
obligation upon the Participant to exercise that Incentive.


                                       17
<PAGE>

                  (a) Stock Options. Subject to such administrative regulations
         as the Committee may from time to time adopt, a Stock Option may be
         exercised by the delivery of written notice to the Committee setting
         forth the number of shares of Common Stock with respect to which the
         Stock Option is to be exercised and the date of exercise thereof (the
         "Exercise Date") which shall be at least three (3) days after giving
         such notice unless an earlier time shall have been mutually agreed
         upon. On the Exercise Date, the Participant shall deliver to the
         Company consideration with a value equal to the total Option Price of
         the shares to be purchased, payable as follows: (a) cash, check, bank
         draft, or money order payable to the order of the Company, (b) Common
         Stock (including Restricted Stock) owned by the Participant on the
         Exercise Date, valued at its Fair Market Value on the Exercise Date,
         (c) by delivery (including by FAX) to the Company or its designated
         agent of an executed irrevocable option exercise form together with
         irrevocable instructions from the Participant to a broker or dealer,
         reasonably acceptable to the Company, to sell certain of the shares of
         Common Stock purchased upon exercise of the Stock Option or to pledge
         such shares as collateral for a loan and promptly deliver to the
         Company the amount of sale or loan proceeds necessary to pay such
         purchase price (otherwise known as a "cashless exercise"), and/or (d)
         in any other form of valid consideration that is acceptable to the
         Committee in its sole discretion. In the event that shares of
         Restricted Stock are tendered as consideration for the exercise of a
         Stock Option, a number of shares of Common Stock issued upon the
         exercise of the Stock Option equal to the number of shares of
         Restricted Stock used as consideration therefor shall be subject to the
         same restrictions and provisions as the Restricted Stock so submitted.

                  Upon payment of all amounts due from the Participant, the
         Company shall cause certificates for the Common Stock then being
         purchased to be delivered as directed by the Participant (or the person
         exercising the Participant's Stock Option in the event of his death) at
         its principal business office promptly after the Exercise Date;
         provided that if the Participant has exercised an Incentive Stock
         Option, the Company may at its option retain physical possession of the
         certificate evidencing the shares acquired upon exercise until the
         expiration of the holding periods described in Section 422(a)(1) of the
         Code. The obligation of the Company to deliver shares of Common Stock
         shall, however, be subject to the condition that if at any time the
         Committee shall determine in its discretion that the listing,
         registration, or qualification of the Stock Option or the Common Stock
         upon any


                                       18
<PAGE>

         securities exchange or inter-dealer quotation system or under any state
         or federal law, or the consent or approval of any governmental
         regulatory body, is necessary or desirable as a condition of, or in
         connection with, the Stock Option or the issuance or purchase of shares
         of Common Stock thereunder, the Stock Option may not be exercised in
         whole or in part unless such listing, registration, qualification,
         consent, or approval shall have been effected or obtained free of any
         conditions not acceptable to the Committee.

                  If the Participant fails to pay for any of the Common Stock
         specified in such notice or fails to accept delivery thereof, the
         Participant's right to purchase such Common Stock may be terminated by
         the Company.

                  (b) SARs. Subject to the conditions of this Section 10.1(b)
         and such administrative regulations as the Committee may from time to
         time adopt, an SAR may be exercised by the delivery (including by FAX)
         of written notice to the Committee setting forth the number of shares
         of Common Stock with respect to which the SAR is to be exercised and
         the date of exercise thereof (the "Exercise Date") which shall be at
         least three (3) days after giving such notice unless an earlier time
         shall have been mutually agreed upon. On the Exercise Date, the
         Participant shall receive from the Company in exchange therefor cash in
         an amount equal to the excess (if any) of the Fair Market Value (as of
         the date of the exercise of the SAR) per share of Common Stock over the
         SAR Price per share specified in such SAR, multiplied by the total
         number of shares of Common Stock of the SAR being surrendered. In the
         discretion of the Committee, the Company may satisfy its obligation
         upon exercise of an SAR by the distribution of that number of shares of
         Common Stock having an aggregate Fair Market Value (as of the date of
         the exercise of the SAR) equal to the amount of cash otherwise payable
         to the Participant, with a cash settlement to be made for any
         fractional share interests, or the Company may settle such obligation
         in part with shares of Common Stock and in part with cash.

         10.2 DISQUALIFYING DISPOSITION OF ISO. If shares of Common Stock
acquired upon exercise of an Incentive Stock Option are disposed of by a
Participant prior to the expiration of either two (2) years from the Date of
Grant of such Stock Option or one (1) year from the transfer of shares of Common
Stock to the Participant pursuant to the exercise of such Stock Option, or in
any other disqualifying disposition within the meaning of Section 422 of the
Code, such Participant shall notify the Company in writing of the date and terms
of such disposition. A disqualifying disposition by a Participant shall not


                                       19
<PAGE>
affect the status of any other Stock Option granted under the Plan as an
Incentive Stock Option within the meaning of Section 422 of the Code.


                                   ARTICLE 11

              SPECIAL PROVISIONS APPLICABLE TO COVERED PARTICIPANTS

         Awards subject to Performance Criteria paid to Covered Participants
under this Plan shall be governed by the conditions of this Section 11 in
addition to the requirements of Sections 6.4, 6.7, 6.8 and 6.9 above. Should
conditions set forth under this Section 11 conflict with the requirements of
Sections 6.4, 6.7, 6.8 and 6.9, the conditions of this Section 11 shall prevail.

                  (a) All Performance Measures, Goals, or Criteria relating to
         Covered Participants for a relevant Performance Period shall be
         established by the Committee in writing prior to the beginning of the
         Performance Period, or by such other later date for the Performance
         Period as may be permitted under Section 162(m) of the Code. The
         Performance Goals may be identical for all Participants or, at the
         discretion of the Committee, may be different to reflect more
         appropriate measures of individual performance.

                  (b) The Performance Goals relating to Covered Participants for
         a Performance Period shall be established by the Committee in writing.
         Performance Goals may include alternative and multiple Performance
         Goals and may be based on one or more business and/or financial
         criteria. In establishing the Performance Goals for the Performance
         Period, the Committee in its discretion may include one or any
         combination of the following criteria in either absolute or relative
         terms, for the Company or any Subsidiary:

                           (i) Total shareholder return;

                           (ii) Return on assets, equity, capital, or
                  investment;

                           (iii) Pre-tax or after-tax profit levels, including:
                  earnings per share; earnings before interest and taxes;
                  earnings before interest, taxes, depreciation and
                  amortization; net operating profits after tax, and net income;


                                       20
<PAGE>
                           (iv) Cash flow and cash flow return on investment;

                           (v) Economic value added and economic profit;

                           (vi) Growth in earnings per share;

                           (vii) Levels of operating expense or other expense
                  items as reported on the income statement, including operating
                  and maintenance expense; or

                           (viii) Measures of customer satisfaction and customer
                  service as surveyed from time to time, including the relative
                  improvement therein.

                  (c) The Performance Goals must be objective and must satisfy
         third party "objectivity" standards under Section 162(m) of the Code,
         and the regulations promulgated thereunder.

                  (d) The Committee is authorized to make adjustments in the
         method of calculating attainment of Performance Goals in recognition
         of: (i) extraordinary or non-recurring items, (ii) changes in tax laws,
         (iii) changes in generally accepted accounting principles or changes in
         accounting principles, (iv) charges related to restructured or
         discontinued operations, (v) restatement of prior period financial
         results, and (vi) any other unusual, non-recurring gain or loss that is
         separately identified and quantified in the Company's financial
         statements. Notwithstanding the foregoing, the Committee may, at its
         sole discretion, reduce the performance results upon which Awards are
         based under the Plan, to offset any unintended result(s) arising from
         events not anticipated when the Performance Goals were established,
         provided that such adjustment is permitted by Section 162(m) of the
         Code.

                  (e) The Performance Goals shall not allow for any discretion
         by the Committee as to an increase in any Award, but discretion to
         lower an Award is permissible.

                  (f) The Award and payment of any Award under this Plan to a
         Covered Participant with respect to a relevant Performance Period shall
         be contingent upon the attainment of the Performance Goals that are
         applicable to such Covered Participant. The Committee shall certify in
         writing prior to payment of any such Award that such applicable
         Performance


                                       21
<PAGE>

         Goals relating to the Award are satisfied. Approved minutes of the
         Committee may be used for this purpose.

                  (g) The maximum Award that may be paid to any Covered
         Participant under the Plan pursuant to Sections 6.4, 6.7, 6.8 and 6.9
         for any Performance Period shall be (i) if in cash, One Million Dollars
         ($1,000,000.00) and (ii) if in shares of Common Stock, five hundred
         thousand (500,000) shares.

                  (h) All Awards to Covered Participants under this Plan shall
         be further subject to such other conditions, restrictions, and
         requirements as the Committee may determine to be necessary to carry
         out the purpose of this Section 11.


                                   ARTICLE 12

                           AMENDMENT OR DISCONTINUANCE

         Subject to the limitations set forth in this Article 12, the Board may
at any time and from time to time, without the consent of the Participants,
alter, amend, revise, suspend, or discontinue the Plan in whole or in part;
provided, however, that no amendment which requires stockholder approval in
order for the Plan and Incentives awarded under the Plan to continue to comply
with Section 162(m) of the Code, including any successors to such Section, shall
be effective unless such amendment shall be approved by the requisite vote of
the stockholders of the Company entitled to vote thereon. Any such amendment
shall, to the extent deemed necessary or advisable by the Committee, be
applicable to any outstanding Incentives theretofore granted under the Plan,
notwithstanding any contrary provisions contained in any Award Agreement. In the
event of any such amendment to the Plan, the holder of any Incentive outstanding
under the Plan shall, upon request of the Committee and as a condition to the
exercisability thereof, execute a conforming amendment in the form prescribed by
the Committee to any Award Agreement relating thereto. Notwithstanding anything
contained in this Plan to the contrary, unless required by law, no action
contemplated or permitted by this Article 12 shall adversely affect any rights
of Participants or obligations of the Company to Participants with respect to
any Incentive theretofore granted under the Plan without the consent of the
affected Participant.


                                       22
<PAGE>
                                   ARTICLE 13

                                      TERM

         The Plan shall be effective as set forth in Section 18.11. Unless
sooner terminated by action of the Board, the Plan will terminate on October 1,
2008, but Incentives granted before that date will continue to be effective in
accordance with their terms and conditions.

                                   ARTICLE 14

                               CAPITAL ADJUSTMENTS

         If at any time while the Plan is in effect, or Incentives are
outstanding, there shall be any increase or decrease in the number of issued and
outstanding shares of Common Stock resulting from (1) the declaration or payment
of a stock dividend, (2) any recapitalization resulting in a stock split-up,
combination, or exchange of shares of Common Stock, or (3) other increase or
decrease in such shares of Common Stock effected without receipt of
consideration by the Company, then and in such event:

                  (a) An appropriate adjustment shall be made in the maximum
         number of shares of Common Stock then subject to being awarded under
         the Plan and in the maximum number of shares of Common Stock that may
         be awarded to a Participant to the end that the same proportion of the
         Company's issued and outstanding shares of Common Stock shall continue
         to be subject to being so awarded.

                  (b) Appropriate adjustments shall be made in the number of
         shares of Common Stock and the Option Price thereof then subject to
         purchase pursuant to each such Stock Option previously granted and
         unexercised, to the end that the same proportion of the Company's
         issued and outstanding shares of Common Stock in each such instance
         shall remain subject to purchase at the same aggregate Option Price.

                  (c) Appropriate adjustments shall be made in the number of
         SARs and the SAR Price thereof then subject to exercise pursuant to
         each such SAR previously granted and unexercised, to the end that the
         same proportion of the Company's issued and outstanding shares of
         Common Stock in each instance shall remain subject to exercise at the
         same aggregate SAR Price.


                                       23
<PAGE>
                  (d) Appropriate adjustments shall be made in the number of
         outstanding shares of Restricted Stock with respect to which
         restrictions have not yet lapsed prior to any such change.

                  (e) Appropriate adjustments shall be made with respect to
         shares of Common Stock applicable to any other Incentives previously
         awarded under the Plan as the Committee, in its sole discretion, deems
         appropriate, consistent with the event.

         Except as otherwise expressly provided herein, the issuance by the
Company of shares of its capital stock of any class, or securities convertible
into shares of capital stock of any class, either in connection with direct sale
or upon the exercise of rights or warrants to subscribe therefor, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to (i) the number of or Option Price of shares of Common
Stock then subject to outstanding Stock Options granted under the Plan, (ii) the
number of or SAR Price or SARs then subject to outstanding SARs granted under
the Plan, (iii) the number of outstanding shares of Restricted Stock, or (iv)
the number of shares of Common Stock otherwise payable under any other
Incentive.


         Upon the occurrence of each event requiring an adjustment with respect
to any Incentive, the Company shall mail to each affected Participant its
computation of such adjustment which shall be conclusive and shall be binding
upon each such Participant.


                                   ARTICLE 15

                          RECAPITALIZATION, MERGER AND
                        CONSOLIDATION; CHANGE IN CONTROL

                  (a) The existence of this Plan and Incentives granted
         hereunder shall not affect in any way the right or power of the Company
         or its stockholders to make or authorize any or all adjustments,
         recapitalizations, reorganizations, or other changes in the Company's
         capital structure and its business, or any merger or consolidation of
         the Company, or any issue of bonds, debentures, preferred or preference
         stocks ranking prior to or otherwise affecting the Common Stock or the
         rights thereof (or any rights, options, or warrants to purchase same),
         or the dissolution or liquidation of the Company, or any sale or
         transfer of all or any part of its assets or business, or any other
         corporate act or proceeding, whether of a similar character or
         otherwise.


                                       24
<PAGE>
                  (b) Subject to any required action by the stockholders, if the
         Company shall be the surviving or resulting corporation in any merger,
         consolidation or share exchange, any Incentive granted hereunder shall
         pertain to and apply to the securities or rights (including cash,
         property, or assets) to which a holder of the number of shares of
         Common Stock subject to the Incentive would have been entitled.

                  (c) In the event of any merger, consolidation or share
         exchange pursuant to which the Company is not the surviving or
         resulting corporation, there shall be substituted for each share of
         Common Stock subject to the unexercised portions of such outstanding
         Incentives, that number of shares of each class of stock or other
         securities or that amount of cash, property, or assets of the
         surviving, resulting or consolidated company which were distributed or
         distributable to the stockholders of the Company in respect to each
         share of Common Stock held by them, such outstanding Incentives to be
         thereafter exercisable for such stock, securities, cash, or property in
         accordance with their terms. Notwithstanding the foregoing, however,
         all Stock Options and SARs may be canceled by the Company immediately
         prior to the effective date of any such reorganization, merger,
         consolidation, share exchange or any dissolution or liquidation of the
         Company by giving notice to each holder thereof or his personal
         representative of its intention to do so and by permitting the purchase
         during the thirty (30) day period next preceding such effective date of
         all or any portion of all of the shares of Common Stock subject to such
         outstanding Incentives whether or not such Incentives are then vested
         or exercisable.

                  (d) In the event of a Change in Control, notwithstanding any
         other provision in this Plan to the contrary all unmatured installments
         of Incentives outstanding and not otherwise canceled in accordance with
         Section 15(c) above, shall thereupon automatically be accelerated and
         exercisable in full and all Restriction Periods applicable to Awards of
         Restricted Stock and/or Restricted Stock Units shall automatically
         expire. The determination of the Committee that any of the foregoing
         conditions has been met shall be binding and conclusive on all parties.


                                       25
<PAGE>
                                   ARTICLE 16

                           LIQUIDATION OR DISSOLUTION

         In case the Company shall, at any time while any Incentive under this
Plan shall be in force and remain unexpired, (i) sell all or substantially all
of its property, or (ii) dissolve, liquidate, or wind up its affairs, then each
Participant shall be thereafter entitled to receive, in lieu of each share of
Common Stock of the Company which such Participant would have been entitled to
receive under the Incentive, the same kind and amount of any securities or
assets as may be issuable, distributable, or payable upon any such sale,
dissolution, liquidation, or winding up with respect to each share of Common
Stock of the Company. If the Company shall, at any time prior to the expiration
of any Incentive, make any partial distribution of its assets, in the nature of
a partial liquidation, whether payable in cash or in kind (but excluding the
distribution of a cash dividend payable out of earned surplus and designated as
such) then in such event the Option Prices or SAR Prices then in effect with
respect to each Stock Option or SAR shall be reduced, on the payment date of
such distribution, in proportion to the percentage reduction in the tangible
book value of the shares of the Company's Common Stock (determined in accordance
with generally accepted accounting principles) resulting by reason of such
distribution.


                                   ARTICLE 17

                         INCENTIVES IN SUBSTITUTION FOR
                    INCENTIVES GRANTED BY OTHER CORPORATIONS

         Incentives may be granted under the Plan from time to time in
substitution for similar instruments held by employees of a corporation who
become or are about to become Employees of the Company or any Subsidiary as a
result of a merger or consolidation of the employing corporation with the
Company or the acquisition by the Company of stock of the employing corporation.
The terms and conditions of the substitute Incentives so granted may vary from
the terms and conditions set forth in this Plan to such extent as the Board at
the time of grant may deem appropriate to conform, in whole or in part, to the
provisions of the Incentives in substitution for which they are granted.


                                       26
<PAGE>
                                   ARTICLE 18

                            MISCELLANEOUS PROVISIONS

         18.1 INVESTMENT INTENT. The Company may require that there be presented
to and filed with it by any Participant under the Plan, such evidence as it may
deem necessary to establish that the Incentives granted or the shares of Common
Stock to be purchased or transferred are being acquired for investment and not
with a view to their distribution.

         18.2 NO RIGHT TO CONTINUED EMPLOYMENT. Neither the Plan nor any
Incentive granted under the Plan shall confer upon any Participant any right
with respect to continuance of employment by the Company or any Subsidiary.

         18.3 INDEMNIFICATION OF BOARD AND COMMITTEE. No member of the Board or
the Committee, nor any officer or employee of the Company acting on behalf of
the Board or the Committee, shall be personally liable for any action,
determination, or interpretation taken or made in good faith with respect to the
Plan, and all members of the Board or the Committee and each and any officer or
employee of the Company acting on their behalf shall, to the extent permitted by
law, be fully indemnified and protected by the Company in respect of any such
action, determination, or interpretation.

         18.4 EFFECT OF THE PLAN. Neither the adoption of this Plan nor any
action of the Board or the Committee shall be deemed to give any person any
right to be granted an Award or any other rights except as may be evidenced by
an Award Agreement, or any amendment thereto, duly authorized by the Committee
and executed on behalf of the Company, and then only to the extent and upon the
terms and conditions expressly set forth therein.

         18.5 COMPLIANCE WITH OTHER LAWS AND REGULATIONS. Notwithstanding
anything contained herein to the contrary, the Company shall not be required to
sell or issue shares of Common Stock under any Incentive if the issuance thereof
would constitute a violation by the Participant or the Company of any provisions
of any law or regulation of any governmental authority or any national
securities exchange or inter-dealer quotation system or other forum in which
shares of Common Stock are quoted or traded (including without limitation
Section 16 of the 1934 Act and Section 162(m) of the Code); and, as a condition
of any sale or issuance of shares of Common Stock under an Incentive, the
Committee may require such agreements or undertakings, if any, as the Committee
may deem necessary or advisable to assure compliance with any such law or
regulation. The Plan, the grant and exercise of Incentives hereunder, and the
obligation of the Company to sell and deliver shares of Common Stock, shall be
subject to all applicable federal and


                                       27
<PAGE>
state laws, rules and regulations and to such approvals by any government or
regulatory agency as may be required.

         18.6 TAX REQUIREMENTS. The Company shall have the right to deduct from
all amounts hereunder paid in cash or other form, any Federal, state, or local
taxes required by law to be withheld with respect to such payments. The
Participant receiving shares of Common Stock issued under the Plan shall be
required to pay the Company the amount of any taxes which the Company is
required to withhold with respect to such shares of Common Stock.
Notwithstanding the foregoing, in the event of an assignment of a Non-qualified
Stock Option or SAR pursuant to Section 18.7, the Participant who assigns the
Non-qualified Stock Option or SAR shall remain subject to withholding taxes upon
exercise of the Non-qualified Stock Option or SAR by the transferee to the
extent required by the Code or the rules and regulations promulgated thereunder.
Such payments shall be required to be made prior to the delivery of any
certificate representing such shares of Common Stock. Such payment may be made
in cash, by check, or through the delivery of shares of Common Stock owned by
the Participant (which may be effected by the actual delivery of shares of
Common Stock by the Participant or by the Company's withholding a number of
shares to be issued upon the exercise of a Stock Option, if applicable), which
shares have an aggregate Fair Market Value equal to the required minimum
withholding payment, or any combination thereof.

         18.7 ASSIGNABILITY. Incentive Stock Options may not be transferred or
assigned other than by will or the laws of descent and distribution and may be
exercised during the lifetime of the Participant only by the Participant or the
Participant's legally authorized representative, and each Award Agreement in
respect of an Incentive Stock Option shall so provide. The designation by a
Participant of a beneficiary will not constitute a transfer of the Stock Option.
The Committee may waive or modify any limitation contained in the preceding
sentences of this Section 18.7 that is not required for compliance with Section
422 of the Code. The Committee may, in its discretion, authorize all or a
portion of a Non-qualified Stock Option or SAR to be granted to a Participant to
be on terms which permit transfer by such Participant to (i) the spouse,
children or grandchildren of the Participant ("Immediate Family Members"), (ii)
a trust or trusts for the exclusive benefit of such Immediate Family Members, or
(iii) a partnership in which such Immediate Family Members are the only
partners, (iv) an entity exempt from federal income tax pursuant to Section
501(c)(3) of the Code or any successor provision, or (v) a split interest trust
or pooled income fund described in Section 2522(c)(2) of the Code or any
successor provision, provided that (x) there shall be no consideration for any
such transfer, (y) the Award Agreement pursuant to which such Non-qualified
Stock Option or SAR is granted must be approved by the Committee and must
expressly provide for transferability in a manner consistent with this Section,
and (z) subsequent transfers of transferred Non-qualified Stock Options or


                                       28
<PAGE>
SARs shall be prohibited except those by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
the Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended. Following transfer, any such Non-qualified Stock Option and SAR shall
continue to be subject to the same terms and conditions as were applicable
immediately prior to transfer, provided that for purposes of Articles 10, 12,
14, 16 and 18 hereof the term "Participant" shall be deemed to include the
transferee. The events of Termination of Service shall continue to be applied
with respect to the original Participant, following which the Non-qualified
Stock Options and SARs shall be exercisable by the transferee only to the extent
and for the periods specified in the Award Agreement. The Committee and the
Company shall have no obligation to inform any transferee of a Non-qualified
Stock Option or SAR of any expiration, termination, lapse or acceleration of
such Option. The Company shall have no obligation to register with any federal
or state securities commission or agency any Common Stock issuable or issued
under a Non-qualified Stock Option or SAR that has been transferred by a
Participant under this Section 18.7.

         18.8 USE OF PROCEEDS. Proceeds from the sale of shares of Common Stock
pursuant to Incentives granted under this Plan shall constitute general funds of
the Company.

         18.9 GOVERNING LAW. The validity, construction and effect of the Plan
and any actions taken or relating to the Plan shall be determined in accordance
with the laws of the State of Texas and applicable Federal law.

         18.10 SUCCESSORS AND ASSIGNS. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, expressly
to assume and agree to perform the Company's obligation under this Plan in the
same manner and to the same extent that the Company would be required to perform
them if no such succession had taken place. As used herein, the "Company" shall
mean the Company as hereinbefore defined and any aforesaid successor to its
business and/or assets.

         18.11 EFFECTIVE DATE. The Plan shall be effective as of October 1,
1998. Subject to earlier termination pursuant to Article 12, the Plan shall have
a term of ten (10) years from its effective date. After termination of the Plan,
no future Awards may be made.

         18.12 LEGEND. Each certificate representing shares of Restricted Stock
issued to a Participant shall bear the following legend, or a similar legend
deemed by the Company to constitute an appropriate notice of the provisions
hereof (any such certificate not having such legend shall be surrendered upon
demand by the Company and so endorsed):


                                       29
<PAGE>
         On the face of the certificate:

                  "Transfer of this stock is restricted in accordance with
                  conditions printed on the reverse of this certificate."

         On the reverse:

                  "The shares of stock evidenced by this certificate are subject
                  to and transferrable only in accordance with that certain
                  Atmos Energy Corporation 1998 Long-Term Incentive Plan, a copy
                  of which is on file at the principal office of the Company in
                  Dallas, Texas. No transfer or pledge of the shares evidenced
                  hereby may be made except in accordance with and subject to
                  the provisions of said Plan. By acceptance of this
                  certificate, any holder, transferee or pledgee hereof agrees
                  to be bound by all of the provisions of said Plan."

         The following legend shall be inserted on a certificate evidencing
Common Stock issued under the Plan if the shares were not issued in a
transaction registered under the applicable federal and state securities laws:

                  "Shares of stock represented by this certificate have been
                  acquired by the holder for investment and not for resale,
                  transfer or distribution, have been issued pursuant to
                  exemptions from the registration requirements of applicable
                  state and federal securities laws, and may not be offered for
                  sale, sold or transferred other than pursuant to effective
                  registration under such laws, or in transactions otherwise in
                  compliance with such laws, and upon evidence satisfactory to
                  the Company of compliance with such laws, as to which the
                  Company may rely upon an opinion of counsel satisfactory to
                  the Company."

         A copy of this Plan shall be kept on file in the principal office of
the Company in Dallas, Texas.


                               * * * * * * * * * *


                                       30
<PAGE>
         IN WITNESS WHEREOF, the Company has caused this instrument to be
executed as of February 14, 2002.



                                        ATMOS ENERGY CORPORATION



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



Attest:


/s/ SHIRLEY A. HINES
- --------------------
Shirley A. Hines
Corporate Secretary


                                       31






</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>4
<FILENAME>d96933ex10-2.txt
<DESCRIPTION>ANNUAL INCENTIVE PLAN FOR MANAGEMENT
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.2


                            ATMOS ENERGY CORPORATION
                      ANNUAL INCENTIVE PLAN FOR MANAGEMENT
                   (AS AMENDED AND RESTATED FEBRUARY 14, 2002)

         The Atmos Energy Corporation Annual Incentive Plan for Management
(hereinafter called the "Plan") was adopted by the Board of Directors of Atmos
Energy Corporation, a Texas and Virginia corporation (hereinafter called the
"Company"), on August 12, 1998 to be effective October 1, 1998 and was approved
by the Company's shareholders on February 10, 1999. An amendment to the Plan was
approved by the Board of Directors on August 8, 2001, which amendment was
approved by the Company's shareholders on February 13, 2002.

                                    ARTICLE 1

                                     PURPOSE

         The Plan is intended to provide the Company a means by which it can
engender and sustain a sense of personal commitment on the part of its
executives and senior managers in the continued growth, development, and
financial success of the Company and encourage them to remain with and devote
their best efforts to the business of the Company, thereby advancing the
interests of the Company and its shareholders. Accordingly, the Company may
award to executives and senior managers annual incentive compensation on the
terms and conditions established herein.

                                    ARTICLE 2

                                   DEFINITIONS

         For the purposes of the Plan, unless the context requires otherwise,
the following terms shall have the meanings indicated:

         2.1 "Annual Incentive Award" or "Award" means the compensation payable
under this Plan to a Participant by the Committee pursuant to such terms,
conditions, restrictions, and limitations established by the Committee and Plan.

         2.2 "Board" means the Board of Directors of the Company.

         2.3 "Bonus Stock" or "Bonus Shares" means shares of Common Stock of the
Company awarded to a Participant as permitted and pursuant to the terms of the
Long Term Incentive Plan.

         2.4 (a) "Change in Control" of the Company shall be deemed to have
occurred if:

                  (i) Any "Person" (as defined in Section 2.4(b)(i) below),
         other than (1) the Company or any of its Subsidiaries, (2) a trustee or
         other fiduciary holding securities under an employee benefit plan of
         the Company or any of its Affiliates, (3) an underwriter temporarily
         holding securities pursuant to an offering of such securities, or (4) a
         corporation owned, directly or indirectly, by


<PAGE>

         the shareholders of the Company in substantially the same proportions
         as their ownership of stock of the Company, is or becomes the
         "beneficial owner" (as defined in Section 2.4(b)(ii) below), directly
         or indirectly, of securities of the Company (not including in the
         securities beneficially owned by such person any securities acquired
         directly from the Company or its Affiliates) representing 33-1/3% or
         more of the combined voting power of the Company's then outstanding
         securities, or 33-1/3% or more of the then outstanding common stock of
         the Company, excluding any Person who becomes such a beneficial owner
         in connection with a transaction described in subparagraph (iii)(A)
         below.

                  (ii) During any period of two consecutive years (the
         "Period"), individuals who at the beginning of the Period constitute
         the Board of Directors of the Company and any "new director" (as
         defined in Section 2.4(b)(iii) below) cease for any reason to
         constitute a majority of the Board of Directors.

                  (iii) There is consummated a merger or consolidation of the
         Company or any direct or indirect subsidiary of the Company with any
         other corporation, except if:

                           (A) the merger or consolidation would result in the
                  voting securities of the Company outstanding immediately prior
                  thereto continuing to represent (either by remaining
                  outstanding or by being converted into voting securities of
                  the surviving entity or any parent thereof) at least sixty
                  percent (60%) of the combined voting power of the voting
                  securities of the Company or such surviving entity or any
                  parent thereof outstanding immediately after such merger or
                  consolidation; or

                           (B) the merger or consolidation is effected to
                  implement a recapitalization of the Company (or similar
                  transaction) in which no Person is or becomes the beneficial
                  owner, directly, or indirectly, of securities of the Company
                  (not including in the securities beneficially owned by such
                  Person any securities acquired directly from the Company or
                  its Affiliates other than in connection with the acquisition
                  by the Company or its Affiliates of a business) representing
                  60% or more of the combined voting power of the Company's then
                  outstanding securities;

                  (iv) The shareholders of the Company approve a plan of
         complete liquidation or dissolution of the Company or an agreement for
         the sale or disposition by the Company of all or substantially all the
         Company's assets, other than a sale or disposition by the Company of
         all or substantially all of the Company's assets to an entity, at least
         60% of the combined voting power of the voting securities of which are
         owned by the stockholders of the Company in substantially the same
         proportions as their ownership of the Company immediately prior to such
         sale.

         (b) Definitions. For purposes of Section 2.4(a) above,

                  (i) "Person" shall have the meaning given in Section 3(a)(9)
         of the Securities Exchange Act of 1934 (the "1934 Act") as modified and
         used in Sections 13(d) and 14(d) of the 1934 Act.


                                       2
<PAGE>
                  (ii) "Beneficial owner" shall have the meaning provided in
         Rule 13d-3 under the 1934 Act.

                  (iii) "New director" shall mean an individual whose election
         by the Company's Board of Directors or nomination for election by the
         Company's shareholders was approved by a vote of at least two-thirds
         (2/3) of the directors then still in office who either were directors
         at the beginning of the Period or whose election or nomination for
         election was previously so approved or recommended. However, "new
         director" shall not include a director whose initial assumption of
         office is in connection with an actual or threatened election contest,
         including but not limited to a consent solicitation relating to the
         election of directors of the Company.

                  (iv) "Affiliate" shall have the meaning set forth in Rule
         12b-2 promulgated under Section 12 of the 1934 Act.

         2.5 "Code" means the Internal Revenue Code of 1986, as amended,
together with the published rulings, regulations, and interpretations duly
promulgated thereunder.

         2.6 "Committee" means the committee appointed or designated by the
Board to administer the Plan in accordance with Article 3 of this Plan.

         2.7 "Common Stock" or "Common Shares" means the Common Stock of the
Company, with no par value (stated value of $.005 per share), or such other
security or right or instrument into which such common stock may be changed or
converted in the future.

         2.8 "Company" means Atmos Energy Corporation, a Texas and Virginia
corporation, and any successor entity.

         2.9 "Covered Participant" means a Participant who is a "covered
employee" as defined in Section 162(m)(3) of the Code, and the regulations
promulgated thereunder, or who the Committee believes will be such a covered
employee for a Performance Period, and who the Committee believes may have
remuneration in excess of $1,000,000 for the Performance Period, as provided in
Section 162(m) of the Code.

         2.10 "Date of Conversion" means the date on which the Committee
determines and approves Awards; this is also the effective Date of Conversion
for Restricted Stock or Restricted Shares, and for Stock Options.

         2.11 "Employee" means common law employee (as defined in accordance
with the Regulations and Revenue Rulings then applicable under Section 3401(c)
of the Code) of the Company and any Subsidiary of the Company.

         2.12 "Executive Nonqualified Deferred Compensation Plan" is the Atmos
Energy Corporation Executive Nonqualified Deferred Compensation Plan, as amended
from time to time.

         2.13 "Fair Market Value" of a share of Common Stock is the mean of the
highest and lowest prices per share on the New York Stock Exchange Consolidated
Tape, or such reporting service as the Board may select, on the appropriate
date, or in the absence of reported sales on such day, the most recent previous
day for which sales were reported.


                                       3
<PAGE>
         2.14 "Long-Term Incentive Plan" is the Atmos Energy Corporation 1998
Long-Term Incentive Compensation Plan, as amended from time to time.

         2.15 "Participant" means an Employee who is selected by the Committee
to participate in the Plan.

         2.16 "Performance Criteria" or "Performance Goals" or "Performance
Measures" mean the objectives established by the Committee for the Performance
Period pursuant to Article V hereof, for the purpose of determining Awards under
the Plan.

         2.17 "Performance Period" means the consecutive 12 month period that
constitutes the Company's fiscal year.

         2.18 "Plan" means the Atmos Energy Corporation Annual Incentive Plan
for Management, dated effective October 1, 1998, as amended from time to time.

         2.19 "Restricted Stock" or "Restricted Shares" means shares of Common
Stock of the Company contingently granted to a Participant as permitted and
pursuant to the terms and provisions of the Long-Term Incentive Plan.

         2.20 "Section 162(m)" means Section 162(m) of the Code and the
regulations promulgated thereunder.

         2.21 "Stock Option" or "Option" means an option to purchase Common
Shares of the Company as permitted and pursuant to the terms and provisions of
the Long-Term Incentive Plan.

         2.22 "Subsidiary" means (i) any corporation in an unbroken chain of
corporations beginning with the Company, if each of the corporations other than
the last corporation in the unbroken chain owns stock possessing a majority of
the total combined voting power of all classes of stock in one of the other
corporations in the chain, (ii) any limited partnership, if the Company or any
corporation described in item (i) above owns a majority of the general
partnership interest and a majority of the limited partnership interests
entitled to vote on the removal and replacement of the general partner, and
(iii) any partnership or limited liability company, if the partners or members
thereof are composed only of the Company, any corporation listed in item (i)
above or any limited partnership listed in item (ii) above. "Subsidiaries" means
more than one of any such corporations, limited partnerships, partnerships or
limited liability companies.

         2.23 "Termination of Service" occurs when a Participant who is an
Employee of the Company or any Subsidiary shall cease to serve as an Employee of
the Company and its Subsidiaries, for any reason.

                                    ARTICLE 3

                                 ADMINISTRATION

           The Plan shall be administered by the Human Resources Committee of
the Board unless otherwise determined by the Board. If said Human Resources
Committee does not so serve, the Committee shall consist of not fewer than two
persons; any member of the Committee may be removed at any time, with or without
cause, by resolution of the Board; and any vacancy occurring in the membership
of the Committee may be filled by appointment by the Board.


                                       4
<PAGE>
         All actions to be taken by the Committee under this Plan, insofar as
such actions affect compliance with Section 162(m) of the Code, shall be limited
to those members of the Board who are Non-employee Directors and who are
"outside directors" under Section 162(m). The Committee shall select one of its
members to act as its Chairman. A majority of the Committee shall constitute a
quorum, and the act of a majority of the members of the Committee present at a
meeting at which a quorum is present shall be the act of the Committee.

         The Committee shall determine and designate from time to time the
eligible persons to whom Awards will be made. The Committee, in its discretion,
shall (i) interpret the Plan, (ii) prescribe, amend, and rescind any rules and
regulations necessary or appropriate for the administration of the Plan, and
(iii) make such other determinations and take such other action as it deems
necessary or advisable in the administration of the Plan. Any interpretation,
determination, or other action made or taken by the Committee shall be final,
binding, and conclusive on all interested parties.

         With respect to restrictions in the Plan that are based on the
requirements of Section 162(m) of the Code or any other applicable law, rule or
restriction (collectively, "applicable law"), to the extent that any such
restrictions are no longer required by applicable law, the Committee shall have
the sole discretion and authority to make Awards hereunder that are no longer
subject to such restrictions.

                                    ARTICLE 4

                                   ELIGIBILITY

         Any Employee (including an Employee who is also a director or an
officer) is eligible to participate in the Plan. The Committee, upon its own
action, may make, but shall not be required to make, an Award to any Employee.
Awards may be made by the Committee at any time and from time to time to new
Participants, or to then Participants, or to a greater or lesser number of
Participants, and may include or exclude previous Participants, as the Committee
shall determine. The Committee's determinations under the Plan (including
without limitation determinations of which Employees, if any, are to receive
Awards, the form, amount and timing of such Awards, the terms and provisions of
such Awards, and the agreements evidencing same) may be made by the Committee
selectively among Employees who receive, or are eligible to receive, Awards
under the Plan. An Employee must be a Participant in the Plan for a minimum of
six months during the Plan Year to be eligible for an Award for that Plan Year.

                                    ARTICLE 5

                        PERFORMANCE GOALS AND MEASUREMENT

         5.1 Performance Goals Establishment. Performance Goals shall be
established by the Committee not later than 90 days after commencement of the
Performance Period. The Performance Goals may be identical for all Participants
or, at the discretion of the Committee, may be different to reflect more
appropriate measures of individual performance.

         5.2 Awards. Awards shall be made annually in accordance with actual
performance compared to the Performance Goals previously established by the
Committee for the Performance Period.


                                       5
<PAGE>
         5.3 Performance Goals. Performance Goals relating to Covered
Participants for a Performance Period shall be established by the Committee in
writing. Performance Goals may include alternative and multiple Performance
Goals and may be based on one or more business and/or financial criteria. In
establishing the Performance Goals for the Plan Year, the Committee in its
discretion may include one or any combination of the following criteria in
either absolute or relative terms, for either the Company or any of its
Subsidiary organizations:

                  (a) Total shareholder return

                  (b) Return on assets, equity, capital, or investment

                  (c) Pre-tax or after-tax profit levels, including: earnings
                      per share; earnings before interest and taxes; earnings
                      before interest, taxes, depreciation and amortization;
                      net operating profits after tax, and net income

                  (d) Cash flow and cash flow return on investment

                  (e) Economic value added and economic profit

                  (f) Growth in earnings per share

                  (g) Levels of operating expense or other expense items as
                      reported on the income statement, including operating and
                      maintenance expense

                  (h) Measures of customer satisfaction and customer service as
                      surveyed from time to time, including the relative
                      improvement therein.

         5.4 Adjustments for Extraordinary Items. The Committee shall be
authorized to make adjustments in the method of calculating attainment of
Performance Goals in recognition of: (i) extraordinary or non-recurring items,
(ii) changes in tax laws, (iii) changes in generally accepted accounting
principles or changes in accounting policies, (iv) charges related to
restructured or discontinued operations, (v) restatement of prior period
financial results, and (vi) any other unusual, non-recurring gain or loss that
is separately identified and quantified in the Company's financial statements.
Notwithstanding the foregoing, the Committee may, at its sole discretion, reduce
the performance results upon which Awards are based under the Plan, to offset
any unintended result(s) arising from events not anticipated when the
Performance Goals were established, provided that such adjustment is permitted
by Section 162(m).

         5.5 Determination of Awards. The Award and payment of any Award under
this Plan to a Covered Participant with respect to the Performance Period shall
be contingent upon the attainment of the Performance Goals that are applicable
to such Covered Participant. The Committee shall certify in writing prior to
payment of any such Award that such applicable Performance Goals relating to the
Award are satisfied. Approved minutes of the Committee may be used for this
purpose. The Performance Goals shall not allow for any discretion by the
Committee as to an increase in any Award, but discretion to lower an Award is
permissible.

                                    ARTICLE 6

                                     AWARDS

         6.1 Timing of Awards. At the first meeting of the Committee after the
completion of the Performance Period, the Committee shall review the prior
year's performance in relation to the Performance Goals. The first meeting of
the Committee shall occur within 60 days following the completion of the
Performance Period.

         6.2 Form of Awards. Awards are paid in cash or, at the Committee's
discretion, in whole or in part, in stock options. The value of any stock
options paid in lieu of a cash Award will be determined as set forth in Section
6.2(d) below. Such stock options will be granted


                                       6
<PAGE>

pursuant to the Long-Term Incentive Plan. In addition, if and as the Committee
so permits and depending upon the Participant's voluntary election prior to the
commencement of the Performance Period, the Participant may elect to convert any
Award paid to him in cash in 25 percent increments, in whole or part, into the
following forms:

                  (a) Deferred Compensation. The Participant may elect to defer
         receipt of all or a portion of the Award under provisions of the
         Executive Nonqualified Deferred Compensation Plan.

                  (b) Bonus Stock. The Participant may elect to convert all or a
         portion of the Award to Bonus Shares, with the value of the Bonus
         Shares (based on the Fair Market Value of such Bonus Shares as of the
         Date of Conversion) being equal to 110% of the amount of the Award.
         Such Bonus Shares shall be unrestricted and shall be granted pursuant
         to the Long-Term Incentive Plan.

                  (c) Restricted Stock Awards. The Participant may elect to
         convert all or a portion of the Award to Company Restricted Shares,
         with the value of the Restricted Shares (based on the Fair Market Value
         of such Restricted Shares as of the Date of Conversion) being equal to
         150% of the amount of the Award. Such Restricted Stock will have a
         restriction period of not less than 3 years from the Date of
         Conversion. These Restricted Shares will be granted pursuant to the
         Long-Term Incentive Plan.

                  (d) Non Qualified Stock Options. The Participant may elect to
         convert all or a portion of the Award to Stock Options, with the value
         of the Stock Options (determined on the Date of Conversion using the
         Black-Scholes option pricing model) being equal to 250% of the amount
         of the Award. The term of the Stock Option shall not be greater than 10
         years, and the Stock Option will not be fully vested until 3 years have
         passed from the Date of Conversion. All Stock Options shall be granted
         at 100 percent of the Common Stock's Fair Market Value on the Date of
         Conversion. These Stock Options will be granted pursuant to the
         Long-Term Incentive Plan.

         6.3 Maximum Awards. The maximum cash Award that may be made to a
Covered Participant under the Plan for any Performance Period shall be $1.0
million.

                                    ARTICLE 7

                                WITHHOLDING TAXES

         The Company shall have the right to deduct from any payment to be made
pursuant to the Plan the amount of any taxes required by law to be withheld with
respect to such payments.

                                    ARTICLE 8

                   NO RIGHT TO CONTINUED EMPLOYMENT OR AWARDS


         No Employee shall have any claim or right to be made an Award, and the
making of an Award shall not be construed as giving a Participant the right to
be retained in the employ of the Company or any of its Subsidiaries. Further,
the Company and its Subsidiaries expressly reserve the right at any time to
terminate the employment of any Participant free from any liability under the
Plan; except that a Participant, who meets or exceeds the Performance Goals for
the

                                       7
<PAGE>
Performance Period and was actively employed for the full term of the
Performance Period, will be eligible for an Award even though the Participant is
not an active employee of the Company at the time the Committee makes Awards
under the Plan.

                                    ARTICLE 9

                                CHANGE IN CONTROL

         Immediately upon a Change in Control, notwithstanding any other
provision of this Plan, all Awards for the Performance Period in which the
Change in Control occurs shall be deemed earned at the maximum Performance Goal
level, and the Company shall make a payment in cash to each Participant within
ten (10) days after the effective date of the Change in Control in the amount of
such maximum Award. The making of Awards under the Plan shall in no way affect
the right of the Company to adjust, reclassify, reorganize, or otherwise change
its capital or business structure, or to merge, consolidate, dissolve,
liquidate, sell or transfer all or any portion of its businesses or assets.

                                   ARTICLE 10

               AMENDMENT, MODIFICATION, SUSPENSION, OR TERMINATION

         Subject to the limitations set forth in the Article 10, the Board may
at any time and from time to time, without the consent of the Participants,
alter, amend, revise, suspend, or discontinue the Plan in whole or in part;
provided, however, that no amendment which requires stockholder approval in
order for the Plan and Awards under the Plan to continue to comply with Section
162(m) of the Code, including any successors to such Section, shall be effective
unless such amendment shall be approved by the requisite vote of the
stockholders of the Company entitled to vote thereon.

                                   ARTICLE 11

                                  GOVERNING LAW

         The validity, construction and effect of the Plan and any actions taken
or relating to the Plan shall be determined in accordance with the laws of the
State of Texas and applicable Federal law.

                                   ARTICLE 12

                             SUCCESSORS AND ASSIGNS

         The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, expressly to assume and agree to perform
the Company's obligation under this Plan in the same manner and to the same
extent that the Company would be required to perform them if no such succession
had taken place. As used herein, the "Company" shall mean the Company as
hereinbefore defined and any aforesaid successor to its business and/or assets.


                                       8
<PAGE>
                                   ARTICLE 13

                                 EFFECTIVE DATE

         This Plan shall be effective as of October 1, 1998. Subject to earlier
termination pursuant to Article 10, the Plan shall have a term of five years
from its effective date. As of August 8, 2001, the Board authorized extension of
the term of the Plan for an additional three year period, or until September 30,
2006, which extension was approved by the Company's shareholders on February 13,
2002. After termination of the Plan, no future Awards may be made.

                                   ARTICLE 14

                                 INTERPRETATION

         The Plan is designed to comply with Section 162(m) of the Code, and all
provisions hereof shall be construed in a manner consistent with that intent.

                                   ARTICLE 15

                                 INDEMNIFICATION

         No member of the Board or the Committee, nor any officer or Employee of
the Company acting on behalf of the Board or the Committee, shall be personally
liable for any action, determination, or interpretation taken or made in good
faith with respect to the Plan, and all members of the Board or the Committee
and each and any officer or Employee of the Company acting on their behalf
shall, to the extent permitted by law, be fully indemnified and protected by the
Company in respect of any such action, determination, or interpretation.


                                    * * * * *


         IN WITNESS WHEREOF, the Company has caused this instrument to be
executed as of February 14, 2002 by its President.


                                           ATMOS ENERGY CORPORATION



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

Attest:


/s/ SHIRLEY A. HINES
- --------------------
Shirley A. Hines
Secretary



                                       9

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>5
<FILENAME>d96933ex12.txt
<DESCRIPTION>COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TEXT>
<PAGE>
                                                                      EXHIBIT 12


                            Atmos Energy Corporation
                    Computation of Earnings to Fixed Charges
                                 March 31, 2002

<Table>
<Caption>
                                                                  Three Months Ended        Six Months Ended
                                                                       March 31                 March 31
                                                               ----------------------    ----------------------
                                                                  2002         2001         2002         2001
                                                               ---------    ---------    ---------    ---------
<S>                                                            <C>          <C>          <C>          <C>
Income from continuing operations before provision for
     income taxes per statement of income                      $  65,732    $  70,413    $  98,587    $ 106,761
Add:
     Portion of rents representative of the interest factor          983          922        1,884        1,470
     Interest on debt & amortization of debt expense              14,489        9,817       30,481       22,063
                                                               ---------    ---------    ---------    ---------
        Income as adjusted                                     $  81,204    $  81,152    $ 130,952    $ 130,294
                                                               =========    =========    =========    =========

Fixed charges:
     Interest on debt & amortization of debt expense (1)       $  14,489    $   9,817    $  30,481    $  22,063
     Capitalized interest (2)                                        331           --          703           --
     Rents                                                         2,948        2,766        5,653        4,410
     Portion of rents representative of the interest
        factor(3)                                                    983          922        1,884        1,470
                                                               ---------    ---------    ---------    ---------
        Fixed charges (1)+(2)+(3)                              $  15,803    $  10,739    $  33,068    $  23,533
                                                               =========    =========    =========    =========

Ratio of earnings to fixed charges                                  5.14         7.56         3.96         5.54
</Table>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-15
<SEQUENCE>6
<FILENAME>d96933ex15.txt
<DESCRIPTION>LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION
<TEXT>
<PAGE>
                                                                      EXHIBIT 15



Board of Directors
Atmos Energy Corporation


We are aware of the incorporation by reference in the Registration Statements
(Form S-3, No. 33-37869; Form S-3 D/A, No. 33-70212; Form S-3, No. 33-58220;
Form S-3, No. 33-56915; Form S-3/A, No. 333-03339; Form S-3/A, No. 333-32475;
Form S-3/A, No. 333-50477; Form S-3/A, No. 333-93705; Form S-3, No. 333-95525;
Form S-3, No. 333-75576; Form S-4, No. 333-13429; Form S-8, No. 33-68852; Form
S-8, No. 33-57687; Form S-8, No. 33-57695; Form S-8, No. 333-32343; Form S-8,
No. 333-46337; Form S-8, No. 333-73143; Form S-8, No. 333-73145; and Form S-8,
No. 333-63738) of Atmos Energy Corporation and in the related Prospectuses of
our report dated May 10, 2002, relating to the unaudited condensed consolidated
interim financial statements of Atmos Energy Corporation which are included in
its Form 10-Q for the quarter ended March 31, 2002.


                                                           ERNST & YOUNG LLP


Dallas, Texas
May 14, 2002


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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