Atmos Energy
ATO
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Atmos Energy Corporation, headquartered in Dallas, Texas, is an American natural-gas distributor.

Atmos Energy - 10-Q quarterly report FY


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


FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 1997

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.)

1800 Three Lincoln Centre
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 July 30, 1997.

Class Shares Outstanding
------------ ------------------
No Par Value 16,204,504
PART 1.  FINANCIAL INFORMATION
Item 1. Financial Statements
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share data)

June 30, September 30,
1997 1996
------------ ------------
ASSETS
Property, plant and equipment $722,742 $666,438
Less accum. depreciation and amort. 272,941 252,871
-------- --------
Net property, plant and equipment 449,801 413,567
Current assets
Cash and cash equivalents 2,140 3,726
Accounts receivable, net 44,367 25,284
Inventories 7,605 7,174
Gas stored underground 9,767 14,652
Prepayments 2,751 1,489
-------- --------
Total current assets 66,630 52,325
Deferred charges and other assets 37,470 35,969
-------- --------
$553,901 $501,861
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Shareholders' equity
Common stock outstanding:
16,192,897 shares at 6/30/97 and
16,021,321 shares at 9/30/96 $ 81 $ 80
Additional paid-in capital 115,268 111,206
Retained earnings 72,820 61,012
-------- --------
Total shareholders' equity 188,169 172,298
Long-term debt 157,303 122,303
-------- --------
Total capitalization 345,472 294,601
Current liabilities
Current maturities of long-term debt 8,000 9,000
Notes payable to banks 38,700 62,800
Accounts payable 41,715 31,640
Taxes payable 10,696 3,584
Customers' deposits 10,010 9,858
Other current liabilities 14,940 10,674
-------- --------
Total current liabilities 124,061 127,556
Deferred income taxes 42,523 39,056
Deferred credits and other liabilities 41,845 40,648
-------- --------
$553,901 $501,861
======== ========
See notes to condensed consolidated financial statements.



2
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)


Three months ended
June 30,
------------------
1997 1996
------- -------
Operating revenues $86,726 $93,571
Purchased gas cost 51,599 59,795
------- -------
Gross profit 35,127 33,776
Operating expenses
Operation 19,191 19,354
Maintenance 1,122 1,013
Depreciation and amortization 5,795 5,456
Taxes, other than income 4,022 3,742
Income taxes 292 152
------- -------
Total operating expenses 30,422 29,717
------- -------
Operating income 4,705 4,059

Other income (expense) (88) (303)

Interest charges 4,119 3,440
-------- -------
Net income $ 498 $ 316
======== =======
Net income per share $ .03 $ .02
======== =======
Cash dividends per share $ .25 $ .24
======== =======
Average shares outstanding 16,176 15,965
======== =======



See notes to condensed consolidated financial statements.


3
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)


Nine months ended
June 30,
--------------------
1997 1996
-------- --------
Operating revenues $444,226 $415,143
Purchased gas cost 290,061 265,248
-------- --------
Gross profit 154,165 149,895

Operating expenses
Operation 67,138 62,022
Maintenance 3,233 3,154
Depreciation and amortization 18,181 16,382
Taxes, other than income 15,252 13,446
Income taxes 14,050 15,715
--------- -------
Total operating expenses 117,854 110,719
--------- -------
Operating income 36,311 39,176

Other income (expense) (21) (288)

Interest charges 12,389 10,956
-------- --------
Net income $ 23,901 $ 27,932
======== ========
Net income per share $ 1.48 $ 1.76
======== ========
Cash dividends per share $ .75 $ .72
======== ========
Average shares outstanding 16,123 15,855
======== ========




See notes to condensed consolidated financial statements.



4
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)


Twelve months ended
June 30,
--------------------
1997 1996
-------- --------
Operating revenues $512,827 $491,136
Purchased gas cost 331,557 311,359
-------- --------
Gross profit 181,270 179,777

Operating expenses
Operation 87,923 82,334
Maintenance 4,291 4,206
Depreciation and amortization 22,648 21,623
Taxes, other than income 18,685 16,767
Income taxes 11,645 13,756
-------- --------
Total operating expenses 145,192 138,686
-------- --------
Operating income 36,078 41,091

Other income (expense) (29) (458)

Interest charges 16,131 14,331
-------- --------
Net income $ 19,918 $ 26,302
======== ========
Net income per share $ 1.24 $ 1.67
======== ========
Cash dividends per share $ .99 $ .95
======== ========
Average shares outstanding 16,093 15,767
======== ========



See notes to condensed consolidated financial statements.



5
ATMOS ENERGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)

Nine months ended
June 30,
-------------------
1997 1996
-------- --------
Cash Flows From Operating Activities
Net income $ 23,901 $ 27,932
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization
Charged to depreciation and
amortization 18,181 16,382
Charged to other accounts 2,872 2,705
Deferred income taxes 3,467 2,307
Other 306 219
Net change in operating assets and
liabilities 5,104 16,398
------- --------
Net cash provided by operating
activities 53,831 65,943


Cash Flows From Investing Activities
Capital expenditures (55,044) (57,874)
Retirements of property, plant and
equipment (2,243) 3,344
-------- --------
Net cash used in investing activities (57,287) (54,530)

Cash Flows From Financing Activities
Net increase (decrease) in notes
payable to banks (24,100) 2,600
Issuance of long-term debt 40,000 -
Cash dividends paid (12,093) (11,393)
Repayment of long-term debt (6,000) (7,000)
Issuance of common stock 4,063 4,239
-------- --------
Net cash provided (used)
in financing activities 1,870 (11,554)
-------- --------
Net decrease in cash and cash equivalents (1,586) (141)
Cash and cash equivalents at beginning
of period 3,726 2,294
-------- --------
Cash and cash equivalents at end
of period $ 2,140 $ 2,153
======== ========

See notes to condensed consolidated financial statements.


6
ATMOS ENERGY CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1997


1. Unaudited interim financial information


In the opinion of management, all material adjustments necessary
for a fair presentation have been made to the unaudited interim
period financial statements. Such adjustments consisted only of
normal recurring accruals. Because of seasonal and other
factors, the results of operations for the nine month period
ended June 30, 1997 are not indicative of expected results of
operations for the year ending September 30, 1997. 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 in the 1996 annual
report to shareholders of Atmos Energy Corporation ("Atmos" or
the "Company"). The condensed consolidated balance sheet of
Atmos, as of June 30, 1997, and the related condensed
consolidated statements of income for the three-month, nine-
month, and twelve-month periods ended June 30, 1997 and 1996, and
the condensed consolidated statements of cash flows for the nine-
month periods ended June 30, 1997 and 1996, included herein have
been subjected to a review by Ernst & Young LLP, the Company's
independent accountants, whose report is included herein.

Common stock - As of June 30, 1997, the Company had 75,000,000
shares of common stock, no par value (stated at $.005 per share),
authorized.

2. Business combination activity

Agreement to acquire United Cities Gas Company

In July 1996, the Company announced that it had reached a
definitive agreement with United Cities Gas Company ("United
Cities") of Brentwood, Tennessee, wherein United Cities will be
merged with and into Atmos by means of a tax-free reorganization.
The merger was approved by the shareholders of both United Cities
and Atmos in November 1996. The final regulatory approval was
received on June 25, 1997. It was followed by a 30-day period
during which any of the parties to the proceeding could have
sought rehearing. Effective July 31, 1997, each of the
approximately 13.3 million shares of United Cities common stock
was converted into the right to receive one share of Atmos common
stock. Pursuant to the agreement with United Cities, Atmos will
increase the indicated annual dividend to not less than $1.02 per
share, for no less than four quarters, at the first Board meeting
following the closing of the transaction, which Board meeting
will be on August 13, 1997. The transaction will be accounted
for by the pooling of interests method. Certain pro forma


7
combined financial statements are included herein as supplemental
information.

United Cities is a natural gas utility company engaged in the
distribution and sale of natural gas to approximately 316,000
customers in Tennessee, Illinois, Virginia, Kansas, Missouri,
South Carolina, Georgia, and Iowa, and in the sale of propane to
approximately 27,000 customers in Tennessee, Virginia and North
Carolina. United Cities' assets consist of the property, plant
and equipment used in its natural gas and propane sales and
distribution businesses. Following consummation of the merger,
United Cities' business will be operated as a division of Atmos,
along with Atmos' Energas Company, Trans Louisiana Gas Company,
Western Kentucky Gas Company, and Greeley Gas Company divisions.
The accompanying consolidated financial statements of the Company
do not include the assets, liabilities, or operating results of
United Cities.

3. Contingencies

On March 15, 1991, suit was filed in the 15th Judicial District
Court of Lafayette Parish, Louisiana (the "Court"), by the
"Lafayette Daily Advertiser" and others against the Trans La
Division of the Company, Trans Louisiana Industrial Gas Company,
Inc. ("TLIG"), a wholly owned subsidiary of the Company, and
Louisiana Intrastate Gas Corporation and certain of its
affiliates ("LIG"). LIG is the Company's primary supplier of
natural gas in Louisiana and is not otherwise affiliated with the
Company.

The plaintiffs purported to represent a class consisting of all
residential and commercial gas customers in the Trans La
Division's service area. Among other allegations, the plaintiffs
alleged that the defendants violated the antitrust laws of the
state of Louisiana by manipulating the cost-of-gas component of
the Trans La Division's gas rate to the purported customer class,
thereby causing such purported class members to pay a higher
rate. The plaintiffs made no specific allegation of an amount of
damages.

The defendants brought an appeal to the Louisiana Supreme Court
of rulings made by the Court and the Third Circuit Court of
Appeals which denied the defendants' exceptions to the
jurisdiction of the Court. It was the position of the defendants
that the plaintiffs' claims amount to complaints relating to the
level of gas rates and should be within the exclusive
jurisdiction of the Louisiana Public Service Commission (the
"Louisiana Commission").

On January 19, 1993, the Louisiana Supreme Court issued a
decision reversing in part the lower courts' rulings, dismissing
all of plaintiffs' claims against the defendants which sought
damages due to alleged overcharges and further ruling that all
such claims are within the exclusive jurisdiction of the
Louisiana Commission. Any claims which sought damages other than

8
overcharges were remanded to the trial court but were stayed
pending the completion of the Louisiana Commission proceeding
referred to below.

The Company has reached a settlement with the plaintiffs in the
context of the Louisiana Commission proceeding referred to below,
which settlement resolves all outstanding issues relating to the
Company, subject to the satisfaction of certain procedural
conditions.

On July 14, 1995, the Louisiana Commission entered an order
approving a settlement with the Company and TLIG in connection
with its investigation of the costs included in the Trans La
Division's purchased gas adjustment component in its rates. The
order exonerated the Company of any wrongdoing with respect to
the manipulation of the cost of gas component of its gas rate to
residential and commercial customers. In the settlement, the
Company agreed to refund approximately $541,000 plus interest to
the Trans La Division's customers over a two-year period due to
certain issues related to the calculation of the weighted average
cost of gas. The refund totaling approximately $1,016,000, which
includes interest calculated through October 1, 1995, began in
September 1995 and was to be credited to customer bills along
with interest that accrued after October 1, 1995. The Company
refunded approximately $533,000 under the settlement in fiscal
1996 and the remaining amount in fiscal 1997. Most of the issues
that generated the refunds arose before the Trans La Division
(formerly Trans Louisiana Gas Company) was acquired by the
Company in 1986.

On April 18, 1997, the Louisiana Commission entered its Order
approving a settlement between LIG and the Louisiana Commission
pursuant to which LIG will make a payment of $10,275,000 to the
Trans La Division for the benefit of its ratepayers. This
settlement resolves all remaining issues in the Louisiana
proceeding discussed above. Pursuant to the Order, the Trans La
Division has been ordered to flow through a total of $9,725,000
of the LIG settlement, plus accrued interest, to its customers in
the form of credits to customers bills for the months November
1997 through March 1998. The remaining $550,000 will be credited
one half to TLIG with the other half credited to the Trans La
Division for legal fees. The Order became final on June 2, 1997
when no appeals had been filed during the appeal period which
ended June 1, 1997.

As a result of the settlements reached in the Louisiana
proceedings, a Joint Motion was filed in the Court on July 29,
1997, requesting the Court to lift the stay of the proceedings
entered by the Court on January 19, 1993 to permit the
consummation of the proposed settlement, certify a class for
purposes of settlement and to preliminarily approve the
settlement between the plaintiff class and all defendants. On
July 30, 1997, the Court entered its order lifting the stay of
the proceedings, certifying a class of current Trans La Gas rate
payers for purposes of settlement and receipt of proceeds of

9
settlement, preliminarily approving the proposed settlement
between the plaintiff class and the defendants, approving the
form of notice to potential class members, and setting a fairness
hearing regarding the proposed settlement and disbursement of
proceeds. At the fairness hearing, which is set for December 15,
1997, final approval of the settlement by the Court will be
sought. If final approval of the Court is granted, the suit will
be dismissed.

In Colorado, the Greeley Gas Company Division of the Company is a
defendant in several lawsuits filed as a result of a fire in a
building in Steamboat Springs, Colorado on February 3, 1994. The
plaintiffs claim that the fire resulted from a leak in a severed
gas service line owned by the Greeley Division. On January 12,
1996, the jury awarded the plaintiffs approximately $2.5 million
in compensatory damages and approximately $2.5 million in
punitive damages. The jury assessed the Company with liability
for all of the damages awarded. The Company has filed a Notice
of Appeal with the Colorado Court of Appeals with respect to this
case. The Company has adequate insurance to cover the
compensatory damages awarded. However, the Company's insurance
carrier informed the Company that, based upon a recent Colorado
Court ruling, the punitive damages awarded against the Company
cannot be covered by the Company's insurance policy. The Company
is continuing to review the position of the insurance carrier
with respect to coverage of punitive damages. The Company
believes it has meritorious issues for an appeal but cannot
assess, at this time, the likelihood of success in the appeal.

From time to time, claims are made and lawsuits are filed against
the Company arising out of the ordinary business of the Company.
In the opinion of the Company's management, losses, if any,
arising from these actions, including the specific actions
described above, are either covered by insurance, adequately
reserved for by the Company or would not have a material adverse
effect on the financial condition, the results of operations or
the net cash flows of the Company.

4. Long-term and short-term debt

In November 1996 the Company issued $40,000,000 of 6.09% term
notes, payable in November 1998. The proceeds from the term
notes were used primarily to refinance a portion of notes payable
to banks and for working capital, capital expenditures and
general corporate purposes.

During the nine months ended June 30, 1997, the Company paid
installments due of $1,000,000 on its 9.75% Senior Notes,
$3,000,000 on its 9.76% Senior Notes and $2,000,000 on its 11.2%
Senior Notes.

At June 30, 1997, the Company had committed, short-term,
unsecured bank credit facilities totaling $92,000,000, of which
$80,000,000 was unused. The Company also had aggregate


10
uncommitted lines of credit totaling $155,000,000, of which
$128,300,000 was unused at June 30, 1997.


5. Statements of cash flows

Supplemental disclosures of cash flow information for the nine
month periods ended June 30, 1997 and 1996 are presented below.

Nine months ended
June 30,
-------------------
1997 1996
------- -------
(In thousands)
Cash paid for
Interest $14,174 $11,477
Income taxes 2,238 3,840




11
INDEPENDENT ACCOUNTANTS' REVIEW REPORT



The Board of Directors
Atmos Energy Corporation


We have reviewed the accompanying condensed consolidated balance
sheet of Atmos Energy Corporation as of June 30, 1997, and the
related condensed consolidated statements of income for the
three-month, nine-month, and twelve-month periods ended June 30,
1997 and 1996 and the statements of cash flows for the nine-month
periods ended June 30, 1997 and 1996. 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 generally accepted auditing
standards, 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 review, 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 generally accepted accounting principles.

We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Atmos
Energy Corporation as of September 30, 1996, 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 4, 1996, 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, 1996, is fairly
stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.



ERNST & YOUNG LLP
Dallas, Texas
August 6, 1997



12
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS

The following unaudited pro forma combined condensed financial
statements give effect to the merger of Atmos and United Cities
on a pooling of interests basis. The pooling of interests method
of accounting assumes that the combining companies were merged
from inception and the historical financial statements for the
periods prior to consummation of the merger are restated as
though the companies had been combined from inception. The pro
forma combined condensed balance sheet assumes that the Merger
took place on the balance sheet date and combines the June 30,
1997 balance sheets of Atmos and United Cities, respectively. The
pro forma combined condensed statements of income for the nine
month and twelve month periods ended June 30, 1997 include Atmos'
and United Cities' results of operations for the periods then
ended. Atmos' fiscal year ends on September 30, while United
Cities' fiscal year ends on December 31. Thus, the pro forma
combined condensed statements of income for the years ended
September 30, 1996, 1995, and 1994 include Atmos' results of
operations for the years then ended and United Cities' results of
operations for the years ended December 31, 1996, 1995, and 1994.
As a result, United Cities' results of operations for the three
months ended December 31, 1996 (operating revenues of
$122,971,000 and net income of $9,263,000) are included in the
pro forma statements of income for both the year ended September
30, 1996, and the nine and twelve month periods ended June 30,
1997. The pro forma combined condensed financial statements
include certain account reclassifications to conform United
Cities' classifications to Atmos' presentation.

These pro forma combined condensed financial statements should be
read in conjunction with the accompanying notes, the historical
financial statements and notes of Atmos and the historical
financial statements and notes of United Cities. The pro forma
adjustments are based upon available information and assumptions
that management of Atmos, through consultation with management of
United Cities, believes are reasonable. The pro forma combined
condensed financial statements do not purport to represent the
financial position or results of operations which would have
occurred had the merger been consummated on the dates indicated
or Atmos' financial position or results of operations for any
future date or period. In addition, due to the effect of weather
on sales and other factors which are characteristic of public
utility operations, pro forma financial results for the twelve
month period ended June 30, 1997, are not necessarily indicative
of trends for any 12-month period.







13
<TABLE>
ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY
PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1997
(Unaudited)
<CAPTION>

United Pro Forma
Atmos Cities Adj Pro Forma
-------- -------- -------- ----------
ASSETS (In thousands)
<S> <C> <C> <C> <C>
Property, plant and equipment $722,742 $570,950 $ - $1,293,692
Less accum. depreciation and amort. 272,941 206,865 - 479,806
--------- --------- -------- ----------
Net property, plant and equipment 449,801 364,085 - 813,886
Current assets
Cash and cash equivalents 2,140 5,067 - 7,207
Accounts receivable, net 44,367 31,053 - 75,420
Inventories 7,605 6,709 - 14,314
Gas stored underground 9,767 24,781 - 34,548
Other current assets 2,751 603 - 3,354
--------- --------- --------- ----------
Total current assets 66,630 68,213 - 134,843
Deferred charges and other assets 37,470 30,670 - 68,140
--------- --------- --------- ----------
$553,901 $462,968 $ - $1,016,869
========= ========= ========= ==========


LIABILITIES AND SHAREHOLDERS' EQUITY

Shareholders' equity
Common stock $ 81 $110,109 $(110,042)(b) $ 148
Additional paid-in capital 115,268 22,462 110,042 (b) 247,772
Retained earnings 72,820 32,599 - 105,419
--------- --------- --------- -----------
Total shareholders' equity 188,169 165,170 - 353,339
Long-term debt 157,303 149,233 - 306,536
--------- --------- --------- -----------
Total capitalization 345,472 314,403 - 659,875

Current liabilities
Current maturities of long-term debt 8,000 7,173 - 15,173
Notes payable to banks 38,700 39,626 - 78,326
Accounts payable 41,715 18,686 - 60,401
Taxes payable 10,696 7,646 - 18,342
Customers' deposits 10,010 6,255 - 16,265
Other current liabilities 14,940 21,593 - 36,533
--------- --------- ---------- -----------
Total current liabilities 124,061 100,979 - 225,040
Deferred income taxes 42,523 32,980 - 75,503
Deferred credits and other liabilities 41,845 14,606 - 56,451
--------- --------- ---------- -----------
$553,901 $462,968 $ - $1,016,869
========= ========= ========== ===========
<FN>

See accompanying notes to pro forma combined condensed financial statements.
</TABLE>

14


<TABLE>

ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED JUNE 30, 1997
(Unaudited)
<CAPTION>


United Pro Forma
Atmos Cities Adj Pro Forma
-------- -------- --------- ---------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Operating revenues $444,226 $342,747 $ - $786,973

Purchased gas cost 290,061 215,850 - 505,911
--------- --------- --------- --------
Gross profit 154,165 126,897 - 281,062

Operating expenses
Operation 67,138 49,450 - 116,588
Maintenance 3,233 5,618 - 8,851
Depreciation and amortization 18,181 16,691 - 34,872
Taxes, other than income 15,252 10,357 - 25,609
Income taxes 14,050 13,450 - 27,500
--------- --------- --------- --------
Total operating expenses 117,854 95,566 - 213,420
--------- --------- --------- --------
Operating income 36,311 31,331 - 67,642

Other income (expense) (21) 3,947 - 3,926

Interest charges 12,389 13,417 - 25,806
--------- --------- --------- --------
Net income $ 23,901 $ 21,861 $ - $ 45,762
========= ========== ========= =========
Net income per share $ 1.48 $ 1.65 $ - $ 1.56
========= ========== ========= =========
Dividends per share $ .75 $ .76 $ - (c) $ .76
========= ========== ========= =========
Average shares outstanding 16,123 13,241 - 29,364
========= ========== ========= =========
<FN>



See accompanying notes to pro forma combined condensed financial statements.
</TABLE>
15
<TABLE>

ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
TWELVE MONTHS ENDED JUNE 30, 1997
(Unaudited)
<CAPTION>


United Pro Forma
Atmos Cities Adj Pro Forma
-------- -------- --------- ---------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Operating revenues $512,827 $390,291 $ - $903,118
Purchased gas cost 331,557 244,246 - 575,803
--------- --------- --------- ---------
Gross profit 181,270 146,045 - 327,315

Operating expenses
Operation 87,923 65,511 - 153,434
Maintenance 4,291 7,492 - 11,783
Depreciation and amortization 22,648 21,954 - 44,602
Taxes, other than income 18,685 13,234 - 31,919
Income taxes 11,645 9,463 - 21,108
--------- --------- --------- ---------
Total operating expenses 145,192 117,654 - 262,846
--------- --------- --------- ---------
Operating income 36,078 28,391 - 64,469

Other income (expense) (29) 4,585 - 4,556

Interest charges 16,131 17,587 - 33,718
--------- --------- --------- ---------
Net income $ 19,918 $ 15,389 $ - $ 35,307
========= ========= ========= =========
Net income per share $ 1.24 $ 1.16 $ - $ 1.20
========= ========= ========= =========
Dividends per share $ .99 $ 1.02 $ - (c) $ 1.00
========= ========= ========= =========
Average shares outstanding 16,093 13,215 - 29,308
========= ========= ========= =========
<FN>


See accompanying notes to pro forma combined condensed financial statements.
</TABLE>
16
<TABLE>

ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1996
(Unaudited)
<CAPTION>
As reported (a)
----------------------
United Pro Forma
Atmos Cities Adj Pro Forma
-------- -------- -------- ----------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Operating revenues $483,744 $402,947 $ - $886,691
Purchased gas cost 306,744 255,535 - 562,279
--------- --------- --------- --------
Gross profit 177,000 147,412 - 324,412

Operating expenses
Operation 82,807 65,389 - 148,196
Maintenance 4,212 7,507 - 11,719
Depreciation and amortization 20,849 20,817 - 41,666
Taxes, other than income 16,879 13,735 - 30,614
Income taxes 13,310 9,646 - 22,956
--------- --------- --------- --------
Total operating expenses 138,057 117,094 - 255,151
-------- -------- --------- --------
Operating income 38,943 30,318 - 69,261

Other income (expense) (296) 3,863 - 3,567

Interest charges 14,698 16,979 - 31,677
--------- --------- --------- --------
Net income $ 23,949 $ 17,202 $ - $ 41,151
========= ========= ========= ========
Net income per share $ 1.51 $ 1.31 $ - $ 1.42
========= ========= ========= ========
Dividends per share $ .96 $ 1.02 $ - (c) $ .98
========= ========= ========= ========
Average shares outstanding 15,892 13,086 - 28,978
========= ========= ========= ========


<FN>

See accompanying notes to pro forma combined condensed financial statements.
</TABLE>

17
<TABLE>

ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1995
(Unaudited)
<CAPTION>

As reported (a)
----------------------
United Pro Forma
Atmos Cities Adj Pro Forma
-------- -------- ---------- ---------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Operating revenues $435,820 $313,735 $ - $749,555
Purchased gas cost 268,810 180,587 - 449,397
--------- --------- --------- --------
Gross profit 167,010 133,148 - 300,158

Operating expenses
Operation 83,431 63,193 - 146,624
Maintenance 4,276 7,074 - 11,350
Depreciation and amortization 20,741 19,856 - 40,597
Taxes, other than income 16,611 13,369 - 29,980
Income taxes 9,574 6,616 - 16,190
--------- --------- --------- -------
Total operating expenses 134,633 110,108 - 244,741
--------- --------- --------- -------
Operating income 32,377 23,040 - 55,417

Other income 217 3,360 - 3,577

Interest charges 13,721 16,465 - 30,186
--------- --------- --------- ---------
Net income $ 18,873 $ 9,935 $ - $ 28,808
========= ========= ========= =========
Net income per share $ 1.22 $ .84 $ - $ 1.06
========= ========= ========= =========
Dividends per share $ .92 $ 1.02 $ - (c) $ .96
========= ========= ========= =========
Average shares outstanding 15,416 11,792 - 27,208
========= ========= ========= =========

<FN>


See accompanying notes to pro forma combined condensed financial statements.
</TABLE>
18
<TABLE>


ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1994
(Unaudited)
<CAPTION>

As reported (a)
--------------------
United Pro Forma
Atmos Cities Adj Pro Forma
-------- -------- --------- ---------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Operating revenues $499,808 $326,494 $ - $826,302
Purchased gas cost 331,571 197,711 - 529,282
--------- --------- --------- --------
Gross profit 168,237 128,783 - 297,020

Operating expenses
Operation 92,132 58,852 - 150,984
Maintenance 5,888 6,595 - 12,483
Depreciation and amortization 18,841 17,870 - 36,711
Taxes, other than income 16,808 11,538 - 28,346
Income taxes 8,102 6,368 - 14,470
--------- --------- --------- --------
Total operating expenses 141,771 101,223 - 242,994
-------- --------- --------- --------
Operating income 26,466 27,560 - 54,026

Other income 503 351 - 854

Interest charges 12,290 15,818 - 28,108
--------- --------- --------- --------
Net income $ 14,679 $ 12,093 $ - $ 26,772
========= ========= ========= ========
Net income per share $ .97 $ 1.16 $ - $ 1.05
========= ========= ========= ========
Dividends per share $ .88 $ 1.005 $ - (c) $ .90
========= ========= ========= ========
Average shares outstanding 15,195 10,409 - 25,604
========= ========= ========= ========

<FN>

See accompanying notes to pro forma combined condensed financial statements.
</TABLE>

19
ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

1. Merger

Pursuant to the terms of the Reorganization Agreement, each
outstanding share of United Cities Stock has been converted into
the right to receive one share of Atmos Stock. The pro forma
financial statements assume the issuance of the Atmos Stock in
connection with the merger and that the transaction will be
accounted for as a pooling of interests. The cost of the merger
and integration are estimated to total approximately $17.0
million for the transaction costs and $32.0 million for the
separation and other costs. None of these estimated merger and
integration costs or the estimated cost savings resulting from
the merger, have been reflected in the pro forma combined
condensed financial statements.

The pro forma combined condensed balance sheet assumes that the
merger took place on the balance sheet date and combines the June
30, l997 balance sheets of Atmos and United Cities, respectively.

The pro forma combined condensed statements of income for the
nine and twelve months ended June 30, 1997 include Atmos' and
United Cities' results of operations for the periods then ended.
The pro forma combined condensed statements of income for the
years ended September 30, 1996, 1995, and 1994 include Atmos'
results of operations for the years then ended and United Cities'
results of operations for its fiscal years ended December 31,
1996, 1995, and 1994, respectively. As a result, United Cities'
results of operations for the three months ended December 31,
1996 (operating revenues of $122,971,000 and net income of
$9,263,000) are included in the pro forma combined condensed
statements of income for both the year ended September 30, 1996
and the nine month and twelve month periods ended June 30, 1997.

2. Pro forma adjustments

The pro forma adjustments in the accompanying unaudited pro forma
combined condensed financial statements are listed below.

(a) Reclassifications were made to certain "as reported" account
balances reflected in United Cities financial statements to
conform to this reporting presentation.

(b) To adjust common stock to relect the shares of Atmos Stock
(stated value of $.005) to be issued in exchange for the
shares of United Cities stock. One share of Atmos Stock
was exchanged for each share of United Cities Stock. At
June 30, 1997, 13,313,047 shares of United Cities Stock were
outstanding, resulting in an increase of $66,565 in Atmos
Common Stock and a reclassification of $110,041,860 to
additional paid-in capital. The actual number of shares
issued on July 31, 1997 was 13,320,221.

20
(c) Dividends per share are calculated by totaling the actual
dividends paid by Atmos and United Cities and dividing the
result by the total of the weighted average shares
outstanding for each period presented. The pro forma
dividends per share do not purport to represent the dividend
rate for any future date or period.









21
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Introduction

The Company distributes and sells natural gas to residential,
commercial, industrial and agricultural customers in six states.
Such business is subject to regulation by state and/or local
authorities in each of the states in which the Company operates.
In addition, the Company's business is affected by seasonal
weather patterns, competition within the energy industry, and
economic conditions in the areas that the Company serves.

Revenues and sales volume statistics for the three-month, nine-
month, and twelve-month periods ended June 30, 1997 and 1996
appear on pages 30-32. Average meters in service are as follows:

Nine months ended
June 30,
-------------------
1997 1996
-------- -------
Average Meters in Service
Residential 594,002 586,888
Commercial 61,951 61,385
Industrial (including agricultural) 17,628 18,985
Public authority and other 4,777 5,044
------- -------
Total 678,358 672,302
======= =======


Completion of Merger with United Cities Gas Company

Effective July 31, 1997 at 11:59 p.m. Eastern time, United Cities
Gas Company ("United Cities") of Brentwood, Tennessee, was merged
with and into Atmos by means of a tax-free reorganization. The
Company will operate United Cities as a division of Atmos and is
beginning the integration of the companies. United Cities will be
structured like other divisions of Atmos. To achieve this
structure, approximately 560 utility positions in United Cities
will be eliminated over the next 12 months. An additional 75
Atmos positions will be eliminated as part of the integration,
resulting in approximately 635 total position reductions in the
combined company over the next twelve months. Atmos also has
initiated plans to enhance its customer service in Texas,
Louisiana, Kentucky, Colorado, Kansas and Missouri through
business process changes which will result in a net reduction of
approximately 240 positions. These changes include restructuring
business office operations and establishing a network of payment
centers and a customer support call center.

Atmos estimates the cost of the merger and integration will total
approximately $17 million for the transaction costs and $32
million for the separation and other costs. The Company believes

22
there are substantial longer term benefits to its customers and
shareholders from the merger of the two companies, which are
expected to result in operating cost savings over the next 10
years totaling approximately $375 million. The Company believes
a significant amount of the costs to achieve these benefits will
be recovered through rates and future operating efficiencies of
the combined operations.

The Company expects to record as regulatory assets the costs of
the merger and integration of United Cities as discussed above,
along with the costs of the customer service initiative, which
are primarily separation costs and are estimated to be
approximately $12 million. However, the Company will establish a
general reserve of approximately $20 million ($12.8 million
after-tax), to account for costs that may not be recovered. Since
the substantial portion of the costs are related to position
eliminations over the next 12 months and fees payable at the
close of the merger, the company expects to account for these
costs in the fourth quarter of fiscal year 1997 when the merger
is complete, separation plans are approved by the Board of
Directors, and announcements are made to employees.

For further information, please see Note 2 of the notes to
condensed consolidated financial statements and the pro forma
combined condensed financial statements included herein.

Rate Activity

In May 1996, the Company filed to increase revenues by
approximately $7.7 million for a portion of its Energas Division
service area, which includes approximately 200,000 customers
inside the city limits of 67 cities in West Texas. All cities
either approved, or took no action to reject, a settlement
allowing a $5.3 million increase in annual revenues to be
effective for bills rendered on or after November 1, 1996. In
October 1996, the Company filed a rate request with the Railroad
Commission of Texas to increase revenues by approximately $.5
million for the remaining 22,000 rural customers in West Texas.
The rate request was approved and became effective in April 1997.

In February 1995, the Company filed with the Kentucky Public
Service Commission (the "Kentucky Commission") for a rate
increase for its Western Kentucky Division, which includes
approximately 171,000 customers. In October 1995, the Kentucky
Commission issued an order authorizing the Company to increase
its rates by $2.3 million annually effective November 1, 1995,
and by an additional $1.0 million annually beginning in March
1996. The settlement included a decrease in depreciation rates,
recovery of expenses related to adoption of Statement of
Financial Accounting Standards No. 106 and included a provision
for the Company to begin a three-year demand-side management
pilot program for the 1996-97 heating season, which could cost up
to $450,000 annually, resulting in a total annual operating in-
come increase of approximately $4.0 million. To date the Company


23
has incurred costs of approximately $170,000 on the demand-side
management pilot program.

FINANCIAL CONDITION

For the nine months ended June 30, 1997, net cash provided by
operating activities totaled $53.8 million compared with $65.9
million for the nine months ended June 30, 1996. The net change
in operating assets and liabilities was $5.1 million for the nine
months ended June 30, 1997 compared with $16.4 million for the
nine months ended June 30, 1996. Due to the seasonal nature of
the natural gas distribution business, large swings in accounts
receivable, accounts payable and inventories of gas in
underground storage will occur when entering and leaving the
winter or heating season.

Major cash flows used for investing activities for the nine
months ended June 30, 1997 included capital expenditures of $55.0
million compared with $57.9 million for the nine months ended
June 30, 1996. The capital expenditures budget for fiscal year
1997 is currently $92.1 million, as compared with actual capital
expenditures of $77.6 million in fiscal 1996. Capital projects
planned for 1997 include major expenditures for mains, services,
meters, vehicles, and computer equipment. In November 1996 the
Board of Directors approved an additional $24.0 million in the
1997 capital budget for a customer service initiative project
which includes a new Customer Information System (CIS), related
business process changes and technology infrastructure changes.
These expenditures will be financed from internally generated
funds and financing activities.

For the nine months ended June 30, 1997, cash provided by
financing activities amounted to $1.9 million compared with cash
used of $11.6 million for the nine months ended June 30, 1996.
During the nine months ended June 30, 1997, notes payable to
banks decreased $24.1 million, as compared with an increase of
$2.6 million for the nine months ended June 30, 1996 due to the
refinancing of short-term debt with proceeds from the issuance of
$40.0 million of long-term debt in the quarter ended December 31,
1996. Payments of long-term debt decreased $1.0 million to $6.0
million for the nine months ended June 30, 1997. Such payments
consisted of a $1.0 million installment on the Company's 9.75%
Senior Notes, a $3.0 million installment on its 9.76% Senior
Notes and a $2.0 million installment on its 11.2% Senior Notes.
The Company paid $12.1 million in cash dividends during the nine
months ended June 30, 1997, compared with $11.4 million in cash
dividends paid during the nine months ended June 30, 1996. This
reflects a $.01 per share increase in the quarterly dividend rate
and an increase in the number of shares outstanding. In the nine
month period ended June 30, 1997, the Company issued 171,576
shares of stock under the ESOP and the Directors' Stock-for-Fee
Plan compared with 463,192 shares, including 313,411 for the
Oceana Heights acquisition, issued during the nine months ended
June 30, 1996.


24
The Company believes that internally generated funds, its short-
term credit facilities and access to the debt and equity capital
markets will provide necessary working capital and liquidity for
capital expenditures and other cash needs for the remainder of
fiscal 1997. At June 30, 1997 the Company had $92.0 million of
committed, short-term credit facilities, $80.0 million of which
was available for additional borrowing. The committed lines are
renewed or renegotiated at least annually. At June 30, 1997, the
Company also had $155.0 million of uncommitted short-term lines,
$128.3 million of which was unused.

In July 1997, the Company received its initial debt ratings from
two rating agencies. Standard & Poor's has assigned its single
- - -'A'- minus corporate credit rating to the Company. In addition,
a single -'A'- minus rating has been assigned to the Company's
senior secured and senior unsecured debt, and a single -'A'-
minus bank loan rating has been assigned. Moody's has assigned
an A3 rating to the Company's senior unsecured medium-term notes
and unsecured bank term loan.


RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1997, COMPARED WITH THREE MONTHS
ENDED JUNE 30, 1996

Operating revenues decreased by approximately 7% to $86.7 million
for the three months ended June 30, 1997 from $93.6 million for
the three months ended June 30, 1996. The primary factor
contributing to the decrease in operating revenues was decreased
sales to industrial (including agricultural) customers. Volumes
sold to industrial (including agricultural) customers decreased
6.5 billion cubic feet ("Bcf") or 50%. During the quarter ended
June 30, 1997, temperatures averaged 57% colder than in the
corresponding quarter of the prior year, resulting in increased
sales volumes to all weather sensitive customers. Sales revenue
per Mcf also increased. However, the revenue impact of these
factors in the quarter ended June 30, 1997 was more than offset
by decreased industrial (including agricultural) sales volumes
due to higher rainfall which reduced the need for irrigation.
The total volume of gas sold and transported for the three months
ended June 30, 1997 was 25.9 Bcf compared with 29.2 Bcf for the
three months ended June 30, 1996. The average sales price per
Mcf sold increased $.57 to $4.50 as a result of a $.19 increase
in the average cost of gas per Mcf sold and rate increases in
Kentucky and Texas. Gas costs are passed through to end users
and do not affect gross profit directly.

Purchased gas cost for the quarter ended June 30, 1997 decreased
$8.2 million, or 14%, due to decreased sales volumes, as
discussed above. The decrease in volumes more than offset the
increase in the average cost of gas per Mcf sold.

Gross profit increased by approximately 4% to $35.1 million for
the three months ended June 30, 1997, from $33.8 million for the

25
three months ended June 30, 1996.  The increase in gross profit
was primarily due to $1.5 million of additional revenues from the
rate increases implemented in Texas and Kentucky. Increased
sales to weather sensitive customers also contributed. These
factors were partially offset by the 50% decrease in sales
volumes to industrial (including agricultural) customers, as
discussed above. Operating expenses, excluding income taxes,
increased 2% from $29.6 million for the three months ended June
30, 1996 to $30.1 million for the three months ended June 30,
1997 primarily due to slightly higher depreciation and taxes
other. Operating income increased for the three months ended
June 30, 1997 to $4.7 million from $4.1 million for the three
months ended June 30, 1996. The increase in operating income
primarily resulted from increased gross profit.

Net income increased from $.3 million for the three months ended
June 30, 1996 to $.5 million for the three months ended June 30,
1997. This increase in net income primarily resulted from the
increase in operating income. It was partially offset by a $.7
million increase in interest charges due to increased debt
outstanding during the quarter ended June 30, 1997 as compared
with the quarter ended June 30, 1996.


NINE MONTHS ENDED JUNE 30, 1997, COMPARED WITH NINE MONTHS ENDED
JUNE 30, 1996

Operating revenues increased by approximately 7% to $444.2
million for the nine months ended June 30, 1997 from $415.1
million for the nine months ended June 30, 1996. The primary
factor contributing to the higher operating revenues was
increased sales revenue per Mcf. Weather in the Company's
service areas was 2% warmer than normal and 1% warmer than
weather in the corresponding nine-month period of the prior
fiscal year. Volumes sold to industrial (including agricultural)
customers decreased from the corresponding period of the prior
year by 10.6 Bcf or 36% due to lower agricultural demand due to
increased rainfall and switching to transportation service by
industrial sales customers. The average sales price per Mcf
increased from $3.98 for the nine months ended June 30, 1996 to
$4.72 for the nine months ended June 30, 1997. The increase in
the average sales price reflects increased cost of gas and rate
increases implemented in Texas and Kentucky. The average cost of
gas per Mcf sold increased 21% from $2.61 for the nine months
ended June 30, 1996 to $3.16 for the nine months ended June 30,
1997. The average cost of gas increased due to increased supply
costs.

Gross profit increased to $154.2 million for the nine months
ended June 30, 1997, compared with $149.9 million for the nine
months ended June 30, 1996. The 3% increase in gross profit was
primarily due to rate increases in Texas and Kentucky, which
contributed approximately $5.8 million to gross profit for the
nine months ended June 30, 1997. The effect of these rate
increases was partially offset by lower sales volumes. Operating

26
expenses, excluding income taxes, increased to $103.8 million for
the nine months ended June 30, 1997, from $95.0 million for the
nine months ended June 30, 1996. The increase was comprised of
$5.1 million in operation expense, $.8 million in maintenance
expense, $1.8 million in depreciation and $1.8 million in taxes
other than income. The principal factor contributing to the
increase in operation expense was the increase in administrative
and general expenses associated with approximately $4.4 million
of severance pay for management changes in the second quarter.
The increase in depreciation related to utility plant additions
placed in service during the past year. The primary factor in
the increase in taxes other than income taxes was taxes on
increased revenues. The provision for income taxes for the nine
months ended June 30, 1997 decreased $1.7 million from the
provision for the corresponding period of the prior year due to
decreased pre-tax income.

Operating income decreased for the nine months ended June 30,
1997 to $36.3 million from $39.2 million for the nine months
ended June 30, 1996. The decrease in operating income primarily
resulted from decreased sales to industrial (including
agricultural) customers and increased operating expenses as
discussed above.

Interest expense increased approximately $1.4 million or 13% for
the nine months ended June 30, 1997 compared with the nine months
ended June 30, 1996. This increase was primarily due to
increased average debt outstanding.

Net income decreased for the nine months ended June 30, 1997, by
approximately 14% to $23.9 million from $27.9 million for the
nine months ended June 30, 1996. The decrease in net income
resulted from the increases in operating expenses and interest
charges. Earnings per share decreased to $1.48 for the nine
months ended June 30, 1997 from $1.76 for the nine months ended
June 30, 1996, while average shares outstanding increased
approximately 2%. Dividends per share increased 4% to $.75 for
the nine months ended June 30, 1997.


TWELVE MONTHS ENDED JUNE 30, 1997, COMPARED WITH TWELVE MONTHS
ENDED JUNE 30, 1996

Operating revenues increased by approximately 4% to $512.8
million for the 12 months ended June 30, 1997 from $491.1 million
for the 12 months ended June 30, 1996. The increased revenues
for the 12 months ended June 30, 1997 were due to increased gas
sales revenue per Mcf as a result of rate increases and higher
gas costs which are passed through to end users. Total sales and
transportation volumes decreased to 137.4 Bcf for the 12 months
ended June 30, 1997 compared with 147.6 Bcf for the corresponding
prior 12-month period. Sales volumes to industrial (including
agricultural) customers decreased 13.9 Bcf while transportation
volumes increased 3.5 Bcf. This significant decrease in
industrial (including agricultural) sales volumes was due to

27
decreased agricultural demand and switching from sales to
transportation service by some industrial customers. The average
sales price per Mcf increased from $3.93 to $4.62. The average
sales price reflects the increased cost of gas and rate increases
implemented in Texas and Kentucky. The average cost of gas per
Mcf sold increased from $2.56 to $3.08 for the 12 months ended
June 30, 1997. The average cost of gas increased due to
increased supply costs.

Gross profit increased by approximately 1% to $181.3 million for
the 12 months ended June 30, 1997, from $179.8 million for the 12
months ended June 30, 1996 due to the rate increases mentioned
above. Changes in cost of gas did not directly affect gross
profit. Operating expenses, excluding income taxes, increased 7%
from $124.9 million for the 12 months ended June 30, 1996, to
$133.5 million for the 12 months ended June 30, 1997. Increases
occurred in operation expenses, depreciation and taxes other than
income. Factors contributing to the $5.6 million increase in
operation expenses were administrative and general expenses of
approximately $4.4 million associated with severance pay for
recent management changes and smaller increases in distribution,
customer accounts, and customer service and information expenses.
The primary reason for the $1.0 million increase in depreciation
was utility plant additions placed in service during the past
year. The $1.9 million increase in taxes other than income
resulted primarily from taxes on increased revenues. Income
taxes decreased $2.1 million for the 12 months ended June 30,
1997, as compared with the 12 months ended June 30, 1996 due to
decreased pretax income. Operating income decreased in the 12
months ended June 30, 1997 by approximately 12% to $36.1 million.
The primary reasons for the decrease in operating income were the
significant decrease in agricultural demand and the increase in
operating expenses discussed above.

Net income for the 12 months ended June 30, 1997 was $19.9
million compared with $26.3 million for the 12 months ended June
30, 1996. The decrease in net income resulted from the decrease
in operating income discussed above and an increase of $1.8
million in interest charges due to increased average debt
outstanding, including the issuance of $40 million of Senior
Notes issued in November 1996. Earnings per share decreased by
26% to $1.24. Average shares outstanding increased approximately
2% as compared with the prior year. Dividends per share
increased approximately 4% to $.99.

Cautionary Statement pursuant to the Private Securities
Litigation Reform Act of 1995

The matters discussed or incorporated by reference in this report
contain both historical and forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 or Section
21E of the Securities Exchange Act of 1934, as amended. The
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

28
operations, markets, services, rates, recovery of costs,
availability of gas supply, and other factors as discussed in the
Company's filings with the Securities and Exchange Commission.
These risks and uncertainties include, but are not limited to,
economic, competitive, governmental, weather, and technological
factors.




29
ATMOS ENERGY CORPORATION
CONSOLIDATED OPERATING STATISTICS

Three months ended June 30,
1997 1996
------- -------
Sales Volumes -- MMcf (1)
Residential 7,905 6,568
Commercial 3,405 2,882
Industrial (including agricultural) 6,385 12,870
Public authority and other 718 549
------- -------
Total 18,413 22,869
Transportation Volumes -- MMcf (1) 7,485 6,335
------- -------
Total Volumes Delivered - MMcf (1) 25,898 29,204
======= =======
Operating Revenues (000's)
Gas Sales Revenues
Residential $43,101 $38,050
Commercial 15,845 13,648
Industrial (including agricultural) 20,599 35,492
Public authority and other 3,254 2,781
------- -------
Total Gas Revenues 82,799 89,971
Transportation Revenues 2,476 2,169
Other Revenues 1,451 1,431
------- -------
Total Operating Revenues $86,726 $93,571
======= =======

Average Gas Sales Revenues per Mcf $ 4.50 $ 3.93
Average Transportation Revenue per Mcf $ .33 $ .34
Cost of Gas per Mcf Sold $ 2.80 $ 2.61

HEATING DEGREE DAYS

Weather Three months ended June 30,
Service Sensitive ---------------------------
Area Customers % 1997 1996 Normal
- - -------------- ----------- ---- ---- ------
Texas 45% 406 192 227
Kentucky 26% 482 363 336
Louisiana 13% 102 91 42
Colorado, Kansas
and Missouri 16% 852 607 779
----
System Average 100% 458 291 321
Percent of Normal 143% 91%


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



30
ATMOS ENERGY CORPORATION
CONSOLIDATED OPERATING STATISTICS

Nine months ended June 30,
1997 1996
-------- --------
Sales Volumes -- MMcf (1)
Residential 47,688 47,700
Commercial 19,912 19,413
Industrial (including agricultural) 19,297 29,930
Public authority and other 4,767 4,759
-------- --------
Total 91,664 101,802

Transportation Volumes -- MMcf (1) 23,050 20,018
-------- --------
Total Volumes Delivered - MMcf (1) 114,714 121,820
======== ========
Operating Revenues (000's)
Gas Sales Revenues
Residential $250,515 $217,603
Commercial 94,237 79,891
Industrial (including agricultural) 65,229 87,570
Public authority and other 23,115 19,754
-------- --------
Total Gas Revenues 433,096 404,818
Transportation Revenues 7,301 6,167
Other Revenues 3,829 4,158
-------- --------
Total Operating Revenues $444,226 $415,143
======== ========

Average Gas Sales Revenues per Mcf $ 4.72 $ 3.98
Average Transportation Revenue per Mcf $ .32 $ .31
Cost of Gas per Mcf Sold $ 3.16 $ 2.61

HEATING DEGREE DAYS

Weather Nine months ended June 30,
Service Sensitive -----------------------------
Area Customers % 1997 1996 Normal
- - -------------- ----------- ----- ----- ------
Texas 45% 3,534 3,286 3,513
Kentucky 26% 4,166 4,574 4,304
Louisiana 13% 1,523 1,989 1,771
Colorado, Kansas
and Missouri 16% 6,089 5,752 6,094
----
System Average 100% 3,846 3,870 3,906
Percent of Normal 98% 99%


See footnote on page 30.

31
ATMOS ENERGY CORPORATION
CONSOLIDATED OPERATING STATISTICS

Twelve months ended June 30,
1997 1996
-------- --------
Sales Volumes -- MMcf (1)
Residential 51,531 51,824
Commercial 22,040 21,625
Industrial (including agricultural) 29,023 42,917
Public authority and other 5,190 5,195
-------- --------
Total 107,784 121,561

Transportation Volumes -- MMcf (1) 29,566 26,032
-------- --------
Total Volumes Delivered - MMcf (1) 137,350 147,593
======== ========
Operating Revenues (000's)
Gas Sales Revenues
Residential $276,030 $242,407
Commercial 104,695 90,088
Industrial (including agricultural) 92,551 123,314
Public authority and other 25,099 21,586
-------- --------
Total Gas Sales Revenues 498,375 477,395
Transportation Revenues 9,441 8,434
Other Revenues 5,011 5,307
-------- --------
Total Operating Revenues $512,827 $491,136
======== ========

Average Gas Sales Revenues per Mcf $ 4.62 $ 3.93
Average Transportation Revenue per Mcf $ .32 $ .32
Cost of Gas per Mcf Sold $ 3.08 $ 2.56

HEATING DEGREE DAYS

Weather Twelve months ended June 30,
Service Sensitive ----------------------------
Area Customers % 1997 1996 Normal
- - -------------- ----------- ----- ----- ------
Texas 45% 3,579 3,348 3,529
Kentucky 26% 4,202 4,628 4,339
Louisiana 13% 1,514 1,994 1,771
Colorado, Kansas
and Missouri 16% 6,249 5,931 6,268
----
System Average 100% 3,901 3,942 3,950
Percent of Normal 99% 100%


See footnote on page 30.

32
PART II.  OTHER INFORMATION

Item 1. Legal Proceedings

See Note 3 of notes to consolidated financial statements on pages
8, 9 and 10 herein for a description of legal proceedings.


Item 5. Other Information

The following officers have announced their plans to retire:

H.F. Harber, Senior Vice President - Corporate Services, retired
July 31, 1997.

Jack W. Eversull, Vice President - Investor Relations, will
retire effective December 3, 1997.

Don James, Senior Vice President of Public Affairs, will retire
effective December 31, 1997.


Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

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

(b) Reports on Form 8-K

The Company filed a Form 8-K Current Report, Item 5, Other
Events, dated April 4, 1997, disclosing:

(1) Robert F. Stephens and James F. Purser have
resigned from Atmos' Board of Directors.

(2) The Illinois hearing examiner in the regulatory
proceeding in Illinois recommended, in a proposed
order, that the Illinois Commerce Commission deny
Atmos' and United Cities' petition to merge. The
companies have an opportunity to respond to such
proposed order and they remain optimistic that the
Illinois Commission will ultimately approve the
merger.

(3) Larry J. Dagley has been appointed Executive Vice
President and Chief Financial Officer of Atmos.
He previously served as Senior Vice President and
Chief Financial Officer of Pacific Enterprises,
Chief Financial Officer of Transco Energy Company
and as an audit partner with Arthur Andersen & Co.



33
The Company filed a Form 8-K Current Report, Item 5, Other
Events, dated June 10, 1997, disclosing the following:

(1) On June 10, 1997, Atmos, United Cities and the
staff of the Illinois Commerce Commission jointly
filed a proposed order, which if granted, would
approve the merger of United Cities and Atmos.

2) The Illinois Commerce Commission issued an order
dated June 25, 1997, approving the merger of
United Cities and Atmos.






34
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: August 13, 1997 By: /s/ Larry J. Dagley
------------------------------
Larry J. Dagley
Executive Vice President
and Chief Financial Officer


Date: August 13, 1997 By: /s/ David L. Bickerstaff
------------------------------
David L. Bickerstaff
Vice President and Controller
(Principal Accounting Officer)








35
EXHIBITS INDEX
Item 6. (a)

Page Number or
Exhibit Incorporation
Number Description by Reference to

------- -------------------------------------- ---------------
10.1 *Atmos Energy Corporation Supplemental
Executive Benefits Plan (Amended and
Restated in its entirety May 14, 1997)

10.2 *Consulting Agreement between the
Company and Charles K. Vaughan,
effective October 1, 1994

10.3 *Amendment No. 1 to Consulting
Agreement between the Company and
Charles K. Vaughan, dated May 14, 1997

15 Letter regarding unaudited interim
financial information

27 Financial Data Schedule for Atmos
Energy Corporation for the nine months
ended June 30, 1997








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








36