INTRODUCTION

The following discussion should be read in conjunction with the condensed consolidated financial statements in this Quarterly Report on Form 10-Q and Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended September 30, 2008.

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 27A of the Securities Act of 1933 and 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 us 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 our documents or oral presentations, the words "anticipate", "believe", "estimate", "expect", "forecast", "goal", "intend", "objective", "plan", "projection", "seek", "strategy" 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 our strategy, operations, markets, services, rates, recovery of costs, availability of gas supply and other factors. These risks and uncertainties, which are discussed in more detail in our Annual Report on Form 10-K for the fiscal year ended September 30, 2008, include the following: our ability to continue to access the credit markets to satisfy our liquidity requirements; the impact of recent adverse economic conditions on our customers; increased costs of providing pension and postretirement health care benefits and increased funding requirements; market risks beyond our control affecting our risk management activities including market liquidity, commodity price volatility, increasing interest rates and counterparty creditworthiness; regulatory trends and decisions, including the impact of rate proceedings before various state regulatory commissions; increased federal regulatory oversight and potential penalties; the impact of environmental regulations on our business; the concentration of our distribution, pipeline and storage operations in Texas; adverse weather conditions; the effects of inflation and changes in the availability and price of natural gas; the capital-intensive nature of our gas distribution business; increased competition from energy suppliers and alternative forms of energy; the inherent hazards and risks involved in operating our gas distribution business; natural disasters, terrorist activities or other events; and other risks and uncertainties discussed herein, all of which are difficult to predict and many of which are beyond our control. Accordingly, while we believe 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, we undertake no obligation to update or revise any of our forward-looking statements whether as a result of new information, future events or otherwise.

OVERVIEW

Atmos Energy and our subsidiaries are engaged primarily in the regulated natural gas distribution and transportation and storage businesses as well as other nonregulated natural gas businesses. We distribute natural gas through sales and transportation arrangements to approximately 3.2 million residential, commercial, public authority and industrial customers throughout our six regulated natural gas distribution divisions, which cover service areas located in 12 states. In addition, we transport natural gas for others through our distribution system.

Through our nonregulated businesses, we primarily provide natural gas management and marketing services to municipalities, other local gas distribution companies and industrial customers primarily in the Midwest and Southeast and natural gas transportation and storage services to certain of our natural gas distribution divisions and to third parties.

We operate the Company through the following four segments:

• the natural gas distribution segment, which includes our regulated natural gas distribution and related sales operations,

• the regulated transmission and storage segment, which includes the regulated pipeline and storage operations of the Atmos Pipeline - Texas Division,

• the natural gas marketing segment, which includes a variety of nonregulated natural gas management services and

• the pipeline, storage and other segment, which is comprised of our nonregulated natural gas gathering, transmission and storage services.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

Our condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States. Preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities. We based our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. On an ongoing basis, we evaluate our estimates, including those related to risk management and trading activities, the allowance for doubtful accounts, legal and environmental accruals, insurance accruals, pension and postretirement obligations, deferred income taxes and the valuation of goodwill, indefinite-lived intangible assets and other long-lived assets. Actual results may differ from such estimates.

Our critical accounting policies used in the preparation of our consolidated financial statements are described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2008 and include the following:

• Regulation

• Revenue Recognition

• Allowance for Doubtful Accounts

• Derivatives and Hedging Activities

• Impairment Assessments

• Pension and Other Postretirement Plans

Our critical accounting policies are reviewed quarterly by the Audit Committee. There were no significant changes to these critical accounting policies during the nine months ended June 30, 2009.

RESULTS OF OPERATIONS

During the current fiscal year, several external factors have impacted Atmos Energy, including but not limited to adverse developments in the global and financial credit markets and the unfavorable impact of the economic recession.

The tightening of the credit markets has made it more difficult and more expensive for us to access the capital markets. However, during the fiscal year, we have undertaken several steps to improve our financial position. In March 2009, we successfully completed an offering of $450 million 8.5% senior notes, and used most of the proceeds in April 2009 to redeem $400 million of senior notes that were scheduled to mature in October 2009. Additionally, we enhanced our liquidity sources in various ways. In October 2008, we replaced our former $300 million 364-day committed credit facility with a new 364-day $212.5 million committed credit facility. Additionally, we converted AEM's former $580 million uncommitted credit facility to a 364-day $375 million committed credit facility. This facility was subsequently increased to $450 million in April 2009. Finally, in April 2009 we replaced an expiring $18 million unsecured committed credit facility

with a $25 million unsecured committed credit facility. After entering into these new facilities, we currently have a total of approximately $1.3 billion available to us under four committed credit facilities. As a result of these developments and our continued successful financial performance, Standard & Poor's Corporation (S&P) upgraded our credit rating from BBB to BBB+ in December 2008 and Moody's Investors Service (Moody's) upgraded the credit rating on our senior long-term debt from Baa3 to Baa2 and our commercial paper from P-3 to P-2 in May 2009. These ratings upgrades should improve our ability to access the short-term capital markets to satisfy our liquidity requirements on more economical terms in the future.

Challenging economic times have also impacted most of our business segments. The impact of the economic downturn is most apparent in a general decline in throughput. Our natural gas distribution segment has experienced a year-over-year four percent decrease in consolidated throughput, primarily associated with lower residential, commercial and industrial consumption. Declines in the demand for natural gas as a result of idle production and plant closures have contributed to a seven percent year-over-year decrease in consolidated throughput in our regulated transmission and storage segment and a five percent year-over-year decrease in consolidated sales volumes in our natural gas marketing segment. However, recent improvements in rate design in our natural gas distribution segment and the ability to earn higher per-unit margins in our regulated transmission and storage and natural gas marketing segments has more than offset the decline in throughput and sales volumes. Additionally, reduced demand for natural gas has resulted in lower natural gas prices, which has contributed significantly to the increase in our operating cash flow from $417 million for the nine months ended June 30, 2008 to $825 million for the nine months ended June 30, 2009.

The seasonality of our distribution business typically results in a loss in our fiscal third quarter. However, we reported net income of $2.0 million, or $0.02 per diluted share for the three months ended June 30, 2009 compared with a net loss of $6.6 million, or $0.07 per diluted share in the prior-year quarter. The quarter-over-quarter improvement reflects higher gross profit in our regulated transmission and storage and natural gas marketing segments combined with lower consolidated operation and maintenance expense, which more than offset lower natural gas distribution margins and a $3.3 million charge to impair certain available-for-sale investments.

For the first nine months of fiscal 2009, net income increased 16 percent to $206.9 million, or $2.26 per diluted share. Regulated operations contributed 85 percent of our net income during this period with our nonregulated operations contributing the remaining 15 percent. Results for the nine months ended June 30, 2009 include the favorable impact of a one-time tax benefit of $11.3 million, or $0.12 per diluted share and the unfavorable impact of a $5.4 million charge, or $0.04 per diluted share, to impair certain available-for-sale investments. Additionally, results for the nine-month period ended June 30, 2009 reflect increased gross profit across all of our business segments, partially offset by higher depreciation expense, pipeline maintenance and employee costs and interest expense.

The following table presents our consolidated financial highlights for the three and nine months ended June 30, 2009 and 2008:

                                               Three Months Ended               Nine Months Ended
                                                    June 30                          June 30
                                             2009            2008             2009             2008
                                                      (In thousands, except per share data)

Operating revenues                         $ 780,775      $ 1,639,145      $ 4,318,513      $ 5,780,640
Gross profit                                 259,640          246,222        1,114,903        1,050,254
Operating expenses                           215,957          225,513          681,479          659,893
Operating income                              43,683           20,709          433,424          390,361
Miscellaneous income (expense)                 1,219            1,600             (647 )          2,974
Interest charges                              41,511           33,470          116,035          103,803
Income (loss) before income taxes              3,391          (11,161 )        316,742          289,532
Income tax expense (benefit)                   1,427           (4,573 )        109,812          110,783
Net income (loss)                          $   1,964      $    (6,588 )    $   206,930      $   178,749
Diluted net income (loss) per share        $    0.02      $     (0.07 )    $      2.26      $      1.99

Our consolidated net income (loss) during the three and nine months ended June 30, 2009 and 2008 was earned in each of our business segments as follows:

                                                          Three Months Ended
                                                               June 30
                                                   2009          2008         Change
                                                            (In thousands)

    Natural gas distribution segment             $ (14,941 )   $ (12,378 )   $ (2,563 )
    Regulated transmission and storage segment      12,954        10,265        2,689
    Natural gas marketing segment                    2,099        (6,314 )      8,413
    Pipeline, storage and other segment              1,852         1,839           13

    Net income (loss)                            $   1,964     $  (6,588 )   $  8,552

                                                          Nine Months Ended
                                                               June 30
                                                   2009          2008         Change
                                                            (In thousands)

    Natural gas distribution segment             $ 136,768     $ 113,442     $ 23,326
    Regulated transmission and storage segment      40,080        35,336        4,744
    Natural gas marketing segment                   16,022        19,565       (3,543 )
    Pipeline, storage and other segment             14,060        10,406        3,654

    Net income                                   $ 206,930     $ 178,749     $ 28,181

The following tables segregate our consolidated net income (loss) and diluted earnings per share between our regulated and nonregulated operations: