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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, 2004

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:  333-108693-01

 

Commission file number:  001-04169

TGT PIPELINE, LLC

 

TEXAS GAS TRANSMISSION, LLC

(Exact name of registrant as specified in its charter)

 

(Exact name of registrant as specified in its charter)

DELAWARE

 

DELAWARE

(State or other jurisdiction of incorporation or organization)

 

(State or other jurisdiction of incorporation or organization)

06-1687421

 

06-1687421

(I.R.S. Employer Identification No.)

 

(I.R.S. Employer Identification No.)

3800 Frederica Street

Owensboro, Kentucky 42301

(270) 926-8686

 

3800 Frederica Street

Owensboro, Kentucky 42301

(270) 926-8686

(Address and Telephone Number of Registrant’s

Principal Executive Office)

 

(Address and Telephone Number of Registrant’s

Principal Executive Office)

4922

Primary Standard Industrialization Classification Code Number  

 

4922

Primary Standard Industrialization Classification Code Number  

NONE

Securities registered pursuant to Section 12(b) of the Act

 

NONE

Securities registered pursuant to Section 12(b) of the Act

NONE

Securities registered pursuant to Section 12(g) of the Act

 

NONE

Securities registered pursuant to Section 12(g) of the Act

        


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     

 Yes  X    No__


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


Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Not applicable


This combined Form 10-Q is separately filed by TGT Pipeline, LLC and Texas Gas Transmission, LLC.  Information contained herein relating to any individual company is filed by such company on its own behalf. Each company makes no representation as to information relating to the other company.  


TGT Pipeline, LLC and Texas Gas Transmission, LLC meet the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and are therefore filing this Form 10-Q with the reduced disclosure format.



TABLE OF CONTENTS

FORM 10-Q

FOR THE PERIODS ENDED

JUNE 30, 2004


TGT PIPELINE, LLC

TEXAS GAS TRANSMISSION, LLC


PART I – FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS:


Note 1:  Corporate Structure and Basis of Presentation


Note 2:  Commitments and Contingencies


Note 3:  Financing


Note 4.  Related Parties


Note 5.  Employee Benefits


ITEM 2:  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


ITEM 4.  DISCLOSURE CONTROLS AND PROCEDURES


PART II – OTHER INFORMATION


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K





PART I – FINANCIAL INFORMATION


Item 1.  Financial Statements:

TGT PIPELINE, LLC


CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Thousands of Dollars)

(Unaudited)

ASSETS

 

June 30, 2004

 

December 31, 2003

Current Assets:

   

       Cash and cash equivalents

$      35,365

 

$  19,171

       Receivables:


  

            Trade

14,703

 

28,070

            Other

943

 

6,312

       Gas Receivables:


 


             Transportation and exchange

1,221

 

2,357

             Storage

14,677

 

15,355

       Inventories

14,405

 

13,529

       Costs recoverable from customers

3,712

 

3,729

       Income tax receivable

2,975

 

5,347

       Prepaid and other expenses

4,309

 

4,493

            Total current assets

92,310

 

98,363

 


  

Property, Plant and Equipment:


 


       Natural gas transmission plant

562,957

 

562,930

       Other natural gas plant

163,943

 

158,903

 

726,900

 

721,833

 


 


       Less—Accumulated depreciation and amortization

31,983

 

18,312

            Property, plant and equipment, net

694,917

 

703,521

 


  

Other Assets:


  

       Goodwill

163,474

 

169,279

       Gas stored underground

119,415

 

120,045

       Deferred income taxes, net, non-current

69,972

 

88,635

       Costs recoverable from customers

36,057

 

37,158

       Advances to affiliates, non-current

7,840

 

4,334

       Other

17,426

 

17,292

            Total other assets

414,184

 

 436,743

 


 


            Total Assets

$1,201,411

 

$1,238,627

 

The accompanying notes are an integral part of these financial statements.




TGT PIPELINE, LLC


CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Thousands of Dollars)

(Unaudited)



LIABILITIES AND EQUITY

 

June 30, 2004


December 31, 2003

Current Liabilities:




       Payables:




            Trade

$       3,078


$       7,627

            Affiliates

428


473

            Other

80


2,335

       Gas Payables:




             Transportation and exchange

1,023


767

             Storage

28,003


30,620

       Long-term debt due within one year

-


17,277

       Deferred income taxes

1,416


575

       Accrued taxes other

7,422


5,143

       Accrued interest

5,082


5,456

       Accrued payroll and employee benefits

16,889


20,381

       Accrued fuel tracker

3,196


8,766

       Other accrued liabilities

8,407


8,947

            Total current liabilities

75,024


108,367

       



 

Long –Term Debt

530,987


530,838

 



 

Other Liabilities and Deferred Credits:



 

       Postretirement benefits other than pensions

29,132


30,053

       Pension plan costs

1,027


2,327

       Provision for asset retirement

29,011


28,002

       Other

11,842


15,679

            Total other liabilities and deferred credits

71,012


76,061

 



 

Member’s Equity:



 

     Paid-in capital

520,910


520,910

     Retained earnings

3,478


2,451

           Total member’s equity

524,388


523,361

           Total Liabilities and Equity

$ 1,201,411


$ 1,238,627

 

The accompanying notes are an integral part of these financial statements.




TGT PIPELINE, LLC


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 (Thousands of Dollars)

(Unaudited)



  

For the Three Months Ended

June 30, 2004

 

For the Period from Inception through

June 30, 2003

Operating Revenues:

 




    Gas transportation

 

$  49,554


$  22,300

    Gas storage

 

1,253


315

    Other

 

1,118


352

       Total operating revenues

 

51,925


22,967

  




Operating Costs and Expenses:

 




    Operation and maintenance

 

10,472


4,144

    Administrative and general

 

13,173


5,317

    Depreciation and amortization

 

8,415


3,987

    Taxes other than income taxes

 

4,248


2,388

       Total operating costs and expenses

 

36,308


15,836

    

 




Operating Income

 

15,617


7,131

  




Other Deductions (Income):

 




    Interest expense

 

7,417


3,769

    Interest income from affiliates

 

(35)


-

    Miscellaneous other income

 

(207)


(110)

       Total other deductions

 

7,175


3,659

  




Income before income taxes

 

8,442


3,472

  




Charge-in-lieu of income taxes

 

3,458


1,340

  




Net Income

 

$    4,984


$   2,132

 

The accompanying notes are an integral part of these financial statements.




TGT PIPELINE, LLC


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 (Thousands of Dollars)

(Unaudited)



  

For the Six Months Ended

June 30, 2004

 

For the Period from Inception through

June 30, 2003

Operating Revenues:

 




    Gas transportation

 

$ 133,369


$  22,300

    Gas storage

 

2,589


315

    Other

 

1,640


352

       Total operating revenues

 

137,598


22,967

  




Operating Costs and Expenses:

 




    Operation and maintenance

 

20,093


4,144

    Administrative and general

 

26,299


5,317

    Depreciation and amortization

 

16,731


3,987

    Taxes other than income taxes

 

8,330


2,388

       Total operating costs and expenses

 

71,453


15,836

    

 




Operating Income

 

66,145


7,131

  




Other Deductions (Income):

 




    Interest expense

 

15,177


3,769

    Interest income from affiliates

 

(61)


-

    Miscellaneous other income

 

(486)


(110)

       Total other deductions

 

14,630


3,659

  




Income before income taxes

 

51,515


3,472

  




Charge-in-lieu of income taxes

 

20,488


1,340

  




Net Income

 

$  31,027


$   2,132

 

The accompanying notes are an integral part of these financial statements.




TGT PIPELINE, LLC


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Thousands of Dollars)

(Unaudited)

 

For the

Six Months Ended

June 30, 2004

 

For the Period from Inception through

June 30, 2003

OPERATING ACTIVITIES:


  

    Net income

$ 31,027

 

$   2,132

    Adjustments to reconcile to cash provided from (used in) operations:

  


       Depreciation and amortization

16,731

 

3,987

       Provision for deferred income taxes

23,830

 

-

       Changes in operating assets and liabilities:


 


         Receivables   

20,550

 

15,369

         Inventories

(876)

 

(108)

         Affiliates

(45)

 

5,905

         Other current assets

3,701

 

(3,649)

         Accrued income taxes

(3,339)

 

1,339

         Payables and accrued liabilities

(16,862)

 

15,154

       Other, including changes in noncurrent assets and liabilities

(721)

 

(13,559)

             Net cash provided by operating activities

73,996

 

26,570

 


 


INVESTING ACTIVITIES:


 


    Capital expenditures, net of allowance for funds used during construction

(6,958)

 

(2,239)

    Proceeds from sales and salvage values, net of costs of removal

(53)

 

3,403

    Advances to affiliates

(3,506)

 

-

    Investment in Texas Gas Transmission, LLC

-

 

(802,813)

            Net cash used in investing activities

(10,517)

 

(801,649)

 


 


FINANCING ACTIVITIES:


 


    Proceeds from long-term debt

-

 

431,918

    Payment of long-term debt

(17,285)

 

(132,715)

    Dividends paid

(30,000)

 

-

    Capital contribution from parent company

-

 

514,544

          Net cash used in financing activities

(47,285)

 

813,747

 


 


Increase in cash and cash equivalents

16,194

 

38,668

 


 


Cash and cash equivalents at beginning of period

19,171

 

-

 




Cash and cash equivalents at end of period

$  35,365


$  38,668

 

The accompanying notes are an integral part of these financial statements.




TEXAS GAS TRANSMISSION, LLC


CONDENSED STATEMENTS OF FINANCIAL POSITION

(Thousands of Dollars)

(Unaudited)


ASSETS

 

June 30, 2004

 

December 31, 2003

Current Assets:

   

       Cash and cash equivalents

$     35,365

 

$     19,171

       Receivables:


 


            Trade

14,703

 

28,070

            Other

943

 

6,312

       Gas Receivables:


 


             Transportation and exchange

1,221

 

2,357

             Storage

14,677

 

15,355

       Inventories

14,405

 

13,529

Costs recoverable from customers

3,712

 

3,729

       Income tax receivable

553

 

2,109

       Prepaid and other expenses

4,309

 

4,493

            Total current assets

89,888

 

95,125

 


 


Property, Plant and Equipment:


 


       Natural gas transmission plant

562,957

 

562,930

       Other natural gas plant

163,943

 

158,903

 

726,900

 

721,833

       Less—Accumulated depreciation and amortization

31,983

 

18,312

            Property, plant and equipment, net

694,917

 

703,521

 


 


Other Assets:


 


       Goodwill

163,474

 

169,279

       Gas stored underground

119,415

 

120,045

       Advances to affiliates, non-current

118,979

 

116,512

       Deferred income taxes, net, non-current

74,090

 

88,919

       Costs recoverable from customers

36,057

 

37,158

       Other

16,428

 

16,258

            Total other assets

528,443

 

548,171

 


 


            Total Assets

$ 1,313,248

 

$  1,346,817

 

The accompanying notes are an integral part of these financial statements.




TEXAS GAS TRANSMISSION, LLC


CONDENSED STATEMENTS OF FINANCIAL POSITION

(Thousands of Dollars)

(Unaudited)



LIABILITIES AND EQUITY

 

June 30, 2004

 

December 31, 2003

Current Liabilities:

  


       Payables:

  


            Trade

$       3,078

 

$     7,627

            Affiliates

428

 

473

            Other

80

 

2,335

       Gas Payables:


 


             Transportation and exchange

1,023

 

767

             Storage

28,003

 

30,620

       Long-term debt due within one year

-

 

17,277

       Deferred income taxes

1,416

 

575

       Accrued taxes other

7,422

 

5,143

       Accrued interest

4,281

 

4,654

       Accrued payroll and employee benefits

16,889

 

20,381

       Accrued fuel tracker

3,196

 

8,766

       Other accrued liabilities

8,407

 

8,947

            Total current liabilities

74,223

 

107,565

       


 


Long –Term Debt

347,716

 

347,629

 


 


Other Liabilities and Deferred Credits:


 


       Postretirement benefits other than pensions

29,132

 

30,053

       Pension plan costs

1,027

 

2,327

       Provision for asset retirement

29,011

 

28,002

       Other

11,842

 

15,679

            Total other liabilities and deferred credits

71,012

 

76,061

 


 


Member’s Equity:


 


     Paid-in capital

803,748

 

803,748

     Retained earnings

16,549

 

11,814

           Total member’s equity

820,297

 

815,562

 


 


           Total Liabilities and Equity

$ 1,313,248

 

$ 1,346,817

 


The accompanying notes are an integral part of these financial statements.




TEXAS GAS TRANSMISSION, LLC


CONDENSED STATEMENTS OF OPERATIONS

(Thousands of Dollars)

(Unaudited)


 

Post-Acquisition

  

Pre-Acquisition

For the Three Months Ended June 30, 2004

 

For the Period

May 17, 2003

to

 June 30, 2003

  

For the Period April 1, 2003

 to

 May 16, 2003


 


 


  


Operating Revenues:


 


  


 Gas transportation

$   49,554

 

$  22,300

  

  $  28,733

    Gas storage

1,253

 

315

  

257

    Other

1,118

 

352

  

316

       Total operating revenues

51,925

 

22,967

  

29,306

 


 


  


Operating Costs and Expenses:


 


  


    Operation and maintenance

10,472

 

4,144

  

5,644

    Administrative and general

13,166

 

5,311

  

5,855

    Depreciation and amortization

8,415

 

3,987

  

5,381

    Taxes other than income taxes

4,248

 

2,388

  

2,193

       Total operating costs and expenses

36,301

 

15,830

  

19,073

    


 


  


Operating Income

15,624

 

7,137

  

10,233

 


 


  


Other (Income) Deductions:


 


  


    Interest expense

4,963

 

2,845

  

2,510

    Interest income from affiliates

(639)

 

(417)

  

(797)

    Miscellaneous other income, net

(207)

 

(110)

  

(241)

       Total other deductions

4,117

 

2,318

  

1,472

 


 


  


Income before income taxes

11,507

 

4,819

  

8,761

 


 


  


Provision for income taxes

-

 

-

  

3,297

Charge-in-lieu of income taxes

4,664

 

1,879

  

-

Net Income

$    6,843

 

  $    2,940

  

$     5,464

 

 The accompanying notes are an integral part of these financial statements




TEXAS GAS TRANSMISSION, LLC


CONDENSED STATEMENTS OF OPERATIONS

(Thousands of Dollars)

(Unaudited)



 

Post-Acquisition

  

Pre-Acquisition

 

For the Six Months Ended

June 30, 2004

 

For the Period

May 17, 2003

to

June 30, 2003

  

For the Period

January 1, 2003

to

May 16, 2003

 
 
       

Operating Revenues:

      

    Gas transportation

  $  133,369

 

$   22,300

  

$  111,622

    Gas storage

2,589

 

315

  

814

    Other

1,640

 

352

  

1,011

       Total operating revenues

137,598

 

22,967

  

113,447

 


 


  


Operating Costs and Expenses:


 


  


    Operation and maintenance

20,093

 

4,144

  

16,097

    Administrative and general

26,292

 

5,311

  

13,642

    Depreciation and amortization

16,731

 

3,987

  

16,092

    Taxes other than income taxes

8,330

 

2,388

  

6,077

       Total operating costs and expenses

71,446

 

15,830

  

51,908

    


 


  


Operating Income

66,152

 

7,137

  

61,539

 


 


  


Other (Income) Deductions:


 


  


    Interest expense

10,269

 

2,845

  

7,392

    Interest income from affiliates

(1,270)

 

(417)

  

(1,965)

    Gain on sale of equipment

-

 

-

  

(30)

    Miscellaneous other income

(486)

 

(110)

  

(719)

       Total other deductions

8,513

 

2,318

  

4,678

 


 


  


Income before income taxes

57,639

 

4,819

  

56,861

 


 


  


Provision for income taxes

-

 

-

  

22,387

Charge-in-lieu of income taxes

22,904

 

1,879

  

-

 


 


  


Net Income

$   34,735

 

$    2,940

  

$    34,474

 

The accompanying notes are an integral part of these financial statements.




TEXAS GAS TRANSMISSION, LLC


 CONDENSED STATEMENTS OF CASH FLOWS

(Thousands of Dollars)

 (Unaudited)

 

Post-Acquisition

  

Pre-Acquisition

 

For the

 Six Months Ended

June 30, 2004

 

For the period

May 17, 2003

to

June 30, 2003

  

For the Period

January 1, 2003

to

May 16, 2003

 
 

OPERATING ACTIVITIES:

      

    Net income

$  34,735

 

$     2,940

  

$    34,474

    Adjustments to reconcile to cash provided from  (used in) operations:


 


  



 


  


       Depreciation and amortization

16,731

 

3,987

  

16,092

       Provision for deferred income taxes

24,115

 

-

  

-

       Gain on sale of equipment

-

 

-

  

(30)

       Changes in operating assets and liabilities:


 


  


         Receivables   

20,550

 

6,505

  

(13,450)

         Inventories

(876)

 

(108)

  

(22)

         Affiliates

(45)

 

405

  

14,532

         Other current assets

3,701

 

(3,649)

  

5,212

         Accrued income taxes due affiliate

-

 

-

  

(5,813)

         Accrued charge-in-lieu of income taxes

(1,209)

 

1,879

  

-

         Payables and accrued liabilities

(16,861)

 

15,549

  

(40,462)

         Other, including changes in noncurrent assets and liabilities


 


  


(819)

 

(12,280)

  

27,197

       Net cash provided by operating activities

80,022

 

15,228

  

37,730

 


 


  


INVESTING ACTIVITIES:


 


  


    Capital expenditures, net of allowance for funds used during construction

(6,958)

 

(2,239)

  

(222)

     Proceeds from sales and salvage values, net of costs of removal

(53)

 

3,403

  

179

    Advances to affiliates, net

(9,532)

 

(93,058)

  

(37,964)

      Net cash used in investing activities

(16,543)

 

(91,894)

  

(38,007)

 


 


  


FINANCING ACTIVITIES:


 


  


    Proceeds from long-term debt

-

 

248,049

  

-

    Payment of long-term debt

(17,285)

 

(132,715)

  

-

    Dividends

(30,000)

 

-

  

-

     Net cash used in (provided by) financing activities

(47,285)

 

115,334

  

-

 


 


  


Increase (decrease) in cash and cash equivalents

16,194

 

38,668

  

(277)

Cash and cash equivalents at beginning of period

19,171

 

-

  

277

Cash and cash equivalents at end of period

$  35,365

 

$    38,668

  

$            -

 

The accompanying notes are an integral part of these financial statements.




TGT PIPELINE, LLC

TEXAS GAS TRANSMISSION, LLC


NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)



Note 1:  Corporate Structure and Basis of Presentation


Texas Gas Transmission, LLC is a wholly-owned subsidiary of TGT Pipeline, LLC (TGT Pipeline). TGT Pipeline is a wholly-owned subsidiary of TGT Pipeline Holding Corp. (Holding Corp.), which is wholly-owned by Loews Corporation (Loews).  TGT Pipeline was formed in April 2003, with an initial capitalization on May 16, 2003 (Inception), to acquire (Acquisition) all of the outstanding capital stock of Texas Gas Transmission Corporation from a subsidiary of The Williams Companies, Inc. (Williams). Texas Gas Transmission Corporation subsequently converted to a limited liability company and is now known as Texas Gas Transmission, LLC (Texas Gas). TGT Pipeline has no assets, liabilities or operations other than its ownership of Texas Gas, $185 million of outstanding debt, as discussed in Note 3, and a note receivable from its parent, Holding Corp., as discussed in Note 4.  Texas Gas is the ow ner and operator of the pipeline system and related assets.


The discussion throughout these notes refers to TGT Pipeline and its consolidated wholly-owned subsidiary, Texas Gas (we/our/us), unless otherwise noted. The condensed consolidated TGT Pipeline financial statements include the accounts of TGT Pipeline and Texas Gas, after elimination of inter-company transactions. Our financial statements should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2003.


The accompanying unaudited condensed financial statements of TGT Pipeline and Texas Gas were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions on Form 10-Q and Regulation S-X.  As a result of the change in control of Texas Gas, the financial statements of Texas Gas presented for the period after the Acquisition reflect a new basis of accounting.  Accordingly, the Texas Gas Statements of Operations and Cash Flows for the six months ended June 30 have been separated by a bold vertical line into a pre-Acquisition period and a post-Acquisition period.  In management’s opinion, our interim financial statements reflect all adjustments necessary to present fairly the results of operations for the periods presented.



The accompanying pre-Acquisition financial statements reflect a purchase price allocation associated with the acquisition of Texas Gas by Williams in 1995.  The accompanying post-Acquisition financial statements reflect the pushdown of 100% of the purchase price resulting from the Acquisition. A preliminary allocation of the purchase price was assigned to the assets and liabilities of Texas Gas, based on their estimated fair values in accordance with GAAP.  As Texas Gas’ rates are regulated by the Federal Energy Regulatory Commission (FERC), and the FERC does not allow recovery in rates of amounts in excess of original cost, our historical net book value of regulatory related assets and liabilities are considered to be the fair value of those respective assets and liabilities. The excess purchase price above the historical net book value was allocated to goodwill.  The acco unting for the effects of the Acquisition included recognizing unfunded benefit obligations related to postretirement benefits other than pensions and pension benefits with a corresponding offset to costs recoverable from customers, due to the probable future rate recovery of these costs.  During 2004, adjustments were made to finalize the estimated allocation that decreased goodwill by approximately $5.8 million and reduced other liabilities related to the resolution of certain revenue refund issues.  As of June 30, 2004, we had $163.5 million of goodwill recorded as an asset on our balance sheet.  Changes to our estimates after May 2004, other than those related to the tax basis of our assets and liabilities, will be recorded in results of operations.


The Acquisition was treated as an acquisition of assets for income tax purposes and, accordingly, we will have tax basis in our net assets approximately equal to the Acquisition price.   In connection with the terms of this election, temporary differences that existed prior to the Acquisition no longer exist and differences between the new allocated purchase price for book and income tax are established as part of the purchase price allocation.  Therefore, deferred tax asset and liability balances existing prior to the Acquisition have been eliminated.  As previously discussed, Texas Gas was converted into a limited liability company immediately following the Acquisition.  The condensed financial statements contained herein reflect a Charge-In-Lieu of Income Taxes subsequent to the Acquisition in recognition of the federal and state income tax liabilities incurred by t he company.  For federal and state income taxation, the company is subject to tax as a division of its parent corporation, Holding Corp.



Results of operations for the first six months of each of the years reported herein are not necessarily indicative of results of operations for that entire year.  Based on the current rate structure, we typically experience higher operating income in the first and fourth quarters as compared to the second and third quarters.  Certain reclassifications may have been made in the 2003 financial statements to conform to the 2004 presentation.



Accounting Policies


The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to revenues subject to refund, bad debts, materials and supplies obsolescence, investments, intangible assets and goodwill, property and equipment and other long-lived assets, income taxes, workers' compensation insurance, pensions and other post-retirement and employment benefits and contingent liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying valu es of assets and liabilities that are not readily apparent from other sources. Actual results could differ from such estimates.


As part of the allocation of the purchase price of the Acquisition, the excess purchase price over the fair value of the assets and liabilities was allocated to goodwill.  Statement of Financial Accounting Standards (SFAS) No. 142 “Goodwill and Other Intangible Assets” requires the evaluation of goodwill for impairment at least annually or more frequently if events and circumstances indicate that the asset might be impaired.  The annual impairment test is performed on December 31.   In accordance with SFAS No. 142, we have not amortized goodwill and there have been no impairments recorded in 2004.  


   

Depreciation rates for utility plant are approved by the FERC.  The approved depreciation rates are comprised of two types; one based on economic service life (capital recovery) and one based on net costs of removal (negative salvage).  Therefore, we accrue estimated net costs of removal of long-lived assets through negative salvage expense.  Accordingly, we have collected a certain amount in rates representing estimated net costs of removal, which do not represent legal removal obligations.  We have classified such amounts in the accompanying condensed statements of financial position as Provision for Asset Retirement.  


SFAS No. 71 “Accounting for the Effects of Certain Types of Regulation” requires that rate-regulated public utilities account for and report assets and liabilities consistent with the economic effect of the manner in which independent third-party regulators establish rates.  In applying SFAS No. 71, we capitalize certain costs and benefits as regulatory assets and liabilities, respectively, in order to provide for recovery from or refund to customers in future periods.


We monitor the regulatory and competitive environment in which we operate to determine whether our regulatory assets continue to remain probable for recovery.  If we determine that all or a portion of our regulatory assets no longer meet the criteria for continued application of SFAS No. 71, we write off that portion deemed unrecoverable, net of any regulatory liabilities deemed no longer appropriate.  Texas Gas has various mechanisms whereby rates or surcharges are established and revenues are collected and recognized based on estimated costs.   None of our regulatory assets as of June 30, 2004, and December 31, 2003, were earning a return.


The amounts recorded as regulatory assets and liabilities in the Texas Gas balance sheet as of June 30, 2004 and December 31, 2003, are summarized as follows (shown in thousands):


 

June 30, 2004

 

December 31, 2003

Regulatory Assets:

   
 

Unamortized debt expense and premium on reacquired debt

 $ 14,201

 

$  14,674

 

Income tax

6,338

 

6,129

 

Post retirement benefits other than pension

33,587

 

34,892

 

Gas supply realignment costs

(157)

 

(152)

 

  Total regulatory assets

$ 53,969

 

 $  55,543

Regulatory Liabilities:

 

 

 

 

Pension plan costs

$   1,027

 

$    2,327

 

Fuel tracker

3,196

 

5,266

 

System management/cashout tracker

276

 

5,424

 

Provision for asset retirement

29,011

 

28,002

 

Unamortized discount on long-term debt

(2,284)

 

(2,371)

 

  Total regulatory liabilities

 $ 31,226

 

 $  38,648


The table above includes amounts related to unamortized debt expense and unamortized discount on long-term debt.  While these amounts are not regulatory assets and liabilities as defined by SFAS No. 71, they are a critical component of our embedded cost of debt financing utilized in our rate proceedings.   Certain amounts in the table are reflected as negative, or a reduction, to be consistent with the manner in which we record these items in our regulatory books of account.  For the periods ended June 30, 2004, and December 31, 2003, negative salvage amounts have been reclassified from accumulated depreciation to appropriately reflect such balances as a regulatory liability in accordance with GAAP.


As previously discussed, Texas Gas was converted into a limited liability company immediately following the Acquisition.  The accompanying condensed financial statements reflect a Charge-In-Lieu of Income Taxes subsequent to the Acquisition in recognition of the federal and state income tax liabilities incurred by the company.   We include an appropriate allowance for income taxes in cost of service and derivation of tariff rates and, accordingly, design our rates to recover such costs.  The effective tax rate for the period subsequent to the Acquisition, represented by our Charge-In-Lieu of Income Taxes, is substantially equal to the statutory rate. The effective tax rate for the period prior to the Acquisition was slightly higher than the statutory rate.  Deferred income tax is computed using the liability method and is provided on all temporary differences between t he book basis and the tax basis of our assets and liabilities.



Note 2:  Commitments and Contingencies


Regulatory and Rate Matters and Related Litigation


Storage Expansion Project


Recent requests for additional firm storage capacity have exceeded the physical capabilities of Texas Gas’ system, thereby prompting us to evaluate an expansion of our existing storage facilities.  Accordingly, to gauge market demand for firm storage capacity on our system, we conducted a binding open season, which concluded on May 14, 2004.  The binding open season ultimately produced two acceptable bids for the storage capacity and precedent agreements were signed.


To provide the additional service from our market area storage complex, Texas Gas proposes to expand the daily withdrawal capability of our Midland Gas Storage Field located in western Kentucky.  On July 7, 2004, we filed an application in Docket No. CP04-373 with the FERC to allow for the installation of two gas turbine compressor packages, along with related piping and facilities, during the summer and fall of 2005, with a projected in-service date of November 1, 2005.  The installation of these facilities will allow Texas Gas to withdraw on a firm basis up to an additional 82,000 MMBtu of gas per day.  We anticipate the total cost of this project to be $20.7 million and intend to fund the project with internally generated cash flows.


FERC Order No. 637


On February 9, 2000, the FERC issued a Final Rule, Order No. 637, in which the FERC adopted certain policies that it found necessary to adjust its regulatory model to the needs of the evolving markets, but determined that any fundamental changes to its regulatory policy would be considered after further study and evaluation of the evolving marketplace.  Texas Gas submitted an Order No. 637 compliance filing on August 15, 2000, which contained pro forma tariff sheets designed to comply with certain directives in the order regarding the conduct of daily business transactions.  Since that initial compliance filing, a technical conference, several FERC orders, rehearing requests, and compliance filings relating to Texas Gas’ Order No. 637 compliance have occurred; all of which are more fully described in our Annual Report on Form 10-K for the year ended December 31, 2003.  On J uly 12, 2004, the FERC issued a letter order, constituting final agency action, in which it accepted Texas Gas’ tariff sheets, as previously amended. Order No. 637 compliance is not expected to have a material impact on Texas Gas’ financial condition or results of operations.


FERC Order No. 2004 (Docket No. RM01-10)


On September 27, 2001, the FERC issued a Notice of Proposed Rulemaking (NOPR) proposing to adopt uniform standards of conduct for transmission providers.  The proposed rule defined transmission providers as interstate natural gas pipelines and public utilities that own, operate, or control electric transmission facilities. The NOPR proposed standards to regulate the conduct of transmission providers with their energy affiliates.  The proposed rule defined energy affiliates broadly to include any transmission provider affiliate that engages in or is involved in transmission (gas or electric) transactions, or manages or controls transmission capacity, or buys, sells, trades, or administers natural gas or electric energy, or engages in financial transactions relating to the sale or transmission of natural gas or electricity.  On November 25, 2003, the FERC issued its Final Rule in this matter, “Standards of Conduct for Transmission Providers” (Order No. 2004).  As required by the rule, on February 9, 2004, Texas Gas filed with the FERC and posted on its Internet website its plans for compliance with Order No. 2004 stating that it would seek an exemption from the requirements of Order No. 2004 as Texas Gas has no sales function and no energy or marketing affiliates.  Texas Gas filed its request for exemption in Docket No. TS04-253 on March 5, 2004. On April 16, 2004, the FERC issued an order postponing implementation of the rule until September 1, 2004.  If not exempted from the rule, Texas Gas must comply with the standard of conduct by that date.  Even if Texas Gas is denied an exemption by the FERC, this order is expected to have minimal impact on Texas Gas.  

 

Rate Schedule GaS


On February 6, 2004, Texas Gas submitted a tariff filing (Docket No, RP04-161) to cancel its Rate Schedule GaS, thereby clarifying that it does not own or operate a sales operating unit, and therefore is not engaged in the marketing, sale, or brokering of natural gas. There were no remaining effective contracts under Rate Schedule GaS. The filing established Texas Gas as a pure transporter of natural gas, which helps guide our future compliance efforts in response to the FERC’s Standards of Conduct for Transmission Providers, as issued in Order No. 2004. The FERC issued a letter order on March 26, 2004, approving Texas Gas’ filing to cancel its Rate Schedule GaS.


Sales and Use Taxes


On June 1, 2003, the Commonwealth of Kentucky placed into effect a law requiring natural gas pipelines to collect sales and use tax on service charges for the distribution, transmission, or transportation of natural gas for use in Kentucky (excluding residential customers). On July 3, 2003, Texas Gas filed a proposed tariff sheet (Docket No. RP03-544) amending the General Terms and Conditions of its FERC Gas Tariff to provide for the collection of taxes, levies, or other charges imposed on Texas Gas’ customers for remittance to the respective regulatory agencies or taxing authorities. The FERC approved the proposed tariff provision in a letter order issued July 31, 2003, without reference to any subsequently filed protests. After each of two subsequent requests for rehearing by the same Texas Gas customer, the FERC denied such requests for rehearing. The last of the two FERC orders denyin g the customer’s rehearing request was issued March 5, 2004.



Annual Fuel Filings


Texas Gas makes annual filings to the FERC to adjust its Fuel Retention Percentages (Fuel Tracker Filings), thereby allowing any under- or over-collections to be corrected by an adjustment in fuel rates.  On August 30, 2002, Texas Gas made its 2002 Fuel Tracker Filing (Docket No. RP02-515) reflecting a slight increase in fuel rates for the annual period ending October 31, 2003, and on August 30, 2003, Texas Gas made its 2003 Fuel Tracker Filing (Docket No. RP03-588) reflecting a general decrease in fuel rates for the annual period ending October 31, 2004. In separate actions the FERC issued orders accepting and suspending the tariff sheets, subject to refund, in both Fuel Tracker Filings. However, as more fully described in our Annual Report on Form 10-K for the year ended December 31, 2003, in both cases a Texas Gas customer filed for rehearing of the FERC orders. On March 4, 2004, the F ERC issued “Order on Rehearing” in Docket No. RP05-215, in which it denied both the customer’s request for rehearing and its request for a technical conference.  Since the Texas Gas customer who filed for rehearing of the FERC orders has not filed an appeal, and since the FERC had conditioned its acceptance of Texas Gas’ filing in Docket No. RP03-588 on its ruling in Docket No. RP02-515, Texas Gas considers that the FERC has taken final agency action on Texas Gas’ 2002 and 2003 Fuel Tracker Filings.


Employee Relations


The International Chemical Workers Union Council of the United Food and Commercial Workers International Union, Local 187C, represents 116 of our 375 field employees.  Our previous collective bargaining agreement with Local 187C expired on April 30, 2004.  A new contract that will expire April 30, 2007, was signed on April 12, 2004 with no major changes.


Summary of Commitments and Contingencies


The circumstances set forth in Note 3 to the financial statements included in our Form 10-K for the year ended December 31, 2003, appropriately represent the current status of our legal proceedings.  While no assurances may be given, we do not believe that the ultimate resolution of the foregoing matters taken as a whole, and after consideration of amounts accrued, insurance coverage, potential recovery from customers or other indemnification arrangements, will have a material adverse effect on our future financial position, results of operations or cash flow.



Note 3:  Financing


At June 30, 2004 and December 31, 2003, long-term debt issues were outstanding as follows (expressed in thousands):


TGT Pipeline Consolidated

  

As of

June 30, 2004

 

As of

December 31, 2003

Debentures:

   
 

7.250% due 2027

$ 100,000

 

$ 100,000

Notes:

   
 

8.625% due 2004

-

 

17,285

 

5.200% due 2018

185,000

 

185,000

 

4.600% due 2015

250,000

 

250,000

  

535,000

 

552,285

Unamortized debt discount

(4,013)

 

(4,162)

Current portion of long-term debt

-

 

(17,285)

Total long-term debt

 $ 530,987


 $ 530,838




Texas Gas

  

As of

June 30, 2004

 

As of

December 31, 2003

Debentures:

   
 

7.250% due 2027

$ 100,000

 

$ 100,000

Notes:




 

8.625% due 2004

-

 

17,285

 

4.600% due 2015

250,000

 

250,000

  

350,000

 

367,285

Unamortized debt discount

(2,284)


(2,371)

Current portion of long-term debt

-


(17,285)

Total long-term debt

$ 347,716


$ 347,629


In March 2004, Texas Gas repaid the remaining $17.3 million principal amount of its 8.625% notes due 2004.  Texas Gas retired $132.7 million principal amount of such notes in May 2003.  Our debentures and notes have restrictive covenants which provide, with certain exceptions, that neither TGT Pipeline nor Texas Gas nor any subsidiary may create, assume or suffer to exist any lien upon any property to secure any indebtedness unless the debentures and notes shall be equally and ratably secured.  TGT Pipeline relies on distributions and advances from Texas Gas to fulfill its debt obligations.  All our obligations are unsecured.  For a detailed discussion of our Financing, see our Annual Report on Form 10-K for the year ended December 31, 2003.



Note 4.  Related Parties


TGT Pipeline and Texas Gas are each party to a Services Agreement under which Loews provides such entities with certain financial, tax, technology and other corporate services as needed.  In exchange for such services, TGT Pipeline and Texas Gas reimburse Loews for their direct costs, including direct payroll and benefit costs of Loews employees providing the services, and an allocation of certain other indirect costs of Loews such as corporate overhead.  The costs for the three months and six months ended June 30, 2004, were $1.5 million and $3.2 million, respectively.  


Texas Gas makes advances to TGT Pipeline.  At June 30, 2004, the advances due Texas Gas by TGT Pipeline totaled $119.0 million, which is recorded as Advances to Affiliates on Texas Gas’ Condensed Statement of Financial Position.  TGT Pipeline makes advances to Holding Corp.  At June 30, 2004, the advances due TGT Pipeline by Holding Corp. totaled $7.8 million, which is recorded as Advances to Affiliates on TGT Pipeline’s Condensed Consolidated Statements of Financial Position.



Note 5.  Employee Benefits


Texas Gas sponsors a postretirement health care benefit plan that provides prescription drug coverage.  Texas Gas and its actuarial advisors determined that benefits provided by our plan as of January 1, 2004, were at least actuarially equivalent to Medicare Part D, and, accordingly, Texas Gas will be entitled to the subsidy provided in the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act).  Our January 1, 2004 accumulated postretirement benefit obligation (APBO) for the subsidy related to benefits attributed to past service decreased by $8.3 million.  The effect of the subsidy on the measurement of net periodic postretirement benefit costs for the six months ended June 30, 2004, including the effect of any amortization of the actuarial experience gain in the APBO as a component of the net amortization, the reduction in current period service cost due t o the subsidy, and the resulting reduction in interest cost on the APBO as a result of the subsidy, was $0.4 million.  There were no other significant changes in the benefit obligation or plan assets.


Texas Gas’ components of  Net Periodic Benefit Cost (in thousands) after impact of the Act retroactive to January 1, 2004:

 


 

Pension Benefits

 

Other Benefits

 

For the Three Months Ended June 30, 2004

 

For the Period May 17, 2003 through

June 30, 2003

  

For the Period April 1, 2003 through

May 17, 2003

 

For the Three Months Ended June 30, 2004

Service Cost

$   900


$  415



$    705

 

$    524

Interest Cost

1,425


648



856

 

1,478

Expected return on plan assets

(1,675)


(837)



(1,412)

 

(1,313)

Amortization of prior service cost

-


-



(358)

 

-

Amortization of accumulated  gains

-


-



-

 

(16)

Regulatory accrual

(650)


(226)



209

 

652

   Estimated net periodic benefit cost

$        -


$      -



$         -

 

$ 1,325






 

Pension Benefits

 

Other Benefits

 

For the Six Months Ended June 30, 2004

 

For the Period May 17, 2003 through

June 30, 2003

  

For the Period January 1, 2003 through

May 17, 2003

 

For the Six Months Ended June 30, 2004

Service Cost

$ 1,800


$ 415



$   1,631

 

$   1,048

Interest Cost

2,850


648



2,223

 

2,956

Expected return on plan assets

(3,350)


(837)



(3,278)

 

(2,626)

Amortization of prior service cost

-


-



(478)

 

-

Amortization of accumulated  gains

-


-



-

 

(33)

Regulatory accrual

(1,300)


(226)



(98)

 

1,305

   Estimated net periodic benefit cost

$         -


$       -



$          -

 

$   2,650


Texas Gas previously disclosed in its financial statements for the year ended December 31, 2003, that, due to its fully-funded status, it did not anticipate contributing to its pension plan in 2004.  As of June 30, 2004, no contributions had been made.  Prior to the Acquisition, Texas Gas’ Postretirement Benefits Other than Pensions was part of a multi-employer plan under Williams; however, for regulatory purposes Texas Gas’ liabilities and plan assets were accounted for separately.  After the Acquisition, Texas Gas’ Postretirement Benefits Other than Pension was segregated from Williams and is no longer considered a multi-employer plan.  




 



Item 2:  Management’s Discussion and Analysis of Financial Condition and Results of Operations


Texas Gas Transmission, LLC is a wholly-owned subsidiary of TGT Pipeline, LLC (TGT Pipeline). TGT Pipeline is a wholly-owned subsidiary of TGT Pipeline Holding Corporation (Holding Corp.), which is wholly-owned by Loews Corporation (Loews).  TGT Pipeline was formed in April 2003, to acquire all of the outstanding capital stock of Texas Gas Transmission Corporation from a subsidiary of The Williams Companies, Inc. (Williams) (Acquisition). Texas Gas Transmission Corporation subsequently converted to a limited liability company and is now known as Texas Gas Transmission, LLC (Texas Gas). TGT Pipeline has no assets, liabilities or operations other than its ownership of Texas Gas, $185 million outstanding debt and a note receivable from its parent, Holding Corp.  Texas Gas is the owner and operator of the pipeline system and related assets.



RESULTS OF OPERATIONS


Management has based its narrative analysis of our results of operations for the six-month period ended June 30, 2004 and June 30, 2003 on the combined results of operations for the entire period.  Material variances caused by the different bases of accounting have been disclosed where applicable.  The discussion throughout this narrative refers to TGT Pipeline and its consolidated wholly-owned subsidiary, Texas Gas (we/our/us), unless otherwise noted. The condensed consolidated TGT Pipeline financial statements include the accounts of TGT Pipeline and Texas Gas, after elimination of inter-company transactions.


Texas Gas’ operating revenues’ increase in 2004 by $1.2 million is primarily attributable to an increase of $3.2 million in short-term transportation and storage services during 2004 resulting from customer response to the volatility in natural gas prices. The increase was partially offset by a decrease in total deliveries during 2004 resulting primarily from 10% warmer weather during the winter season in our direct-serve markets during 2004 when compared to 2003 and less transportation by others revenue due to the expiration of transportation contracts on third party pipelines.  Total deliveries were 350.2 trillion British thermal units (Tbtu) and 357.6 Tbtu for the first six months of 2004 and 2003, respectively.


Texas Gas’ operating costs and expenses increase in 2004 by $3.7 million is primarily attributable to:

·

Accrual adjustments benefiting net income in 2003 of approximately $4.7 million primarily related to payroll and benefits that were not recurring in 2004,

·

$1.2 million higher premiums for property and liability insurance, and

·

$2.0 million increase in professional and contract services, primarily related to system maintenance, auditing and benefit consulting.


The increase was partially offset by:

·

$3.3 million lower depreciation in 2004 primarily from the reduction in depreciation due to the purchase price allocation,

·

$1.1 million in lower cost of gas transportation expenses primarily due to the expiration of transportation contracts on third party pipelines and

·

$2.2 million adjustment in system management tracker costs.


Texas Gas’ net income decreased by $2.7 million due to the reasons discussed above, as well as $1.0 million in lower interest income due to lower investment balances and reduced yields.  The decrease was partially offset by $1.4 million in lower tax expense due to lower pretax income.



CAPITAL RESOURCES AND LIQUIDITY


Texas Gas funds its operations and capital requirements with cash flows from operating activities and repayments of funds advanced to TGT Pipeline, if necessary.  TGT Pipeline’s only material commitment is to make interest payments on outstanding debt.  

 

Texas Gas makes advances to TGT Pipeline.  At June 30, 2004, the advances due Texas Gas by TGT Pipeline totaled $119.0 million.  The advances are represented by demand notes but are classified as noncurrent since Texas Gas does not anticipate demanding these funds during the next twelve months.  The interest rate on intercompany demand notes is the London Interbank Offered Rate on the first day of each three-month period plus one percent and is compounded monthly.

 

TGT Pipeline makes advances to Holding Corp.  At June 30, 2004, the advances due TGT Pipeline by Holding Corp. totaled $7.8 million.  The advances are represented by demand notes but are classified as noncurrent since TGT Pipeline does not anticipate demanding these funds during the next twelve months.  The interest rate on intercompany demand notes is the London Interbank Offered Rate on the first day of each three-month period plus one percent and is compounded monthly.


In March 2004, Texas Gas repaid the remaining $17.3 million outstanding principal amount of its 8.625% notes due 2004.  Texas Gas retired $132.7 million principal amount of such notes in May 2003.  See our Annual Report on Form 10-K for the year ended December 31, 2003 for a detailed discussion of our capital resources and liquidity.



Capital Expenditures


Based on the current rate structure, Texas Gas experiences higher revenue in the first and fourth quarters as compared to the second and third quarters.  Cash increases during the winter and spring due to higher revenue billings and, typically, decreases during the summer and fall due to increased capital expenditures and system maintenance.  Texas Gas’ capital expenditures for the first six months of 2004 and 2003 were $7.0 million and $2.5 million, respectively.  Capital expenditures for 2004 are expected to approximate $41.0 million.  Texas Gas expects to fund these capital expenditures through cash flows from its operating activities.




CRITICAL ACCOUNTING POLICIES


See Management’s Narrative Analysis of Results of Operations (MD&A) in our Annual Report on Form 10-K for the year ended December 31, 2003 for a detailed discussion of our critical accounting policies.  These policies include Regulatory Accounting, Revenue Subject to Refund, Contingent Liabilities, Impairment of Long-Lived Assets and Use of Estimates.



DISCLOSURE ABOUT FORWARD-LOOKING STATEMENTS


Documents we file with the Securities and Exchange Commission (SEC) may contain forward-looking statements.  In addition, our senior management and other authorized spokespersons may make forward-looking statements in print or orally to analysts, investors, the media and others.  Forward-looking statements concern plans, objectives, proposed capital expenditures and future events or performance, among other statements.  These statements reflect our current expectations and involve a number of risks and uncertainties.  Although we believe that our expectations are based on reasonable assumptions, actual results may differ materially from those suggested by the forward-looking statements.  Important factors that could cause actual results to differ include:


·

Regulatory issues, including those that affect allowed rates of return, terms and conditions of service, rate structures, depreciation and amortization policies, acquisitions, extension, abandonment of service or facilities.  No assurances can be given as to the financial outcome of our planned 2005 rate case relative to our current rates structure.

·

Residential, commercial and industrial growth in our service area.  The ability to grow our customer base and the pace of that growth are impacted by general business and economic conditions such as interest rates, inflation, fluctuations in the capital markets and the overall strength of the economy in the markets we serve.

·

Environmental legislation.  Our business will be subject to environmental legislation in all jurisdictions in which we operate, and any changes in such legislation could negatively affect our results of operations.

·

Potential changes in accounting policies by the Financial Accounting Standards Board (FASB), the FERC or the SEC for the energy industry might cause us to revise our financial accounting and/or disclosure in the future, which might change the way analysts measure our business or financial performance.

·

Our revenues are generated under contracts that expire periodically and must be renegotiated and extended or replaced.  Although we actively pursue the renegotiation, extension and/or replacement of these contracts we cannot make assurances that we will be able to extend or replace these contracts when they expire or that the terms of any renegotiated contracts will be as favorable as the existing contracts.  

·

The development of additional natural gas reserves requires significant capital expenditures by others for the exploration and development drilling and the installation of production, gathering, storage, transportation and other facilities that permit natural gas to be produced and delivered to our pipeline system.  Low prices for natural gas, regulatory limitations, or the lack of available capital for these projects could adversely affect the development of additional reserves and production, gathering, storage and pipeline transmission and import and export of natural gas supplies.

·

The continued threat of terrorism and the impact of retaliatory military and other action by the United States and its allies might lead to increased political, economic and financial market instability and volatility in price for natural gas, which could affect the market for our gas transmission operations.  In addition, future acts of terrorism could be directed against companies operating in the United States, including domestic energy facilities.  While we are taking steps that we believe are appropriate to protect our facilities from these threats, there is no assurance that we can completely secure our assets or completely protect them against a terrorist attack.

All of these factors are difficult to predict and many are beyond our control.  Accordingly, while we believe the assumptions underlying these forward-looking statements to be reasonable, there can be no assurance that these statements will approximate actual experience or that the expectations derived from them will be realized.  When used in our documents or oral presentations, the words “anticipate,” “believe,” “seek,” “intend,” “plan,” “estimate,” “expect,” “objective,” “projection,” “budget,” “forecast,” “goal,” or similar words or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may” are intended to identify forwarding-looking statements.


Forward-looking statements reflect our current expectations only as of the date they are made.  We assume no duty to update these statements should expectations change or actual results differ from current expectations except as required by applicable laws and regulations.  




Item 4.  Disclosure Controls And Procedures


TGT Pipeline and Texas Gas maintain a system of disclosure controls and procedures which is designed to ensure that information required to be disclosed in reports filed or submitted under the federal securities laws, including this report, is recorded, processed, summarized and reported on a timely basis.  These disclosure controls and procedures are designed to ensure that information required to be disclosed under the federal securities laws is accumulated and communicated to the management of TGT Pipeline and Texas Gas on a timely basis to allow assessment of required disclosures.

 

The principal executive officer and principal financial officer of TGT Pipeline and Texas Gas have conducted an evaluation of the disclosure controls and procedures as of the end of the period covered by this report.  Based on this evaluation, the principal executive officer and principal financial officer have each concluded that the disclosure controls and procedures are adequate for their intended purpose.


There was no change in the internal control over financial reporting of TGT Pipeline or Texas Gas identified in connection with the foregoing evaluation that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting of TGT Pipeline or Texas Gas.



PART II – OTHER INFORMATION


 Item 6.  Exhibits and Reports on Form 8-K


a)

The documents listed below are being filed on behalf of TGT Pipeline, LLC and Texas Gas Transmission, LLC and are incorporated herein by reference from the documents indicated and made a part hereof.    Copies of the instruments below have been included herewith.


Exhibit

Designation

    
 

Registrant

 

Nature of Exhibit

31.1

 

TGT Pipeline, LLC

Texas Gas Transmission, LLC

 

Certification of H. Dean Jones, II, President, pursuant to Rule 13a-14(a) and Rule 15d-14(a)

31.2

 

TGT Pipeline, LLC

Texas Gas Transmission, LLC

 

Certification of Jamie L. Buskill, Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) and Rule 15d-14(a)

32.1

 

TGT Pipeline, LLC

Texas Gas Transmission, LLC

 

Certification of H. Dean Jones, II, President, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

 

TGT Pipeline, LLC

Texas Gas Transmission, LLC

 

Certification of Jamie L. Buskill, Vice President and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     


b)

There were no reports on Form 8-K filed during the quarter ended June 30, 2004.






SIGNATURE



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized.

TGT Pipeline, LLC

   Texas Gas Transmission, LLC               

Registrants



Dated:  July 30, 2004

/s/  Jamie L. Buskill

     

Vice President and

 

      Jamie L. Buskill

Chief Financial Officer

   





















EXHIBIT 31.1


I, H. Dean Jones II, certify that:

1)

I have reviewed this quarterly report on Form 10-Q of TGT Pipeline, LLC and Texas Gas Transmission, LLC;

2)

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

3)

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

4)

The registrants’ other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrants and have:

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

evaluated the effectiveness of the registrants’ disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)

disclosed in this report any change in the registrants’ internal control over financial reporting that occurred during the registrants’ most recent fiscal quarter (the registrants’ fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants’ internal control over financial reporting; and

5)

The registrants’ other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants’ auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent function):

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants’ ability to record, process, summarize and report financial information; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’ internal control over financial reporting.



Dated:  July 30, 2004

/s/ H. Dean Jones II


 H. Dean Jones II

President




          EXHIBIT 31.2


I, Jamie L. Buskill, certify that:

1)

I have reviewed this quarterly report on Form 10-Q of TGT Pipeline, LLC and Texas Gas Transmission, LLC;

2)

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

3)

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

4)

The registrants’ other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrants and have:

a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrants, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

evaluated the effectiveness of the registrants’ disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)

disclosed in this report any change in the registrants’ internal control over financial reporting that occurred during the registrants’ most recent fiscal quarter (the registrants’ fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants’ internal control over financial reporting; and

5)

The registrants’ other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants’ auditors and the audit committee of the registrants’ board of directors (or persons performing the equivalent function):

a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants’ ability to record, process, summarize and report financial information; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants’ internal control over financial reporting.



Dated:  July 30, 2004

/s/ Jamie L. Buskill


Jamie L. Buskill

Vice President and Chief Financial Officer




EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of TGT Pipeline, LLC (TGT Pipeline) and Texas Gas Transmission, LLC (Texas Gas) on Form 10-Q for the periods ending June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, H. Dean Jones II, President and Principal Executive Officer of Texas Gas and President and Principal Executive Officer of TGT Pipeline, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of TGT Pipeline and Texas Gas.



/s/ H. Dean Jones II


H. Dean Jones II

President (Principal Executive Officer)

TGT Pipeline, LLC

Texas Gas Transmission, LLC

July 30, 2004









 EXHIBIT 32.2


CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of TGT Pipeline, LLC (TGT Pipeline) and Texas Gas Transmission, LLC (Texas Gas) on Form 10-Q for the periods ending June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jamie L. Buskill, Vice President and Principal Financial Officer of TGT Pipeline and Vice President and Principal Financial Officer of Texas Gas, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of TGT Pipeline and Texas Gas.



/s/  Jamie L. Buskill                   


Jamie L. Buskill

Vice President and Chief Financial Officer (Principal Financial Officer)

TGT Pipeline, LLC

Texas Gas Transmission, LLC

July 30, 2004