ANR PIPELINE CO - 10-Q Quarterly Report

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

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FORM 10-Q

(MARK ONE)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003

OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 1-7320

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ANR PIPELINE COMPANY
(Exact Name of Registrant as Specified in its Charter)

DELAWARE 38-1281775
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)

EL PASO BUILDING
1001 LOUISIANA STREET 77002
HOUSTON, TEXAS (Zip Code)
(Address of Principal Executive Offices)

Telephone Number: (713) 420-2600

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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.

Common Stock, par value $1 per share. Shares outstanding on August 13,
2003: 1,000

ANR PIPELINE COMPANY MEETS THE CONDITIONS OF GENERAL INSTRUCTION H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH A REDUCED
DISCLOSURE FORMAT AS PERMITTED BY SUCH INSTRUCTION.
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ANR PIPELINE COMPANY

TABLE OF CONTENTS

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Below is a list of terms that are common to our industry and used
throughout this document:

When we refer to cubic feet measurements, all measurements are at a
pressure of 14.73 pounds per square inch.

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PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ANR PIPELINE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS)
(UNAUDITED)

See accompanying notes.

1

ANR PIPELINE COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)

See accompanying notes.

2

ANR PIPELINE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)

See accompanying notes.

3

ANR PIPELINE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

We are an indirect wholly owned subsidiary of El Paso Corporation (El
Paso). We prepared the Quarterly Report on Form 10-Q under the rules and
regulations of the United States Securities and Exchange Commission. Because
this is an interim period filing presented using a condensed format, it does not
include all of the disclosures required by generally accepted accounting
principles. You should read it along with our Current Report on Form 8-K/A dated
May 20, 2003, and our Current Report on Form 8-K filed June 4, 2003 (the
Combined Historical Financial Statements), which includes a summary of our
significant accounting policies and our audited combined financial statements
and related footnotes as of December 31, 2002 and 2001 and for the three years
ended December 31, 2002. As discussed below, our historical financial
information has been restated to reflect the contribution of El Paso Great
Lakes, Inc. to us by our parent for all periods presented. The financial
statements as of June 30, 2003, and for the quarters and six months ended June
30, 2003 and 2002, are unaudited. We derived the balance sheet as of December
31, 2002, from the Combined Historical Financial Statements. In our opinion, we
have made all adjustments which are of a normal, recurring nature to fairly
present our interim period results. Due to the seasonal nature of our business,
information for interim periods may not indicate the results of operations for
the entire year. In addition, prior period information presented in these
financial statements also includes reclassifications which were made to conform
to the current period presentation. These reclassifications have no effect on
our previously reported net income or stockholder's equity.

Acquisition of El Paso Great Lakes

In March 2003, American Natural Resources Company, an affiliate and
subsidiary of El Paso, contributed to us all of the common stock of its wholly
owned subsidiary, El Paso Great Lakes, Inc. El Paso Great Lakes had a net book
value at the time of its contribution of approximately $247 million. El Paso
Great Lakes' principal asset consists of its effective 50 percent interest in
Great Lakes Gas Transmission Limited Partnership, a Delaware limited
partnership, which is accounted for under the equity method. It held this
interest through a direct investment in the Great Lakes Gas Transmission Limited
Partnership and indirectly through its 50 percent ownership of Great Lakes Gas
Transmission Company. Since both El Paso Great Lakes and our common stock were
owned by El Paso at the time of the contribution, we were required to reflect
the contribution at its historical cost and its operating results in our
financial statements for all periods presented. Our financial statements reflect
our ownership of El Paso Great Lakes in the earliest period presented combined
with our historical results. Our combined net income for the quarters and six
months ended June 30, 2002 is presented below.

4

Significant Accounting Policies

Our accounting policies are consistent with those discussed in our Combined
Historical Financial Statements, except as discussed below:

Accounting for Costs Associated with Exit or Disposal Activities. As of
January 1, 2003, we adopted Statement of Financial Accounting Standards (SFAS)
No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS
No. 146 requires that we recognize costs associated with exit or disposal
activities when they are incurred rather than when we commit to an exit or
disposal plan. There was no initial financial statement impact of adopting this
standard.

Accounting for Guarantees. On January 1, 2003, we adopted Financial
Accounting Standards Board Interpretation (FIN) No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. FIN No. 45 requires that we record a liability for all
guarantees, including financial performance and fair value guarantees, issued
after December 31, 2002, at fair value when they are issued. There was no
initial financial statement impact of adopting this standard.

Accounting for Regulated Operations. Our natural gas pipeline is subject
to the regulations and accounting procedures of the Federal Energy Regulatory
Commission (FERC) in accordance with the Natural Gas Act of 1938 and Natural Gas
Policy Act of 1978. In 1996 we discontinued the application of regulatory
accounting principles under SFAS No 71, Accounting for the Effects of Certain
Types of Regulation. We continue to evaluate the application of SFAS No. 71 for
changes in the competitive environment and our operating cost structures. See a
further discussion of our accounting for regulated operations in our Combined
Historical Financial Statements.

2. DEBT AND CREDIT FACILITIES

In April 2003, El Paso entered into a new $3 billion revolving credit
facility, with a $1.5 billion letter of credit sublimit, which matures on June
30, 2005. The $3 billion revolving credit facility has a borrowing cost of LIBOR
plus 350 basis points and letter of credit fees of 350 basis points. This
facility replaces El Paso's previous $3 billion revolving credit facility.
Approximately $1 billion of El Paso financing arrangements (including leases,
letters of credit and other facilities) were also amended to conform El Paso's
obligations to the new $3 billion revolving credit facility. We, along with El
Paso and our affiliates, Tennessee Gas Pipeline Company and El Paso Natural Gas
Company, are borrowers under the $3 billion revolving credit facility, and El
Paso's equity in several of its subsidiaries, including us, collateralizes the
$3 billion revolving credit facility and the other financing arrangements. We
are only liable for amounts we borrow under the $3 billion revolving credit
facility. As of June 30, 2003, $1.5 billion was outstanding and $1.1 billion in
letters of credit were issued under the $3 billion facility, none of which were
borrowed by or issued on behalf of us.

In March 2003, we issued $300 million of senior unsecured notes with an
annual interest rate of 8.875%. The notes mature in 2010. Net proceeds of $288
million were used to pay off intercompany payables of $263 million. The
remaining net proceeds of $25 million were retained for future capital
expenditure requirements.

Under our revolving credit facility and other credit indentures, we are
subject to a number of restrictions and covenants. The most restrictive of these
include (i) limitations on the incurrence of additional debt, based on a ratio
of debt to EBITDA (as defined in the agreements); (ii) limitations on the use of
proceeds from borrowings; (iii) limitations, in some cases, on transaction with
our affiliates; (iv) limitations on the incurrence of liens; (v) potential
limitations on our ability to declare and pay dividends; and (vi) potential
limitations on our ability to participate in the El Paso cash management
program. For the six months ended June 30, 2003, we were in compliance with
these covenants.

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3. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Grynberg. In 1997, we and a number of our affiliates were named defendants
in actions brought by Jack Grynberg on behalf of the U.S. Government under the
False Claims Act. Generally, these complaints allege an industry-wide conspiracy
to underreport the heating value as well as the volumes of the natural gas
produced from federal and Native American lands, which deprived the U.S.
Government of royalties. The plaintiff in this case seeks royalties that he
contends the government should have received had the volume and heating value of
natural gas produced from royalty properties been differently measured,
analyzed, calculated and reported, together with interest, treble damages, civil
penalties, expenses and future injunctive relief to require the defendants to
adopt allegedly appropriate gas measurement practices. No monetary relief has
been specified in this case. These matters have been consolidated for pretrial
purposes (In re: Natural Gas Royalties Qui Tam Litigation, U.S. District Court
for the District of Wyoming, filed June 1997). In May 2001, the court denied the
defendants' motions to dismiss. Discovery is proceeding. Our costs and legal
exposure related to these lawsuits and claims are not currently determinable.

Will Price (formerly Quinque). We and a number of our affiliates were
named defendants in Quinque Operating Company, et al v. Gas Pipelines and Their
Predecessors, et al, filed in 1999 in the District Court of Stevens County,
Kansas. Quinque has been dropped as a plaintiff and Will Price has been added.
This class action complaint alleges that the defendants mismeasured natural gas
volumes and heating content of natural gas on non-federal and non-Native
American lands. The plaintiffs in this case seek certification of a nationwide
class of natural gas working interest owners and natural gas royalty owners to
recover royalties that the plaintiffs contend these owners should have received
had the volume and heating value of natural gas produced from their properties
been differently measured, analyzed, calculated and reported, together with
prejudgment and postjudgment interest, punitive damages, treble damages,
attorney's fees, costs and expenses, and future injunctive relief to require the
defendants to adopt allegedly appropriate gas measurement practices. No monetary
relief has been specified in this case. Plaintiffs' motion for class
certification was denied on April 10, 2003. Plaintiffs' motion to file another
amended petition to narrow the proposed class to royalty owners in wells in
Kansas, Wyoming and Colorado was granted on July 28, 2003. Our costs and legal
exposure related to these lawsuits and claims are not currently determinable.

In addition to the above matters, we are also a named defendant in numerous
lawsuits and governmental proceedings that arise in the ordinary course of our
business.

For each of our outstanding legal matters, we evaluate the merits of the
case, our exposure to the matter, possible legal or settlement strategies and
the likelihood of an unfavorable outcome. If we determine that an unfavorable
outcome is probable and can be estimated, we establish the necessary accruals.
As of June 30, 2003, we had no accruals for our outstanding legal matters.

Environmental Matters

We are subject to federal, state and local laws and regulations governing
environmental quality and pollution control. These laws and regulations require
us to remove or remedy the effect on the environment of the disposal or release
of specified substances at current and former operating sites. As of June 30,
2003, we had accrued approximately $26 million for expected remediation costs
and associated onsite, offsite and groundwater technical studies and for related
environmental legal costs, which we anticipate incurring through 2027. Our
accrual at June 30, 2003 was based on the most likely outcome that can be
reasonably estimated. Below is a reconciliation of our accrued liability as of
June 30, 2003 (in millions):

Balance as of January 1, 2003............................... $26
Additions/adjustments for remediation activities............ 2
Payments for remediation activities......................... (3)
Other changes, net.......................................... 1
---
Balance as of June 30, 2003................................. $26
===

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In addition, we expect to make capital expenditures for environmental
matters of approximately $28 million in the aggregate for the years 2003 through
2008. These expenditures primarily relate to compliance with clean air
regulations. For the remainder of 2003, we estimate that our total expenditures
will be approximately $4 million. In addition, all of this amount is being
expended under government directed clean-up plans.

CERCLA Matters. We have received notice that we could be designated, or
have been asked for information to determine whether we could be designated, as
a Potentially Responsible Party (PRP) with respect to four active sites under
the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) or state equivalents. We have sought to resolve our liability as a PRP
at these sites through indemnification by third parties and settlements which
provide for payment of our allocable share of remediation costs. As of June 30,
2003, we have estimated our share of the remediation costs at these sites to be
approximately $1 million. Since the clean-up costs are estimates and are subject
to revision as more information becomes available about the extent of
remediation required, and because in some cases we have asserted a defense to
any liability, our estimates could change. Moreover, liability under the federal
CERCLA statute is joint and several, meaning that we could be required to pay in
excess of our pro rata share of remediation costs. Our understanding of the
financial strength of other PRPs has been considered, where appropriate, in
estimating our liabilities.

It is possible that new information or future developments could require us
to reassess our potential exposure related to environmental matters. We may
incur significant costs and liabilities in order to comply with existing
environmental laws and regulations. It is also possible that other developments,
such as increasingly strict environmental laws and regulations and claims for
damages to property, employees, other persons and the environment resulting from
our current or past operations, could result in substantial costs and
liabilities in the future. As this information becomes available, or other
relevant developments occur, we will adjust our accrual amounts accordingly.
While there are still uncertainties relating to the ultimate costs we may incur,
based upon our evaluation and experience to date, we believe the reserves are
adequate.

Rates and Regulatory Matters

Order No. 637. Order No. 637 made five major changes to the structure of
pipeline tariffs and services, and required a compliance filing by each
pipeline. Among the changes, Order No. 637 impacted the manner in which
pipelines conduct their operational activities, including how they release
capacity, segment capacity, manage imbalance services, issue operational flow
orders, and impose pipeline penalties. We filed our compliance proposal in June
2000, and subsequently filed an Offer of Settlement in July 2001. On December 2,
2002, we sought rehearing of an October 31, 2002 FERC order responding to the
United States Court of Appeals for the District of Columbia Circuit's order
remanding various aspects of order No. 637. In December 2001, the FERC approved
the Settlement subject to certain modifications and conditions. Due to the
modifications and conditions, and after meeting with parties to our Order No.
637 proceeding, we submitted a modified Settlement for approval by the FERC.

On April 9, 2003, the FERC issued an order accepting the modified
Settlement, but requiring further changes and in particular rejecting our
proposed limitations on the ability of certain Replacement Shippers to use
segmenting to reserve point capacity and, therefore, firm capacity on a primary
firm basis. On April 24, 2003, we advised the FERC that, due to the required
changes, we were unwilling to accept the settlement as modified by its April 9
Order. On May 8, 2003, we met with parties to the proceedings to determine
whether the settlement could be preserved through further negotiations. On May
9, 2003, we filed for rehearing of the April 9 order. As a result of our May 8,
meeting with the parties, on May 28, 2003, we filed a further modified
settlement with the Commission. We cannot predict the outcome of the filed
settlement or our requests for rehearing.

Marketing Affiliate NOPR. In September 2001, the FERC issued a Notice of
Proposed Rulemaking (NOPR). The NOPR proposes to apply the standards of conduct
governing the relationship between interstate pipelines and marketing affiliates
to all energy affiliates. The proposed regulations, if adopted by the FERC,
would dictate how we conduct business and interact with our energy affiliates.

7

We have filed comments with the FERC addressing our concerns with the proposed
rules, participated in a public conference, and filed additional comments. At
this time, we cannot predict the outcome of the NOPR, but adoption of the
regulations in their proposed form would, at a minimum, place additional
administrative and operational burdens on us.

Negotiated Rate Policy. In July 2002, the FERC issued a Notice of Inquiry
(NOI) that sought comments regarding its 1996 policy of permitting pipelines to
enter into negotiated rate transactions. We have entered into those transactions
over the years, and the FERC is now reviewing whether negotiated rates should be
capped, whether or not the "recourse rate" (a cost-of-service based rate)
continues to safeguard against a pipeline exercising market power and other
issues related to negotiated rate programs. El Paso's pipelines and others filed
comments on the NOI.

In July 2003, the FERC issued modifications to its negotiated rate policy
applicable to interstate natural gas pipelines. The new policy has two primary
changes. First, the FERC will no longer permit the pricing of negotiated rates
based on natural gas commodity price indices, although it will permit current
contracts negotiated on that basis to continue until the end of the applicable
contract period. Second, the FERC is imposing new filing requirements on
pipelines to ensure the transparency of negotiated rate transactions.

Interim Rule on Cash Management. In August 2002, the FERC issued a NOPR
proposing, inter alia, that all cash management or money pool arrangements
between a FERC-regulated subsidiary and its non-FERC regulated parent be in
writing and that, as a condition of participating in such an arrangement, the
FERC-regulated entity maintain a minimum proprietary capital balance of 30
percent and both it and its parent maintain investment grade credit ratings.
After receiving written comments and hearing industry participants' concerns at
a public conference in September 2002, the FERC issued an Interim Rule on Cash
Management on June 26, 2003, which did not adopt the proposed limitations on
entry into or participating in cash management programs. Instead, the Interim
Rule requires natural gas companies to maintain up-to-date documentation
authorizing the establishment of the cash management programs in which they
participate and supporting all deposits into, borrowings and interest from, and
interest expense paid to such programs.

The Interim Rule also seeks comments on a proposed reporting requirement
that a FERC-regulated entity file cash management agreements and any changes
thereto within ten days and that it notify the FERC within five days when its
proprietary capital ratio falls below 30 percent (i.e., its long-term debt-to
equity ratio rises above 70 percent) and when it subsequently returns to or
exceeds 30 percent. We filed comments on the Interim Rule on August 7, 2003.

Emergency Reconstruction of Interstate Natural Gas Facilities Final
Rule. On May 19, 2003, the FERC issued a Final Rule that amends its regulations
to enable natural gas interstate pipeline companies, in emergency situations
resulting in sudden, unanticipated loss of natural gas or capacity, to replace
facilities when immediate action is required to restore service for the
protection of life or health or for the maintenance of physical property.
Specifically, the Final Rule permits a pipeline to replace mainline facilities
using a route other than an existing right-of-way, to commence construction
without being subject to a 45-day waiting period, and to undertake projects that
exceed the existing blanket cost constraints. Lastly, the Final Rule requires
that landowners be notified of potential construction but provides for a
possible waiver of the 30-day waiting period.

Pipeline Safety Notice of Proposed Rulemaking. In January 2003, the U.S.
Department of Transportation issued a NOPR proposing to establish a rule
requiring pipeline operators to develop integrity management programs to
comprehensively evaluate their pipelines, and take measures to protect pipeline
segments located in what the notice refers to as "high consequence areas." The
proposed rule resulted from the enactment of the Pipeline Safety Improvement Act
of 2002, a new bill signed into law in December 2002. Comments on the NOPR were
filed on April 30, 2003. At this time, we cannot predict the outcome of this
rulemaking.

FERC Inquiry. In February 2003, El Paso received a letter from the Office
of the Chief Accountant at the FERC requesting details of its announcement of
2003 asset sales and plans for Southern Natural Gas (an El Paso subsidiary) and
us to issue a combined $700 million of long-term notes. The letter requested
that

8

El Paso explain how it intended to use the proceeds from the issuance of the
notes and if the notes will be included in the two regulated companies' capital
structure for rate-setting purposes. Our response to the FERC was filed on March
12, 2003. On April 2, 2003, we received an additional request for information,
which we fully responded on April 15, 2003.

While the outcome of our outstanding legal matters, environmental matters
and rates and regulatory matters cannot be predicted with certainty, based on
current information and our existing accruals, we do not expect the ultimate
resolution of these matters to have a material adverse effect on our financial
position, operating results or cash flows. However, it is possible that new
information or future developments could require us to reassess our potential
exposure related to these matters. It is also possible that the outcome of these
matters could impact our credit rating and that of our parent. Further, for
environmental matters, it is also possible that other developments, such as
increasingly strict environmental laws and regulations and claims for damages to
property, employees, other persons and the environment resulting from our
current or past operations, could result in substantial costs and liabilities in
the future. As new information for our outstanding legal matters, environmental
matters and rates and regulatory matters becomes available, or relevant
developments occur, we will review our accruals and make any appropriate
adjustments. The impact of these changes may have a material effect on our
results of operations, our financial position, and on our cash flows in the
period the event occurs.

4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES AND RELATED PARTY TRANSACTIONS

Great Lakes

In March 2003, American Natural Resources contributed the common stock of
its wholly owned subsidiary, El Paso Great Lakes, Inc. to us. El Paso Great
Lakes principal asset consists of its effective 50 percent ownership interest in
Great Lakes Gas Transmission Limited Partnership. Great Lakes Gas Transmission
owns and operates a 2,115 mile interstate natural gas pipeline that transports
gas to customers in the midwestern and northeastern United States and Canada.

Summarized financial information of our proportionate share of our
investment in Great Lakes Gas Transmission for the quarters and six months ended
June 30, 2003 and 2002 are as follows:

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(1)Our proportionate share of net income includes our share of taxes payable by
partners recorded by Great Lakes Gas Transmission.

Transactions with Affiliates

We participate in El Paso's cash management program which matches
short-term cash surpluses and needs of participating affiliates, thus minimizing
total borrowings from outside sources. Our continued participation in the
program may be dependent on any final rule issued by the FERC in connection with
its Interim Rule on Cash Management as discussed in Note 3. In February 2003, we
made non-cash distributions of $528 million in outstanding affiliated
receivables to our parent, which were treated as a reduction of our equity. As
of June 30, 2003 and December 31, 2002, we had advances to El Paso of $403
million and $560 million. The market rate of interest at June 30, 2003 and
December 31, 2002 was 1.3% and 1.5%. These receivables are due upon demand.
However, as of June 30, 2003 and December 31, 2002, we have classified these
amounts as non-current notes receivables from affiliates because we do not
anticipate settlement within the next twelve months.

9

At June 30, 2003 and December 31, 2002, we had accounts receivable from
related parties of $5 million and $14 million. In addition, we had accounts
payable to related parties of $14 million and $10 million at June 30, 2003, and
December 31, 2002. These balances arose in the normal course of business.

At June 30, 2003 and December 31, 2002, we had payables to an affiliate of
$200 million and $204 million for obligations related to a non-cancelable lease
on our former headquarters. Of this amount, $8 million was classified as current
at June 30, 2003 and December 31, 2002. This payable resulted from the
relocation of our headquarters from Detroit, Michigan to Houston, Texas and the
transfer of this lease to our affiliate from a third party. The lease payments
are due semi-annually.

The following table shows revenues and charges from our affiliates for the
quarters and six months ended June 30, 2003 and 2002:

10

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

The information contained in Item 2 updates, and should be read in
conjunction with, the information disclosed in our Combined Historical Financial
Statements, which include our audited combined financial statements and related
footnotes as of December 31, 2002 and 2001 and for the three years ended
December 31, 2002, our combined business and property discussion as of March 31,
2003 and our combined managements' discussion and analysis of financial
condition and results of operations for the three years ended December 31, 2002
and the quarters ended March 31, 2003 and 2002, in addition to the financial
statements and notes presented in Item 1 of this Form 10-Q.

RESULTS OF OPERATIONS

We use earnings before interest and income taxes (EBIT) to assess the
operating results and effectiveness of our business. We define EBIT as net
income adjusted for (i) items that do not impact our income from continuing
operations such as the impact of an accounting change, (ii) income taxes, (iii)
interest and debt expense and (iv) affiliated interest income. We exclude
interest and debt expense so that investors may evaluate our operating results
without regard to our financing methods. Our business consists of our
consolidated operations as well as our investments in unconsolidated affiliates.
As a result, we believe EBIT, which includes the results of our consolidated and
unconsolidated operations, is useful to our investors because it allows them to
more effectively evaluate the operating performance of our business and
investments. In addition, this is the measurement used by El Paso to evaluate
the operating performance of its business segments. This measurement may not be
comparable to measurements used by other companies and should not be used as a
substitute for net income or other performance measures such as operating income
or operating cash flow. As discussed in Item 1, Note 1, in March 2003, El Paso
Great Lakes was contributed to us by our parent. Our historical financial
statements have been restated to reflect this transaction in the earliest period
presented in this filing. The following is a reconciliation of our operating
results to our EBIT and our EBIT to our net income for the periods ended June
30:

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(1) Throughput includes volumes associated with our 50 percent equity investment
in Great Lakes. Prior period volumes have been restated to reflect our
current year presentation which includes billable transportation throughput
volume for storage withdrawal.

Second Quarter 2003 Compared to Second Quarter 2002

Operating revenues for the quarter ended June 30, 2003, were $2 million
higher than the same period in 2002. The increase was due from higher realized
prices in 2003 on the resale of natural gas purchased from the Dakota
gasification facility of $5 million and $4 million of sales of operational
natural gas recoveries in 2003 that did not occur in 2002. The increase was
offset by $9 million of lower storage revenues due to timing of revenues
realized in 2003 versus 2002 and lower contracted volumes in 2003.

11

Operating expenses for the quarter ended June 30, 2003, were $3 million
higher than the same period in 2002. The increase was due to higher prices on
natural gas purchased at the Dakota gasification facility of $4 million, a
favorable corporate overhead allocation adjustment received in the second
quarter of 2002 of $5 million and the reversal of a $3 million liability in the
second quarter 2002 related to facilities in Detroit that were no longer being
used. The increase was partially offset by additional accruals in the second
quarter of 2002 of $10 million on estimated liabilities to assess and remediate
our environmental exposure due to an ongoing evaluation of the exposure at our
facilities.

Other income for the quarter ended June 30, 2003, was $6 million lower than
the same period in 2002. The decrease was due to the favorable resolution of
uncertainties associated with the sale of our interest in the Iroquois pipeline
system of $4 million in the second quarter of 2002 and $2 million of lower
equity earnings from our investment in Great Lakes primarily due to lower
pension credits in 2003 recorded by Great Lakes.

Six Months Ended 2003 Compared to Six Months Ended 2002

Operating revenues for the six months ended June 30, 2003, were $31 million
higher than the same period in 2002. The increase was primarily due to sales of
operational natural gas recoveries in 2003 of $17 million that did not occur in
2002 and $14 million from higher realized prices in 2003 on the resale of
natural gas purchased from the Dakota gasification facility. Also contributing
to the increase were higher transportation revenues of $5 million primarily due
to colder winter weather in 2003. The increase was offset by $3 million of lower
storage revenues due to lower contracted volumes in 2003.

Operating expenses for the six months ended June 30, 2003, were $22 million
higher than the same period in 2002. The increase was primarily due to higher
prices on natural gas purchased at the Dakota gasification facility of $13
million. Also contributing to the increase was $6 million from lower benefit
costs in 2002, a favorable corporate overhead allocation adjustment received in
the second quarter of 2002 of $5 million, and the reversal of a $3 million
liability in the second quarter 2002 related to facilities in Detroit that were
no longer being used. The increase was partially offset by additional accruals
in the second quarter of 2002 of $10 million on estimated liabilities to assess
and remediate our environmental exposure due to an ongoing evaluation of the
exposure at our facilities.

Other income for the six months ended June 30, 2003, was $10 million lower
than the same period in 2002. The decrease was a result of lower equity earnings
from our investment in Great Lakes of $5 million primarily due to a favorable
use tax settlement recorded by Great Lakes in the first quarter 2002 and the
favorable resolution of uncertainties associated with the sale of our interest
in the Iroquois pipeline system of $4 million in the second quarter of 2002.

INTEREST AND DEBT EXPENSE

Interest and debt expense for the quarter and six months ended June 30,
2003, was $7 million and $10 million higher than the same periods in 2002 due to
the issuance of $300 million senior unsecured notes with an annual interest rate
of 8.875% in March 2003.

AFFILIATED INTEREST INCOME, NET

Second Quarter 2003 Compared to Second Quarter 2002

Affiliated interest income, net for the quarter ended June 30, 2003, was $1
million lower than the same period in 2002 due primarily to lower average
advances to El Paso under our cash management program in 2003, and lower
short-term interest rates in 2003. The average advance balance due from El Paso
of $337 million for the second quarter of 2002 decreased to $170 million in
2003. The average short-term interest rates for the second quarter decreased
from 1.9% in 2002 to 1.3% in 2003.

12

Six Months Ended 2003 Compared to Six Months Ended 2002

Affiliated interest income, net for the six months ended June 30, 2003, was
$2 million lower than the same period in 2002 due primarily to lower average
advances to El Paso under our cash management program in 2003 and lower
short-term interest rates in 2003. The average advance balance due from El Paso
of $326 million for the first six months of 2002 decreased to $64 million in
2003. The average short-term interest rates decreased from 1.9% in 2002 to 1.3%
in 2003.

INCOME TAXES

Our effective tax rates were different than the statutory rate of 35
percent primarily due to state income taxes.

OTHER

WestLeg. In June 2003, the FERC granted certificate authorization for our
proposed WestLeg project expansion. The WestLeg project will expand the capacity
of our system by about 220 MMcf/d by looping our Madison Lateral line, located
in Wisconsin's Walworth and Rock Counties and in Illinois' McHenry County, and
modifying our existing Beloit Lateral line in Rock County, WI. The estimated
cost of the project is $42 million and the anticipated in-service date of the
project is November 2004.

COMMITMENTS AND CONTINGENCIES

See Item 1, Financial Statements, Note 3, which is incorporated herein by
reference.

13

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Where any forward-looking statement includes a statement of the
assumptions or bases underlying the forward-looking statement, we caution that,
while we believe these assumptions or bases to be reasonable and to be made in
good faith, assumed facts or bases almost always vary from the actual results,
and the differences between assumed facts or bases and actual results can be
material, depending upon the circumstances. Where, in any forward-looking
statement, we or our management express an expectation or belief as to future
results, that expectation or belief is expressed in good faith and is believed
to have a reasonable basis. We cannot assure you, however, that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "expect," "estimate," "anticipate" and similar expressions will
generally identify forward-looking statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information updates, and you should read it in conjunction with,
information disclosed in Part II, Item 7A in our Combined Historical Financial
Statements, in addition to the information presented in Items 1 and 2 of this
Quarterly Report on Form 10-Q.

In March 2003, we issued $300 million of senior unsecured notes with an
annual interest rate of 8.875% due 2010. Other than this issuance, there were no
material changes in our quantitative and qualitative disclosures about market
risks from those as of December 31, 2002.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Controls and Procedures. Under the supervision and with the
participation of management, including our principal executive officer and
principal financial officer, we have evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (Disclosure Controls)
and internal controls over financial reporting (Internal Controls) as of the end
of the period covered by this Quarterly Report pursuant to Rules 13a-15 and
15d-15 under the Securities Exchange Act of 1934 (Exchange Act).

Definition of Disclosure Controls and Internal Controls. Disclosure
Controls are our controls and other procedures that are designed to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified under the Exchange Act. Disclosure Controls include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file under the Exchange
Act is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure. Internal Controls are procedures
which are designed with the objective of providing reasonable assurance that (1)
our transactions are properly authorized; (2) our assets are safeguarded against
unauthorized or improper use; and (3) our transactions are properly recorded and
reported, all to permit the preparation of our financial statements in
conformity with generally accepted accounting principles.

Limitations on the Effectiveness of Controls. ANR Pipeline Company's
management, including the principal executive officer and principal financial
officer, does not expect that our Disclosure Controls and Internal Controls will
prevent all errors and all fraud. The design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the company have
been detected. These inherent limitations include the realities that judgments
in decision-making can be faulty, and that breakdowns can occur because of
simple errors or mistakes. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of controls also
is based in part upon certain assumptions about the likelihood of future events.
Therefore, a control system, no matter how well conceived and operated, can
provide only reasonable, not
14

absolute, assurance that the objectives of the control system are met. Our
Disclosure Controls and Internal Controls are designed to provide such
reasonable assurances of achieving our desired control objectives, and our
principal executive officer and principal financial officer have concluded that
our Disclosure Controls and Internal Controls are effective in achieving that
level of reasonable assurance.

No Significant Changes in Internal Controls. We have sought to determine
whether there were any "significant deficiencies" or "material weaknesses" in
ANR Pipeline Company's Internal Controls, or whether the company had identified
any acts of fraud involving personnel who have a significant role in ANR
Pipeline Company's Internal Controls. This information was important both for
the controls evaluation generally and because the principal executive officer
and principal financial officer are required to disclose that information to our
Board's Audit Committee and our independent auditors and to report on related
matters in this section of the Quarterly Report. The principal executive officer
and principal financial officer note that there has not been any change in
Internal Controls that occurred during the most recent fiscal quarter that has
materially affected, or is reasonably likely to materially affect, Internal
Controls.

Effectiveness of Disclosure Controls. Based on the controls evaluation,
our principal executive officer and principal financial officer have concluded
that the Disclosure Controls are effective to ensure that material information
relating to ANR Pipeline Company and its consolidated subsidiaries is made known
to management, including the principal executive officer and principal financial
officer, on a timely basis.

Officer Certifications. The certifications from the principal executive
officer and principal financial officer required under Sections 302 and 906 of
the Sarbanes-Oxley Act of 2002 have been included as Exhibits to this Quarterly
Report.

15

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Part I, Item 1, Financial Statements, Note 3, which is incorporated
herein by reference.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

a. Exhibits

Each exhibit identified below is filed as a part of this report. Exhibits
not incorporated by reference to a prior filing are designated by an "*"; all
exhibits not so designated are incorporated herein by reference to a prior
filing as indicated.

16

Undertaking

We hereby undertake, pursuant to Regulation S-K, Item 601(b), paragraph
(4)(iii), to furnish to the U.S. Securities and Exchange Commission, upon
request, all constituent instruments defining the rights of holders of our
long-term debt not filed herewith for the reason that the total amount of
securities authorized under any of such instruments does not exceed 10 percent
of our total consolidated assets.

b. Reports on Form 8-K

April 18, 2003........................... Announced execution of a $3,000,000,000
revolving credit agreement.
May 20, 2003............................. Filed Combined Financial Statements
reflecting the contribution to us by
American Natural Resources Company of the
common stock of El Paso Great Lakes, Inc.
June 3, 2003............................. Filed our Computation of our Ratio of
Earnings to Fixed Charges for the five
years ended December 31, 2002 and the
three months ended March 31, 2003 and
2002
June 4, 2003............................. Provided additional financial information
related to the contribution to us by
American Natural Resources Company of the
common stock of El Paso Great Lakes, Inc.

17

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.

ANR PIPELINE COMPANY

Date: August 13, 2003 /s/ JOHN W. SOMERHALDER II
----------------------------------
John W. Somerhalder II
Chairman of the Board and Director
(Principal Executive Officer)

Date: August 13, 2003 /s/ GREG G. GRUBER
----------------------------------
Greg G. Gruber
Senior Vice President,
Chief Financial Officer, Treasurer
and Director
(Principal Financial and
Accounting Officer)

18

EXHIBIT INDEX

Each exhibit identified below is filed as a part of this report. Exhibits
not incorporated by reference to a prior filing are designated by an "*"; all
exhibits not so designated are incorporated herein by reference to a prior
filing as indicated.