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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A


þ		ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


		For the fiscal year ended December 31, 2004


o		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 1-7584

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

(Exact name of Registrant as specified in its charter)


DELAWARE				74-1079400

(State or other jurisdiction of incorporation or organization)				(I.R.S. Employer Identification No.)

2800 Post Oak Blvd., P. O. Box 1396, Houston, Texas				77251

(Address of principal executive offices)				Zip Code

Registrant’s telephone number, including area code				(713) 215-2000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment to this Form 10-K/A. þ

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes o No þ

The number of shares of Common Stock, par value $1.00 per share, outstanding at January 31, 2005 was 100.

The registrant meets the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K and is therefore filing this Form 10-K/A with the reduced disclosure format.

PART I

ITEM 1. Business. (Restated)

In this report, Transco (which includes Transcontinental Gas Pipe Line Corporation and unless the context otherwise requires, all of our subsidiaries) is at times referred to in the first person as “we,” “us” or “our.”

GENERAL

Transco is a wholly-owned subsidiary of Williams Gas Pipeline Company, LLC (WGP). WGP is a wholly-owned subsidiary of The Williams Companies, Inc. (Williams). Williams is a reporting entity for 2004 under the Sarbanes-Oxley Act of 2002. Transco is not an accelerated filer and therefore not required to report in 2004 under Section 404 of the Sarbanes-Oxley Act of 2002.

Restatement of Financial Results

On August 2, 2005, our management concluded that our consolidated financial statements for the years ending December 31, 2003 and 2004 should be restated to correct an error associated with a third-party actuarial computation of annual net periodic pension expense. Because of the restatement required by the pension adjustment, the consolidated financial statements for the years ending December 31, 2002 through 2004 and the first quarter 2005 were also restated to record the effects of certain other prior period adjustments, the majority of which were previously disclosed in Note 1 to the Consolidated Financial Statements in our 2004 Annual Report on Form 10-K.

Management believes the impact of all of these adjustments is not material to any previously issued financial statements. However, management determined that the cumulative adjustment required to correct the pension expense was too significant to the Consolidated Statement of Income for the second quarter of 2005 and the forecast for 2005. We have included restated financial statements for the years ending December 31, 2002, 2003 and 2004 and the quarterly results for 2003 and 2004 in “Item 8. Financial Statements and Supplementary Data” in this Form 10-K/A.

The remaining Items contained within this Form 10-K/A consist of all other Items originally contained in our 2004 Form 10-K in the form filed on March 30, 2005. This Form 10-K/A does not reflect events occurring after the filing of the original Form 10-K, nor modify or update those disclosures in any way other than as required to reflect the effects of the restatement.

For a discussion of additional information on the restatement, see “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 2. Restatement.”

We are an interstate natural gas transmission company that owns a natural gas pipeline system extending from Texas, Louisiana, Mississippi and the Gulf of Mexico through the states of Alabama, Georgia, South Carolina, North Carolina, Virginia, Maryland, Pennsylvania and New Jersey to the New York City metropolitan area. We also hold a minority interest in Cardinal Pipeline Company, LLC, an intrastate natural gas pipeline located in North Carolina. Our principal business is the interstate transportation of natural gas, which is regulated by the Federal Energy Regulatory Commission (FERC).

As of December 31, 2004, we had 1,175 full time employees.

At December 31, 2004, our system had a mainline delivery capacity of approximately 4.7 MMdt¹ of gas per day from production areas, to our primary markets. Using our Leidy Line and market-area storage capacity, we can deliver an additional 3.4 MMdt of gas per day for a system-wide delivery capacity total of approximately 8.1 MMdt of gas per day. The system is composed of approximately 10,500 miles of mainline and branch transmission pipelines, 44 compressor stations, five underground storage fields, two liquefied natural gas (LNG) storage facilities and 4 processing plants. Compression facilities at sea level rated capacity total approximately 1.5 million horsepower.

We have natural gas storage capacity in five underground storage fields located on or near our pipeline system and/or market areas, and we operate three of these storage fields. We also have storage capacity in a LNG storage facility that we operate. The total usable gas storage capacity available to us and our customers in such underground storage fields and LNG storage facility and through storage service contracts is approximately 216 Bcf of gas. In addition, through wholly-owned subsidiaries we operate and own a 35 percent interest in Pine Needle LNG Company, LLC, a LNG storage facility with 4 Bcf of storage capacity. Storage capacity permits our customers to inject gas into storage during the summer and off-peak periods for delivery during peak winter demand periods.

Our gas pipeline facilities are generally owned in fee. However, a substantial portion of such facilities are constructed and maintained pursuant to rights-of-way, easements, permits, licenses or consents on and across real property owned by others. Compressor stations, with appurtenant facilities, are located in whole or in part either on lands owned or on sites held under leases or permits issued or approved by public authorities. The storage facilities are either owned or contracted for under long-term leases or easements.

Through an agency agreement, one of our affiliates, Williams Power Company (WPC), manages our jurisdictional merchant gas sales.

Beginning in May 1995, Williams Field Services Company (WFS), an affiliated company, operated our production area facilities pursuant to the terms of an operating agreement. In response to FERC Order No. 2004, we terminated the operating agreement and effective June 1, 2004, we resumed operating these facilities. Since February 1996, we have filed applications with the FERC seeking authorization to abandon certain facilities located onshore and offshore in Texas, Louisiana and Mississippi by conveyance to Williams Gas Processing — Gulf Coast Company (Gas Processing), an affiliated company. (For a discussion of five of the applications, see “Item 8. Financial Statements and Supplementary Data — Notes to Consolidated Financial Statements — 3 Contingent Liabilities and Commitments — Rate and Regulatory Matters.”)


¹		As used in this report, the term “Mcf” means thousand cubic feet, the term “MMcf” means million cubic feet, the term “Bcf” means billion cubic feet, the term “Tcf” means trillion cubic feet, the term “Mcf/d” means thousand cubic feet per day, the term “MMcf/d” means million cubic feet per day, the term “Bcf/d” means billion cubic feet per day, the term “MMBtu” means million British Thermal Units, the term “TBtu” means trillion British Thermal Units, the term “dt” means dekatherm, the term “Mdt” means thousand dekatherms, the term “Mdt/d” means thousand dekatherms per day and the term “MMdt” means million dekatherms.

MARKETS AND TRANSPORTATION

Our natural gas pipeline system serves customers in Texas and eleven southeast and Atlantic seaboard states including major metropolitan areas in Georgia, North Carolina, New York, New Jersey and Pennsylvania.

Our major customers are public utilities and municipalities that provide service to residential, commercial, industrial and electric generation end users. Shippers on our pipeline system include public utilities, municipalities, intrastate pipelines, direct industrial users, electrical generators, gas marketers and producers. Our three largest customers in 2004 were Piedmont Natural Gas Company, PSE&G Energy Resources & Trade, LLC, and Philadelphia Gas Works, which accounted for approximately 12.7 %, 8.7 % and 7.0 %, respectively, of our total operating revenues. Our firm transportation agreements are generally long-term agreements with various expiration dates and account for the major portion of our business. Additionally, we offer interruptible transportation services under shorter-term agreements.

Our total system deliveries for the years 2004, 2003 and 2002 are shown below.


Transco System Deliveries (TBtu)	2004		2003		2002
Market-area deliveries
Long-haul transportation		781.6		771.1		824.2
Market-area transportation		817.1		802.1		776.5

Total market-area deliveries		1,598.7		1,573.2		1,600.7
Production-area transportation		317.7		296.7		179.6

Total system deliveries		1,916.4		1,869.9		1,780.3


Average Daily Transportation Volumes (TBtu)		5.2		5.1		4.9
Average Daily Firm Reserved Capacity (TBtu)		6.6		6.5		6.4

Our total market-area deliveries for 2004 increased 25.5 TBtu, or 1.6%, when compared to 2003. Increased deliveries were associated with an increase in power generation and overall market demand. Our production area deliveries increased 21.0 TBtu (7.1%) when compared to 2003. This is primarily due to increased deliveries to production area interconnects and increased deliveries to production area processing plants.

Our facilities are divided into eight rate zones. Five are located in the production area and three are located in the market area. Long-haul transportation is gas that is received in one of the production-area zones and delivered in a market-area zone. Market-area transportation is gas that is both received and delivered within market-area zones. Production-area transportation is gas that is both received and delivered within production-area zones.

PIPELINE PROJECTS

Central New Jersey Expansion Project The Central New Jersey Expansion Project will involve an expansion of our existing natural gas transmission system in Zone 6 from the Station 210 pooling point to locations along our Trenton-Woodbury Line. The project will create 105,000 dekatherms per day (dt/d) of new firm transportation capacity, which has been fully subscribed by one shipper for a twenty-year primary term. The project facilities will include approximately 3.5 miles of pipeline loop at an estimated capital cost of $13 million. We filed an application for FERC approval of the project on August 11, 2004 which the FERC approved on February 10, 2005. The target in-service date for the project is November 1, 2005.

Leidy to Long Island Expansion Project The Leidy to Long Island Expansion Project will involve an expansion of our existing natural gas transmission system in Zone 6 from the Leidy Hub in Pennsylvania to Long Island, New York. The project will provide 100,000 dt/d of firm transportation capacity, which has been fully subscribed by one shipper for a twenty-year primary term. The project facilities will include pipeline looping in Pennsylvania and looping and a natural gas compressor facility in New Jersey. Based on the results of the open season for the project and the incorporation of existing capacity made available through a reverse open season, the estimated capital cost of the project has been reduced to $103 million. We expect that nearly three-quarters of the project expenditures will occur in 2007. The FERC has granted our request to initiate a pre-application environmental review, soliciting early input from citizens, governmental entities, and other interest parties to identify and address potential siting issues. We expect to file a formal application with the FERC in September 2005. The target in-service date for the project is November 1, 2007.

REGULATORY MATTERS

Our transportation rates are established through the FERC ratemaking process. Key determinants in the ratemaking process are (1) costs of providing service, including depreciation expense, (2) allowed rate of return, including the equity component of the capital structure and related income taxes and (3) volume throughput assumptions. The allowed rate of return is determined in each rate case. Rate design and the allocation of costs between the demand and commodity rates also impact profitability. As a result of these proceedings, certain revenues previously collected may be subject to refund. We record estimates of rate refund liabilities considering outcomes of our regulatory proceedings, advice of counsel and estimated total exposure, as discounted and risk weighted, as well as collection and other risks.

Since September 1, 1992, we have designed our rates using the straight fixed-variable (SFV) method of rate design. Under the SFV method of rate design, substantially all fixed costs, including return on equity and income taxes, are included in a demand charge to customers and all variable costs are recovered through a commodity charge to customers. While the use of SFV rate design limits our opportunity to earn incremental revenues through increased throughput, it also limits our risk associated with fluctuations in throughput.

Order Nos. 2004, et seq. (Docket No. RM01-10-000) On November 25, 2003, the FERC issued Order No. 2004 adopting uniform standards of conduct for transmission providers. The proposed rules define transmission providers as interstate natural gas pipelines and public utilities that own, operate or control electric transmission facilities. The standards regulate the conduct of transmission providers with their energy affiliates. In Order No. 2004, the FERC defined energy affiliates broadly, but in Order No. 2004-A, issued on April 16, 2004, the FERC, among other things, clarified the definition of energy affiliates in a manner that narrowed its scope. On August 2, 2004, the FERC issued Order No. 2004-B, which, among other things, further clarified the definition of energy affiliates and deferred the implementation date for the new standards of conduct until September 22, 2004. We posted on our electronic bulletin board our procedures implementing the requirements of Order No. 2004 on September 22, 2004, in compliance with the new standards of conduct. On December 21, 2004, the FERC issued Order No. 2004-C, which, among other things, further clarified Order No. 2004-B. Certain parties have sought rehearing of Order No. 2004-C, and other parties have filed petitions for review of the FERC’s Order Nos. 2004, et seq.

For a discussion of additional regulatory matters, see “Item 8. Financial Statements and Supplementary Data — Notes to Consolidated Financial Statements — 3. Contingent Liabilities and Commitments — Rate and Regulatory Matters.”

SALES SERVICE

As discussed above, WPC manages our jurisdictional merchant gas sales, which are made to customers pursuant to a blanket sales certificate issued by the FERC. Most of these sales are made through a Firm Sales (FS) program which gives customers the option to purchase daily quantities of gas from us at market-responsive prices in exchange for a demand charge payment. Pursuant to the terms of an agreement with the FERC which resolved an open investigation, we have notified our merchant sales customers that we will be terminating the merchant sales service when we are able to do so under the terms of any applicable contracts and FERC certificates authorizing such services. Under the FS program we must provide two-year advance notice of termination. Therefore, we notified the FS customers of our intention to terminate the FS service effective April 1, 2005. Through an agency agreement, WPC receives all margins associated with jurisdictional merchant gas sales business and, as our agent, assumes all market and credit risk associated with our jurisdictional merchant gas sales. Consequently, our merchant gas sales service has no impact on our operating income or results of operations and, therefore, the anticipated termination of such services in April 2005, will have no impact on our operating income or results of operations.

Our gas sales volumes managed by WPC for the years 2004, 2003 and 2002 are shown below.


Gas Sales Volumes (TBtu)	2004		2003		2002
Long-term sales		30.3		41.7		49.1
Short-term sales		13.8		24.7		31.6

Total gas sales		44.1		66.4		80.7

TRANSACTIONS WITH AFFILIATES

We engage in transactions with Williams and other Williams subsidiaries. See “Item 8. Financial Statements and Supplementary Data — Notes to Consolidated Financial Statements — 1. Summary of Significant Accounting Policies, 3. Contingent Liabilities and Commitments and 8 Transactions with Major Customers and Affiliates.”

REGULATION

Interstate gas pipeline operations Our interstate transmission and storage activities are subject to regulation by the FERC under the Natural Gas Act of 1938 (NGA) and under the Natural Gas Policy Act of 1978 (NGPA), and, as such, our rates and charges for the transportation of natural gas in interstate commerce, the extension, enlargement or abandonment of jurisdictional facilities, and accounting, among other things, are subject to regulation. We hold certificates of public convenience and necessity issued by the FERC authorizing ownership and operation of pipelines, facilities and properties under the NGA. We are also subject to the Natural Gas Pipeline Safety Act of 1968, as amended by Title I of the Pipeline Safety Act of 1979, and the Pipeline Safety Improvement Act of 2002 which regulate safety requirements in the design, construction, operation and maintenance of interstate gas transmission facilities.

Intrastate gas pipeline operations Cardinal Pipeline Company, LLC, a North Carolina natural gas pipeline company, is subject to the jurisdiction of the North Carolina Utilities Commission. Through wholly-owned subsidiaries, we operate and own a 45 percent interest in Cardinal Pipeline.

Environmental We are subject to the National Environmental Policy Act and federal, state and local laws and regulations relating to environmental quality control. Management believes that, capital expenditures and operation and maintenance expenses required to meet applicable environmental standards and regulations are generally recoverable in rates. For these reasons, management believes that compliance with applicable environmental requirements is not likely to have a material effect upon our competitive position or earnings. See “Item 8. Financial Statements and Supplementary Data — Notes to Consolidated Financial Statements — 2. Contingent Liabilities and Commitments — Environmental Matters.”

COMPETITION

The natural gas industry has undergone tremendous change since the issuance of FERC Order 636 in 1992. Order 636 required that the natural gas sales, transportation, and other services that were formerly provided in bundled form by pipelines be separated, resulting in non-discriminatory open access transportation services, and encouraged the establishment of market hubs. These and other factors have led to a commodity market in natural gas and to increasingly competitive markets in natural gas services, including competitive secondary markets in pipeline capacity. As a result, pipeline capacity is being used more efficiently, and peaking and storage services are increasingly effective substitutes for annual pipeline capacity. These factors have increased the risk for pipelines of contract non-renewal or capacity turnback and have encouraged shorter contract lives.

At the state level, both local distribution company (LDC) unbundling and electric industry restructuring are affecting pipeline markets. Several states have implemented changes similar to the federal changes under Order 636. New York, New Jersey, Pennsylvania, Maryland, Delaware, Georgia and the District of Columbia have established regulations for LDC unbundling and are currently implementing them on a company-by-company basis. Although pipeline operators are increasingly challenged to accommodate the flexibility demanded by customers and allowed under tariffs, the changes being implemented at the state level have not, thus far, required renegotiation of` LDC contracts. The state plans have in some cases discouraged LDCs from signing long-term contracts for new capacity.

FORWARD LOOKING STATEMENTS/RISK FACTORS AND CAUTIONARY
STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

Certain matters discussed in this annual report, excluding historical information, include forward-looking statements — statements that discuss our expected future results based on current and pending business operations. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995.

All statements, other than statements of historical facts, included in this Form 10-K/A which address activities, events or developments which we expect, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements can be identified by words such as “anticipates,” “believes,” “could,” “continues,” “estimates,” “expects, ” “forecasts,” “might,” “planned,” “potential,” “projects,” “scheduled” or similar expressions. These forward-looking statements include, among others, such things as:

	•		amounts and nature of future capital expenditures;

	•		expansion and growth of our business and operations;

	•		business strategy;

	•		cash flow from operations; and

	•		power and gas prices and demand.

These statements are based on certain assumptions and analysis made by us in light of our experience and our perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate in the circumstances. Although we believe these forward-looking statements are based on reasonable assumptions, statements made regarding future results are subject to a number of assumptions, uncertainties and risks that could cause future results to be materially different from the results stated or implied in this document.

These risks and uncertainties include:

	•		general economic and market conditions;

	•		changes in laws or regulations;

	•		continued availability of capital and financing;

	•		recovery of amounts through rates; and

	•		other factors, most of which are beyond our control.

See the “Risk Factors” section of this report for a more detailed discussion of these risks and uncertainties.

When considering forward-looking statements, one should keep in mind the risk factors described in “Rick Factors” below. The risk factors could cause our actual results to differ materially from those contained in any forward-looking statement. We disclaim any obligation to update the above list or to announce publicly the result of any revisions to any of the forward-looking statements to reflect future events or developments.

RISK FACTORS

You should carefully consider the following risk factors in addition to the other information in this annual report. Each of these factors could adversely affect our business, operating results, and financial condition as well as adversely affect the value of an investment in our securities.

Risks related to the regulation of our business

Our gas sales, transmission, and storage operations are subject to government regulations and rate proceedings that could have an adverse impact on our ability to recover the costs of operating our pipeline facilities.

Our interstate gas sales, transmission, and storage operations are subject to the FERC’s rules and regulations in accordance with the Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978. The FERC’s regulatory authority extends to:

•

transportation and sale for resale of natural gas in interstate commerce;

	•		rates and charges;

	•		construction;

	•		acquisition, extension or abandonment of services or facilities;

	•		accounts and records;

	•		depreciation and amortization policies; and

	•		operating terms and conditions of service.

The FERC has taken certain actions to strengthen market forces in the natural gas pipeline industry that have led to increased competition throughout the industry. In a number of key markets, we are facing competitive pressure from other major pipeline systems, enabling local distribution companies and end users to choose a transmission provider based on economic and other considerations. Our ability to compete in the natural gas pipeline industry is impacted by our ability to offer competitively priced services and to successfully implement efficient and effective operational systems, that must also meet applicable regulatory requirements.

Unlike other pipelines that own facilities in the offshore Gulf of Mexico, we charge our transportation customers a separate fee to access our offshore facilities. The separate charge that we assess, which we refer to as an “IT feeder” charge, is charged only when the facilities are used, and typically is paid by producers or marketers. This means that we recover the costs included in the “IT feeder” charge only if our facilities are used, and because it is typically paid by producers and marketers it generally results in netback prices to producers that are slightly lower than the netbacks realized by producers transporting on other interstate pipelines. Longer term, this rate design disparity could result in producers bypassing our offshore facilities in favor of alternative transportation facilities. We have asked the FERC to allow us to eliminate the IT feeder charge and charge for transportation on our offshore facilities in the same manner as the other pipelines. Thus far our requests have been denied.

Risk affecting our strategy and financing needs

Because we no longer maintain investment grade credit ratings, our counterparties have required us to provide higher amounts of credit support which raises our cost of doing business.

Our transactions will require greater credit assurances, both to be given from, and received by, us to satisfy credit support requirements. Additionally, certain market disruptions or a further downgrade of our credit rating might further increase our cost of borrowing or further impair our ability to access one or any of the capital markets. Such disruptions could include:

	•		further economic downturns;

	•		capital market conditions generally;

	•		market prices for electricity and natural gas;

	•		terrorist attacks or threatened attacks on our facilities or those of other energy companies; or

	•		the overall health of the energy industry, including the bankruptcy or insolvency of other energy companies.

Despite Williams’ restructuring efforts, we may not attain investment grade ratings.

Credit rating agencies perform independent analysis when assigning credit ratings. Given the significant changes in capital markets and the energy industry over the last few years, credit rating agencies continue to review the criteria for attaining investment grade ratings and make changes to those criteria from time to time. Williams’ goal is to attain investment grade ratios. However, there is no guarantee that the credit rating agencies will assign us investment grade ratings even if we meet or exceed their criteria for investment grade ratios.

Our debt agreements impose restrictions on us that may adversely affect our ability to operate our business.

Our debt agreements contain covenants that restrict, among other things, our ability to create liens, sell assets, make certain distributions, and incur additional debt. In addition, our debt agreements contain, and those we enter into in the future may contain, financial covenants and other limitations with which we will need to comply. Our ability to comply with these covenants may be affected by many events beyond our control, and we cannot assure you that our future operating results will be sufficient to comply with the covenants or, in the event of a default under any of our debt agreements, to remedy that default.

Although we are currently in compliance with our financial and other covenants in our debt agreements, our failure to comply with such financial or other covenants could result in events of default. Upon the occurrence of an event of default under our debt agreements, the lenders could elect to declare all amounts outstanding under a particular facility to be immediately due and payable and terminate all commitments, if any, to extend further credit. By reason of cross-default or cross-acceleration provisions in certain of our debt agreements, such a default or acceleration could have a wider impact on our liquidity than might otherwise arise from a default or acceleration of a single debt instrument. If the lenders under any of our debt agreements accelerate the maturity of any loans or other debt outstanding, we may not have sufficient liquidity to repay amounts outstanding under such debt agreements.

Risks related to outsourcing of non-core support services.

Institutional knowledge represented by former Williams employees now employed by Williams’ outsourcing service provider might not be adequately preserved.

Due to the large number of former Williams employees who migrated to an outsourcing provider, access to significant amount of internal historical knowledge and expertise could become unavailable to us, particularly if knowledge transfer initiatives are delayed or ineffective.

Failure of the outsourcing relationship might negatively impact our ability to conduct our business.

Some studies indicate a high failure rate of outsourcing relationships. Although Williams has taken steps to build a cooperative and mutually beneficial relationship with its outsourcing providers, a failure of all or part of these relationships could lead to loss of institutional knowledge and interruption of services necessary for us to be able to conduct our business.

Williams’ ability to receive services from outsourcing provider locations outside of the United States might be impacted by cultural differences, political instability, or unanticipated regulatory requirements in jurisdictions outside the United States.

Certain information technology application development, human resources, and help desk services that are currently provided by an outsourcer will be relocated to service centers operated by Williams’ outsourcing provider outside of the United States during 2005. The economic and political conditions in certain countries from which Williams’ outsourcing providers may provide services to us present similar risks of business operations located outside of the United States, including risks of interruption of business, war expropriation, nationalization, renegotiation, trade sanctions or nullification of existing contracts and changes in law or tax policy, that are greater than in the United States.

Risks related to environmental matters

We could incur material losses if we are held liable for the environmental condition of any of our assets or divested assets, which could include losses that exceed our current expectations.

We are generally responsible for all on-site liabilities associated with the environmental condition of our facilities and assets, which we have acquired or developed, regardless of when the liabilities arose and whether they are known or unknown. In addition, in connection with certain acquisitions and sales of assets, we might obtain, or be required to provide, indemnification against certain environmental liabilities. If we incur a material liability, or the other party to a transaction fails to meet its indemnification obligations to us, we could suffer material losses. If a purchaser of a divested asset incurs a liability due to the environmental condition of the divested asset, we may have a contractual obligation to indemnify that purchaser or otherwise retain responsibility for the environmental condition of the divested asset. We may also have liability for the environmental condition of divested assets under applicable federal or state laws and regulations. Changes to applicable laws and regulations or changes to their interpretation may increase our liability. Environmental conditions of divested assets may not be covered by insurance. Even if environmental conditions could be covered by insurance, policy conditions may not be met.

We make assumptions and develop expectations about possible liability related to environmental conditions based on current laws and regulations and current interpretations of those laws and regulations. If the interpretation of laws or regulations, or the laws and regulations themselves, change, our assumptions may change. Our assumptions and expectations are also based on available information. If more information becomes available to us, our assumptions may change. Any of these changes may result in not only increased risk related to one or more of our assets, but material losses in excess of current estimates.

Environmental regulation and liability relating to 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.

Our operations are subject to extensive environmental regulation pursuant to a variety of federal, state and municipal laws and regulations. Such environmental legislation imposes, among other things, restrictions, liabilities and obligations in connection with the generation, handling, use, storage, transportation, treatment and disposal of hazardous substances and waste and in connection with spills, releases and emissions of various substances into the environment. Environmental legislation also requires that our facilities, sites and other properties associated with our operations be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. Existing environmental regulations could also be revised or reinterpreted, new laws and regulations could be adopted or become applicable to us or our facilities, and

future changes in environmental laws and regulations could occur. The federal government and several states recently have proposed increased environmental regulation of many industrial activities, including increased regulation of air quality, water quality and solid waste management.

Compliance with environmental legislation will require significant expenditures, including expenditures for compliance with the Clean Air Act and similar legislation, for clean up costs and damages arising out of contaminated properties, and for failure to comply with environmental legislation and regulations which might result in the imposition of fines and penalties. The steps we take to bring certain of our facilities into compliance could be prohibitively expensive, and we might be required to shut down, divest, or alter the operation of those facilities, which might cause us to incur losses.

Further, our regulatory rate structure and our contracts with customers might not necessarily allow us to recover costs incurred to comply with new environmental regulations. Also, we might not be able to obtain or maintain from time to time all required environmental regulatory approvals for certain development projects. If there is a delay in obtaining any required environmental regulatory approvals or if we fail to obtain and comply with them, the operation of our facilities could be prevented or become subject to additional costs. Should we fail to comply with all applicable environmental laws, we might be subject to penalties and fines imposed by regulatory authorities. Although we do not expect that the costs of complying with current environmental legislation will have a material adverse effect on our financial condition or results of operations, no assurance can be made that the costs of complying with environmental legislation in the future will not have such an effect.

RISKS RELATING TO ACCOUNTING STANDARDS

Potential changes in accounting standards might cause us to revise our financial results and disclosure in the future.

Accounting irregularities discovered in the past few years in various industries have forced regulators and legislators to take a renewed look at accounting practices, financial disclosures, and companies’ relationships with their independent auditors and other accounting practices. Because it is still unclear what laws or regulations will develop, we cannot predict the ultimate impact of any future changes in accounting regulations or practices in general with respect to public companies or the energy industry or in our operations specifically. In addition, the Financial Accounting Standards Board (FASB), FERC or the Securities and Exchange Commission (SEC) could enact new or revised accounting standards that might impact how we are required to record revenues, expenses, assets and liabilities.

RISKS RELATING TO OUR INDUSTRY

The long-term financial condition of our gas transmission business is dependent on the continued availability of natural gas reserves.

The development of additional natural gas reserves requires significant capital expenditures by others for 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. Additional natural gas reserves might not be developed in commercial quantities and in sufficient amounts to fill the capacities of our gathering and transmission pipeline facilities.

Gas transmission activities involve numerous risks that might result in accidents and other operating risks and costs.

There are inherent in our gas transmission properties a variety of hazards and operating risks, such as leaks, explosions and mechanical problems that could cause substantial financial losses. In addition, these risks could result in loss of human life, significant damage to property, environmental pollution, impairment of our operations and substantial losses to us. In accordance with customary industry practice, we maintain insurance against some, but not all, of these risks and losses. The occurrence of any of these events not fully covered by insurance could have a material adverse effect on our financial position and results of operations. The location of pipelines near populated areas, including residential areas, commercial business centers and industrial sites could increase the level of damages resulting from these risks. We implemented an Integrity Management Plan (IMP) in December 2004, as required by the Pipeline Safety Improvement Act. As part of the IMP, we identified High Consequence Areas (HCA) through which our pipeline runs. A HCA is an area where the potential consequence of a gas pipeline accident may be significant or do considerable harm to people or property. Certain segments of our pipeline runs through HCAs. An event such those described above in a HCA not only could cause considerable harm to people or property, but could have a material adverse effect on our financial position and results of operations, particularly if the event is not fully covered by insurance.

Accidents or other operating risks could further result in loss of service available to our customers. Such circumstances could adversely impact our ability to meet contractual obligation and retain customers.

OTHER RISKS

The threat of terrorist activities and the potential for continued military and other actions could adversely affect our business.

The continued threat of terrorism and the impact of continued military and other action by the United States and its allies might lead to increased political, economic and financial market instability and volatility in prices 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, and it has been reported that terrorists might be targeting domestic energy facilities. While we are taking steps that we believe are appropriate to increase the security of our energy assets, there is no assurance that we can completely secure our assets or completely protect them against a terrorist attack. These developments have subjected our operations to increased risks and, depending on their ultimate magnitude, could have a material adverse effect on our business. In particular, we might experience increased capital or operating costs to implement increased security for our energy assets.

Our assets and operations can be affected by weather and other natural phenomena.

Our assets and operations, especially those located offshore, can be adversely affected by hurricanes, earthquakes, tornadoes and other natural phenomena and weather conditions including extreme temperatures, making it more difficult for us to realize the historic rates of return associated with these assets and operations.

ITEM 2. Properties.

See “Item 1. Business.”

ITEM 3. Legal Proceedings.

Royalty claims and litigation In connection with our renegotiations with producers to resolve take-or-pay and other contract claims and to amend gas purchase contracts, we entered into certain settlements which may require that we indemnify producers for claims for additional royalties resulting from such settlements. Through our agent WPC, we continue to purchase gas under contracts which extend, in some cases, through the life of the associated gas reserves. Certain of these contracts contain royalty indemnification provisions, which have no carrying value. We have been made aware of demands on producers for additional royalties and such producers may receive other demands which could result in claims against us pursuant to royalty indemnification provisions. Indemnification for royalties will depend on, among other things, the specific lease provisions between the producer and the lessor and the terms of the agreement between the producer and us. Consequently, the potential maximum future payments under such indemnification provisions cannot be determined.

As a result of these settlements, we have been sued by certain producers seeking indemnification. We are currently a defendant in one such lawsuit. Freeport-McMoRan, Inc., filed a lawsuit against us in the 19^th Judicial District Court in East Baton Rouge, Louisiana, in which it asserted damages, including interest calculated through December 31, 2004, of approximately $10 million. The case was tried in 2003 and resulted in a judgment favorable to us, which Freeport-McMoRan is appealing.

In 1998, the United States Department of Justice (DOJ) informed Williams that Jack Grynberg, an individual, had filed claims in the United States District Court for the District of Colorado under the False Claims Act against Williams and certain of its wholly-owned subsidiaries including us. Mr. Grynberg has also filed claims against approximately 300 other energy companies and alleges that the defendants violated the False Claims Act in connection with the measurement, royalty valuation and purchase of hydrocarbons. The relief sought is an unspecified amount of royalties allegedly not paid to the federal government, treble damages, a civil penalty, attorneys’ fees, and costs. In April 1999, the DOJ declined to intervene in any of the Grynberg qui tam cases, including the action filed against the Williams entities in the United States District Court for the District of Colorado. In October 1999, the Panel on Multi-District Litigation transferred all of the Grynberg qui tam cases, including those filed against Williams, to the United States District Court for the District of Wyoming for pre-trial purposes. In October 2002, the court granted a motion to dismiss Grynberg’s royalty valuation claims. Grynberg’s measurement claims remain pending against Williams, including us, and the other defendants, although the defendants have filed a number of motions to dismiss these claims on jurisdictional grounds. Oral argument on these motions occurred on March 17 and 18, 2005, and we expect a decision in the second quarter of 2005.

Environmental Matters

comparable state statutes. The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also known as “Superfund,” imposes liability, without regard to fault or the legality of the original act, for release of a “hazardous substance” into the environment. Because these laws and regulations change from time to time, practices that have been acceptable to the industry and to the regulators have to be changed and assessment and monitoring have to be undertaken to determine whether those practices have damaged the environment and whether remediation is required. Since 1989, we have had studies underway to test some of our facilities for the presence of toxic and hazardous substances to determine to what extent, if any, remediation may be necessary. We have responded to data requests from the U.S. Environmental Protection Agency (EPA) and state agencies regarding such potential contamination of certain of our sites. On the basis of the findings to date, we estimate that over the next three years environmental assessment and remediation costs under TSCA, RCRA, CERCLA and comparable state statutes will total approximately $21 million to $25 million, measured on an undiscounted basis. This estimate depends upon a number of assumptions concerning the scope of remediation that will be required at certain locations and the cost of the remedial measures. We are conducting environmental assessments and implementing a variety of remedial measures that may result in increases or decreases in the total estimated costs. At December 31, 2004, Transco had a balance of approximately $23 million for these estimated costs recorded in current liabilities ($4 million) and other long-term liabilities ($19 million) in the accompanying Consolidated Balance Sheet.

We consider prudently incurred environmental assessment and remediation costs and costs associated with compliance with environmental standards to be recoverable through rates. To date, we have been permitted recovery of environmental costs, and it is our intent to continue seeking recovery of such costs, through future rate filings. Therefore, these estimated costs of environmental assessment and remediation have also been recorded as regulatory assets in current assets and other assets in the accompanying Consolidated Balance Sheet.

We have used lubricating oils containing polychlorinated biphenyls (PCBs) and, although the use of such oils was discontinued in the 1970s, we have discovered residual PCB contamination in equipment and soils at certain gas compressor station sites. We have worked closely with the EPA and state regulatory authorities regarding PCB issues, and we have a program to assess and remediate such conditions where they exist. In addition, we commenced negotiations with certain environmental authorities and other programs concerning investigative and remedial actions relative to potential mercury contamination at certain gas metering sites. All such costs are included in the $21 million to $25 million range discussed above.

We have been identified as a potentially responsible party (PRP) at various Superfund and state waste disposal sites. Based on present volumetric estimates and other factors, our estimated aggregate exposure for remediation of these sites is less than $500,000. The estimated remediation costs for all of these sites have been included in the environmental reserve discussed above. Liability under CERCLA (and applicable state law) can be joint and several with other PRPs. Although volumetric allocation is a factor in assessing liability, it is not necessarily determinative; thus, the ultimate liability could be substantially greater than the amounts described above.

operate facilities in areas of the country now designated as non-attainment with the eight-hour ozone standard. Pursuant to non-attainment area requirements of the 1990 Amendments, and proposed EPA rules designed to mitigate the migration of ground-level ozone (NOx) in 22 eastern states, we are planning installation of air pollution controls on existing sources at certain facilities in order to reduce NOx emissions. We anticipate that additional facilities may be subject to increased controls within five years. For many of these facilities, we are developing more cost effective and innovative compressor engine control designs. Due to the developing nature of federal and state emission regulations, it is not possible to precisely determine the ultimate emission control costs. In March 2004 and June 2004, the EPA promulgated additional regulations regarding hazardous air pollutants; these regulations may impose controls in addition to the controls described above. The emission control additions required to comply with current federal Clean Air Act requirements, the 1990 Amendments, the hazardous air pollutant regulations, and the individual state implementation plans for NOx reductions are estimated to include costs in the range of $110 million to $125 million. EPA’s recent designation of new non-attainment areas will result in new federal and state regulatory action that may impact our operations. As a result, the cost of additions to property, plant and equipment is expected to increase. We are unable at this time to estimate with any certainty the cost of additions that may be required to meet new regulations, although it is believed that some of those costs are included in the ranges discussed above. Management considers costs associated with compliance with the environmental laws and regulations described above to be prudent costs incurred in the ordinary course of business and, therefore, recoverable through our rates.

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

Since we meet the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K, this information is omitted.

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities.

We are an indirect wholly-owned subsidiary of Williams; therefore, our common stock is not publicly traded.

Our Board of Directors declared cash dividends on common stock in the amounts of $50 million on June 30, 2004, $25 million on September 30, 2004 and $50 million on December 30, 2004.

Our Board of Directors declared cash dividends on common stock in the amounts of $85 million on March 31, 2003, $70 million on June 30, 2003, $50 million on September 30, 2003 and $40 million on December 31, 2003.

ITEM 6. Selected Financial Data.

Since we meet the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K this information is omitted.

ITEM 7. Management’s Narrative Analysis of the Results of Operations. (Restated)

GENERAL

The following discussion and analysis of results of operations and capital resources and liquidity should be read in conjunction with the consolidated financial statements and notes thereto included within Item 8.

RESTATEMENT OF FINANCIAL RESULTS

Management believes the impact of all of these adjustments is not material to any previously issued financial statements. However, management determined that the cumulative adjustment required to correct the pension expense was too significant to the Consolidated Statement of Income for the second quarter of 2005 and the forecast for 2005. We have included restated financial statements for the years ending December 31, 2004, 2003 and 2002 and the quarterly results for 2004 and 2003 in “Item 8. Financial Statements and Supplementary Data” in this Form 10-K/A.

This Management’s Narrative Analysis of the Results of Operations for the year ending December 31, 2004 has been modified and updated to reflect the effect of these restatements.

For a discussion of additional information on the restatement, see “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 2. Restatement.”

CRITICAL ACCOUNTING POLICIES

Use of estimates 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 amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Regulatory Accounting We are regulated by the FERC. Statement of Financial Accounting Standards (SFAS) No. 71, “Accounting for the Effects of Certain Types of Regulation,” provides that rate-regulated public utilities account for and report regulatory assets and liabilities consistent with the economic effect of the way in which regulators establish rates if the rates established are designed to recover the costs of providing the regulated service and if the competitive environment makes it reasonable to assume that such rates can be charged and collected. Accounting for businesses that are regulated and apply the provisions of SFAS No. 71 can differ from the accounting requirements for non-regulated businesses. Transactions that are recorded differently as a result of regulatory accounting requirements include the capitalization of an equity return component on regulated capital projects, employee related benefits, and other costs and taxes included in, or expected to be included in, future rates. As a rate-regulated entity, our management has determined that it is appropriate to apply the accounting prescribed by SFAS No. 71 and, accordingly, the accompanying consolidated financial statements include the effects of the types of transactions described above that result

from regulatory accounting requirements. At December 31, 2004, we had approximately $141 million of regulatory assets and approximately $54 million of regulatory liabilities included in the accompanying Consolidated Balance Sheet. At December 31, 2003, we had approximately $144 million of regulatory assets and approximately $51 million of regulatory liabilities included in the accompanying Consolidated Balance Sheet.

Revenue subject to refund FERC regulations promulgate policies and procedures which govern a process to establish the rates that we are permitted to charge customers for natural gas sales and services, including the transportation and storage of natural gas. Key determinants in the ratemaking process are (1) costs of providing service, including depreciation expense, (2) allowed rate of return, including the equity component of the capital structure and related taxes and (3) volume throughput assumptions.

As a result of the ratemaking process, certain revenues collected by us may be subject to possible refunds upon final orders in pending rate proceedings with the FERC. We record estimates of rate refund liabilities considering our and other third party regulatory proceedings, advice of counsel and estimated total exposure, as discounted and risk weighted, as well as collection and other risks. At December 31, 2004, we had accrued approximately $9 million for potential refunds applicable to all regulatory proceedings. Depending on the results of these proceedings, the actual amounts allowed to be collected from customers could differ from management’s estimate.

Contingent liabilities We record liabilities for estimated loss contingencies when we assess that a loss is probable and the amount of the loss can be reasonably estimated. Revisions to contingent liabilities are reflected in income in the period in which new or different facts or information become known or circumstances change that affect the previous assumptions with respect to the likelihood or amount of loss. Liabilities for contingent losses are based upon our assumptions and estimates, and advice of legal counsel or other third parties regarding the probable outcomes of the matter. Changes in our assumptions and estimates or outcomes different from our current assumptions and estimates could materially affect future results of operations for any particular quarterly or annual period.

Impairment of long-lived assets We evaluate long-lived assets for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying value of such assets may not be recoverable. When such a determination has been made, management’s estimate of undiscounted future cash flows attributable to the assets is compared to the carrying value of the assets to determine whether an impairment has occurred. If an impairment of the carrying value has occurred, the amount of the impairment recognized in the consolidated financial statements is determined by estimating the fair value of the assets and recording a loss for the amount that the carrying value exceeds the estimated fair value.

Judgments and assumptions are inherent in management’s estimate of undiscounted future cash flows used to determine recoverability of an asset and the estimate of an asset’s fair value used to calculate the amount of impairment to recognize. The use of alternate judgments and/or assumptions could result in the recognition of different levels of impairment charges in the consolidated financial statements.

Proposed FERC Accounting Guidance In November 2004, the FERC issued proposed accounting guidance on accounting for pipeline assessment costs. If adopted, we may be required to expense certain assessment costs that have historically been capitalized. For 2005, the estimated impact of this proposal would be additional expense of $12 million to $18 million.

RESULTS OF OPERATIONS

2004 COMPARED TO 2003

Operating Income and Net Income Our operating income for 2004 was $355.3 million compared to operating income of $381.7 million for 2003. Net income for 2004 was $185.2 million compared to net income of $201.6 million for 2003.

The lower operating income of $26.4 million was primarily the result of lower natural gas transportation and other revenues, higher operation and maintenance costs, higher administrative and general expenses and higher other operating costs and expenses partially offset by lower cost of natural gas transportation and depreciation and amortization expense, as discussed below. The decrease in net income of $16.4 million was primarily attributable to the decreased operating income net of related income taxes.

Transportation Revenues Our operating revenues related to transportation services decreased $12.4 million to $784.6 million for 2004 when compared to 2003. The lower transportation revenues were primarily due to a decrease of $23.3 million of reimbursable costs that are included in operating expenses and recovered in our rates and a $5.4 million decrease in commodity revenues which is due primarily to lower interruptible transportation. This was partially offset by increased demand revenues of $16.0 million, mostly resulting from new expansion projects (Momentum Phase 1 placed into service on May 1, 2003, Trenton-Woodbury placed into service on November 1, 2003, and Momentum Phase 2 placed into service on February 1, 2004).

Sales Revenues We make jurisdictional merchant gas sales to customers pursuant to a blanket sales certificate issued by the FERC, with most of those sales being made through a Firm Sales (FS) program which gives customers the option to purchase daily quantities of gas from us at market-responsive prices in exchange for a demand charge payment. Pursuant to the terms of an agreement with the FERC which resolved an open investigation, we have notified our merchant sales customers that we will be terminating the merchant sales service when we are able to do so under the terms of any applicable contracts and FERC certificates authorizing such services. Under the FS program we must provide two-year advance notice of termination. Therefore, we notified the FS customers of our intention to terminate the FS service effective April 1, 2005.

Through an agency agreement, WPC manages our jurisdictional merchant gas sales, which does not include our cash out sales in settlement of gas imbalances. The long-term purchase agreements managed by WPC remain in our name, as do the corresponding sales of such purchased gas. Therefore, we continue to record natural gas sales revenues and the related accounts receivable and cost of natural gas sales and the related accounts payable for the jurisdictional merchant sales that are managed by WPC. WPC receives all margins associated with jurisdictional merchant gas sales business and, as our agent, assumes all market and credit risk associated with our jurisdictional merchant gas sales. Consequently, our merchant gas sales service has no impact on our operating income or results of operations and, therefore, the anticipated termination of such services in April 2005, will have no impact on our operating income or results of operations.

In addition to our merchant gas sales, we also have cash out sales, which settle gas imbalances with shippers. The cash out sales have no impact on our operating income or results of operations.

Operating revenues related to our sales services decreased $68.5 million to $403.2 million for 2004 when compared to 2003. The decrease was primarily due to a lower volume of merchant sales during 2004 compared to 2003. This was partially offset by increases resulting from higher cash out sales volumes related to the monthly settlement of imbalances and a higher average sales price of $6.16 per dt in 2004, compared to $5.42 per dt in 2003.

In the course of providing transportation services to customers, we may receive different quantities of gas from shippers than the quantities delivered on behalf of those shippers. Additionally, we transport gas on various pipeline systems, which may deliver different quantities of gas on our behalf than the quantities of gas received from us. These transactions result in gas transportation and exchange imbalance receivables and payables. Our tariff includes a method whereby the majority of transportation imbalances generated after August 1, 1991 are settled on a monthly basis through cash out sales or purchases.

Storage Revenues Our operating revenues related to storage services of $123.0 million for 2004 were comparable to revenues of $124.4 million for 2003.

Other Revenues Our other operating revenues decreased $11.3 million to $9.1 million for 2004, when compared to 2003, primarily due to a decrease in environmental mitigation credit sales.

Operating Costs and Expenses Excluding the cost of natural gas sales of $401.6 million for 2004 and $471.6 million for 2003, our operating expenses were approximately $2.8 million higher than the comparable period in 2003. This increase was primarily attributable to the increases in operation and maintenance expense, administrative and general expense, and other operating costs and expenses, partially offset by lower cost of natural gas transportation and depreciation and amortization expense. The increase in operation and maintenance expense in 2004 of $5.6 million is due primarily to increased materials and supplies cost of $4.0 million. The increase in administrative and general expense of $9.4 million is mostly due to increased management services billed to us by Williams. As a result of recent changes within Williams, we are receiving an increased share of the management services allocation. The higher management services costs are also due to increased third-party costs associated with certain mandated compliance activities and with efforts at Williams to evaluate and implement certain cost reduction strategies through internal initiatives and outsourcing of certain services. The higher other operating costs and expenses of $8.3 million were primarily due to a reduction of accrued liabilities in the third quarter of 2003 for claims associated with certain producer indemnities. The lower cost of natural gas transportation of $11.5 million resulted from a decrease of $18.1 million in 2004 of reimbursable costs that are recovered in our rates and a $4.0 million charge in the third quarter of 2003 associated with the write-off of certain receivables. These decreases were partially offset by an increase in fuel expense of $10.4 million due to the benefit of pricing differentials in 2003 related to volumes of gas used in operations. The lower depreciation and amortization expense of $9.8 million was primarily due to decreases associated with lower environmental mitigation development costs and decreased computer software and hardware assets.

Other Income and Other Deductions Other income and other deductions resulted in $1.6 million lower net expense in 2004 compared to 2003. The higher interest income – affiliates of $7.4 million was due to an increase in intercompany demand notes resulting from a lower amount of dividends paid to WGP in 2004 compared to 2003 and higher interest rates in 2004 compared to 2003. The allowance for funds used during construction was $4.7 million lower due to a lower amount of capital projects under construction.

2003 COMPARED TO 2002

Operating Income and Net Income Our operating income for 2003 was $381.7 million compared to operating income of $301.6 million for 2002. Net income for 2003 was $201.6 million compared to net income of $163.6 million for 2002.

The higher operating income of $80.1 million was primarily the result of higher transportation revenues, lower administrative and general cost and lower other operating costs and expenses partially offset by lower natural gas storage revenues and higher depreciation and amortization expense, as discussed below. The increase in net income of $38.0 million was attributable to the increased operating income, partially offset by the higher deductions, as discussed below in Other Income and Other Deductions, net of related income taxes.

Transportation Revenues Our operating revenues related to transportation services increased $52.6 million to $797.0 million for 2003 when compared to 2002. The higher transportation revenues were primarily due to increased demand revenues of $60.7 million resulting from (1) new expansion projects (Sundance placed into service on May 1, 2002, Market Link Phase 2 placed into service on November 1, 2002, Momentum Phase 1 placed into service on May 1, 2003 and Trenton-Woodbury placed into service on November 1, 2003) and (2) approved settlement rates, implemented pursuant to the Settlement approved on July 23, 2002, to recover costs associated with increased rate base, rate of return and expenses contained in Transco’s general rate case (Docket No. RP01-245). In addition, transportation revenues are higher due to an increase of $13.6 million in commodity revenues and a higher level of reimbursable costs of $6.3 million that are included in operating expenses and recovered in our rates. The increases were partially offset by a decrease of $27.9 million associated with the reversal of rate refund liabilities and other adjustments pursuant to the settlement of the general rate case in the third quarter of 2002.

Our total market-area deliveries for 2003 decreased 27.5 TBtu, or 2%, when compared to 2002. This is primarily the result of significantly reduced weather-related power generation load. Our production area deliveries increased 117.1 TBtu, or 65%, when compared to 2002. This is primarily due to higher deliveries to production area storage and higher deliveries in the production area as a result of new offshore production.

Sales Revenues Operating revenues related to our sales services increased $90.9 million to $471.6 million for 2003, when compared to 2002. The increase was primarily due to a higher average sales price of $5.42 per dt in 2003 compared to $3.29 per dt in 2002, partially offset by a lower volume of merchant sales.

Storage Revenues Our operating revenues related to storage services decreased $11.3 million to $124.4 million for 2003, when compared to 2002. The decrease was primarily due to a change in rate design (implementation of rolled-in rate treatment in Docket No. RP95-197) to recover certain costs through transportation rates which were previously recovered through certain storage rates.

Other Revenues Our other operating revenues increased $4.9 million to $20.4 million for 2003, when compared to 2002, primarily due to increases in environmental mitigation credit sales, liquids revenue and Parking and Borrowing Service revenue.

Operating Costs and Expenses Excluding the cost of natural gas sales of $471.6 million for 2003 and $380.7 million for 2002, our operating expenses were approximately $33.9 million lower than the comparable period in 2002. This decrease was primarily attributable to the lower cost of natural gas transportation, administrative and general expense, and other operating costs and expenses, partially offset by increases in depreciation and amortization expense and taxes other than income taxes. The lower cost of natural gas transportation was due to a $14.6 million decrease in nontracked fuel expense primarily resulting from pricing

differentials related to volumes of gas used in operations, partially offset by higher tracked fuel expense of $5.4 million and a $4.0 million charge in the third quarter of 2003 associated with the write-off of certain receivables. The lower administrative and general expense of $29.8 million was primarily due to lower labor cost resulting mostly from a reduced workforce and lower employee benefits expenses as a result of the enhanced-benefit early retirement option offered to certain Williams employee groups during 2002. The lower other operating costs and expenses were primarily due to a $7.2 million reduction of reserves in the third quarter of 2003 for claims associated with certain producer indemnities as a result of recent settlements and court rulings and a $17 million charge in 2002 associated with a FERC penalty (see “Item 8. Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – 3. Contingent Liabilities and Commitments – Rate and Regulatory Matters”). Also, our charitable contribution commitments were $2.5 million lower in 2003 compared to 2002. Depreciation and amortization increased $19.7 million due primarily to the increase in property resulting from completion of recent construction projects. The higher taxes other than income taxes of $7.5 million was primarily due to lower taxes in 2002 as a result of a refund of state franchise taxes.

Other Income and Other Deductions Other income and other deductions resulted in $29.9 million higher expense in 2003 compared to 2002. Interest expense was lower primarily due to the $3 million charge recorded in 2002 associated with the October 10, 2002 FERC order in Transco’s 1999 fuel tracker proceeding. The lower interest income – affiliates of $8.1 million was primarily due to a reduction in intercompany demand notes resulting from dividends paid to WGP. The allowance for funds used during construction was $17.5 million lower due to a lower amount of capital projects under construction. The impairment of an investment in an unconsolidated affiliate recorded in 2002 was due to the $12.3 million impairment of our investment in Independence Pipeline Company. Miscellaneous other (income) deductions, net reflected higher deductions primarily as a result of a gain of $11.0 million recorded in 2002 associated with the disposition of securities received through a mutual insurance company reorganization.

EFFECT OF INFLATION

We generally have experienced increased costs due to the effect of inflation on the cost of labor, materials and supplies, and property, plant and equipment. A portion of the increased labor and materials and supplies cost can directly affect income through increased maintenance and operating costs. The cumulative impact of inflation over a number of years has resulted in increased costs for current replacement of productive facilities. The majority of our property, plant and equipment and inventory is subject to ratemaking treatment, and under current FERC practices, recovery is limited to historical costs. While amounts in excess of historical cost are not recoverable under current FERC practices, we believe that we will be allowed to recover and earn a return based on increased actual cost incurred when existing facilities are replaced. Cost based regulation along with competition and other market factors limit our ability to price services or products based upon inflation’s effect on costs.

CAPITAL RESOURCES AND LIQUIDITY

METHOD OF FINANCING

We fund our capital requirements with cash flows from operating activities by, repayments of funds advanced to Williams, accessing capital markets, and, if required, borrowings under the Credit Agreement and advances from Williams.

We have an effective registration statement on file with the Securities and Exchange Commission. At December 31, 2004, $200 million of shelf availability remains under this registration statement which may be used to issue debt securities. At December 31, 2004, the ability to utilize this registration statement was restricted by certain covenants of Williams’ debt agreements. On January 20, 2005, the restriction on us was removed with the replacement of Williams’ two unsecured revolving credit facilities. Interest rates, market conditions, and industry conditions will affect amounts raised, if any, in the capital markets. We believe any additional financing arrangements, if required, can be obtained from the capital markets on terms that are commensurate with our current credit ratings.

On May 3, 2004, Williams entered into a new three-year $1 billion secured revolving credit facility (Credit Agreement) which is available for borrowings and letters of credit. In August 2004, Williams expanded the credit facility by an additional $275 million. At December 31, 2004, letters of credit totaling $422 million, none of which are associated with us, have been issued by the participating institutions under this facility and no revolving credit loans were outstanding. Transco and Northwest Pipeline Corporation, a subsidiary of WGP, have access to $400 million each under the facility. The new facility is secured by certain Williams’ midstream assets. Additionally, the facility is guaranteed by WGP. Interest is calculated based on a choice of two methods: a fluctuating rate equal to the facilitating bank’s base rate plus an applicable margin or a periodic fixed rate equal to the London Interbank Offered Rate (LIBOR) plus an applicable margin. Williams is also required to pay a commitment fee (currently 0.375% annually) based on the unused portion of the facility. The applicable margins and commitment fee are based on the relevant borrower’s senior unsecured long-term debt ratings. Upon entering into the new $1 billion secured revolving credit facility on May 3, 2004, Williams terminated the existing $800 million revolving and letter of credit facility.

On December 10, 2004, we issued $75 million of Floating Rate Senior Notes (Floating Rate Notes) due 2008. Interest is payable on January 15, April 15, July 15, and October 15 of each year, beginning on April 15, 2005. The notes will bear interest at the three-month LIBOR rate plus 1.28% and will mature on April 15, 2008. The first coupon setting had a four-month LIBOR and was 3.84125% on December 31, 2004. Interest on the notes will be reset on each interest payment date, beginning on April 15, 2005. The notes will be unsecured and unsubordinated indebtedness and will rank equally with all of our other existing and future unsecured and unsubordinated indebtedness. The net proceeds from this offering were used to repay a portion of $200 million of our 6 1/8% Senior Notes that matured on January 15, 2005 (6 1/8% Notes).

As a participant in Williams’ cash management program, we have advances to and from Williams. At December 31, 2004, the advances due to us by Williams totaled $302.8 million which included proceeds associated with the issuance of the Floating Rate Notes. The advances are represented by demand notes. In January 2005, Williams repaid $200 million of these advances for use in retiring the 6 1/8% Notes. Effective September 2003, the interest rate on intercompany demand notes is based upon the weighted average cost of Williams’ debt outstanding at the end of each quarter. Previously, the interest rate on intercompany demand notes was based on the LIBOR plus an applicable margin. Williams has indicated that it currently believes that it will continue to have the financial resources and liquidity to repay these advances. Prior to April 29, 2004, the advances were made to and from our parent company, WGP.

Through a wholly-owned subsidiary, we hold a 35% interest in Pine Needle LNG Company, LLC (Pine Needle). On March 20, 1998, Pine Needle executed an interest rate swap agreement with a bank, which swapped floating rate debt into 6.58% fixed rate debt. This interest rate swap qualifies as a cash flow hedge transaction under the accounting and reporting standards established by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” We adopted these standards effective January 1,

2001. As such, our equity interest in the changes in fair value of Pine Needle’s hedge is recognized in other comprehensive income. For the years ended December 31, 2004 and 2003, our equity interest in an unrealized loss on Pine Needle’s hedge was $0.9 million and $1.1 million, respectively. The swap agreement initially had a notional amount of $53.5 million of debt, of which $46.0 million was still outstanding at December 31, 2004. The interest rate swap is settled quarterly. The swap agreement was effective March 31, 1999 and terminates on December 31, 2013, which is also the date of the last principal payment on this long-term debt.

Williams’ Recent Events

In February 2003, Williams outlined its planned business strategy in response to the events that significantly impacted the energy sector and Williams during late 2001 and 2002. The plan focused upon migrating to an integrated natural gas business comprised of a strong, but smaller portfolio of natural gas businesses, reducing debt and increasing Williams’ liquidity through assets sales, strategic levels of financing and reductions in operating costs. The plan was designed to address near-term and medium-term debt and liquidity issues, to de-leverage Williams with the objective of returning to investment grade status and to develop a balance sheet capable of supporting and ultimately growing its remaining businesses. A component of Williams’ plan was to reduce the risk and liquidity requirements of its power segment while realizing the value of its power portfolio.

In 2004, Williams continued to execute certain components of the plan and substantially completed its plan as outlined in February 2003. Williams’ results for 2004 include the following.

	•		Completion of planned asset sales, which resulted in proceeds of approximately $877.8 million.

	•		Replacement of Williams’ cash-collateralized letter of credit and revolver facility with facilities that do not encumber cash.

	•		Significant debt reduction of approximately $4 billion through scheduled maturities and early redemptions.

	•		On June 1, 2004, Williams announced an agreement with IBM Business Consulting Services (IBM) to aid in transforming and managing certain areas of Williams’ accounting, finance, and human resources processes. Under the agreement, IBM will also manage key aspects of Williams’ information technology, including enterprise wide infrastructure and application development. The 7¹/2 year agreement began July 1, 2004 and is expected to reduce costs in these areas while maintaining a high quality of service.

In September 2004, Williams Board of Directors approved the decision to retain Williams’ power business and end its efforts to exit that business. Williams’ strategy is to continue managing this business to minimize financial risk, maximize cash flow and meet contractual commitments.

Williams’ plan for 2005 includes the following objectives:

	•		increase focus and disciplined investments in natural gas businesses;

	•		continue to steadily improve credit ratios and ratings with the goal of achieving investment grade ratios;

	•		continue to reduce risk and liquidity requirements while maximizing cash flow in its power segment; and

	•		maintain liquidity from cash and revolving credit facilities of at least $1 billion.

Credit Ratings

We have no guarantees of off-balance sheet debt to third parties and maintain no debt obligations that contain provisions requiring accelerated payment of the related obligations in the event of specified levels of declines in Williams’ or our credit ratings given by Moody’s Investors Service, Standard & Poor’s and Fitch Ratings (rating agencies).

In the fourth quarter of 2004, Moody’s Investors Service and Fitch Ratings raised the credit ratings on our senior unsecured long-term debt as shown below. The rating given by Standard & Poor’s did not change during 2004 and is B+. Currently, the rating agencies have our credit ratings evaluated as “stable outlook.”


Moody’s Investors Services		B1 to Ba2
Fitch Ratings		BB to BB+

CAPITAL EXPENDITURES

As shown in the table below, our capital expenditures for 2004 included $10 million for market-area projects, $8 million for supply-area projects and $135 million for maintenance of existing facilities and other projects including expenditures required under the Federal Clean Air Act and Clean Air Act Amendments of 1990 and the Pipeline Safety Improvement Act of 2002. We are estimating approximately $235 million to $260 million of capital expenditures in the year 2005 related to the maintenance of existing facilities, including Clean Air Act and pipeline safety expenditures, expansion projects in the market area, primarily the Central New Jersey and Leidy to Long Island projects and supply area projects.


Capital Expenditures and	2004		2003		2002
Investments in Affiliates	(Restated)		(Restated)		(Restated)
	(In millions)
Market-Area Projects	$	10.1	$	104.6	$	281.8
Supply-Area Projects		8.2		11.7		17.0
Maintenance of Existing Facilities and Other Projects		135.0		78.0		166.7
Investment in Affiliates		—		—		0.2


Total Capital Expenditures and Investments in Affiliates	$	153.3	$	194.3	$	465.7

OTHER CAPITAL REQUIREMENTS, CONTRACTUAL OBLIGATIONS AND CONTINGENCIES

Contractual obligations The table below summarizes the maturity dates of our contractual obligations by period (in millions).


	2005		2006-2007		2008-2009		Thereafter			Total
Long-term debt, including current portion:

Principal	$	200	$	—	$	175	$	833		$	1,208

Interest		75		148		131		361			715

Capital leases		—		—		—		—			—

Operating leases		7		11		9		21			48

Purchase obligations:
Natural gas purchase storage and transportation		133		169		91		124			517

Other		43		6		4		2	⁽¹⁾		55

Other long-term liabilities, including current portion:
FERC penalty		4		8		—		—			12


Total	$	462	$	342	$	410	$	1,341		$	2,555


(1)		Includes 10 years of pipeline easement obligations for contracts with indefinite termination dates.

Regulatory and legal proceedings As discussed in Note 3 of the Notes to Consolidated Financial Statements included in Item 8 herein, we are involved in several pending regulatory and legal proceedings. Because of the complexities of the issues involved in these proceedings, we cannot predict the actual timing of resolution or the ultimate amounts, which might have to be refunded or paid in connection with the resolution of these pending regulatory and legal proceedings.

Environmental matters As discussed in Note 3 of the Notes to Consolidated Financial Statements included in Item 8 herein, we are subject to extensive federal, state and local environmental laws and regulations which affect our operations related to the construction and operation of our pipeline facilities. We consider environmental assessment and remediation costs and costs associated with compliance with environmental standards to be recoverable through rates, as they are prudent costs incurred in the ordinary course of business. To date, we have been permitted recovery of environmental costs incurred, and it is our intent to continue seeking recovery of such costs, as incurred, through rate filings.

Long-term gas purchase contracts We have long-term gas purchase contracts containing variable prices that are currently in the range of estimated market prices. However, due to contract expirations and estimated deliverability declines, our estimated purchase commitments under such gas purchase contracts are not material to our total gas purchases.

CONCLUSION

Although no assurances can be given, we currently believe that the aggregate of cash flows from operating activities, supplemented, when necessary, by repayments of funds advanced to Williams, advances or capital contributions from Williams and borrowings under the Credit Agreement will provide us with sufficient liquidity to meet our capital requirements. When necessary, we also expect to access public and private markets on terms commensurate with our current credit ratings to finance our capital requirements.

ITEM 7A. Qualitative and Quantitative Disclosures About Market Risk

Due to variable rate issues in its debt portfolio, Transco’s interest rate risk exposure is influenced by short-term rates, primarily LIBOR on borrowings from commercial banks. To mitigate the impact of fluctuations in short-term interest rates, Transco maintains a significant portion of its debt portfolio in fixed rate debt.

The following tables provide information about our long-term debt, including current maturities, as of December 31, 2004. The tables present principal cash flows and weighted-average interest rates by expected maturity dates.


December 31, 2004	Expected Maturity Date
	2005			2006			2007			2008
	(Dollars in millions)
Long-term debt:
Fixed rate	$	200		$	—		$	—		$	100
Interest rate		7.39	%		7.40	%		7.40	%		7.70	%
Variable rate	$	—		$	—		$	—		$	75
Interest rate (3.84% for 2004)


December 31, 2004	Expected Maturity Date
	2009			Thereafter			Total		Fair Value
	(Dollars in millions)
Long-term debt:
Fixed rate	$	—		$	833		$	1,133	$	1,233
Interest rate		7.80	%		7.50	%
Variable rate	$	—		$	—		$	75	$	76
Interest rate (3.84% for 2004)	$	—		$	—		$	—

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors of Transcontinental Gas Pipe Line Corporation

We have audited the accompanying consolidated balance sheets of Transcontinental Gas Pipe Line Corporation as of December 31, 2004 and 2003, and the related consolidated statements of income, common stockholder's equity, comprehensive income, and cash flows for each of the three years in the period ended December 31, 2004. Our audit also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Transcontinental Gas Pipe Line Corporation at December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As described in Note 2 to the consolidated financial statements, the accompanying consolidated balance sheets as of December 31, 2004 and 2003 and the related consolidated statements of income, changes in stockholder’s equity, comprehensive income and cash flows for each of the three years ended December 31, 2004, 2003 and 2002 have been restated.

/s/ ERNST & YOUNG LLP

Houston, Texas
March 28, 2005, except for Note 2,
as to which the date is August 15, 2005

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED STATEMENT OF INCOME
(Thousands of Dollars)


	Years Ended December 31,
	2004			2003			2002
	(Restated)			(Restated)			(Restated)
Operating Revenues:
Natural gas sales	$	403,181		$	471,636		$	380,721
Natural gas transportation		784,605			797,001			744,390
Natural gas storage		122,951			124,363			135,682
Other		9,079			20,368			15,489

Total operating revenues		1,319,816			1,413,368			1,276,282


Operating Costs and Expenses:
Cost of natural gas sales		401,632			471,636			380,721
Cost of natural gas transportation		14,566			26,087			31,725
Operation and maintenance		191,200			185,575			182,834
Administrative and general		118,105			108,742			138,515
Depreciation and amortization		196,340			206,102			186,427
Taxes — other than income taxes		42,077			41,282			33,819
Other (income) expense, net		548			(7,756	)		20,593

Total operating costs and expenses		964,468			1,031,668			974,634


Operating Income		355,348			381,700			301,648


Other (Income) and Other Deductions:
Interest expense — affiliates		—			35			175
— other		88,742			88,784			92,107
Interest income — affiliates		(12,555	)		(5,173	)		(13,287	)
— other		(1,192	)		(5	)		(1,543	)
Allowance for equity and borrowed funds used during construction (AFUDC)		(8,327	)		(13,035	)		(30,571	)
Equity in earnings of unconsolidated affiliates		(7,073	)		(7,503	)		(7,799	)
Impairment of investment in unconsolidated affiliate		—			—			12,275
Miscellaneous other (income) deductions, net		(4,868	)		(6,776	)		(24,953	)

Total other (income) and other deductions		54,727			56,327			26,404

Income before Income Taxes		300,621			325,373			275,244
Provision for Income Taxes		115,418			123,787			111,666


Net Income	$	185,203		$	201,586		$	163,578

See accompanying notes.

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)


	December 31,
	2004		2003
	(Restated)		(Restated)
ASSETS

Current Assets:
Cash	$	176	$	300
Receivables:
Trade less allowance of $778 ($2,470 in 2003)		98,379		123,452
Affiliates		1,947		9,360
Advances to affiliates		302,765		49,947
Other		14,954		10,362
Transportation and exchange gas receivables		5,810		22,756
Inventories:
Gas in storage, at LIFO		15,930		25,451
Materials and supplies, at lower of average cost or market		29,080		30,846
Gas available for customer nomination, at average cost		60,369		54,469
Deferred income taxes		17,592		16,236
Other		13,543		17,095

Total current assets		560,545		360,274


Investments, at cost plus equity in undistributed earnings		43,592		43,665


Property, Plant and Equipment:
Natural gas transmission plant		5,866,977		5,756,589
Less — Accumulated depreciation and amortization		1,594,231		1,435,488

Total property, plant and equipment, net		4,272,746		4,321,101


Other Assets		249,291		263,799


	$	5,126,174	$	4,988,839

See accompanying notes.

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)


	December 31,
	2004			2003
	(Restated)			(Restated)
LIABILITIES AND STOCKHOLDER’S EQUITY

Current Liabilities:
Payables:
Trade	$	42,611		$	75,509
Affiliates		43,063			63,100
Other		20,592			21,933
Transportation and exchange gas payables		21,559			17,790
Accrued liabilities:
Federal income taxes payable to affiliate		41,429			20,341
State income taxes		6,911			3,044
Other taxes		14,027			15,162
Interest		31,337			31,217
Employee benefits		49,217			45,175
Other		12,103			13,527
Reserve for rate refunds		8,919			10,610
Current maturities of long-term debt		199,991			—

Total current liabilities		491,759			317,408


Long-Term Debt		999,858			1,123,958


Other Long-Term Liabilities:
Deferred income taxes		965,107			935,441
Other		154,714			157,723

Total other long-term liabilities		1,119,821			1,093,164


Contingent liabilities and commitments (Note 3)

Cumulative Redeemable Preferred Stock, without par value:
Authorized 10,000,000 shares: none issued or outstanding		—			—

Cumulative Redeemable Second Preferred Stock, without par value:
Authorized 2,000,000 shares: none issued or outstanding		—			—


Common Stockholder’s Equity:
Common Stock $1.00 par value:
100 shares authorized, issued and outstanding		—			—
Premium on capital stock and other paid-in capital		1,652,430			1,652,430
Retained earnings		863,226			803,023
Accumulated other comprehensive loss		(920	)		(1,144	)

Total common stockholder’s equity		2,514,736			2,454,309


	$	5,126,174		$	4,988,839

See accompanying notes.

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED STATEMENT OF COMMON STOCKHOLDER’S EQUITY
(Thousands of Dollars)


	Years Ended December 31,
	2004			2003			2002
	(Restated)			(Restated)			(Restated)
Common Stock:
Balance at beginning and end of period	$	—		$	—		$	—


Premium on Capital Stock and Other Paid-in Capital:
Balance at beginning and end of period		1,652,430			1,652,430			1,652,430


Retained Earnings:
Balance at beginning of period		803,023			846,437			882,859
Add (deduct):
Net income		185,203			201,586			163,578
Cash dividends on common stock		(125,000	)		(245,000	)		(200,000	)


Balance at end of period		863,226			803,023			846,437


Accumulated Other Comprehensive Loss:
Interest Rate Hedge:
Balance at beginning of period		(1,144	)		(1,653	)		(572	)
Add (deduct):
Net gain/(loss)		224			509			(1,081	)

Balance at end of period		(920	)		(1,144	)		(1,653	)

Minimum Pension Liability:
Balance at beginning of period		—			(7,387	)		—
Add (deduct):
Net gain/(loss)		—			7,387			(7,387	)

Balance at end of period		—			—			(7,387	)


Balance at end of period		(920	)		(1,144	)		(9,040	)


Total Common Stockholder’s Equity	$	2,514,736		$	2,454,309		$	2,489,827

See accompanying notes.

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)


	Year Ended December 31,
	2004			2003			2002
	(Restated)			(Restated)			(Restated)
Cash flows from operating activities:

Net income	$	185,203		$	201,586		$	163,578

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		198,566			200,298			184,184
Deferred income taxes		31,814			32,510			28,755
Provision for loss on property		—			—			2,848
Impairment of investment in unconsolidated affiliate		—			—			12,275
Allowance for equity funds used during construction (Equity AFUDC)		(6,091	)		(9,354	)		(22,660	)
Changes in operating assets and liabilities:
Receivables		27,894			4,396			(29,650	)
Receivable — TGPL Enterprises, Inc		—			—			32,032
Transportation and exchange gas receivable		16,946			(12,394	)		4,991
Inventories		5,387			(31,890	)		36,571
Payables		(49,779	)		7,233			19,937
Transportation and exchange gas payable		3,769			14,460			(229	)
Accrued liabilities		34,763			(17,678	)		2,621
Reserve for rate refunds		(1,691	)		1,363			(51,434	)
Other, net		10,345			(35,863	)		(11,516	)

Net cash provided by operating activities		457,126			354,667			372,303


Cash flows from financing activities:
Additions to long-term debt		75,000			—			317,119
Retirement of long-term debt		—			—			(275,000	)
Debt issue costs		(356	)		(131	)		(3,095	)
Common stock dividends paid		(125,000	)		(245,000	)		(200,000	)
Change in cash overdrafts		(1,341	)		(12,457	)		18,179
Advances from affiliates-net		—			(3,022	)		(4,948	)

Net cash used in financing activities		(51,697	)		(260,610	)		(147,745	)

See accompanying notes.

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)


	Year Ended December 31,
	2004			2003			2002
	(Restated)			(Restated)			(Restated)
Cash flows from investing activities:
Property, plant and equipment:
Additions, net of equity AFUDC		(150,112	)		(202,845	)		(456,841	)
Changes in accounts payable		(3,156	)		8,554			(8,735	)
Advances to affiliates, net		(252,818	)		91,635			209,648
Investments in affiliates, net		—			—			(152	)
Other, net		533			2,716			37,233

Net cash used in investing activities		(405,553	)		(99,940	)		(218,847	)


Net increase (decrease) in cash		(124	)		(5,883	)		5,711
Cash at beginning of period		300			6,183			472

Cash at end of period	$	176		$	300		$	6,183


Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (exclusive of amount capitalized)	$	83,334		$	81,081		$	81,396
Income taxes paid		51,346			89,408			53,514
Income tax refunds received		(46	)		(27	)		(426	)

See accompanying notes.

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.	Summary of Significant Accounting Policies	38
2.	Restatements	46
3.	Contingent Liabilities and Commitments	73
4.	Debt, Financing Arrangements and Leases	80
5.	Employee Benefit Plans	82
6.	Income Taxes	86
7.	Financial Instruments	87
8.	Transactions with Major Customers and Affiliates	87
9.	Impairments	89
10.	Quarterly Information — Restated (Unaudited)	89

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Corporate structure and control Transcontinental Gas Pipe Line Corporation (Transco) is a wholly-owned subsidiary of Williams Gas Pipeline Company, LLC (WGP). WGP is a wholly-owned subsidiary of The Williams Companies, Inc. (Williams).

Nature of operations We are an interstate natural gas transmission company which owns a natural gas pipeline system extending from Texas, Louisiana, Mississippi and the Gulf of Mexico through the states of Alabama, Georgia, South Carolina, North Carolina, Virginia, Maryland, Pennsylvania and New Jersey to the New York City metropolitan area. The system serves customers in Texas and the eleven southeast and Atlantic seaboard states mentioned above, including major metropolitan areas in Georgia, North Carolina, New York, New Jersey and Pennsylvania. We also hold a minority interest in an intrastate natural gas pipeline in North Carolina.

Regulatory accounting We are regulated by the Federal Energy Regulatory Commission (FERC). Statement of Financial Accounting Standards (SFAS) No. 71, “Accounting for the Effects of Certain Types of Regulation,” provides that rate-regulated public utilities account for and report regulatory assets and liabilities consistent with the economic effect of the way in which regulators establish rates if the rates established are designed to recover the costs of providing the regulated service and if the competitive environment makes it reasonable to assume that such rates can be charged and collected. Accounting for businesses that are regulated and apply the provisions of SFAS No. 71 can differ from the accounting requirements for non-regulated businesses. Transactions that are recorded differently as a result of regulatory accounting requirements include the capitalization of an equity return component on regulated capital projects, employee related benefits, and other costs and taxes included in, or expected to be included in, future rates. As a rate-regulated entity, our management has determined that it is appropriate to apply the accounting prescribed by SFAS No. 71 and, accordingly, the accompanying consolidated financial statements include the effects of the types of transactions described above that result from regulatory accounting requirements. At December 31, 2004, we had approximately $141 million of regulatory assets and approximately $54 million of regulatory

liabilities included in the accompanying Consolidated Balance Sheet. At December 31, 2003, we had approximately $144 million of regulatory assets and approximately $51 million of regulatory liabilities included in the accompanying Consolidated Balance Sheet.

Basis of presentation The acquisition of Transco Energy Company (TEC) and its subsidiaries, including us, by Williams in 1995 was accounted for using the purchase method of accounting. Accordingly, an allocation of the purchase price was assigned to our assets and liabilities based on their estimated fair values. The purchase price allocation to us primarily consisted of a $1.5 billion allocation to property, plant and equipment and adjustments to deferred taxes based upon the book basis of the net assets recorded as a result of the acquisition. The amount allocated to property, plant and equipment is being depreciated on a straight-line basis over 40 years, the estimated useful lives of these assets at the date of acquisition, at approximately $36 million per year. Current FERC policy does not permit us to recover through rates amounts in excess of original cost.

As a participant in Williams’ cash management program, we have advances to and from Williams. These advances are represented by demand notes. We currently expect to receive payment of these advances within the next twelve months and have recorded such advances as current in the accompanying Consolidated Balance Sheet. Effective September 2003, the interest rate on intercompany demand notes is based upon the weighted average cost of Williams’ debt outstanding at the end of each quarter. Previously, the interest rate on intercompany demand notes was based on the London Interbank Offering Rate (LIBOR) plus an applicable margin. Prior to April 29, 2004, the advances were made to and from our parent company, WGP.

Through an agency agreement, Williams Power Company (WPC), an affiliate of ours, manages all jurisdictional merchant gas sales for us, receives all margins associated with such business and, as our agent, assumes all market and credit risk associated with our jurisdictional merchant gas sales. Consequently, our merchant gas sales have no impact on our operating income or results of operations.

Our Board of Directors declared cash dividends on common stock in the amounts of $125 million, $245 million and $200 million for 2004, 2003 and 2002, respectively.

Principles of consolidation The consolidated financial statements include our accounts and the accounts of our majority-owned subsidiaries. Companies in which we and our subsidiaries own 20 percent to 50 percent of the voting common stock or otherwise exercise significant influence over operating and financial policies of the company are accounted for under the equity method. The equity investments as of December 31, 2004 and 2003 primarily consist of Cardinal Pipeline Company, LLC with ownership interest of approximately 45% and Pine Needle LNG Company, LLC (Pine Needle) with ownership interest of 35%.

Estimates and assumptions which, in the opinion of management, are significant to the underlying amounts included in the financial statements and for which it would be reasonably possible that future events or information could change those estimates include: 1) revenues subject to refund; 2) litigation-related contingencies; 3) environmental remediation obligations; 4) impairment assessments of long-lived assets; 5) deferred and other income taxes; 6) depreciation; 7) pensions and other post-employment benefits; and 8) asset retirement obligations.

Revenue recognition Revenues for sales of products are recognized in the period of delivery and revenues from the transportation of gas are recognized in the period the service is provided based on contractual terms and the related transported volumes. As a result of the ratemaking process, certain revenues collected by us may be subject to possible refunds upon final orders in pending rate proceedings with the FERC. We record estimates of rate refund liabilities considering our and other third party regulatory proceedings, advice of counsel and estimated total exposure, as discounted and risk weighted, as well as collection and other risks.

Property, plant and equipment Property, plant and equipment is recorded at cost, adjusted in 1995 to reflect the allocation of the purchase price as discussed above. The carrying values of these assets are also based on estimates, assumptions and judgments relative to capitalized costs, useful lives and salvage values. These estimates, assumptions and judgments reflect FERC regulations, as well as historical experience and expectations regarding future industry conditions and operations. Gains or losses from the ordinary sale or retirement of property, plant and equipment are credited or charged to accumulated depreciation; certain other gains or losses are recorded in net income.

We provide for depreciation using the straight-line method at FERC prescribed rates, including negative salvage for offshore transmission facilities. Depreciation of general plant is provided on a group basis at straight-line rates. Depreciation rates used for major regulated gas plant facilities at December 31, 2004, 2003, and 2002 are as follows:


Category of Property	Depreciation Rates
Gathering facilities		0%-3.80	%
Storage facilities		2.50	%
Onshore transmission facilities		2.35	%
Offshore transmission facilities		0.85%-1.50	%

Under the terms of a settlement in our general rate case in Docket No. RP01-245, which established rates effective September 1, 2001, we agreed to reduce the depreciation rate for small offshore transmission facilities and discontinue depreciation on onshore production and gathering facilities. The reduction in the depreciation rate had no effect on operating or net income due to an offsetting reduction in operating revenues, but did result in lower cash flows from operations. The reduction in the rate was recorded in 2002, retroactive to September 1, 2001.

Effective January 1, 2003, Williams and its subsidiaries, including us, adopted SFAS No. 143, “Accounting for Asset Retirement Obligations.” The statement requires that the fair value of a liability for an asset retirement obligation (ARO) be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made, and that the associated asset retirement costs be capitalized as part of the carrying amount of the long-lived asset.

We have previously determined that asset retirement obligations exist for our offshore transmission platforms. In 2004, the remaining life of one of our storage facilities became determinable and we were able to estimate the asset retirement obligation. Therefore, we recorded an asset retirement obligation in the amount of $5.6 million associated with the storage facility. At the end of the useful life of each respective asset, we are legally obligated to dismantle offshore transmission platforms and the storage facility. The asset retirement obligation as of December 31, 2004 and 2003 was $17.9 million and $11.6 million, respectively.

Included in our depreciation rates is a negative salvage (cost of removal) component that we currently collect in rates. We therefore accrue the estimated costs of removal of long-lived assets through depreciation expense. In connection with the adoption of SFAS No. 143, a portion of the negative salvage component of Accumulated Depreciation equal to the asset retirement obligation was reclassified to a Noncurrent ARO Regulatory Liability.

We have not recorded asset retirement liabilities for pipeline transmission assets and gas gathering systems. A reasonable estimate of the fair value of the retirement obligations for these assets cannot be made as the remaining life of these assets is not currently determinable. In connection with the adoption of SFAS No. 143, the remaining portion of the negative salvage component of Accumulated Depreciation that represents cost of removal for pipeline transmission assets and gas gathering systems was reclassified to a Noncurrent Regulatory Liability, which totaled $18.8 million as of December 31, 2004 and $25.2 million as of December 31, 2003.

The adoption of SFAS No. 143 did not have a material impact to our operating income or net income.

Impairment of long-lived assets and investments We evaluate the long-lived assets of identifiable business activities for impairment when events or changes in circumstances indicate, in our management’s judgment, that the carrying value of such assets may not be recoverable. When an indicator of impairment has occurred, we compare our management’s estimate of undiscounted future cash flows attributable to the assets to the carrying value of the assets to determine whether an impairment has occurred. We apply a probability-weighted approach to consider the likelihood of different cash flow assumptions and possible outcomes including selling in the near term or holding for the remaining estimated useful life. If an impairment of the carrying value has occurred, we determine the amount of the impairment recognized in the financial statements by estimating the fair value of the assets and recording a loss for the amount that the carrying value exceeds the estimated fair value.

For assets identified to be disposed of in the future and considered held for sale in accordance with SFAS No. 144, we compare the carrying value to the estimated fair value less the cost to sell to determine if recognition of an impairment is required. Until the assets are disposed of, the estimated fair value, which includes estimated cash flows from operations until the assumed date of sale, is redetermined when related events or circumstances change.

We evaluate our investments for impairment when events or changes in circumstances indicate, in our management’s judgment, that the carrying value of such investments may have experienced an other-than-temporary decline in value. When evidence of loss in value has occurred, we compare our estimate of fair value of the investment to the carrying value of the investment to determine whether an impairment has occurred. If the estimated fair value is less than the carrying value and we consider the decline in value to be other than temporary, the excess of the carrying value over the fair value is recognized in the financial statements as an impairment.

Judgments and assumptions are inherent in our management’s estimate of undiscounted future cash flows used to determine recoverability of an asset and the estimate of an asset’s fair value used to calculate the amount of impairment to recognize. The use of alternate judgments and/or assumptions could result in the recognition of different levels of impairment charges in the financial statements.

Accounting for repair and maintenance costs We account for repair and maintenance costs under the guidance of FERC regulations. The FERC identifies installation, construction and replacement costs that are to be capitalized. All other costs are expensed as incurred.

Allowance for funds used during construction Allowance for funds used during construction (AFUDC) represents the estimated cost of borrowed and equity funds applicable to utility plant in process of construction and are included as a cost of property, plant and equipment because it constitutes an actual cost of construction under established regulatory practices. The FERC has prescribed a formula to be used in computing separate allowances for borrowed and equity AFUDC. The allowance for borrowed funds used during construction was $2.2 million, $3.7 million and $7.9 million, for 2004, 2003 and 2002, respectively. The allowance for equity funds was $ 6.1 million, $9.3 million, and $22.7 million, for 2004, 2003 and 2002, respectively.

Accounting for income taxes Williams and its wholly-owned subsidiaries, which includes us, file a consolidated federal income tax return. It is Williams’ policy to charge or credit us with an amount equivalent to our federal income tax expense or benefit computed as if we had filed a separate return.

We use the liability method of accounting for income taxes which requires, among other things, provisions for all temporary differences between the financial basis and the tax basis in our assets and liabilities and adjustments to the existing deferred tax balances for changes in tax rates.

Accounts receivable and allowance for doubtful receivables Accounts receivable are stated at the historical carrying amount net of reserves or write-offs. Due to our customer base, we have not historically experienced recurring credit losses in connection with our receivables. As a result, receivables determined to be uncollectible are fully written off in the period of such determination. At December 31, 2004 and 2003, we had recorded reserves of $0.8 million and $2.5 million, respectively, for uncollectible accounts.

Advances to affiliates As a participant in Williams’ cash management program, we make advances to and receive advances from Williams. The advances are represented by demand notes. Advances are stated at the historical carrying amounts. Interest income is recognized when chargeable and collectibility is reasonably assured. The interest rate on intercompany demand notes is based upon the weighted average cost of Williams’ debt outstanding at the end of each quarter. Prior to April 29, 2004, the advances were made to and from our parent company, WGP.

Gas imbalances In the course of providing transportation services to customers, we may receive different quantities of gas from shippers than the quantities delivered on behalf of those shippers. Additionally, we transport gas on various pipeline systems which may deliver different quantities of gas on behalf of us than the quantities of gas received from us. These transactions result in gas transportation and exchange imbalance receivables and payables which are recovered or repaid in cash or through the receipt or delivery of gas in the future and are recorded in the accompanying Consolidated Balance Sheet. Settlement of

imbalances requires agreement between the pipelines and shippers as to allocations of volumes to specific transportation contracts and timing of delivery of gas based on operational conditions. Our tariff includes a method whereby most transportation imbalances generated after August 1, 1991 are settled on a monthly basis. Each month a portion of the imbalances are not identified to specific parties and remain unsettled. These are generally identified to specific parties and settled in subsequent periods. Management believes that amounts that remain unidentified to specific parties and unsettled at year end are valid balances that will be settled with no material adverse effect upon our financial position, results of operations or cash flows. Imbalances predating August 1, 1991 are being recovered or repaid in cash or through the receipt or delivery of gas upon agreement of the parties as to the allocation of the gas volumes, and as permitted by pipeline operating conditions. These imbalances have been classified as current assets and current liabilities at December 31, 2004 and 2003.

Gas inventory We utilize the last-in, first-out (LIFO) method of accounting for inventory gas in storage. The excess of current cost over the LIFO value on the Consolidated Balance Sheet dated December 31, 2004 is approximately $25 million. The basis for determining current cost is the December 2004 monthly average gas price delivered to pipelines in Texas and Louisiana. We utilize the average cost method of accounting for gas available for customer nomination.

Cash flows from operating activities and cash equivalents We use the indirect method to report cash flows from operating activities, which requires adjustments to net income to reconcile to net cash flows provided by operating activities. We include short-term, highly-liquid investments that have a maturity of three months or less as cash equivalents.

Comprehensive income In 1998, Pine Needle executed an interest rate swap agreement with a bank, which swapped floating rate debt into fixed rate debt. This interest rate swap qualifies as a cash flow hedge transaction under the accounting and reporting standards established by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” and amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” We adopted these standards effective January 1, 2001. As such, our equity interest in the changes in fair value of Pine Needle’s hedge is recognized in other comprehensive income (loss), net of tax.

At December 31, 2002, we recorded a minimum pension liability of $7.4 million, net of $4.6 million tax, which was included as a component of our other comprehensive loss for the year 2002. The minimum pension liability was reversed in 2003.

Employee stock-based awards Employee stock-based awards are accounted for under Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations. Williams’ fixed-plan common stock options generally do not result in compensation expense because the exercise price of the stock options equals the market price of the underlying stock on the date of grant. The Williams’ plans are described more fully in Note 5. The following table illustrates the effect on our net income if we had applied the fair value recognition provisions of SFAS No. 123,“Accounting for Stock-Based Compensation.”


	2004			2003			2002
	(Thousands of Dollars)
Net income, as restated	$	185,203		$	201,586		$	163,578
Add (Deduct):
Stock based employee compensation expense included in the Consolidated Statement of Income, net of related tax effects		409			(55	)		98
Deduct:
Total stock based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(3,319	)		(2,097	)		(2,017	)


Pro forma net income, as restated	$	182,293		$	199,434		$	161,659

Pro forma amounts for 2004 include compensation expense from awards made in 2004, 2003, 2002, and 2001. Also included in the 2004 pro forma expense is $0.7 million of incremental expense associated with a stock option exchange program (See Note 5). Pro forma amounts for 2003 include compensation expense from awards made in 2003, 2002, and 2001. Also included in 2003 pro forma expense is $0.4 million of incremental expense associated with a stock option exchange program (See Note 5). Pro forma amounts for 2002 include compensation expense from awards made in 2002 and 2001 and from certain awards made in 1999.

Since compensation expense from stock options is recognized over the future years’ vesting period for pro forma disclosure purposes and additional awards are generally made each year, pro forma amounts may not be representative of future years’ amounts.

Recent accounting standards In December 2004, the FASB issued revised SFAS No. 123, “ Share-Based Payment.” The statement requires that compensation cost for all share based awards to employees be recognized in the financial statements at fair value. The statement is effective as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. We intend to adopt the revised statement as of the interim reporting period beginning July 1, 2005.

The revised Statement allows either a modified prospective application or a modified retrospective application for adoption. We will use a modified prospective application for adoption and thus will apply the statement to new awards and to awards modified, repurchased, or cancelled after July 1, 2005. Also, for unvested stock awards outstanding as of July 1, 2005, compensation costs for the portion of these awards for which the requisite service has not been rendered will be recognized as the requisite service is rendered after July 1, 2005. Compensation costs for these awards will be based on fair value at the original grant date as estimated for the proforma disclosure under SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure-an amendment of SFAS No. 123.” Additionally, a modified retrospective application requires restating periods prior to July 1, 2005 on a basis consistent with the pro forma disclosures required by SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148. Since we plan to use a modified prospective application, we will not restate prior periods.

Certain of Williams’ stock awards currently result in compensation cost under APB No. 25 and related guidance. These stock awards are subject to vesting provisions and Williams’ policy is to adjust compensation cost for forfeitures when they occur. Upon the July 1, 2005 adoption of the statement, we must adjust net income for previously recognized compensation cost, net of income taxes, related to the estimated number of these outstanding stock awards that are expected to be forfeited. This adjustment will be recognized in net income as the cumulative effect of a change in accounting principle. We have not estimated the amount of the adjustment for expected forfeitures.

We currently present proforma disclosure of net income as if compensation costs from all stock awards were recognized based on the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation.” We have not determined the Statement’s impact on net income beyond presentation of the proforma disclosures. The Statement requires use of valuation techniques including option pricing models to estimate the fair value of employee stock awards. We are evaluating the appropriateness of several option pricing models including a Black-Scholes model and a lattice model (such as a binomial model). Application of these two models could result in different estimates of fair value with resulting differences in compensation costs.

Reclassifications Certain reclassifications have been made in the 2003 balance sheet to conform to the 2004 presentation.

2. RESTATEMENT

On August 2, 2005, our management concluded that our consolidated financial statements for the years ending December 31, 2003 and 2004 should be restated to correct an error associated with a third-party actuarial computation of annual net periodic pension expense. In connection with the restatement required by the pension adjustment, the consolidated financial statements for the years ending December 31, 2002 through 2004 and the first quarter 2005 were also restated to record the effects of certain other prior period adjustments, the majority of which were previously disclosed in Note 1 to the Consolidated Financial Statements in our 2004 Annual Report on Form 10-K.

Management believes the net impact of these adjustments is not material to any of the previously issued consolidated financial statements. However, management determined that the cumulative adjustment required to correct pension expense was too significant to the Consolidated Statement of Income for the second quarter of 2005 and the forecast for 2005.

In the second quarter 2005, our third party actuary determined that certain annuity contract benefit information had been excluded from Transco’s pension plan participant data utilized to calculate the related pension benefit obligation for the years 2004 and 2003. As a result, Transco’s pension expense was overstated in 2004 and 2003. The effect of the restatement for the pension adjustment is a net reduction in administrative and general expense of $7.0 million in 2004 and $8.2 million in 2003.

During the second quarter 2005, we reduced certain gas purchases and imbalances payables related to final account reconciliations upon the termination of our FS agreements effective April 1, 2005. Prior periods were restated by $4.6 million in the aggregate to reflect the adjustment in the proper periods resulting in the following impact to cost of natural gas transportation: an increase of $1.0 million in 2004, a decrease of $0.5 million in 2003, an increase of $1.8 million in 2002 and a decrease of $6.9 million for the periods prior to 2002 ($4.3 million, net of related income taxes).

In the first quarter 2005, we adjusted a franchise tax accrual and the reserve for doubtful receivables which decreased taxes other than income taxes by $2.2 million and administrative and general expense by $0.9 million. The 2004 consolidated financial statements have been restated by $3.1 million to reflect these amounts in the proper period since these adjustments were identified prior to the release of our 2004 Annual Report on Form 10-K.

In the first quarter of 2004, we made an adjustment to decrease depreciation expense in the amount of $4.0 million to correct an error related to over-depreciation of certain in-house developed system software. The assets, which were retired in prior years, had continued to be depreciated. Prior periods were restated to reflect these amounts in the proper period resulting in a decrease in 2003 and 2002 depreciation expense of $3.3 million and $0.7 million, respectively.

In the fourth quarter 2004, we reduced certain gas imbalance liability accounts by $4.5 million as a result of the lack of activity in these accounts. Prior periods were restated to reflect these amounts in the proper period resulting in an increase in 2002 beginning retained earnings of $2.8 million, net of related income taxes.

In the fourth quarter 2004, we reduced certain accrued benefit liability accounts as a result of account reconciliations and the lack of activity in these accounts. Prior periods were restated to reflect these amounts in the proper period resulting in an increase to administrative and general expense of $5.1 million in 2004 and a decrease to administrative and general expense of $1.0 in 2003 and an increase in 2002 beginning retained earnings of $2.6 million, net of related income taxes.

In the fourth quarter 2004, we reduced certain federal income tax liabilities that arose subsequent to the Williams purchase date in 1995 because they were determined to be excess accruals. Prior periods were restated to reflect these amounts in the proper period resulting in an increase to provision for income taxes of $2.9 million in 2004 and an increase in 2002 beginning retained earnings since the excess accruals resulted from resolution of matters in years prior to 2002.

Adjustments for the related income tax effects of the adjustments above were also recorded in the respective restated periods. Other immaterial adjustments were made to prior periods related to various other accounts resulting in a net income decrease of $0.6 million for 2004, a net income decrease of $0.8 million for 2003, a net income increase of $1.2 million for 2002 and a net $0.2 million increase to 2002 beginning retained earnings.

The cumulative impact of these restatements to our Consolidated Statements of Income for the years 2004, 2003 and 2002 was a decrease in operating income of $5.6 million and net income of $6.3 million in 2004, an increase in operating income of $11.7 million and net income of $7.3 million in 2003 and an increase in operating income of $0.9 million and net income of $0.5 million in 2002.

In addition, in the first quarter of 2005, adjustments were made to reverse certain federal income tax liabilities against property, plant and equipment for tax accruals that existed at the Williams purchase date in 1995 but were determined to be excess accruals in the fourth quarter of 2004. Therefore, these adjustments were also made in the restatement at December 31, 2004, resulting in a decrease to property, plant and equipment of $11.0 million, a decrease in current liabilities of $7.4 million and a decrease in long-term deferred income tax liabilities of $3.6 million.

The impact on the Consolidated Balance Sheet of the restatements discussed above resulted in an increase in total assets and in total liabilities and stockholder’s equity of $2.3 million as of December 31, 2004 and $10.5 million as of December 31, 2003. The pension expense restatement resulted in an increase in other assets of $17.1 million and $9.1 million, and a decrease of property, plant and equipment of $1.9 million and $0.9 million at December 31, 2004 and 2003, respectively. The decrease in gas purchases and imbalances payables resulted in a decrease in current liabilities of $4.6 million at December 31, 2004 and $5.6 million at December 31, 2003.

The following schedules reconcile the amounts as originally reported in our Consolidated Statements of Income, Common Stockholder’s Equity, Comprehensive Income and Cash Flows for the years 2004, 2003 and 2002 and our Consolidated Balance Sheet as of December 31, 2004 and 2003.

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED STATEMENT OF INCOME
(Thousands of Dollars)


	Year Ended December 31, 2004
	(As Reported)			Adjustments			(As Restated)
Operating Revenues:
Natural gas sales	$	403,181		$	—		$	403,181
Natural gas transportation		784,605			—			784,605
Natural gas storage		122,951			—			122,951
Other		9,079			—			9,079

Total operating revenues		1,319,816			—			1,319,816


Operating Costs and Expenses:
Cost of natural gas sales		400,932			700			401,632
Cost of natural gas transportation		10,151			4,415			14,566
Operation and maintenance		190,276			924			191,200
Administrative and general		119,440			(1,335	)		118,105
Depreciation and amortization		192,316			4,024			196,340
Taxes — other than income taxes		45,242			(3,165	)		42,077
Other (income) expense, net		548			—			548

Total operating costs and expenses		958,905			5,563			964,468


Operating Income		360,911			(5,563	)		355,348


Other (Income) and Other Deductions:
Interest expense		88,742			—			88,742
Interest income — affiliates		(12,555	)		—			(12,555	)
— other		(1,192	)		—			(1,192	)
Allowance for equity and borrowed funds used during construction (AFUDC)		(8,327	)		—			(8,327	)
Equity in earnings of unconsolidated affiliates		(7,073	)		—			(7,073	)
Miscellaneous other (income) deductions, net		(4,868	)		—			(4,868	)

Total other (income) and other deductions		54,727			—			54,727


Income before Income Taxes		306,184			(5,563	)		300,621
Provision for Income Taxes		114,635			783			115,418


Net Income	$	191,549		$	(6,346	)	$	185,203

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED STATEMENT OF INCOME
(Thousands of Dollars)


	Year Ended December 31, 2003
	(As Reported)			Adjustments			(As Restated)
Operating Revenues:
Natural gas sales	$	471,636		$	—		$	471,636
Natural gas transportation		797,001			—			797,001
Natural gas storage		124,363			—			124,363
Other		20,368			—			20,368

Total operating revenues		1,413,368			—			1,413,368


Operating Costs and Expenses:
Cost of natural gas sales		471,636			—			471,636
Cost of natural gas transportation		26,228			(141	)		26,087
Operation and maintenance		185,575			—			185,575
Administrative and general		117,976			(9,234	)		108,742
Depreciation and amortization		209,436			(3,334	)		206,102
Taxes — other than income taxes		40,276			1,006			41,282
Other (income) expense, net		(7,756	)		—			(7,756	)

Total operating costs and expenses		1,043,371			(11,703	)		1,031,668


Operating Income		369,997			11,703			381,700


Other (Income) and Other Deductions:
Interest expense — affiliates		35			—			35
— other		88,784			—			88,784
Interest income — affiliates		(5,173	)		—			(5,173	)
— other		(5	)		—			(5	)
Allowance for equity and borrowed funds used during construction (AFUDC)		(13,035	)		—			(13,035	)
Equity in earnings of unconsolidated affiliates		(7,503	)		—			(7,503	)
Miscellaneous other (income) deductions, net		(6,776	)		—			(6,776	)

Total other (income) and other deductions		56,327			—			56,327


Income before Income Taxes		313,670			11,703			325,373
Provision for Income Taxes		119,361			4,426			123,787


Net Income	$	194,309		$	7,277		$	201,586

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED STATEMENT OF INCOME
(Thousands of Dollars)


	Years Ended December 31, 2002
	(As Reported)			Adjustments			(As Restated)
Operating Revenues:
Natural gas sales	$	380,721			—		$	380,721
Natural gas transportation		744,390			—			744,390
Natural gas storage		135,682			—			135,682
Other		15,489			—			15,489

Total operating revenues		1,276,282			—			1,276,282


Operating Costs and Expenses:
Cost of natural gas sales		380,721			—			380,721
Cost of natural gas transportation		31,468			257			31,725
Operation and maintenance		182,591			243			182,834
Administrative and general		139,189			(674	)		138,515
Depreciation and amortization		187,117			(690	)		186,427
Taxes — other than income taxes		33,819			—			33,819
Other (income) expense, net		20,593			—			20,593

Total operating costs and expenses		975,498			(864	)		974,634


Operating Income		300,784			864			301,648


Other (Income) and Other Deductions:
Interest expense — affiliates		175			—			175
— other		92,107			—			92,107
Interest income — affiliates		(13,287	)		—			(13,287	)
— other		(1,543	)		—			(1,543	)
Allowance for equity and borrowed funds used during construction (AFUDC)		(30,571	)		—			(30,571	)
Equity in earnings of unconsolidated affiliates		(7,799	)		—			(7,799	)
Impairment of investment in unconsolidated affiliate		12,275			—			12,275
Miscellaneous other (income) deductions, net		(24,953	)		—			(24,953	)

Total other (income) and other deductions		26,404			—			26,404


Income before Income Taxes		274,380			864			275,244
Provision for Income Taxes		111,339			327			111,666


Net Income	$	163,041		$	537		$	163,578

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)


	As of December 31, 2004
	(As Reported)		Adjustments			(As Restated)
ASSETS

Current Assets:
Cash	$	176	$	—		$	176
Receivables:
Trade less allowance of $1,724 as reported, $778 as restated		97,433		946			98,379
Other Affiliates		1,947		—			1,947
Advances to affiliates		302,765		—			302,765
Other		14,954		—			14,954
Transportation and exchange gas receivables		5,810		—			5,810
Inventories:
Gas in storage, at LIFO		15,930		—			15,930
Materials and supplies, at lower of average cost or market		29,080		—			29,080
Gas available for customer nomination, at average cost		60,369		—			60,369
Deferred income taxes		20,494		(2,902	)		17,592
Other		13,543		—			13,543

Total current assets		562,501		(1,956	)		560,545


Investments, at cost plus equity in undistributed earnings		43,592		—			43,592


Property, Plant and Equipment:
Natural gas transmission plant		5,879,814		(12,837	)		5,866,977
Less — Accumulated depreciation and amortization		1,594,177		54			1,594,231

Total property, plant and equipment, net		4,285,637		(12,891	)		4,272,746


Other Assets		232,147		17,144			249,291


	$	5,123,877	$	2,297		$	5,126,174

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)


	As of Ended December 31, 2004
	(As Reported)			Adjustments			(As Restated)
LIABILITIES AND STOCKHOLDER’S EQUITY

Current Liabilities:
Payables:
Trade	$	45,603			(2,992	)		42,611
Affiliates		43,063			—			43,063
Other		20,592			—			20,592
Transportation and exchange gas payables		23,131			(1,572	)		21,559
Accrued liabilities:
Federal income taxes payable to affiliate		48,774			(7,345	)		41,429
State income taxes		6,911			—			6,911
Other taxes		16,186			(2,159	)		14,027
Interest		31,337			—			31,337
Employee benefits		49,217			—			49,217
Other		12,103			—			12,103
Reserve for rate refunds		8,919			—			8,919
Current maturities of long-term debt		199,991			—			199,991

Total current liabilities		505,827			(14,068	)		491,759


Long-Term Debt		999,858			—			999,858


Other Long-Term Liabilities:
Deferred income taxes		962,987			2,120			965,107
Other		154,714			—			154,714

Total other long-term liabilities		1,117,701			2,120			1,119,821


Contingent liabilities and commitments (Note 3)

Cumulative Redeemable Preferred Stock, without par value:
Authorized 10,000,000 shares: none issued or outstanding.		—			—			—

Cumulative Redeemable Second Preferred Stock, without par value:
Authorized 2,000,000 shares: none issued or outstanding		—			—			—


Common Stockholder’s Equity:
Common Stock $1.00 par value:
100 shares authorized, issued and outstanding		—			—			—
Premium on capital stock and other paid-in capital		1,652,430			0			1,652,430
Retained earnings		848,981			14,245			863,226
Accumulated other comprehensive loss		(920	)		—			(920	)

Total common stockholder’s equity		2,500,491			14,245			2,514,736


		$5,123,877		$	2,297		$	5,126,174

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)


	As of December 31, 2003
	(As Reported)		Adjustments			(As Restated)
ASSETS

Current Assets:
Cash	$	300		—		$	300
Receivables:
Trade less allowance of $2,470		123,452		—			123,452
Other Affiliates		9,360					9,360
Advances to affiliates		49,947		—			49,947
Other		10,362		—			10,362
Transportation and exchange gas receivables		22,756		—			22,756
Inventories:
Gas in storage, at LIFO		25,451		—			25,451
Materials and supplies, at lower of average cost or market		30,846		—			30,846
Gas available for customer nomination, at average cost		54,469		—			54,469
Deferred income taxes		20,616		(4,380	)		16,236
Other		17,095		—			17,095

Total current assets		364,654		(4,380	)		360,274


Investments, at cost plus equity in undistributed earnings		43,665		—			43,665


Property, Plant and Equipment:
Natural gas transmission plant		5,758,739		(2,150	)		5,756,589
Less — Accumulated depreciation and amortization		1,439,493		(4,005	)		1,435,488

Total property, plant and equipment, net		4,319,246		1,855			4,321,101


Other Assets		250,748		13,051			263,799


	$	4,978,313	$	10,526		$	4,988,839

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)


	As of December 31, 2003
	(As Reported)			Adjustments			(As Restated)
LIABILITIES AND STOCKHOLDER’S EQUITY

Current Liabilities:
Payables:
Trade		80,667			(5,158	)		75,509
Affiliates		64,092			(992	)		63,100
Other		21,933			—			21,933

Transportation and exchange gas payables		22,149			(4,359	)		17,790
Accrued liabilities:
Federal income taxes payable to affiliate		20,341			—			20,341
State income taxes		3,044			—			3,044
Other taxes		14,156			1,006			15,162
Interest		31,217			—			31,217
Employee benefits		47,246			(2,071	)		45,175
Other		13,527			—			13,527
Reserve for rate refunds		10,610			—			10,610
Current maturities of long-term debt		—			—			—

Total current liabilities		328,982			(11,574	)		317,408


Long-Term Debt		1,123,958			—			1,123,958


Other Long-Term Liabilities:
Deferred income taxes		931,940			3,501			935,441
Other		159,715			(1,992	)		157,723

Total other long-term liabilities		1,091,655			1,509			1,093,164


Contingent liabilities and commitments (Note 3)

Cumulative Redeemable Preferred Stock, without par value:
Authorized 10,000,000 shares: none issued or outstanding
Cumulative Redeemable Second Preferred Stock, without par value:
Authorized 2,000,000 shares: none issued or outstanding

Common Stockholder’s Equity:
Common Stock $1.00 par value:
100 shares authorized, issued and outstanding		—			—			—
Premium on capital stock and other paid-in capital		1,652,430			—			1,652,430
Retained earnings		782,432			20,591			803,023
Accumulated other comprehensive loss		(1,144	)		—			(1,144	)

Total common stockholder’s equity		2,433,718			20,591			2,454,309


		$4,978,313			$10,526			$4,988,839

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED STATEMENT OF COMMON STOCKHOLDER’S EQUITY
(Thousands of Dollars)


	Year Ended December 31, 2004
	(As Reported)			Adjustments			(As Restated)
Common Stock:
Balance at beginning and end of period	$	—		$	—		$	—


Premium on Capital Stock and Other Paid-in Capital:
Balance at beginning and end of period		1,652,430			—			1,652,430


Retained Earnings:
Balance at beginning of period		782,432			20,591			803,023
Add (deduct):
Net income		191,549			(6,346	)		185,203
Cash dividends on common stock		(125,000	)		—			(125,000	)


Balance at end of period		848,981			14,245			863,226


Accumulated Other Comprehensive Loss:
Interest Rate Hedge:
Balance at beginning of period		(1,144	)		—			(1,144	)
Add (deduct):
Net gain/(loss)		224			—			224

Balance at end of period		(920	)		—			(920	)

Minimum Pension Liability:
Balance at beginning of period		—			—			—
Add (deduct):
Net gain/(loss)		—			—			—

Balance at end of period		—			—			—


Balance at end of period		(920	)		—			(920	)


Total Common Stockholder’s Equity	$	2,500,491		$	14,245		$	2,514,736

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED STATEMENT OF COMMON STOCKHOLDER’S EQUITY
(Thousands of Dollars)


	Year Ended December 31, 2003
	(As Reported)			Adjustments		(As Restated)
Common Stock:
Balance at beginning and end of period	$	—		$	—	$	—


Premium on Capital Stock and Other Paid-in Capital:
Balance at beginning and end of period		1,652,430			—		1,652,430


Retained Earnings:
Balance at beginning of period		833,123			13,314		846,437
Add (deduct):
Net income		194,309			7,277		201,586
Cash dividends on common stock		(245,000	)		—		(245,000	)


Balance at end of period		782,432			20,591		803,023


Accumulated Other Comprehensive Loss:
Interest Rate Hedge:
Balance at beginning of period		(1,653	)		—		(1,653	)
Add (deduct):
Net gain/(loss)		509			—		509

Balance at end of period		(1,144	)		—		(1,144	)

Minimum Pension Liability:
Balance at beginning of period		(7,387	)		—		(7,387	)
Add (deduct):
Net gain/(loss)		7,387			—		7,387

Balance at end of period		—			—		—


Balance at end of period		(1,144	)		—		(1,144	)


Total Common Stockholder’s Equity	$	2,433,718		$	20,591	$	2,454,309

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED STATEMENT OF COMMON STOCKHOLDER’S EQUITY
(Thousands of Dollars)


	Year Ended December 31, 2002
	(As Reported)			Adjustments		(As Restated)
Common Stock:
Balance at beginning and end of period	$	—		$	—	$	—


Premium on Capital Stock and Other Paid-in Capital:
Balance at beginning and end of period		1,652,430			—		1,652,430


Retained Earnings:
Balance at beginning of period		870,082			12,777		882,859
Add (deduct):
Net income		163,041			537		163,578
Cash dividends on common stock		(200,000	)		—		(200,000	)


Balance at end of period		833,123			13,314		846,437


Accumulated Other Comprehensive Loss:
Interest Rate Hedge:
Balance at beginning of period		(572	)		—		(572	)
Add (deduct):
Net gain/(loss)		(1,081	)		—		(1,081	)

Balance at end of period		(1,653	)		—		(1,653	)

Minimum Pension Liability:
Balance at beginning of period		—			—		—
Add (deduct):
Net gain/(loss)		(7,387	)		—		(7,387	)

Balance at end of period		(7,387	)		—		(7,387	)


Balance at end of period		(9,040	)		—		(9,040	)


Total Common Stockholder’s Equity	$	2,476,513		$	13,314	$	2,489,827

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)


	Year Ended December 31, 2004
	(As Reported)			Adjustments			(As Restated)
Cash flows from operating activities:
Net income	$	191,549		$	(6,346	)	$	185,203
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		194,507			4,059			198,566
Deferred income taxes		31,031			783			31,814
Allowance for equity funds used during construction (Equity AFUDC)		(6,091	)		—			(6,091	)
Changes in operating assets and liabilities:
Receivables		28,840			(946	)		27,894
Transportation and exchange gas receivable		16,946			—			16,946
Inventories		5,387			—			5,387
Payables		(52,937	)		3,158			(49,779	)
Transportation and exchange gas payable		982			2,787			3,769
Accrued liabilities		35,857			(1,094	)		34,763
Reserve for rate refunds		(1,691	)		—			(1,691	)
Other, net		12,446			(2,101	)		10,345

Net cash provided by operating activities		456,826			300			457,126


Cash flows from financing activities:
Additions to long-term debt		75,000			—			75,000
Debt issue costs		(356	)		—			(356	)
Common stock dividends paid		(125,000	)		—			(125,000	)
Change in cash overdrafts		(1,341	)		—			(1,341	)

Net cash used in financing activities		(51,697	)		—			(51,697	)

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)


	Year Ended December 31, 2003
	(As Reported)			Adjustments			(As Restated)
Cash flows from operating activities:
Net income	$	194,309		$	7,277		$	201,586
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		203,613			(3,315	)		200,298
Deferred income taxes		28,084			4,426			32,510
Allowance for equity funds used during construction (Equity AFUDC)		(9,354	)		—			(9,354	)
Changes in operating assets and liabilities:
Receivables		4,396			—			4,396
Transportation and exchange gas receivable		(12,394	)		—			(12,394	)
Inventories		(31,890	)		—			(31,890	)
Payables		8,901			(1,668	)		7,233
Transportation and exchange gas payable		11,544			2,916			14,460
Accrued liabilities		(18,684	)		1,006			(17,678	)
Reserve for rate refunds		1,363			—			1,363
Other, net		(24,371	)		(11,492	)		(35,863	)

Net cash provided by (used in) operating activities		355,517			(850	)		354,667


Cash flows from financing activities:
Debt issue costs		(131	)		—			(131	)
Common stock dividends paid		(245,000	)		—			(245,000	)
Change in cash overdrafts		(12,457	)		—			(12,457	)
Advances from affiliates-net		(3,022	)		—			(3,022	)

Net cash used in financing activities		(260,610	)		—			(260,610	)

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)


	Years Ended December 31, 2002
	(As Reported)			Adjustments			(As Restated)
Cash flows from operating activities:
Net income	$	163,041		$	537		$	163,578
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		184,874			(690	)		184,184
Deferred income taxes		28,428			327			28,755
Provision for loss on property		2,848			—			2,848
Impairment of investment in unconsolidated affiliate		12,275			—			12,275
Allowance for equity funds used during construction (Equity AFUDC)		(22,660	)		—			(22,660	)
Changes in operating assets and liabilities:
Receivables		(29,650	)		—			(29,650	)
Receivable – TGPL Enterprises, Inc		32,032			—			32,032
Transportation and exchange gas receivable		4,991			—			4,991
Inventories		36,571			—			36,571
Payables		18,827			1,110			19,937
Transportation and exchange gas payable		(261	)		32			(229	)
Accrued liabilities		2,621			—			2,621
Reserve for rate refunds		(51,434	)		—			(51,434	)
Other, net		(9,957	)		(1,559	)		(11,516	)

Net cash provided by (used in) operating activities		372,546			(243	)		372,303


Cash flows from financing activities:
Additions to long-term debt		317,119			—			317,119
Retirement of long-term debt		(275,000	)		—			(275,000	)
Debt issue costs		(3,095	)		—			(3,095	)
Common stock dividends paid		(200,000	)		—			(200,000	)
Change in cash overdrafts		18,179			—			18,179
Advances from affiliates-net		(4,948	)		—			(4,948	)

Net cash used in financing activities		(147,745	)		—			(147,745	)

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)


	Years Ended December 31, 2002
	(As Reported)			Adjustments		(As Restated)
Cash flows from investing activities:
Property, plant and equipment:
Additions, net of equity AFUDC		(457,084	)		243		(456,841	)
Changes in accounts payable		(8,735	)		—		(8,735	)
Advances to affiliates, net		209,648			—		209,648
Investments in affiliates, net		(152	)		—		(152	)
Other, net		37,233			—		37,233

Net cash provided by (used in) investing activities		(219,090	)		243		(218,847	)



Net increase in cash		5,711			—		5,711
Cash at beginning of period		472			—		472

Cash at end of period	$	6,183			—	$	6,183


Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (exclusive of amount capitalized)	$	81,396			—	$	81,396
Income taxes paid		53,514			—		53,514
Income tax refunds received		(426	)		—		(426	)

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

The previously reported consolidated statements of income by quarter for 2004 are:

(Thousands of Dollars)
2004


	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
	(As Reported)			(As Reported)			(As Reported)			(As Reported)
Operating revenues:
Natural gas sales	$	123,874		$	95,271		$	83,698		$	100,338
Natural gas transportation		206,926			192,428			187,276			197,975
Natural gas storage		31,560			30,289			30,527			30,575
Other		2,478			3,070			1,923			1,608

Total operating revenues		364,838			321,058			303,424			330,496


Operating Costs and Expenses:
Cost of natural gas sales		122,325			95,271			83,698			99,638
Cost of natural gas transportation		11,240			2,669			2,090			(5,848	)
Operation and maintenance		49,397			46,058			46,840			47,981
Administrative and general		31,226			31,218			32,362			24,634
Depreciation and amortization		47,469			49,152			47,815			47,880
Taxes — other than income taxes		12,749			12,024			10,013			10,456
Other (income) expense, net		(13	)		182			190			189

Total operating cost and expenses		274,393			236,574			223,008			224,930


Operating Income	$	90,445		$	84,484		$	80,416		$	105,566


Other (Income) and Other Deductions:
Interest expense		22,166			22,164			22,302			22,110
Interest income — affiliates		(1,371	)		(3,069	)		(3,253	)		(4,862	)
— other		(7	)		(43	)		(964	)		(178	)
Allowance for equity and borrowed funds used during construction (AFUDC)		(1,518	)		(1,827	)		(2,525	)		(2,457	)
Equity in earnings of unconsolidated affiliate		(1,676	)		(1,843	)		(1,787	)		(1,767	)
Miscellaneous other (income) deductions, net		(738	)		(986	)		(1,035	)		(2,109	)

Total other (income) deductions, net		16,856			14,396			12,738			10,737


Income before Income Taxes		73,589			70,088			67,678			94,829
Provision for Income Taxes		28,241			26,756			25,582			34,056


Net Income	$	45,348		$	43,332		$	42,096		$	60,773

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

The restated consolidated statements of income by quarter for 2004 are:

(Thousands of Dollars)
2004


	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
	(As Restated)			(As Restated)			(As Restated)			(As Restated)
Operating revenues:
Natural gas sales	$	124,374		$	94,771		$	83,698		$	100,338
Natural gas transportation		206,926			192,428			187,276			197,975
Natural gas storage		31,560			30,289			30,527			30,575
Other		2,478			3,070			1,923			1,608

Total operating revenues		365,338			320,558			303,424			330,496


Operating Costs and Expenses:
Cost of natural gas sales		122,325			95,271			83,698			100,338
Cost of natural gas transportation		7,603			5,109			744			1,110
Operation and maintenance		49,397			44,758			46,840			50,205
Administrative and general		30,618			28,257			30,637			28,593
Depreciation and amortization		51,493			49,152			47,815			47,880
Taxes — other than income taxes		11,743			12,024			10,013			8,297
Other (income) expense, net		(13	)		182			190			189

Total operating cost and expenses		273,166			234,753			219,937			236,612


Operating Income		92,172			85,805			83,487			93,884


Other (Income) and Other Deductions:
Interest expense		22,166			22,164			22,302			22,110
Interest income — affiliates		(1,371	)		(3,069	)		(3,253	)		(4,862	)
— other		(7	)		(43	)		(964	)		(178	)
Allowance for equity and borrowed funds used during construction (AFUDC)		(1,518	)		(1,827	)		(2,525	)		(2,457	)
Equity in earnings of unconsolidated affiliate		(1,676	)		(1,843	)		(1,787	)		(1,767	)
Miscellaneous other (income) deductions, net		(738	)		(986	)		(1,035	)		(2,109	)

Total other (income) deductions, net		16,856			14,396			12,738			10,737


Income before Income Taxes		75,316			71,409			70,749			83,147
Provision for Income Taxes		28,894			27,256			26,743			32,525


Net Income	$	46,422		$	44,153		$	44,006		$	50,622

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

The effect of the restatement adjustments on the Company’s previously issued 2004 quarterly income statements are:

(Thousands of Dollars)
2004


	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
Net income, as originally reported	$	45,348		$	43,332		$	42,096		$	60,773
Restatement adjustments:
Natural gas sales		500			(500	)		—			—
Cost of natural gas sales		—			—			—			(700	)
Cost of natural gas transportation		3,637			(2,440	)		1,346			(6,958	)
Operation and maintenance		—			1,300			—			(2,224	)
Administrative and general		608			2,961			1,725			(3,959	)
Depreciation and amortization		(4,024	)		—			—			—
Taxes – other than income taxes		1,006			—			—			2,159
Provision for income taxes		(653	)		(500	)		(1,161	)		1,531

Net income, as restated	$	46,422		$	44,153		$	44,006		$	50,622

The impacts of these restatements to the Company’s statements of income for the quarters ended March 31, 2004, June 30, 2004, September 30, 2004 and December 31, 2004 were increases (decreases) to net income of $1,074, $821, $1,910, and ($10,151), respectively.

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

The previously reported consolidated statements of income by quarter for 2003 are:

(Thousands of Dollars)
2003


	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
	(As Reported)			(As Reported)			(As Reported)			(As Reported)
Operating revenues:
Natural gas sales	$	159,587		$	104,120		$	95,249		$	112,680
Natural gas transportation		202,329			194,116			196,489			204,067
Natural gas storage		31,821			31,145			31,384			30,013
Other		3,538			10,292			1,476			5,062

Total operating revenues		397,275			339,673			324,598			351,822


Operating Costs and Expenses:
Cost of natural gas sales		159,587			104,120			95,249			112,680
Cost of natural gas transportation		4,705			5,938			9,160			6,425
Operation and maintenance		45,329			46,820			45,401			48,025
Administrative and general		28,752			26,282			28,332			34,610
Depreciation and amortization		48,053			56,075			50,973			54,335
Taxes — other than income taxes		10,855			9,776			9,979			9,666
Other (income) expense, net		76			(999	)		(6,839	)		6

Total operating cost and expenses		297,357			248,012			232,255			265,747


Operating Income	$	99,918		$	91,661		$	92,343		$	86,075


Other (Income) and Other Deductions:
Interest expense — affiliates		35			—			—			—
— other		22,107			22,203			22,346			22,128
Interest income — affiliates		(2,066	)		(1,206	)		(718	)		(1,183	)
— other		(1	)		—			—			(4	)
Allowance for equity and borrowed funds used during construction (AFUDC)		(5,521	)		(4,098	)		(1,767	)		(1,649	)
Equity in earnings of unconsolidated affiliate		(1,845	)		(1,942	)		(1,761	)		(1,955	)
Miscellaneous other (income) deductions, net		(1,893	)		(2,001	)		(1,335	)		(1,547	)

Total other (income) deductions, net		10,816			12,956			16,765			15,790


Income before Income Taxes		89,102			78,705			75,578			70,285
Provision for Income Taxes		34,169			30,854			28,256			26,082


Net Income	$	54,933		$	47,851		$	47,322		$	44,203

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

The restated consolidated statements of income by quarter for 2003 are:

(Thousands of Dollars)
2003


	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
	(As Restated)			(As Restated)			(As Restated)			(As Restated)
Operating revenues:
Natural gas sales	$	159,587		$	104,120		$	95,249		$	112,680
Natural gas transportation		202,329			194,116			196,489			204,067
Natural gas storage		31,821			31,145			31,384			30,013
Other		3,538			10,292			1,476			5,062

Total operating revenues		397,275			339,673			324,598			351,822


Operating Costs and Expenses:
Cost of natural gas sales		159,587			104,120			95,249			112,680
Cost of natural gas transportation		6,196			4,063			9,847			5,981
Operation and maintenance		45,329			46,820			45,401			48,025
Administrative and general		26,632			24,264			26,258			31,588
Depreciation and amortization		47,219			55,241			50,139			53,503
Taxes — other than income taxes		10,855			9,776			9,979			10,672
Other (income) expense, net		76			(999	)		(6,839	)		6

Total operating cost and expenses		295,894			243,285			230,034			262,455


Operating Income		101,381			96,388			94,564			89,367


Other (Income) and Other Deductions:
Interest expense — affiliates		35			—			—			—
— other		22,107			22,203			22,346			22,128
Interest income — affiliates		(2,066	)		(1,206	)		(718	)		(1,183	)
— other		(1	)		—			—			(4	)
Allowance for equity and borrowed funds used during construction (AFUDC)		(5,521	)		(4,098	)		(1,767	)		(1,649	)
Equity in earnings of unconsolidated affiliate		(1,845	)		(1,942	)		(1,761	)		(1,955	)
Miscellaneous other (income) deductions, net		(1,893	)		(2,001	)		(1,335	)		(1,547	)

Total other (income) deductions, net		10,816			12,956			16,765			15,790


Income before Income Taxes		90,565			83,432			77,799			73,577
Provision for Income Taxes		34,722			32,642			29,097			27,326


Net Income	$	55,843		$	50,790		$	48,702		$	46,251

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

The effect of the restatement adjustments on the Company’s previously issued 2003 quarterly income statements are:

(Thousands of Dollars)
2003


	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
Net income, as originally reported	$	54,933		$	47,851		$	47,322		$	44,203
Restatement adjustments:
Cost of natural gas transportation		(1,491	)		1,875			(687	)		444
Administrative and general		2,120			2,018			2,074			3,022
Depreciation and amortization		834			834			834			832
Taxes – other than income taxes		—			—			—			(1,006	)
Provision for income taxes		(553	)		(1,788	)		(841	)		(1,244	)

Net income, as restated	$	55,843		$	50,790		$	48,702		$	46,251

The impacts of these restatements to the Company’s statements of income for the quarters ended March 31, 2003, June 30, 2003, September 30, 2003, and December 31, 2003 were increases (decreases) to net income of $910, $2,939, $1,380 and $2,048, respectively.

3. CONTINGENT LIABILITIES AND COMMITMENTS

Rate and Regulatory Matters

General rate case (Docket No. RP01-245) On March 1, 2001, we submitted to the Federal Energy Regulatory Commission (FERC) a general rate filing principally designed to recover costs associated with an increase in rate base resulting from additional plant, an increase in rate of return and related taxes, and an increase in operation and maintenance expenses.

In July 2002, the FERC approved a Stipulation and Agreement (Settlement) which resolved all cost of service, throughput and throughput mix issues in this rate case proceeding with the exception of one cost of service issue related to the valuation of certain right-of-way access for the installation of a fiber optic system by a then Transco affiliate, the resolution of which is to be applied prospectively. In the third quarter of 2002, as a result of the FERC’s approval of the Settlement, we recorded additional revenues of $28 million, reduced depreciation expense by $3 million, reversed interest expense of $0.5 million, and reduced our estimated reserve for rate refunds by $24.5 million. Rate refunds required under the Settlement totaling approximately $140 million, including interest, were paid in November 2002. We had previously provided a reserve for the refunds. The other issues not resolved by the Settlement include various cost allocation, rate design and tariff matters.

On December 3, 2002, an Administrative Law Judge (ALJ) issued his initial decision on the issues not resolved by the Settlement. In the initial decision, the ALJ determined, among other things, that (1) our existing treatment of the arrangement with our former affiliate relating to right of way is just and reasonable, (2) our proposal to roll-in the costs of the Cherokee, Pocono and SunBelt projects is unjust and unreasonable, and (3) our recovery of the costs of the Mobile Bay expansion project on a rolled-in basis is unjust and unreasonable. As to the Mobile Bay issue, the ALJ determined that we had the burden of establishing that roll-in of that project is just and reasonable, but did not address the issue of any potential refunds. Our current rates are based on the roll-in of the Mobile Bay expansion project.

On March 26, 2004, the FERC issued an order that affirmed, in part, and reversed, in part, the ALJ’s initial decision on the issues not resolved by the Settlement. On the issues discussed above, the FERC affirmed the ALJ’s determination that our existing treatment of the arrangement with our former affiliate relating to right of way is just and reasonable and our proposal to roll-in the costs of the Cherokee, Pocono and SunBelt projects is unjust and unreasonable, but reversed the ALJ’s rejection of our proposal to recover the costs of the Mobile Bay expansion project on a rolled-in basis and found that we had shown that our proposed rolled-in rates are just and reasonable. The FERC also affirmed the ALJ’s determination that we must separate our Emergency Eminence Withdrawal service from our Rate Schedule FT service and offer the Emergency Eminence Withdrawal service under a separate rate schedule, thereby permitting shippers to decide whether to take that service. Currently, the costs of the Emergency Eminence Withdrawal service is included as part of our Rate Schedule FT service for those shippers that can access the Eminence Storage Field. Under the FERC’s decision, we would be at risk for those costs to the extent that shippers did not elect to subscribe to all of the separately offered service. Pursuant to the Settlement, this change, if upheld, would be implemented on a prospective basis. On April 26, 2004, several parties, including Transco, filed requests for rehearing of the FERC’s March 26, 2004 order.

General rate case (Docket No. RP97-71) On November 1, 1996, we submitted to the FERC a general rate case filing principally designed to recover costs associated with increased capital expenditures. The filing also included a pro-forma proposal to roll-in the costs of our Leidy Line and Southern expansion incremental projects.

All issues in this proceeding previously were resolved through settlement or litigation, with the exception of the roll-in issues, which were consolidated with Docket No. RP95-197and are discussed below.

General rate case (Docket No. RP95-197) Through settlement and litigation, all issues in this proceeding previously were resolved, except a cost allocation issue related to our implementation of the roll-in of the costs of our Leidy Line and Southern expansion projects.

In April 1999, the FERC issued an order reversing a prior ALJ decision, and concluded that we had demonstrated that our proposed rolled-in rate treatment was just and reasonable. As a result, the FERC remanded to the ALJ issues regarding the implementation of our roll-in proposal. Several parties filed requests for rehearing of the FERC’s order but their requests, as well as subsequent court appeals, were denied.

The ALJ generally ruled in favor of our implementation positions, with the major exception being that the ALJ required that the roll-in of the costs of the incremental projects into Transco’s system rates be phased in over a three-year period. In October 2001, the FERC issued an order on the ALJ’s decision which generally upheld the decision, except that the FERC reversed the ALJ’s decision to phase the roll-in of the costs, finding that the three-year phasing is not necessary in this case. In August 2002, we filed to implement, among other things, the FERC’s decision on the roll-in of the costs of the incremental Leidy Line and Southern expansion projects. On December 12, 2002, the FERC issued an order accepting our compliance filing effective October 1, 2002. On January 13, 2003, certain parties filed for rehearing of the FERC’s December 12, 2002 order, arguing that we improperly allocated certain storage costs in implementing the roll-in. On November 26, 2004, the FERC denied the request for rehearing, reaffirming its finding that our allocation of storage costs was proper. The FERC’s decision on this issue is now final.

Gathering facilities spin-down order (Docket Nos. CP96-206-000 and CP96-207-000) In 1996, we filed an application with the FERC for an order authorizing the abandonment of certain facilities located onshore and offshore in Texas, Louisiana and Mississippi by conveyance to an affiliate, Williams Gas Processing — Gulf Coast Company (Gas Processing). The net book value of these facilities at December 31, 2004, was approximately $333 million. Concurrently, Gas Processing filed a petition for declaratory order requesting a determination that its gathering services and rates be exempt from FERC regulation under the NGA. The FERC issued an order dismissing our application and Gas Processing’s petition for declaratory order and in 2001, the FERC issued an order that denied our request for rehearing. Certain parties, including Transco, filed in the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit Court) petitions for review of the FERC’s orders and in June 2003, those petitions were denied. Several parties petitioned the United States Supreme Court for review of the D.C. Circuit Court’s opinion, and on January 12, 2004, the Court denied those petitions.

While the proceedings related to the 1996 application were pending, we filed with the FERC the applications described below seeking authorization to abandon portions of the facilities included in the 1996 application.

North Padre Island/Central Texas Systems Spin-down Proceeding (Docket Nos. CP01-32 and CP01-34) In 2000, we filed an application with the FERC seeking authorization to abandon certain of our offshore Texas facilities by conveyance to Gas Processing. Gas Processing filed a contemporaneous request that the FERC declare that the facilities sought to be abandoned would be considered nonjurisdictional

gathering facilities upon transfer to Gas Processing. The FERC approved the abandonment and the non-jurisdictional treatment of all of these facilities. Effective December 2001, we transferred to Gas Processing the North Padre Island facilities through a non-cash dividend of $3.3 million, which represents the net book value of the facilities as of that date. Parties filed petitions for review of the FERC’s orders to the D.C. Circuit Court which were consolidated with the appeals of the FERC’s orders in CP96-206 and CP96-207, discussed above, and which were denied by the D.C. Circuit Court in its opinion issued in June, 2003. In 2001, Shell Offshore, Inc. filed a complaint at the FERC against Gas Processing, Williams Field Services Company (WFS) and us alleging concerted actions by these affiliates frustrated the FERC’s regulation of us. The alleged actions are related to offers of gathering service by WFS and its subsidiaries with respect to the North Padre Island facilities. In 2002, the FERC issued an order reasserting jurisdiction over that portion of the North Padre Island facilities previously transferred to WFS. The FERC also determined a gathering rate for service on these facilities, which is to be collected by us. Transco, Gas Processing and WFS each sought rehearing of the FERC’s order, and in May 2003, the FERC denied those requests for rehearing. Transco, Gas Processing and WFS filed petitions for review of the FERC’s orders with the D.C. Circuit Court and on July 13, 2004, the court granted the petitions, vacating the FERC’s orders and remanding the case to the FERC for further proceedings not inconsistent with the court’s opinion. On February 15, 2005, the FERC issued an order in response to the D.C. Circuit remand. In that order, the FERC determined that, based on the record and the court’s decision, there is not a sufficient basis to reassert Natural Gas Act of 1938 (NGA) jurisdiction or to assert Outer Continental Shelf Lands Act jurisdiction over the gathering rates and service on the North Padre Island facilities. Accordingly, the FERC reversed the Initial Decision, dismissed the complaint filed by Shell, and directed us to remove the North Padre Island gathering rate and rate schedule from our tariff. On March 7, 2005, Shell filed a request for rehearing of the FERC’s February 15, 2005 order.

With regard to the approval of the spin-down of the Central Texas facilities, a Transco customer filed a complaint with the FERC in Docket No. RP02-309 seeking the revocation of the FERC’s spin-down approval. In September 2002, the FERC issued an order requiring that, upon transfer of the Central Texas facilities, we acquire capacity on the transferred facilities and provide service to the existing customer under the original terms and conditions of service. Our request for rehearing was denied in May 2003. In that order, the FERC also required that we notify the FERC of Transco’s plans with regard to the transfer of the Central Texas facilities to Gas Processing. We replied that due to the numerous outstanding issues affecting the transfer of those facilities, we could not at that time predict the timing for the implementation of the transfer of the Central Texas facilities. Transco and the customer each also filed a request for rehearing of the FERC’s May 2003 order. On May 6, 2004, the FERC issued an order on rehearing effectively granting the customer’s request for rehearing. On June 7, 2004, we filed a request for rehearing of the May 6, 2004 order, which the FERC denied on July 6, 2004. On July 14, 2004, we filed a petition for review of the FERC’s orders with the D.C. Circuit Court. After we filed our initial brief, the FERC filed a motion for a voluntary remand of the record to permit the FERC to further consider the issues raised and to hold the proceedings in abeyance pending issuance of FERC orders on the matter. On February 11, 2005, the D.C. Circuit Court granted FERC’s motion and remanded the record of this proceeding to the FERC. At December 31, 2004, the net book value of these facilities was $64 million including the Williams purchase price allocation pushed down to Transco.

North High Island/West Cameron Systems and Central Louisiana System Spin-down Proceedings In 2001 the FERC issued orders authorizing us to spin down only a portion of these systems to Gas Processing. All legal challenges of these FERC orders have been exhausted and while we have not yet transferred any of the facilities authorized for spin down to our gas processing affiliate, we continue to evaluate the option of doing so. On May 6, 2004, the FERC issued an order relating to the Central Louisiana system spin-down proceeding in which the FERC required Transco and Gas Processing to show cause, due to

developments in another proceeding, why certain of the Central Louisiana facilities previously found to be gathering should not be classified as jurisdictional transmission facilities. We filed our response to the show cause order on July 6, 2004, arguing that the FERC should not alter its conclusion that the facilities serve a gathering function.

The net book value, at the application dates in 2001, of the North High Island/West Cameron and Central Louisiana facilities included in these two applications was approximately $65 million including the Williams purchase price allocation pushed down to Transco.

South Texas Pipeline Facilities Abandonment Proceeding In May 2003, the FERC denied our request to abandon the South Texas pipeline facilities by sale to a third party. On June 25, 2003, Transco and the third party purchaser announced that they had agreed to terminate the purchase and sale agreement for the facilities. On July 6, 2004, we executed another agreement to sell the South Texas pipeline facilities to a third party, but on March 24, 2005, the FERC denied our application for authorization to effectuate the sale. The net book value of such facilities as of December 31, 2004 was approximately $30 million, including the Williams purchase price allocation pushed down to Transco.

1999 Fuel Tracker (Docket No. TM99-6-29) On March 1, 1999, we made our annual filing pursuant to our FERC Gas Tariff to recalculate the fuel retention percentages applicable to our transportation and storage rate schedules, to be effective April 1, 1999. Included in the filing were two adjustments that increased the estimated gas required for operations in prior periods by approximately 8 billion cubic feet. Certain parties objected to the inclusion of those adjustments and the FERC accepted the filing to be effective April 1, 1999, subject to refund and to further FERC action. In subsequent orders, the FERC initially disallowed most of the adjustments, but later reconsidered that decision and allowed us to make the adjustments, with the requirement we collect the adjustments over a seven-year period. Although several of our customers filed for rehearing of the FERC’s decision to allow us to recover the adjustments, the FERC denied the request for rehearing, and an appeal of the FERC’s decision was filed but later dismissed. In the second quarter of 2001, we recorded a $15 million reduction in the cost of natural gas transportation and reduced the related interest expense by $3 million to reflect the regulatory approval to recover the cost of gas required for operations in prior periods.

The FERC then issued orders in which it addressed our proposed method for recovering the permitted adjustments. The FERC determined that rather than collecting the revenue (including interest) represented by the adjustments, we should collect only the actual volumes comprising the adjustments. In the third quarter of 2002, as a result of the FERC’s determination, we recorded $3 million of interest expense that had been previously reduced in the second quarter of 2001. Certain customers filed requests for rehearing of the FERC’s decision, the FERC denied those requests and several parties filed a joint petition for review in the D.C. Circuit Court of the FERC’s order. In accordance with the FERC’s order, on January 21, 2004 we distributed refunds and assessed surcharges to our customers for the period April 1, 1999 through March 31, 2003. On March 10, 2004, we assessed further surcharges to our customers covering the period April 1, 2003 through January 31, 2004. We implemented the revised fuel retention factors resulting from application of the FERC’s order on a prospective basis beginning February 1, 2004. Following the filing of the petitioners’ initial brief in their appeal of the FERC’s orders, the FERC filed a motion with the D.C. Circuit Court requesting that the court remand the record of the proceeding to the FERC to permit the FERC to further consider the issues raised by the petitioners and to hold the appeal in abeyance pending issuance of any further FERC order on this matter. On November 29, 2004, the D.C. Circuit Court issued an order granting the FERC’s motion.

FERC enforcement matter By order dated March 17, 2003, the FERC approved a settlement between the FERC staff and Williams, WPC and us which resolved the FERC staff’s allegations during a formal, nonpublic investigation that WPC personnel had access to our data bases and other information, and that we had failed to accurately post certain information on our electronic bulletin board. Pursuant to the terms of the settlement agreement, we will pay a civil penalty in the amount of $20 million in five equal installments. We made the first payment on May 16, 2003, the second payment on May 13, 2004 and the subsequent payments are due on or before the second, third and fourth anniversaries of the first payment. We recorded a charge to income and established a liability of $17 million in 2002 representing the net present value of the future payments. In addition, we notified our Firm Sales (FS) customers of our intention to terminate the FS service effective April 1, 2005 under the terms of applicable contracts and the FERC certificates authorizing such services. As part of the settlement, WPC agreed, subject to certain exceptions, that it will not enter into new transportation agreements that would increase the transportation capacity it holds on certain affiliated interstate gas pipelines, including Transco. Finally, we agreed to the terms of a compliance plan designed to ensure future compliance with the provisions of the settlement agreement and the FERC’s rules governing the relationship of Transco and WPC.

Other Williams, including Transco, responded to a subpoena from the Commodities Futures Trading Commission (CFTC) and inquiries from the FERC related to investigations involving natural gas storage inventory issues. We own and operate natural gas storage facilities. On August 30, 2004, the CFTC announced that it had concluded its investigation. The FERC inquiries relate to the sharing of non-public data concerning inventory levels and the potential uses of such data in natural gas trading. The FERC investigation is continuing and Williams is engaged in discussions with FERC staff regarding the ultimate disposition of this matter.

Legal Proceedings.

As a result of these settlements, we have been sued by certain producers seeking indemnification. We are currently a defendant in one such lawsuit. Freeport-McMoRan, Inc., filed a lawsuit against us in the 19^th Judicial District Court in East Baton Rouge, Louisiana in which it asserted damages, including interest calculated through December 31, 2004, of approximately $10 million. The case was tried in 2003 and resulted in a judgment favorable to us, which Freeport-McMoRan is appealing.

False Claims Act in connection with the measurement, royalty valuation and purchase of hydrocarbons. The relief sought is an unspecified amount of royalties allegedly not paid to the federal government, treble damages, a civil penalty, attorneys’ fees, and costs. In April 1999, the DOJ declined to intervene in any of the Grynberg qui tam cases, including the action filed against the Williams entities in the United States District Court for the District of Colorado. In October 1999, the Panel on Multi-District Litigation transferred all of the Grynberg qui tam cases, including those filed against Williams, to the United States District Court for the District of Wyoming for pre-trial purposes. In October 2002, the court granted a motion to dismiss Grynberg’s royalty valuation claims. Grynberg’s measurement claims remain pending against Williams, including us, and the other defendants, although the defendants have filed a number of motions to dismiss these claims on jurisdictional grounds. Oral argument on these motions occurred on March 17 and 18, 2005, and we expect a decision in the second quarter of 2005.

Environmental Matters

We are subject to extensive federal, state and local environmental laws and regulations which affect our operations related to the construction and operation of pipeline facilities. Appropriate governmental authorities enforce these laws and regulations with a variety of civil and criminal enforcement measures, including monetary penalties, assessment and remediation requirements and injunctions as to future compliance. Our use and disposal of hazardous materials are subject to the requirements of the federal Toxic Substances Control Act (TSCA), the federal Resource Conservation and Recovery Act (RCRA) and comparable state statutes. The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), also known as “Superfund,” imposes liability, without regard to fault or the legality of the original act, for release of a “hazardous substance” into the environment. Because these laws and regulations change from time to time, practices that have been acceptable to the industry and to the regulators have to be changed and assessment and monitoring have to be undertaken to determine whether those practices have damaged the environment and whether remediation is required. Since 1989, we have had studies underway to test some of our facilities for the presence of toxic and hazardous substances to determine to what extent, if any, remediation may be necessary. We have responded to data requests from the U.S. Environmental Protection Agency (EPA) and state agencies regarding such potential contamination of certain of our sites. On the basis of the findings to date, we estimate that over the next three years environmental assessment and remediation costs under TSCA, RCRA, CERCLA and comparable state statutes will total approximately $21 million to $25 million, measured on an undiscounted basis. This estimate depends upon a number of assumptions concerning the scope of remediation that will be required at certain locations and the cost of the remedial measures. We are conducting environmental assessments and implementing a variety of remedial measures that may result in increases or decreases in the total estimated costs. At December 31, 2004, Transco had a balance of approximately $23 million for these estimated costs recorded in current liabilities ($4 million) and other long-term liabilities ($19 million) in the accompanying Consolidated Balance Sheet.

authorities regarding PCB issues, and we have a program to assess and remediate such conditions where they exist. In addition, we commenced negotiations with certain environmental authorities and other programs concerning investigative and remedial actions relative to potential mercury contamination at certain gas metering sites. All such costs are included in the $21 million to $25 million range discussed above.

We are also subject to the federal Clean Air Act and to the federal Clean Air Act Amendments of 1990 (1990 Amendments), which added significantly to the existing requirements established by the federal Clean Air Act. The 1990 Amendments required that the EPA issue new regulations, mainly related to stationary sources, air toxics, ozone non-attainment areas and acid rain. During the last few years we have been installing new emission control devices required for new or modified facilities in areas designated as non-attainment by EPA. We operate some of our facilities in areas of the country currently designated as non-attainment with the one-hour ozone standard. In April 2004, EPA designated eight-hour ozone non-attainment areas. We also operate facilities in areas of the country now designated as non-attainment with the eight-hour ozone standard. Pursuant to non-attainment area requirements of the 1990 Amendments, and proposed EPA rules designed to mitigate the migration of ground-level ozone (NOx) in 22 eastern states, we are planning installation of air pollution controls on existing sources at certain facilities in order to reduce NOx emissions. We anticipate that additional facilities may be subject to increased controls within five years. For many of these facilities, we are developing more cost effective and innovative compressor engine control designs. Due to the developing nature of federal and state emission regulations, it is not possible to precisely determine the ultimate emission control costs. In March 2004 and June 2004, the EPA promulgated additional regulations regarding hazardous air pollutants; these regulations may impose controls in addition to the controls described above. The emission control additions required to comply with current federal Clean Air Act requirements, the 1990 Amendments, the hazardous air pollutant regulations, and the individual state implementation plans for NOx reductions are estimated to include costs in the range of $110 million to $125 million. EPA’s recent designation of new non-attainment areas will result in new federal and state regulatory action that may impact our operations. As a result, the cost of additions to property, plant and equipment is expected to increase. We are unable at this time to estimate with any certainty the cost of additions that may be required to meet new regulations, although it is believed that some of those costs are included in the ranges discussed above. Management considers costs associated with compliance with the environmental laws and regulations described above to be prudent costs incurred in the ordinary course of business and, therefore, recoverable through our rates.

Safety Matters

Pipeline Integrity Regulations We have developed an Integrity Management Plan that meets the United States Department of Transportation Office of Pipeline Safety final rule pursuant to the requirements of the Pipeline Safety Improvement Act of 2002. In meeting the Integrity Regulations, we have identified the high consequence areas, including a baseline assessment and periodic reassessments to be completed within specified timeframes. Currently, we estimate that the cost to perform required assessments and repairs will be between $275 million and $325 million over the remaining assessment period of 2005 through 2012. Management considers the costs associated with compliance with the rule to be prudent costs incurred in the ordinary course of business and, therefore, recoverable through our rates.

Summary

Litigation, arbitration, regulatory matters, environmental matters and safety matters are subject to inherent uncertainties. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the results of operations in the period in which the ruling occurs. Management, including internal counsel, currently believes that the ultimate resolution of the foregoing matters, taken as a whole and after consideration of amounts accrued, insurance coverage, recovery from customers or other indemnification arrangements, will not have a materially adverse effect upon our future financial position.

Other Commitments

Commitments for construction We have commitments for construction and acquisition of property, plant and equipment of approximately $36 million at December 31, 2004.

4. DEBT, FINANCING ARRANGEMENTS AND LEASES

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


	2004			2003
Debentures:
7.08% due 2026	$	7,500		$	7,500
7.25% due 2026		200,000			200,000

Total debentures		207,500			207,500

Notes:
6-1/8% due 2005		200,000			200,000
6-1/4% due 2008		100,000			100,000
Variable Rate due 2008		75,000			—
7% due 2011		300,000			300,000
8.875% Note due 2012		325,000			325,000

Total notes		1,000,000			925,000

Total long-term debt issues		1,207,500			1,132,500
Unamortized debt premium and discount		(7,651	)		(8,542	)
Current maturities		(199,991	)		—


Total long-term debt, less current maturities	$	999,858		$	1,123,958

Aggregate minimum maturities (face value) applicable to long-term debt outstanding at December 31, 2004 are as follows (in thousands):


2005:

6-1/8% Note	$	200,000


2008:

6-1/4% Note	$	100,000

Floating Rate Note	$	75,000


	$	175,000

There are no maturities applicable to long-term debt outstanding for the years 2006, 2007 and 2009.

No property is pledged as collateral under any of our long-term debt issues.

On May 3, 2004, Williams entered into a new three-year, $1 billion secured revolving credit facility which is available for borrowings and letters of credit. In August 2004, Williams expanded the credit facility by an additional $275 million. At December 31, 2004, letters of credit totaling $422 million, none of which are associated with us, have been issued by the participating institutions under this facility and no revolving credit loans were outstanding. Transco and Northwest Pipeline Corporation, a subsidiary of WGP, have access to $400 million each under the facility. The new facility is secured by certain Williams’ midstream assets. Additionally, the facility is guaranteed by WGP. Interest is calculated based on a choice of two methods: a fluctuating rate equal to the facilitating bank’s base rate plus an applicable margin or a periodic fixed rate equal to LIBOR plus an applicable margin. Williams is also required to pay a commitment fee (currently 0.375% annually) based on the unused portion of the facility. The applicable margins and commitment fee are based on the relevant borrower’s senior unsecured long-term debt ratings. Upon entering into the new $1 billion secured revolving credit facility on May 3, 2004, Williams terminated the existing $800 million revolving and letter of credit facility.

On December 10, 2004, we issued $75 million of Floating Rate Senior Notes due 2008. Interest is payable on January 15, April 15, July 15, and October 15 of each year, beginning on April 15, 2005. The notes will bear interest at the three-month LIBOR rate plus 1.28% and will mature on April 15, 2008. The first coupon setting had a four-month LIBOR and was 3.84125% on December 31, 2004. Interest on the notes will be reset on each interest payment date, beginning on April 15, 2005. The notes will be unsecured and unsubordinated indebtedness and will rank equally with all of our other existing and future unsecured and unsubordinated indebtedness. The net proceeds from this offering were used to repay a portion of $200 million of our 6 1/8% Senior Notes that matured on January 15, 2005.

Restrictive covenants At December 31, 2004, none of our debt instruments restrict the amount of dividends distributable to WGP.

Lease obligations Prior to December 23, 1998, we had a 20-year lease agreement for our headquarters building (Williams Tower) which expired on March 29, 2004 (Williams Tower lease). On December 23, 1998, we assigned and transferred to Laughton, L.L.C. (Laughton), an affiliate, all our rights, title and interest in the Williams Tower lease and entered into an agreement to sublease the premises from Laughton through March 29, 2003 (Williams Tower sublease). During 2003, we entered into an agreement with Laughton to

extend the Williams Tower sublease through March 29, 2004. All other terms of the Williams Tower lease were incorporated into the Williams Tower sublease, including sublease agreements between us and other parties that also expired on March 29, 2004.

On October 23, 2003, we entered into a new lease agreement for space in the Williams Tower. The lease term runs through March 31, 2014 with a one-time right to terminate on March 29, 2009. The net rentable area in the new lease is approximately 224,019 square feet. The net rentable area in the previous lease was approximately 1,005,000 square feet.

The future minimum lease payments under our various operating leases, including the Williams Tower lease are as follows (in thousands):


	Operating Leases
	Williams Tower		Other Leases		Total
2005	$	3,936	$	2,701	$	6,637
2006		4,105		2,239		6,344
2007		4,174		486		4,660
2008		4,347		111		4,458
2009		4,572		114		4,686
Thereafter		21,025		616		21,641

Total net minimum obligations	$	42,159	$	6,267	$	48,426

Our lease expense was $12.1 million in 2004, $12.6 million in 2003, and $16.6 million in 2002.

5. EMPLOYEE BENEFIT PLANS

Pension plans We participate in noncontributory defined benefit pension plans with Williams and its subsidiaries that provide pension benefits for our retired employees. Cash contributions related to our participation in the plans totaled $11.3 million in 2004, $13.4 million in 2003 and $27.5 million in 2002.

The allocation of the purchase price to the assets and liabilities of Transco and TEC based on estimated fair values resulted in the recording of an additional pension liability of $19.2 million, $17.3 million of which was recorded by us in 1995, representing the amount that the projected benefit obligation exceeded the plan assets. The remaining amount of additional pension costs deferred at December 31, 2004 and 2003 are $3.9 million and $5.0 million and are expected to be recovered through future rates over the average remaining service period for active employees.

In April 2002, Williams sold securities that were received as a result of a mutual insurance company reorganization and associated with an annuity contract that was entered into by us to fund pension benefits of participants in a terminated pension plan. The disposition of the securities resulted in a gain of $11.0 million, which we recorded as miscellaneous other (income) deductions in 2002. Williams deposited the proceeds from the sale in the Williams Pension Plan as a cash contribution from us and this deposit is included in the cash contributions of $27.5 million for 2002 discussed above.

At December 31, 2004, we recorded an additional minimum pension liability of $1.6 million. As required by FERC accounting guidance issued in March 2004, this balance was recorded as a regulatory asset instead of accumulated other comprehensive income.

Postretirement benefits other than pensions We participate in a plan with Williams and its subsidiaries that provides certain health care and life insurance benefits for our retired employees that were hired prior to January 1, 1996. The accounting for the plan anticipates future cost-sharing changes to the written plan that are consistent with Williams’ expressed intent to increase the retiree contribution level, generally in line with health care cost increases. Cash contributions totaled $2.4 million in 2004, $0.5 million in 2003, and $5.4 million in 2002. We recover the actuarially determined cost of postretirement benefits through rates that are set through periodic general rate filings. Any differences between the annual actuarially determined cost and amounts currently being recovered in rates are collected or refunded through future rate adjustments.

The allocation of the purchase price to the assets and liabilities of Transco and TEC based on estimated fair values resulted in the recording in 1995 of a postretirement benefits liability of $86.9 million representing the amount that the accumulated postretirement benefit obligation exceeded the plan assets. The amounts of postretirement benefits costs deferred as a regulatory asset at December 31, 2004 and 2003 are $26.6 million and $30.3 million, respectively, and are expected to be recovered through future rates over the remaining amortization period of the unrecognized transition obligation.

Defined contribution plan Our employees participate in a Williams defined contribution plan. We recognized compensation expense of $4.4 million, $4.6 million and $8.4 million in 2004, 2003 and 2002, respectively.

Employee stock-based awards On May 16, 2002, Williams stockholders approved The Williams Companies, Inc. 2002 Incentive Plan (the “Plan”). The Plan provides for common-stock-based awards to its employees and employees of its subsidiaries. Upon approval by the stockholders, all prior stock plans were terminated resulting in no further grants being made from those plans. However, options outstanding in those prior plans remain in those plans with their respective terms and provisions.

The Plan permits the granting of various types of awards including, but not limited to, stock options, restricted stock and deferred stock. Awards may be granted for no consideration other than prior and future services or based on certain financial performance targets being achieved. The purchase price per share for stock options may not be less than the market price of the underlying stock on the date of grant. Stock options generally become exercisable after three years from the date of grant and generally expire 10 years after grant.

On May 15, 2003, Williams’ shareholders approved a stock option exchange program. Under this program, eligible employees were given a one-time opportunity to exchange certain outstanding options for a proportionately lesser number of options at an exercise price to be determined at the grant date of the new options. Surrendered options were cancelled June 26, 2003, and replacement options were granted on December 29, 2003. We did not recognize any expense pursuant to the stock option exchange. However, for purposes of pro forma disclosures, we recognized additional expense related to these new options. The remaining pro forma expense on the cancelled options was amortized through year-end 2004.

The following summary provides information about our employees’ stock option activity related to Williams common stock for 2004, 2003 and 2002 (options in thousands):


	2004					2003					2002
				Weighted					Weighted					Weighted
				Average					Average					Average
				Exercise					Exercise					Exercise
	Options			Price		Options			Price		Options			Price
Outstanding — beginning of year		3,689		$	14.17		4,809		$	19.33		3,126		$	26.32
Granted ⁽¹⁾		541			9.93		695			10.00		1,692			6.23
Exercised		(741	)		5.07		(12	)		5.41		(73	)		8.52
Forfeited/expired ⁽²⁾		(160	)		23.80		(1,982	)		25.88		(15	)		1.80
Employee transfers, net		83			—		179			—		79			—

Outstanding — end of year		3,412		$	14.94		3,689		$	14.17		4,809		$	19.33

Exercisable at year end		2,765		$	16.04		1,705		$	23.95		1,943		$	25.55


(1)		All of the 2003 stock options granted relate to the stock option exchange program described above.

(2)		Includes 1,856 options that were cancelled on June 26, 2003, under the stock option exchange program described above.

The following summary provides information about Williams common stock options that are outstanding and exercisable by our employees at December 31, 2004 (options in thousands):


	Stock Options Outstanding						Stock Options Exercisable
					Weighted
			Weighted		Average				Weighted
			Average		Remaining				Average
			Exercise		Contractual				Exercise
Range of Exercise Prices	Options		Price		Life (years)		Options		Price
$2.27 to $2.58		747	$	2.58		7.8		747	$	2.58
$5.40 to $9.93		584	$	9.90		8.7		29	$	9.41
$10.00 to $42.29		2,081	$	20.78		3.3		1,989	$	21.19

Total		3,412	$	14.94		5.2		2,765	$	16.04

The estimated fair value at date of grant of options for Williams common stock granted in 2004, 2003 and 2002, using the Black-Scholes option pricing model, is as follows:


	2004			2003 (1)		2002
Weighted-average grant date fair value of options for Williams common stock granted during the year	$	4.54			—	$	2.77
Assumptions:
Dividend yield		0.4	%		—		1	%
Volatility		50	%		—		56	%
Risk-free interest rate		3.3	%		—		3.6	%
Expected life (years)		5.0			—		5.0


(1)		In 2003, the stock options granted to Transco employees were solely related to the employee stock option exchange described above. The weighted average fair value of these options is $1.58, which is the difference in the fair value of the new options granted and the fair value of the exchanged options. The

6. INCOME TAXES

Following is a summary of the provision for income taxes for 2004, 2003, and 2002 (in thousands):


	2004		2003		2002
	(Restated)		(Restated)		(Restated)
Federal:
Current	$	71,803	$	80,173	$	72,693
Deferred		28,331		28,909		25,186

		100,134		109,082		97,879


State and municipal:
Current		11,801		11,104		10,218
Deferred		3,483		3,601		3,569

		15,284		14,705		13,787


Provision for income taxes	$	115,418	$	123,787	$	111,666

Following is a reconciliation of the provision for income taxes at the federal statutory rate to the provision for income taxes (in thousands):


	2004		2003		2002
	(Restated)		(Restated)		(Restated)
Taxes computed by applying the federal statutory rate	$	105,217	$	113,881	$	96,335
State and municipal income taxes		9,937		9,559		8,963
Other, net		264		347		6,368


Provision for income taxes	$	115,418	$	123,787	$	111,666

Significant components of deferred income tax assets and liabilities as of December 31, 2004 and 2003 are as follows (in thousands):


	2004		2003
	(Restated)		(Restated)
Deferred tax liabilities

Property, plant and equipment	$	964,303	$	939,345
Deferred charges		35,717		28,495
Other		14,748		16,173

Total deferred tax liabilities		1,014,768		984,013


Deferred tax assets

Estimated rate refund liability		3,430		4,095
Accrued payroll and benefits		8,493		13,780
Deferred state income taxes — noncurrent liabilities		38,566		37,743
Other noncurrent liabilities		14,014		2,717
Other		2,750		6,473

Total deferred tax assets		67,253		64,808


Net deferred tax liabilities	$	947,515	$	919,205

7. FINANCIAL INSTRUMENTS

Fair value of financial instruments The carrying amount and estimated fair values of our financial instruments as of December 31, 2004 and 2003 are as follows (in thousands):


	Carrying Amount				Fair Value
	2004		2003		2004		2003
Financial assets:
Cash	$	176	$	300	$	176	$	300
Short-term financial assets		305,638		49,947		305,638		49,947
Financial liabilities:
Long-term debt, including current portion		1,199,849		1,123,958		1,308,938		1,219,897

For cash and short-term financial assets (third-party notes receivable and advances to affiliates) that have variable interest rates, the carrying amount is a reasonable estimate of fair value due to the short maturity of those instruments.

The fair value of our publicly traded long-term debt is valued using year-end traded market prices. Private debt is valued based on the prices of similar securities with similar terms and credit ratings. We used the expertise of an outside investment-banking firm to estimate the fair value of long-term debt.

Credit and market risk We, through a wholly-owned bankruptcy remote subsidiary, sold certain trade accounts receivable to a special purpose entity (SPE) in a securitization structure requiring annual renewal. We acted as the servicing agent for sold receivables and received a servicing fee approximating the fair value of such services. The sale of receivables program expired on July 25, 2002. By the end of August 2002, we had completed the repurchase of approximately $50 million of trade accounts receivable previously sold. For 2002, we received cash from the SPE of approximately $975 million. The sales of these receivables resulted in a charge to results of operations of approximately $0.9 million in 2002.

As of December 31, 2004 and 2003, we had trade receivables of $98 million and $123 million, respectively. Our credit risk exposure in the event of nonperformance by the other parties is limited to the face value of the receivables. No collateral is required on these receivables. We have not historically experienced significant credit losses in connection with our trade receivables.

As a participant in Williams’ cash management program, we make advances to and receive advances from Williams. Advances are stated at the historical carrying amounts. As of December 31, 2004 and 2003, we had advances to affiliates of $303 million and $50 million, respectively. Advances to affiliates are due on demand. Williams has indicated that it currently believes that it will continue to have the financial resources and liquidity to repay these advances. Prior to April 29, 2004, the advances were made to and from our parent company, WGP.

8. TRANSACTIONS WITH MAJOR CUSTOMERS AND AFFILIATES

Major Customers: In 2004, operating revenues received from Piedmont Natural Gas Company, PSEG Energy Resources & Trade, LLC, and Philadelphia Gas Works, our three major customers, were $168.3 million, $115.1 million, and $92.5 million, respectively. In 2003, our three major customers were PSEG Energy Resources & Trade, LLC, WPC, an affiliate, and Philadelphia Gas Works providing operating

revenues of $115.0 million, $109.1 million, and $97.5 million, respectively. In 2002, our three major customers were WPC, PSEG Energy Resources & Trade, LLC and Public Service Company of N.C, Inc., providing operating revenues of $134.8 million, $74.6 million, and $67.4 million, respectively.

Affiliates Included in our operating revenues for 2004, 2003, and 2002 are revenues received from affiliates of $119.3 million, $163.4 million and $150.7 million, respectively. The rates charged to provide sales and services to affiliates are the same as those that are charged to similarly-situated nonaffiliated customers.

Through an agency agreement with us, WPC manages our jurisdictional merchant gas sales. For the years ended December 31, 2004, 2003, and 2002, included in our cost of sales is $14.3 million, $13.4 million and $16.9 million, respectively, representing agency fees billed to us by WPC under the agency agreement.

Included in our cost of sales for 2004, 2003, and 2002 is purchased gas cost from affiliates of $189.5 million, $204.2 million and $192.7 million, respectively. All gas purchases are made at market or contract prices.

We have long-term gas purchase contracts containing variable prices that are currently in the range of estimated market prices. However, due to contract expirations and estimated deliverability declines, our estimated purchase commitments under such gas purchase contracts are not material to our total gas purchases. Furthermore, through the agency agreement with us, WPC has assumed management of our merchant sales service and, as our agent, is at risk for any above-spot-market gas costs that it may incur.

Also included in our cost of transportation is transportation expense of $1.6 million in 2003 and $4.4 million in 2002, applicable to the transportation of gas by Texas Gas Transmission Corporation (Texas Gas), a former affiliate. Texas Gas was sold by Williams on May 16, 2003.

Williams has a policy of charging subsidiary companies for management services provided by the parent company and other affiliated companies. Included in our administrative and general expenses for 2004, 2003, and 2002 were $45.1 million, $24.5 million and $32.9 million, respectively, for such corporate expenses charged by Williams and other affiliated companies. Management considers the cost of these services to be reasonable.

Beginning in May 1995, Williams Field Services Company (WFS), an affiliated company, operated our production area facilities pursuant to the terms of an operating agreement. In response to FERC Order No. 2004, we terminated the operating agreement and effective June 1, 2004, we resumed operating these facilities. We anticipate that the increased costs resulting from the additional employees required to operate these facilities will be offset by the discontinuation of the operating fee we were paying to WFS under the terms of the operating agreement. Included in our operation and maintenance expenses for 2004, 2003, and 2002 are $15.5 million, $37.2 million, and $37.2 million respectively, charged by WFS to operate our gas gathering facilities.

Effective June 1, 2004 and pursuant to an operating agreement, we serve as contract operator on certain WFS facilities. Transco billed WFS $3.8 million in 2004 under terms of the operating agreement.

9. IMPAIRMENTS

In March 1997, as amended in December 1997, Independence Pipeline Company (Independence) filed an application with the FERC for approval to construct and operate a new pipeline consisting of approximately 400 miles of 36-inch pipe from ANR Pipeline Company’s existing compressor station at Defiance, Ohio to our facilities at Leidy, Pennsylvania. Independence was owned equally by wholly-owned subsidiaries of Transco, ANR, and National Fuel Gas Company. On July 12, 2000, the FERC issued an order granting the necessary certificate authorizations. On June 24, 2002, Independence filed a request with the FERC to vacate its certificate because it had been unable to obtain sufficient contracts to proceed with the project to meet the proposed November 2004 in service date. On July 19, 2002, the FERC issued an order vacating Independence’s certificate. As a result, we recorded a $12.3 million pre-tax charge in 2002 associated with the complete impairment of our investment in Independence.

10. QUARTERLY INFORMATION - RESTATED (UNAUDITED)

The following summarizes selected restated quarterly financial data for 2004 and 2003 (in thousands):


2004	First			Second			Third			Fourth
Operating revenues	$	365,338		$	320,558		$	303,424		$	330,496
Operating expenses		273,166			234,753			219,937			236,612

Operating income		92,172			85,805			83,487			93,884
Interest expense		22,166			22,164			22,302			22,110
Other (income) and deductions, net		(5,310	)		(7,768	)		(9,564	)		(11,373	)

Income before income taxes		75,316			71,409			70,749			83,147
Provision for income taxes		28,894			27,256			26,743			32,525


Net income	$	46,422		$	44,153		$	44,006		$	50,622


2003	First			Second			Third(1)			Fourth
Operating revenues	$	397,275		$	339,673		$	324,598		$	351,822
Operating expenses		295,894			243,285			230,034			262,455

Operating income		101,381			96,388			94,564			89,367
Interest expense		22,142			22,203			22,346			22,128
Other (income) and deductions, net		(11,326	)		(9,247	)		(5,581	)		(6,338	)

Income before income taxes		90,565			83,432			77,799			73,577
Provision for income taxes		34,722			32,642			29,097			27,326


Net income	$	55,843		$	50,790		$	48,702		$	46,251


(1)		Includes a $4.0 million increase to operating expenses resulting from a write-off of certain receivables. Also included a $7.2 million credit to other (income) and deductions due to an adjustment to excess royalties reserves.

TRANSCONTINENTAL GAS PIPE LINE CORPORATION

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
(RESTATED)


			ADDITIONS
			Charged to
	Beginning		Costs and								Ending
Description	Balance		Expenses		Other			Deductions			Balances
Year ended December 31, 2004:
Reserve for rate refunds	$	10,610	$	7,417	$	(7,637	)	$	(1,471	)	$	8,919
Reserve for doubtful receivables		2,470		490		—			(2,182	)		778
Year ended December 31, 2003:
Reserve for rate refunds		9,247		2,830		—			(1,467	)		10,610
Reserve for doubtful receivables		2,220		250		—			—			2,470
Year ended December 31, 2002:
Reserve for rate refunds		60,681		114,972		—			(166,406	)		9,247
Reserve for doubtful receivables		970		1,250		—			—			2,220

ITEM 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures (Restated)

Evaluation of Disclosure Controls and Procedures

The following has been amended to reflect the restatement of our consolidated financial statements as discussed further in the Restatement of Financial Results in Item 1 and in Note 2 of the Notes to Consolidated Financial Statements.

An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d) — 15(e) of the Securities Exchange Act of 1934) (Disclosure Controls) was performed as of the end of the period covered by this report. This evaluation was performed under the supervision and with the participation of our management, including our Senior Vice President and Vice President and Treasurer. Through this evaluation, we identified a significant deficiency in internal control over financial reporting related to reconciliations of certain account balances. We have subsequently identified a material weakness related to net periodic pension expense, as described below. Our Senior Vice President and Vice President and Treasurer have concluded that as a result of the material weakness combined with the significant deficiency discussed above, our disclosure controls and procedures were not effective at a reasonable assurance level, as of the end of the period covered by this Annual Report on Form 10-K/A.

Our management, including our Senior Vice President and Vice President and Treasurer, does not expect that our Disclosure Controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, 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 error or mistake. 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 control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. We monitor our Disclosure Controls and make modifications as necessary; our intent in this regard is that the Disclosure Controls will be modified as systems change and conditions warrant.

In preparation for our first report on internal controls over financial reporting, we identified a significant deficiency in internal controls associated with reconciliations of certain account balances. We have subsequently identified a material weakness in internal control over financial reporting associated with our third-party actuarial computation of annual net periodic pension expense which resulted from the identification of errors in certain Transco participant data involving annuity contract information utilized for the periods ending on December 31, 2003, and December 31, 2004. This material weakness resulted in adjustments included in the restatement of our consolidated financial statements for 2004.

Remediation of Material Weakness and Significant Deficiency in Internal Control Over Financial Reporting

Accounting for Net Periodic Pension Expense

Our third-party plan administrator has implemented enhancements to its processes and procedures to provide reasonable assurance that errors in the data provided to our third-party actuary will not recur. These steps include:

	•		The implementation of a data valuation team that validates participant data

	•		Changes in the system used to provide participant data

	•		Formal review meetings between our third-party plan administrator and our third-party actuary to confirm data assumptions and content

Reconciliation of Account Balances

We have implemented enhancements to our internal control over financial reporting to provide reasonable assurance that errors and control deficiencies related to the reconciliation of account balances will not recur. These steps include:

	•		Implementation of a secondary level review of each account reconciliation

	•		Implementation of a procedure to verify all identified accounts are reconciled on a timely basis

Changes in Internal Control over Financial Reporting

The changes related to reconciliation of account balances were made in the first quarter 2005 and the changes related to accounting for net periodic pension expense was made in the second quarter 2005. There have been no changes in our internal control over financial reporting during the fourth quarter 2004 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. Other Information

None

PART III

Since we meet the conditions set forth in General Instruction (I)(1)(a) and (b) of Form 10-K, the information required by Items 10, 11, 12, and 13 is omitted.

ITEM 14. Principal Accountant Fees and Services

Fees for professional services provided by our independent registered public accounting firm in each of the last two fiscal years are as follows (in thousands):


	2004		2003
Audit Fees	$	1,468	$	776
Audit-Related Fees		76		71
Tax Fees		—		—
All Other Fees		—		—


Total Fees	$	1,544	$	847

Fees for audit services include fees associated with the annual audit, the reviews for our quarterly reports on Form 10-Q, the reviews for other SEC filings and accounting consultation. Additionally, audit fees for 2004 include fees related to the audit of Williams’ assessment and the effectiveness of internal controls over financial reporting as required by section 404 of the Sarbanes-Oxley Act of 2002. Williams was required to report under Section 404 as of December 31, 2004. Audit-related fees include other attest services.

As a wholly-owned subsidiary of Williams, we do not have a separate audit committee. The Williams audit committee policies and procedures for pre-approving audit and non-audit services will be filed with the Williams Proxy Statement to be filed with the Securities and Exchange Commission on or before April 11, 2005.

PART IV

ITEM 15. Exhibits and Financial Statement Schedules. (Restated)


	Page
	Reference to
	2004 10-K/A
A. Index

1. Financial Statements:

Report of Independent Registered Public Accounting Firm - Ernst &Young LLP		30

Consolidated Statement of Income for the Years Ended December 31, 2004, 2003 and 2002		31

Consolidated Balance Sheet as of December 31, 2004 and 2003		32-33

Consolidated Statement of Common Stockholder’s Equity for the Years Ended December 31, 2004, 2003 and 2002		34

Consolidated Statement of Comprehensive Income for the Years Ended December 31, 2004, 2003 and 2002		35

Consolidated Statement of Cash Flows for the Years Ended December 31, 2004, 2003 and 2002		36-37

Notes to Consolidated Financial Statements		38-89

2. Financial Statement Schedules:

Schedule II — Valuation and Qualifying Accounts for the Years ended December 31, 2004, 2003 and 2002		90

The following schedules are omitted because of the absence of the conditions under which they are required:

I, III, IV, and V.

Exhibits:

The following instruments are included as exhibits to this report. Those exhibits below incorporated by reference herein are indicated as such by the information supplied in the parenthetical thereafter. If no parenthetical appears after an exhibit, copies of the instrument have been included herewith.

	(23)		Consent of Independent Registered Public Accounting Firm

	(31)		Section 302 Certifications

	- 1		Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	- 2		Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, and Item 601(b)(31) of Regulation S-K, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

(32)

Section 906 Certification

Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on this 15th day of August 2005.


				TRANSCONTINENTAL GAS PIPE
				LINE CORPORATION
				(Registrant)

		By:		/s/ Jeffrey P. Heinrichs

				Jeffrey P. Heinrichs
				Controller

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on this 15th day of August 2005, by the following persons on behalf of the registrant and in the capacities indicated.


Signature		Title
/s/ STEVEN J. MALCOLM*		Chairman of the Board
Steven J. Malcolm

/s/ PHILLIP D. WRIGHT *		Director and Senior Vice President
Phillip D. Wright		(Principal Executive Officer)

/s/ FRANK J. FERAZZI *		Director and Vice President
Frank J. Ferazzi

/s/ RICHARD D. RODEKOHR*		Vice President and Treasurer (Principal Financial Officer)
Richard D. Rodekohr

/s/ JEFFREY P. HEINRICHS *		Controller (Principal Accounting Officer)
Jeffrey P. Heinrichs

By /s/ JEFFREY P. HEINRICHS *
Jeffrey P. Heinrichs
Attorney-in-fact


		PAGE
	PART 1

Item 1.	Business (Restated)		3

Item 2.	Properties		15

Item 3.	Legal Proceedings		15

Item 4.	Submission of Matters to a Vote of Security Holders (Omitted)		17

	PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities		17

Item 6.	Selected Financial Data (Omitted)		17

Item 7.	Management’s Narrative Analysis of Results of Operations (Restated)		18

Item 7A.	Qualitative and Quantitative Disclosures About Market Risk		28

Item 8.	Financial Statements and Supplementary Data (Restated)		29

Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		90

Item 9A.	Controls and Procedures (Restated)		90

Item 9B.	Other Information		91

	PART III

Item 10.	Directors and Executive Officers of the Registrant (Omitted)		92

Item 11.	Executive Compensation (Omitted)		92

Item 12.	Security Ownership of Certain Beneficial Owners and Management (Omitted)		92

Item 13.	Certain Relationships and Related Transactions (Omitted)		92

Item 14.	Principal Accountant Fees and Services		92

	PART IV

Item 15.	Exhibits and Financial Statement Schedules (Restated)		93
Consent of Independent Registered Public Accounting Firm
Certification of Principal Executive Officer
Certification of Principal Financial Officer
Certification Pursuant to 18 U.S.C. Section 1350


		Page
Report of Independent Registered Public Accounting Firm		30

Consolidated Statement of Income		31

Consolidated Balance Sheet		32-33

Consolidated Statement of Common Stockholder’s Equity		34

Consolidated Statement of Comprehensive Income		35

Consolidated Statement of Cash Flows		36-37

Notes to Consolidated Financial Statements		38-89


	Years Ended December 31, 2004
	(As Reported)		Adjustments			(As Restated)
Net Income	$	191,549	$	(6,346	)	$	185,203

Equity interest in unrealized gain/(loss) on interest rate hedge, net of tax of $137 in 2004		224		—			224


Total Comprehensive Income	$	191,773	$	(6,346	)	$	185,427


	Years Ended December 31, 2003
	(As Reported)		Adjustments		(As Restated)
Net Income	$	194,309	$	7,277	$	201,586

Equity interest in unrealized gain/(loss) on interest rate hedge, net of tax of $315 in 2003		509		—		509

Minimum pension liability adjustment, net of tax of $4,576 in 2003		7,387		—		7,387


Total Comprehensive Income	$	202,205	$	7,277	$	209,482


		assumptions used in the fair value calculation of the new options granted were: 1) dividend yield of 0.4 %; 2) volatility of 50 %; 3) weighted average expected remaining life of 3.4 years; and 4) weighted average risk free interest rate of 1.99 %.