##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2006
 OR
 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
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)2800 Post Oak BoulevardP. O. Box 1396Houston, Texas
    
    77251(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code (713) 215-2000
 None
(Former name, former address and former fiscal year, if changed since last report)
 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 whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act.
 Large accelerated filer o Accelerated filer o Non-accelerated filer þ
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
 Yes o No þ
 The number of shares of Common Stock, par value $1.00 per share, outstanding as of July
31, 2006 was 100.
 REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H (1)(a) AND (b) OF FORM
10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED DISCLOSURE FORMAT.




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2




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##### 



PagePART I. FINANCIAL INFORMATION:Item 1. Financial Statements -Condensed Consolidated Statement of Income for the three and six months
ended June 30, 2006 and 2005
    
    
    4Condensed Consolidated Balance Sheet as of June 30, 2006 and
December 31, 2005
    
    
    5Condensed Consolidated Statement of Cash Flows for the six
months ended June 30, 2006 and 2005
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    8Item 2. Managements Narrative Analysis of the Results of Operations
    
    
    25Item 4. Controls and Procedures
    
    
    29PART II. OTHER INFORMATION
    
    
    31Item 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 6. Exhibits
    
    
    31Certification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906
    3




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##### Table of Contents



PART 1  FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements.
  
 
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Restated)
    
    
    
    
    
    
    (Restated)Operating Revenues:Natural gas sales
    
    $
    39,951
    
    
    $
    40,658
    
    
    $
    67,883
    
    
    $
    161,164Natural gas transportation
    
    
    187,605
    
    
    
    188,741
    
    
    
    382,802
    
    
    
    383,999Natural gas storage
    
    
    29,861
    
    
    
    30,261
    
    
    
    60,016
    
    
    
    61,135Other
    
    
    3,395
    
    
    
    4,142
    
    
    
    9,702
    
    
    
    6,449Total operating revenues
    
    
    260,812
    
    
    
    263,802
    
    
    
    520,403
    
    
    
    612,747Operating Costs and Expenses:Cost of natural gas sales
    
    
    39,954
    
    
    
    40,612
    
    
    
    67,881
    
    
    
    161,118Cost of natural gas transportation
    
    
    2,771
    
    
    
    3,239
    
    
    
    6,574
    
    
    
    8,225Operation and maintenance
    
    
    53,106
    
    
    
    48,655
    
    
    
    105,831
    
    
    
    96,012Administrative and general
    
    
    36,005
    
    
    
    22,446
    
    
    
    67,917
    
    
    
    48,504Depreciation and amortization
    
    
    51,688
    
    
    
    49,865
    
    
    
    102,587
    
    
    
    98,534Taxes  other than income taxes
    
    
    12,725
    
    
    
    11,333
    
    
    
    26,672
    
    
    
    23,580Other, net
    
    
    (3,336
    )
    
    
    403
    
    
    
    (4,813
    )
    
    
    624Total operating costs and expenses
    
    
    192,913
    
    
    
    176,553
    
    
    
    372,649
    
    
    
    436,597Operating Income
    
    
    67,899
    
    
    
    87,249
    
    
    
    147,754
    
    
    
    176,150Other (Income) and Other Deductions:Interest expense
    
    
    22,941
    
    
    
    19,672
    
    
    
    38,014
    
    
    
    39,792Interest income  affiliates
    
    
    (4,613
    )
    
    
    (2,494
    )
    
    
    (6,557
    )
    
    
    (5,156
    )Allowance for equity and borrowed funds used during construction
(AFUDC)
    
    
    (2,909
    )
    
    
    (2,244
    )
    
    
    (5,369
    )
    
    
    (3,935
    )Equity in earnings of unconsolidated affiliates
    
    
    (1,962
    )
    
    
    (1,803
    )
    
    
    (3,746
    )
    
    
    (3,450
    )Miscellaneous other (income) deductions, net
    
    
    (787
    )
    
    
    (1,853
    )
    
    
    (3,114
    )
    
    
    (2,671
    )Total other (income) and other deductions
    
    
    12,670
    
    
    
    11,278
    
    
    
    19,228
    
    
    
    24,580Income before Income Taxes
    
    
    55,229
    
    
    
    75,971
    
    
    
    128,526
    
    
    
    151,570Provision for Income Taxes
    
    
    21,104
    
    
    
    28,682
    
    
    
    48,689
    
    
    
    57,141Net Income
    
    $
    34,125
    
    
    $
    47,289
    
    
    $
    79,837
    
    
    $
    94,429
  4




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##### Table of Contents



June 30,
    
    
    December 31,2006
    
    
    2005ASSETSCurrent Assets:Cash
    
    $
    186
    
    
    $
    362Receivables:Affiliates
    
    
    4,095
    
    
    
    4,374Advances to affiliates
    
    
    210,680
    
    
    
    130,307Others, less allowance of $394 ($509 in 2005)
    
    
    94,867
    
    
    
    93,827Transportation and exchange gas receivables
    
    
    9,650
    
    
    
    9,906Inventories
    
    
    119,426
    
    
    
    82,680Deferred income taxes
    
    
    16,078
    
    
    
    15,283Other
    
    
    32,042
    
    
    
    17,663Total current assets
    
    
    487,024
    
    
    
    354,402Investments, at cost plus equity in undistributed earnings
    
    
    44,680
    
    
    
    44,108Property, Plant and Equipment:Natural gas transmission plant
    
    
    6,275,626
    
    
    
    6,134,951Less-Accumulated depreciation and amortization
    
    
    1,863,098
    
    
    
    1,776,946Total property, plant and equipment, net
    
    
    4,412,528
    
    
    
    4,358,005Other Assets
    
    
    269,781
    
    
    
    257,835Total assets
    
    $
    5,214,013
    
    
    $
    5,014,350
 5
    Table of Contents  June 30,
    
    
    December 31,2006
    
    
    2005LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Payables:Affiliates
    
    $
    47,136
    
    
    $
    27,812Other
    
    
    79,451
    
    
    
    80,876Transportation and exchange gas payables
    
    
    23,931
    
    
    
    49,657Accrued liabilities
    
    
    142,852
    
    
    
    168,730Reserve for rate refunds
    
    
    6,743
    
    
    
    3,763Total current liabilities
    
    
    300,113
    
    
    
    330,838Long-Term Debt
    
    
    1,201,031
    
    
    
    1,000,623Other Long-Term Liabilities:Deferred income taxes
    
    
    985,697
    
    
    
    955,503Other
    
    
    172,429
    
    
    
    172,764Total other long-term liabilities
    
    
    1,158,126
    
    
    
    1,128,267Contingent liabilities and commitments (Note 3)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
    
    
    
    1,652,430Retained earnings
    
    
    902,437
    
    
    
    902,600Accumulated other comprehensive loss
    
    
    (124
    )
    
    
    (408
    )Total common stockholders equity
    
    
    2,554,743
    
    
    
    2,554,622Total liabilities and stockholders equity
    
    $
    5,214,013
    
    
    $
    5,014,350
  6
    Table of Contents  Six Months EndedJune 30,2006
    
    
    2005(Restated)Cash flows from operating activities:Net income
    
    $
    79,837
    
    
    $
    94,429Adjustments to reconcile net income to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    101,099
    
    
    
    99,081Deferred income taxes
    
    
    29,213
    
    
    
    4,634Allowance for equity funds used during construction (Equity AFUDC)
    
    
    (3,996
    )
    
    
    (2,638
    )Changes in operating assets and liabilities:Receivables  affiliates
    
    
    279
    
    
    
    (2,585
    ) others
    
    
    (1,040
    )
    
    
    31,562Transportation and exchange gas receivables
    
    
    256
    
    
    
    (4,665
    )Inventories
    
    
    (36,746
    )
    
    
    14,658Payables  affiliates
    
    
    19,324
    
    
    
    (912
    ) others
    
    
    36,326
    
    
    
    (2,670
    )Transportation and exchange gas payables
    
    
    (25,726
    )
    
    
    (5,365
    )Accrued liabilities
    
    
    (23,572
    )
    
    
    (20,168
    )Reserve for rate refunds
    
    
    2,980
    
    
    
    (3,573
    )Other, net
    
    
    (28,555
    )
    
    
    (20,070
    )Net cash provided by operating activities
    
    
    149,679
    
    
    
    181,718Cash flows from financing activities:Additions of long-term debt
    
    
    200,000
    
    
    
    Retirement of long-term debt
    
    
    
    
    
    
    (200,000
    )Debt issue costs
    
    
    (3,120
    )
    
    
    (255
    )Change in cash overdrafts
    
    
    (23,007
    )
    
    
    (6,507
    )Common stock dividends paid
    
    
    (80,000
    )
    
    
    (45,000
    )Net cash provided by (used in) financing activities
    
    
    93,873
    
    
    
    (251,762
    )Cash flows from investing activities:Property, plant and equipment:Additions, net of equity AFUDC
    
    
    (151,712
    )
    
    
    (92,811
    )Changes in accounts payable
    
    
    (14,744
    )
    
    
    (5,396
    )Advances to affiliates, net
    
    
    (80,373
    )
    
    
    163,013Advances to others, net
    
    
    355
    
    
    
    376Other, net
    
    
    2,746
    
    
    
    4,919Net cash provided by (used in) investing activities
    
    
    (243,728
    )
    
    
    70,101Net increase (decrease) in cash
    
    
    (176
    )
    
    
    57Cash at beginning of period
    
    
    362
    
    
    
    176Cash at end of period
    
    $
    186
    
    
    $
    233
  7
    Table of Contents  TRANSCONTINENTAL GAS PIPE LINE CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. BASIS OF PRESENTATION
        8
    Table of Contents  Three Months
    
    
    Six MonthsEnded June 30,
    
    
    Ended June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(restated)
    
    
    
    
    
    (restated)Net income
    
    $
    34,125
    
    
    $
    47,289
    
    
    $
    79,837
    
    
    $
    94,429Equity interest in unrealized gain/(loss) on interest rate hedge
    
    
    120
    
    
    
    (166
    )
    
    
    284
    
    
    
    169Total comprehensive income
    
    $
    34,245
    
    
    $
    47,123
    
    
    $
    80,121
    
    
    $
    94,598
 Recent Accounting Developments
   FERC Accounting Guidance
 9
    Table of Contents  2. RESTATEMENT
       10
    Table of Contents  Three Months Ended June 30, 2005(As Reported)
    
    
    Adjustment
    
    
    (As Restated)Operating Revenues:Natural gas sales
    
    $
    40,658
    
    
    $
    
    
    
    $
    40,658Natural gas transportation
    
    
    188,741
    
    
    
    
    
    
    
    188,741Natural gas storage
    
    
    30,261
    
    
    
    
    
    
    
    30,261Other
    
    
    4,142
    
    
    
    
    
    
    
    4,142Total operating revenues
    
    
    263,802
    
    
    
    
    
    
    
    263,802Operating Costs and Expenses:Cost of natural gas sales
    
    
    40,612
    
    
    
    
    
    
    
    40,612Cost of natural gas transportation
    
    
    2,970
    
    
    
    269
    
    
    
    3,239Operation and maintenance
    
    
    48,655
    
    
    
    
    
    
    
    48,655Administrative and general
    
    
    22,251
    
    
    
    195
    
    
    
    22,446Depreciation and amortization
    
    
    49,086
    
    
    
    779
    
    
    
    49,865Taxes  other than income taxes
    
    
    11,333
    
    
    
    
    
    
    
    11,333Other (income) expense, net
    
    
    403
    
    
    
    
    
    
    
    403Total operating costs and expenses
    
    
    175,310
    
    
    
    1,243
    
    
    
    176,553Operating Income
    
    
    88,492
    
    
    
    (1,243
    )
    
    
    87,249Other (Income) and Other Deductions:Interest expense
    
    
    19,672
    
    
    
    
    
    
    
    19,672Interest income  affiliates
    
    
    (2,494
    )
    
    
    
    
    
    
    (2,494
    )Allowance for equity and borrowed funds used during construction (AFUDC)
    
    
    (2,244
    )
    
    
    
    
    
    
    (2,244
    )Equity in earnings of unconsolidated affiliates
    
    
    (1,803
    )
    
    
    
    
    
    
    (1,803
    )Miscellaneous other (income) deductions, net
    
    
    (1,853
    )
    
    
    
    
    
    
    (1,853
    )Total other (income) and other deductions
    
    
    11,278
    
    
    
    
    
    
    
    11,278Income before Income Taxes
    
    
    77,214
    
    
    
    (1,243
    )
    
    
    75,971Provision for Income Taxes
    
    
    29,152
    
    
    
    (470
    )
    
    
    28,682Net Income
    
    $
    48,062
    
    
    $
    (773
    )
    
    $
    47,289
 11
    Table of Contents  Six Months Ended June 30, 2005(As Reported)
    
    
    Adjustment
    
    
    (As Restated)Operating Revenues:Natural gas sales
    
    $
    161,164
    
    
    $
    
    
    
    $
    161,164Natural gas transportation
    
    
    383,999
    
    
    
    
    
    
    
    383,999Natural gas storage
    
    
    61,135
    
    
    
    
    
    
    
    61,135Other
    
    
    6,449
    
    
    
    
    
    
    
    6,449Total operating revenues
    
    
    612,747
    
    
    
    
    
    
    
    612,747Operating Costs and Expenses:Cost of natural gas sales
    
    
    161,118
    
    
    
    
    
    
    
    161,118Cost of natural gas transportation
    
    
    4,991
    
    
    
    3,234
    
    
    
    8,225Operation and maintenance
    
    
    96,012
    
    
    
    
    
    
    
    96,012Administrative and general
    
    
    48,159
    
    
    
    345
    
    
    
    48,504Depreciation and amortization
    
    
    98,007
    
    
    
    527
    
    
    
    98,534Taxes  other than income taxes
    
    
    23,580
    
    
    
    
    
    
    
    23,580Other (income) expense, net
    
    
    624
    
    
    
    
    
    
    
    624Total operating costs and expenses
    
    
    432,491
    
    
    
    4,106
    
    
    
    436,597Operating Income
    
    
    180,256
    
    
    
    (4,106
    )
    
    
    176,150Other (Income) and Other Deductions:Interest expense
    
    
    39,792
    
    
    
    
    
    
    
    39,792Interest income  affiliates
    
    
    (5,156
    )
    
    
    
    
    
    
    (5,156
    )Allowance for equity and borrowed funds used during construction (AFUDC)
    
    
    (3,935
    )
    
    
    
    
    
    
    (3,935
    )Equity in earnings of unconsolidated affiliates
    
    
    (3,450
    )
    
    
    
    
    
    
    (3,450
    )Miscellaneous other (income) deductions, net
    
    
    (2,671
    )
    
    
    
    
    
    
    (2,671
    )Total other (income) and other deductions
    
    
    24,580
    
    
    
    
    
    
    
    24,580Income before Income Taxes
    
    
    155,676
    
    
    
    (4,106
    )
    
    
    151,570Provision for Income Taxes
    
    
    58,694
    
    
    
    (1,553
    )
    
    
    57,141Net Income
    
    $
    96,982
    
    
    $
    (2,553
    )
    
    $
    94,429
 12
    Table of Contents  Six Months Ended June 30, 2005(As Reported)
    
    
    Adjustment
    
    
    (As Restated)Cash flows from operating activities:Net income
    
    $
    96,982
    
    
    $
    (2,553
    )
    
    $
    94,429Adjustments to reconcile net income to net cash provided
by (used in) operating activities:Depreciation and amortization
    
    
    97,942
    
    
    
    1,139
    
    
    
    99,081Deferred income taxes
    
    
    4,634
    
    
    
    
    
    
    
    4,634Allowance for equity funds used during construction
(Equity AFUDC)
    
    
    (2,638
    )
    
    
    
    
    
    
    (2,638
    )Changes in operating assets and liabilities:Receivables
 affiliates
    
    
    (2,585
    )
    
    
    
    
    
    
    (2,585
    ) other
    
    
    31,938
    
    
    
    (376
    )
    
    
    31,562Transportation and exchange gas receivables
    
    
    (4,665
    )
    
    
    
    
    
    
    (4,665
    )Inventories
    
    
    10,151
    
    
    
    4,507
    
    
    
    14,658Payables
 affiliates
    
    
    (912
    )
    
    
    
    
    
    
    (912
    ) other
    
    
    (2,670
    )
    
    
    
    
    
    
    (2,670
    )Transportation and exchange gas payables
    
    
    (3,338
    )
    
    
    (2,027
    )
    
    
    (5,365
    )Accrued liabilities
    
    
    (29,693
    )
    
    
    9,525
    
    
    
    (20,168
    )Reserve for rate refunds
    
    
    (3,573
    )
    
    
    
    
    
    
    (3,573
    )Other, net
    
    
    (9,741
    )
    
    
    (10,329
    )
    
    
    (20,070
    )Net cash provided by operating activities
    
    
    181,832
    
    
    
    (114
    )
    
    
    181,718Cash flows from financing activities:Retirement of long-term debt
    
    
    (200,000
    )
    
    
    
    
    
    
    (200,000
    )Debt issue costs
    
    
    (255
    )
    
    
    
    
    
    
    (255
    )Change in cash overdrafts
    
    
    (6,507
    )
    
    
    
    
    
    
    (6,507
    )Common stock dividends paid
    
    
    (45,000
    )
    
    
    
    
    
    
    (45,000
    )Net cash used in financing activities
    
    
    (251,762
    )
    
    
    
    
    
    
    (251,762
    )Cash flows from investing activities:Property, plant and equipment:Additions, net of equity AFUDC
    
    
    (92,549
    )
    
    
    (262
    )
    
    
    (92,811
    )Changes in accounts payable
    
    
    (5,396
    )
    
    
    
    
    
    
    (5,396
    )Advances to affiliates, net
    
    
    163,013
    
    
    
    
    
    
    
    163,013Advances to others, net
    
    
    
    
    
    
    376
    
    
    
    376Other, net
    
    
    4,919
    
    
    
    
    
    
    
    4,919Net cash provided by investing activities
    
    
    69,987
    
    
    
    114
    
    
    
    70,101Net increase in cash
    
    
    57
    
    
    
    
    
    
    
    57Cash at beginning of period
    
    
    176
    
    
    
    
    
    
    
    176Cash at end of period
    
    $
    233
    
    
    $
    
    
    
    $
    233
  13
    Table of Contents   3. CONTINGENT LIABILITIES AND COMMITMENTS
 Rate and Regulatory Matters
 General rate case (Docket No. RP01-245)
     14




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##### Table of Contents



Gathering facilities spin-down order (Docket Nos. CP96-206-000 and CP96-207-000)
  North Padre Island/Central Texas Systems Spin-down Proceeding (Docket Nos. CP01-32 and
CP01-34)
 15




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##### Table of Contents



16




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##### Table of Contents



North High Island/West Cameron Systems and Central Louisiana System Spin-down Proceedings
(Docket Nos. CP01-103 and CP01-104, and CP01-368 and CP01-369)
  FERC enforcement matter
 Legal Proceedings.
 Royalty claims and litigation
  17




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Hurricane lawsuits
 Environmental Matters
  18




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Safety Matters
 Pipeline Integrity Regulations
 Summary
  Other Commitments
 Commitments for construction and gas purchases
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4. DEBT AND FINANCING ARRANGEMENTS
 Revolving Credit and Letter of Credit Facilities
  
    
    Williams ratio of debt to capitalization must be no greater than 65 percent;
 
    
    Our ratio of debt to capitalization must be no greater than 55 percent;
 
    
    Williams ratio of EBITDA to interest, on a rolling four quarter basis, must be no less
than 2.5 for the period ending December 31, 2007 and 3.0 for the remaining term of the
agreement.
 Issuance of Long-Term Debt
  5. STOCK-BASED COMPENSATION
 Plan Information
   Accounting for Stock-Based Compensation
 .
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Three months
    
    
    Six monthsEnded
    
    
    EndedJune 30, 2005
    
    
    June 30, 2005(thousands)
    
    
    (thousands)Net income, as restated
    
    $
    47,289
    
    
    $
    94,429Add: Stock-based employee
compensation included in the
Condensed Consolidated Statement
of Income, net of related tax
effects
    
    
    449
    
    
    
    546Deduct: Stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects
    
    
    (686
    )
    
    $
    (1,086
    )Pro forma net income, as restated
    
    $
    47,052
    
    
    $
    93,889
 Stock Options
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WeightedAverage
    
    
    AggregateExercise
    
    
    IntrinsicStock Options
    
    Options
    
    
    Price
    
    
    Value(Thousands)
    
    
    
    
    
    
    (Millions)Outstanding at December 31, 2005
    
    
    3,394
    
    
    $
    16.56Granted
    
    
    98
    
    
    $
    21.67Exercised
    
    
    (264
    )
    
    $
    12.91
    
    
    $
    2.4Cancelled
    
    
    (10
    )
    
    $
    32.64Employee transfers, net
    
    
    (54
    )
    
    $Outstanding at June 30, 2006
    
    
    3,164
    
    
    $
    17.20
    
    
    $
    25.6Exercised June 30, 2006
    
    
    2,544
    
    
    $
    17.35
    
    
    $
    22.1
  Stock Options Outstanding
    
    
    
    
    
    
    Stock Options ExercisableWeighted
    
    
    
    
    
    
    
    
    
    
    WeightWeighted
    
    
    Average
    
    
    
    
    
    
    Weighted
    
    
    AverageAverage
    
    
    Remaining
    
    
    
    
    
    
    Average
    
    
    RemainingExercise
    
    
    Contractual
    
    
    
    
    
    
    Exercise
    
    
    ContractualRange of Exercise Prices
    
    Options
    
    
    Price
    
    
    Life
    
    
    Options
    
    
    Price
    
    
    Life(Thousands)
    
    
    
    
    
    
    (Years)
    
    
    (Thousands)
    
    
    
    
    
    
    (Years)$2.27 to $10.00
    
    
    1,527
    
    
    $
    7.21
    
    
    
    6.0
    
    
    
    1,325
    
    
    $
    6.79
    
    
    
    5.8$14.80 to $15.89
    
    
    185
    
    
    $
    15.80
    
    
    
    3.0
    
    
    
    185
    
    
    $
    15.80
    
    
    
    3.0$19.29 to $31.56
    
    
    896
    
    
    $
    21.78
    
    
    
    6.2
    
    
    
    478
    
    
    $
    23.48
    
    
    
    3.8$34.54 to $42.29
    
    
    556
    
    
    $
    37.74
    
    
    
    1.7
    
    
    
    556
    
    
    $
    37.74
    
    
    
    1.7Total
    
    
    3,164
    
    
    $
    17.20
    
    
    
    5.1
    
    
    
    2,544
    
    
    $
    17.35
    
    
    
    4.3
  Assumptions:Expected dividend yield
    
    
    1.42
    %Expected volatility
    
    
    36.3
    %Risk-free interest rate
    
    
    4.65
    %Expected life (years)
    
    
    6.5
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Nonvested Deferred Shares
   WeightedAverageGrant-DateFairDeferred Shares
    
    Shares
    
    ValueNonvested at December 31, 2005
    
    
    180,722
    
    
    $
    14.68Granted
    
    
    129,205
    
    
    $
    21.67Forfeited
    
    
    (330
    )
    
    $
    21.67Vested
    
    
    (47,834
    )
    
    $
    9.93Employee transfers, net
    
    
    1,236Nonvested at June 30, 2006
    
    
    262,999
    
    
    $
    19.00
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ITEM 2. Managements Narrative Analysis of the Results of Operations.
 General
  Restatement of Financial Results
    RESULTS OF OPERATIONS
 Operating Income and Net Income
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Transportation Revenues
   Six MonthsEnded June 30,Transco System Deliveries (TBtu)
    
    2006
    
    
    2005Market-area deliveries:Long-haul transportation
    
    
    394.7
    
    
    
    399.3Market-area transportation
    
    
    408.0
    
    
    
    424.7Total market-area deliveries
    
    
    802.7
    
    
    
    824.0Production-area transportation
    
    
    127.1
    
    
    
    141.6Total system deliveries
    
    
    929.8
    
    
    
    965.6Average Daily Transportation Volumes (Tbtu)
    
    
    5.1
    
    
    
    5.3Average Daily Firm Reserved Capacity (Tbtu)
    
    
    6.7
    
    
    
    6.7
  Sales Revenues
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Six MonthsEnded June 30,Gas Sales Volumes (Tbtu)
    
    2006
    
    
    2005Long-term sales
    
    
    
    
    
    
    7.8Short-term sales
    
    
    1.1
    
    
    
    5.2Total gas sales
    
    
    1.1
    
    
    
    13.0
 Storage Revenues
  Other Revenues
  Operating Costs and Expenses
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Other Income and Other Deductions
  Method of Financing
  
    
    Williams ratio of debt to capitalization must be no greater than 65 percent;
 
    
    Our ratio of debt to capitalization must be no greater than 55 percent;
 
    
    Williams ratio of EBITDA to interest, on a rolling four quarter basis, must be no less
than 2.5 for the period ending December 31, 2007 and 3.0 for the remaining term of the
agreement.
  Capital Expenditures
  Six monthsEnded June 30,Capital Expenditures
    
    2006
    
    
    2005(In Millions)(Restated)Expansion projects
    
    $
    1.8
    
    
    $
    8.7Maintenance of existing facilities and other projects
    
    
    164.7
    
    
    
    89.5Total capital expenditures
    
    $
    166.5
    
    
    $
    98.2
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Leidy to Long Island Expansion Project
 Potomac Expansion Project
 Sentinel Expansion Project
 
 ITEM 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  29




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Changes in Internal Control over Financial Reporting
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(4)   Instruments defining the rights of Security holders, including indentures- 1
    
    Indenture dated April 11, 2006 between Transco and
JP Morgan Chase Bank, N.A., as trustee (Exhibit 4.1 to Transco Form 8-K
filed April 11, 2006).(10)   Material contracts- 1
    
    Registration Rights Agreement dated April 11, 2006 between
Transco, Banc of America Securities LLC, Greenwich Capital
Markets, Inc. and other parties listed therein, as Initial
Purchasers (Exhibit 10.1 to Transco Form 8-K filed April 11,
2006).- 2
    
    Credit Agreement, dated May 1, 2006, among The Williams
Companies, Inc., Northwest Pipeline Corporation
Transcontinental Gas Pipe Line Corporation, and Williams
Partners L.P., as Borrowers, and Citibank, N.A., as
Administrative Agent (Exhibit 10.1 to The Williams Companies,
Inc. Form 8-K filed May 1, 2006 Commission File Number
1-4174).(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.
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TRANSCONTINENTAL GAS PIPE LINE
CORPORATION (Registrant)Dated: August 8, 2006
    
    By /s/ Jeffrey P. HeinrichsJeffrey P. HeinrichsController(Principal Accounting Officer)
 32