In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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     Accumulated Other Comprehensive Income (Loss) —The components of and changes in accumulated other comprehensive income (loss) are as follows:

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     Cumulative Effect of Changes in Accounting PrinciplesChange-— The Company adopted the provisions of EITF Issue 02-03 (“EITF 02-03”), “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and for Contracts Involved in Energy Trading and Risk Management Activities,” that required new non-derivative energy trading contracts entered into after October 25, 2002 to be accounted for under the accrual accounting basis. Non-derivative energy trading contracts recorded in the Consolidated Balance Sheet as of January 1, 2003 that existed at October 25, 2002 and inventories that were recorded at fair values were adjusted to historical cost via a cumulative effect adjustment of $5 million as a reduction to earnings in the first quarter of 2003.

     The Company adopted the provisions of SFAS No. 143 (“SFAS 143”), “Accounting for Asset Retirement Obligations,” onas of January 1, 2003.2003 which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. In accordance with the transition provisions of SFAS No. 143, the Company recorded asset retirement liabilities and a cumulative-effectcumulative effect adjustment of $17.4$18 million as a reduction to earnings in earnings. In addition, in accordance with the EITF’s October 2002 consensus on Issue No. 02-03, on January 1, 2003, the Company decreased its inventories from fair value to historical cost and recorded a $5.4 million cumulative-effect adjustment as a reduction in earnings.first quarter of 2003.

     New Accounting Standards-— In May 2003, the FASB issued SFAS No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 requires that certain financial instruments that could previously be accounted for as equity, be classified as liabilities in the consolidated balance sheets and initially recorded at fair value. In addition to its requirements for the classification and measurement of financial instruments in its scope, SFAS No. 150 also requires disclosures about the nature and terms of the financial instruments and about alternative ways of settling the instruments. The provisions of SFAS No. 150 are effective for all financial instruments entered into or modified after May 31, 2003, and are otherwise effective at the beginning of the first interim period beginning after June 15, 2003. Upon adoption on July 1, 2003, the Company reclassified its preferred members’ interest, which are mandatorily redeemable, of $200.0$200 million from mezzanine equity to long term debt and prospectively classified accrued or paid distributions on these securities, which had previously been classified as dividends, as interest expense. Interest expense for the three months ended September 30, 2003 on these securities was approximately $4.4 million. During the third quarter of 2003, the Company redeemed $125.0the remaining $200 million of these securities in cash and the current outstanding balance at September 30, 2003 was $75.0 million.

      In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities,” which amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 clarifies the discussion around initial net investment, clarifies when a derivative contains a financing component, and amends the definition of an underlying to conform it to language used in FIN 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” In addition, SFAS No. 149 also incorporates certain of the Derivative Implementation Group Implementation Issues. The provisions of SFAS No. 149 are effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The guidance is to be applied to hedging relationships on a prospective basis. The Company does not anticipate SFAS No. 149 will have a material impact on its consolidated results of operations, cash flows or financial position.cash.

     In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.”Entities” which requires the primary beneficiary of a variable interest entity’s activities to consolidate the variable interest

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entity. FIN 46 requires an entity to consolidatedefines a variable interest entity if itas an entity in which the equity investors do not have substantive voting rights and there is not sufficient equity at risk for the primary beneficiary of the variable interest entity’s activities.entity to finance its activities without additional subordinated financial support. The primary beneficiary is the party that absorbs a majority of the expected losses and/or receives a majority of the expected residual returns of the variable interest entity’s activities. In December 2003, the FASB issued FIN 46R, which supercedes and amends certain provisions of FIN 46. While FIN 46R retains many of the concepts and provisions of FIN 46, isit also provides additional guidance related to the application of FIN 46, provides for certain additional scope exceptions, and incorporates several FASB Staff Positions issued related to the application of FIN 46.

     The provisions of FIN 46 are immediately applicable to variable interest entities created, or interests in variable interest entities obtained, after January 31, 2003.2003 and the provisions of FIN 46R are required to be applied to such entities by the end of the first reporting period ending after March 15, 2004 (March 31, 2004 for the Company). For those variable interest entities created, or interests in variable interest entities obtained, on or before January 31, 2003, FIN 46 or FIN 46R is required to be applied to special-purpose entities by the end of the first fiscal year or interimreporting period beginningending after December 15, 2003.2003 (December 31, 2003 for calendar-year entities) and is required to be applied to all other non-special purpose entities by the end of the first reporting period ending after March 15, 2004 (March 31, 2004 for calendar-year entities). FIN 46 and FIN 46R may be applied prospectively with a cumulative-effect adjustment as of the date it is first applied, or by restating previously issued financial statements with a cumulative-effect adjustment as of the beginning of the first year restated. FIN 46 and FIN 46R also requiresrequire certain disclosures of an entity’s relationship with variable interest entities.

     The Company has not identified any material variable interest entities created, or interests in variable interest entities obtained, after January 31, 2003 and continues to assess the existence of any interests in variable interest entities created onwhich require consolidation or prior to January 31, 2003.disclosure under FIN 46. The Company currently anticipates certain entities,consolidated one entity, previously accounted for under the equity method of accounting, will be consolidatedon January 1, 2004 under the provisions of FIN 46 as of December 31, 2003. These entities,46R. This entity, which areis a substantive operating entities, haveentity, had total assets of approximately $94.2$92 million at September 30, 2003 and total revenuesas of approximately $32.2 million for the nine months ended September 30, 2003. The Company’s maximum exposure to loss as a result of its involvement with these entities is approximately $84.2 million at September 30, 2003. The Company continues to assess FIN 46 but does not anticipate that it will have a material impact on its consolidated results of operations, cash flows or financial position. The FASB continues to interpret the provisionsJanuary 1, 2004. Adoption of FIN 46 and has issued an exposure draft to amend certain provisions of FIN 46 which is expected to become effective in the fourth quarter of 2003. Until such

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interpretations and amendments are finalized, the Company is not able to conclude as to whether such future changes would be likely to materially affect its consolidated results of operations, cash flows or financial position.

      In November 2002, the FASB issued Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The Company adopted the initial recognition and measurement provisions of FIN 45 effective January 1, 2003. Adoption of the new interpretation46R had no material effect on the Company’s consolidated results of operations, cash flows or financial position.

     In June 2002, the EITF reached a partial consensus on Issue No. 02-03, “Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities.” The EITF concluded that, effective for periods ending after July 15, 2002, mark-to-market gains and losses on energy trading contracts (including those to be physically settled) must be shown on a net basis in the Consolidated Statements of Operations. The Company had previously chosen to report certain of its energy trading contracts on a gross basis, as sales in operating revenues and the associated costs recorded as purchases in costs and expenses, in accordance with prevailing industry practice.

      In October 2002, the EITF, as part of their further deliberations on Issue No. 02-03, rescinded the consensus reached in Issue No. 98-10. As a result, all energy trading contracts that do not meet the definition of a derivative under SFAS No. 133, and trading inventories that previously had been recorded at fair values, must now be recorded at the lower of cost or market and are reported on an accrual basis resulting in the recognition of earnings or losses at the time of contract settlement or termination. New non-derivative energy trading contracts entered into after October 25, 2002 should be accounted for under the accrual accounting basis. Non-derivative energy trading contracts on the Consolidated Balance Sheet as of January 1, 2003 that existed at October 25, 2002 and inventories that were recorded at fair values have been adjusted to the lower of historical cost or market via a cumulative-effect adjustment of $5.4 million as a reduction to 2003 earnings. In connection with the consensus reached on Issue No. 02-03, the FASB staff observed that, effective July 1, 2002, an entity should not recognize unrealized gains or losses at the inception of a derivative instrument unless the fair value of that instrument is evidenced by quoted market prices or current market transactions.

      In October 2002, the EITF also reached a consensus on Issue No. 02-03 that, effective for periods beginning after December 15, 2002, all gains and losses on all derivative instruments held for trading purposes should be shown on a net basis in the income statement. Gains and losses on non-derivative energy trading contracts should similarly be presented on a gross or net basis in connection with the guidance in Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” Upon application of this presentation, comparative financial statements for prior periods are required to be reclassified to conform to the consensus other than for energy trading contracts that were shown on a net basis under Issue No. 98-10. Accordingly, for the three and nine months ended September 30, 2003, derivative instruments that are held for trading and marketing purposes and are accounted for under mark-to-market accounting are included in Trading and Marketing Net Margin on the Consolidated Statements of Operations. For the three and nine months ended September 30, 2002, Trading and Marketing Net Margin also includes the net margin on non-derivative energy trading contracts (primarily gas storage inventories and the related physical purchases and sales) that no longer qualify for net presentation after the rescission of Issue No. 98-10. The new gross versus net revenue presentation requirements had no impact on operating income or net income.

      In July 2003, the EITF reached consensus in EITF Issue No. 03-11 (“EITF 03-11”), “Reporting Realized Gains and Losses on Derivative Instruments that are Subject to FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, and Not Held for Trading Purposes,” that determining whether realized gains and losses on derivative contracts not held for trading purposes should be reported on a net or gross basis is a matter of judgment that depends on the relevant facts and circumstances. In analyzing the facts and circumstances, EITF Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent” and Opinion No. 29, “Accounting for Nonmonetary Transactions,” should be considered. EITF Issue No. 03-11 is effective for transactions or arrangements entered into after September 30, 2003. The Company does not anticipate that the adoption of EITF Issue No. 03-11 will have ahad no material effect on itsthe Company’s consolidated results of operations, cash flows or financial position.

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      On June 25, 2003, the FASB cleared the guidance contained in DIG Issue C20, “Scope Exceptions: Interpretation of the Meaning of ‘Not Clearly and Closely Related’ in Paragraph 10(b) regarding Contracts with a Price Adjustment Feature.” DIG Issue C20, which applies only to the guidance in paragraph 10(b) of FASB No. 133 and not in reference to embedded derivatives, describes three circumstances in which the underlying in a price adjustment incorporated into a contract that otherwise satisfies the requirements for the normal purchases and normal sales exception would be considered to be “not clearly and closely related to the asset being sold or purchased.” The guidance in DIG Issue C20 is effective for the Company on October 1, 2003. The Company does not anticipate that this Issue will have a material impact on its consolidated results of operations, cash flows or financial position.

      In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal use of the asset. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset. This additional carrying amount is then depreciated over the life of the asset. The liability increases due to the passage of time based on the time value of money until the obligation is settled. The Company adopted the provisions of SFAS No. 143 as of January 1, 2003. In accordance with the transition provisions of SFAS No. 143, the Company recorded a cumulative-effect adjustment of $17.4 million as a reduction in 2003 earnings.

     In May 2003, the EITF reached consensus in EITF Issue No. 01-08 (“EITF 01-08”), “Determining Whether an Arrangement Contains a Lease,” to clarify the requirements of identifying whether an arrangement should be accounted for as a lease at its inception. The guidance in the consensus is designed to mandate reporting revenue as rental or leasing income that otherwise would be reported as part of product sales or service revenue. EITF Issue No. 01-08 requires both parties to an arrangement to determine whether a service contract or similar arrangement is or includes a lease within the scope of SFAS No. 13, “Accounting for Leases.” The consensus is to be applied prospectively to arrangements agreed to, modified, or acquired in business combinations in fiscal periods beginning on July 1, 2003. The Company does not anticipate that the adoption of EITF Issue No. 01-08 will have ahad no material effect on itsthe Company’s consolidated results of operations, cash flows or financial position.

     Reclassifications-— Certain prior period amounts have been reclassified in the Consolidated Financial Statements and notes thereto to conform to the current period presentation. Included in the reclassified amounts are increases in both Sales of natural gas and petroleum products and in Purchases of natural gas and petroleum products in the amount of approximately $236 million for the quarter ended March 31, 2003. This reclassification resulted from intersegment trading activities being eliminated twice from the Consolidated Statements of Operations in the quarter ended March 31, 2003. Management has concluded that these reclassifications are not material to the fair presentation of the Company’s financial statements.

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3. Acquisitions and Dispositions

     In the first quarter of 2004, the Company sold gas gathering and processing plant assets in West Texas to a third party purchaser for a sales price of approximately $62 million. These assets comprised a component of the Company for purposes of reporting discontinued operations. All prior period operations have been revised to reflect these assets as discontinued operations.

     In the second quarter of 2003, the Company sold gathering, transmission and processing assets to two separate buyers for a combined sales price of approximately $90 million. These assets comprised a component of the Company for purposes of reporting discontinued operations. All prior period operations have been revised to reflect these assets as discontinued operations.

     The following table sets forth selected financial information associated with the assets discussed above which are accounted for as discontinued operations:

4. Derivative Instruments, Hedging Activities and Credit and Risk

Commodity price risk- The Company’s principal operations of gathering, processing, transportation, trading and marketing, and storage of natural gas, and the accompanying operations of fractionation, transportation, and trading and marketing of NGLs create commodity price risk exposure due to market fluctuations in commodity prices, primarily with respect to the prices of NGLs, natural gas and crude oil. As an owner and operator of natural gas processing and other midstream assets, the Company has an inherent exposure to market variables and commodity price risk. The amount and type of price risk is dependent on the underlying natural gas contracts entered into to purchase and process raw gas. Risk is also dependent on the types and mechanisms for sales of natural gas and NGLs products produced, processed, transported or stored.

Energy trading (market) risk- Certain of the Company’s subsidiaries are engaged in the business of trading energy related products and services including managing purchase and sales portfolios, storage contracts and facilities, and transportation commitments for products. These energy trading operations are exposed to market variables and commodity price risk with respect to these products and services, and may enter into physical contracts and financial instruments with the objective of realizing a positive margin from the purchase and sale of commodity-based instruments.

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Corporate economic risks— The Company enters into debt arrangements that are exposed to market risks related to changes in interest rates. The Company periodically uses interest rate lock agreements and interest rate swaps to hedge interest rate risk associated with debt. The Company’s primary goals include (1) maintaining an appropriate ratio of fixed-rate debt to total debt for the Company’s debt rating; (2) reducing volatility of earnings resulting from interest rate fluctuations; and (3) locking in attractive interest rates based on historical rates.

Counterparty risks —The Company sells various commodities (i.e., natural gas, NGLs and crude oil) to a variety of customers. The natural gas customers include local utilities, industrial consumers, independent power producers and merchant energy trading organizations. The NGLs customers range from large, multi-national petrochemical and refining companies to small regional retail propane distributors. Substantially all of the Company’s NGLs sales are made at market-based prices, including approximately 40% of NGLs production that is committed to ConocoPhillips and Chevron Phillips Chemical LLC, under a contract with a primary term that expires on January 1, 2015. This concentration of credit risk may affect the Company’s overall credit risk in that these customers may be similarly affected by changes in economic, regulatory or other factors. On transactions where the Company is exposed to credit risk, the Company analyzes the counterparties’ financial condition prior to entering into an agreement, establishes credit limits and monitors the appropriateness of these limits on an ongoing basis. The corporate credit policy prescribes the use of master collateral agreements to mitigate credit exposure. The collateral agreements provide for a counterparty to post cash or letters of credit for exposure in excess of the established threshold. The threshold amount represents an open credit limit, determined in accordance with the corporate credit policy. The collateral agreements also provide that the failure to post collateral is sufficient cause to terminate a contract and liquidate all positions.

      Physical forward contracts and financial derivatives are generally cash settled at the expiration of the contract term. These transactions are generally subject to specific credit provisions within the contracts that would allow the seller, at its discretion, to suspend deliveries, cancel agreements or continue deliveries to the buyer after the buyer provides security for payment satisfactory to the seller.

     Commodity cash flow hedges —The Company uses cash flow hedges, as specifically defined by SFAS No. 133, to reduce the potential negative impact that commodity price changes could have on the Company’s earnings and its ability to adequately plan for cash needed for debt service, dividends, capital expenditures and tax distributions. The Company’s primary corporate hedging goals include maintaining minimum cash flows to fund debt service, dividends, production replacement capital, maintenance projects and tax distributions; and retaining a high percentage of potential upside relating to price increases of NGLs.

     The Company uses natural gas, crude oil and NGLs swaps and options to hedge the impact of market fluctuations in the prices of NGLs, natural gas and other energy-related products. For the ninethree months ended September 30,March 31, 2004 and 2003, the Company recognized a net lossrecognition in the Consolidated Statements of $86.3Operations of the cumulative changes in the fair value of these hedge instruments reduced revenues by $19 million and $40 million, respectively. For the three months ended March 31, 2004 and 2003, the gains or losses representing the ineffective portion of which a $5.0 million gain represented the total ineffectiveness of allCompany’s’ cash flow hedges and a $91.3 million loss represented the total derivative settlements.were not material. No derivative gains or losses were reclassified from AOCI to current period earnings as a result of the discontinuance of cash flow hedges related to any forecasted transactions that are not probable of occurring.

     Gains and losses on derivative contracts that are reclassified from AOCI to current period earnings are included in the line item in which the hedged item is recorded. As of September 30, 2003, $31.7March 31, 2004, $28 million of the deferred net losses on derivative instruments in AOCI are expected to be reclassified into earnings duringthrough the next 12 monthsend of 2004 as the hedgehedged transactions occur; however, due to the volatility of the commodities markets, the corresponding value in AOCI is subject to change prior to its reclassification into earnings. The maximumremaining term over which the Company is currently hedging its exposure to the variability of future cash flows is three years.through the end of 2004.

     Commodity fair value hedges— The Company uses fair value hedges to hedge exposure to changes in the fair value of an asset or a liability (or an identified portion thereof) that is attributable to price risk. The Company hedgesmay hedge producer price locks (fixed price gas purchases) and market locks (fixed price gas sales) to reduce the Company’s exposure to fixed price risk via swapping out the fixed price risk for a floating price position (New York Mercantile Exchange or index based).

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     For the ninethree months ended September 30, 2003,March 31, 2004, the gains or losses representing the ineffective portion of the Company’s fair value hedges were not significant.material. All components of each derivative’s gain or loss are included in the assessment of hedge effectiveness, unless otherwise noted. The Company did not have any firm commitments that no longer qualified as fair value hedge items and therefore, did not recognize an associated gain or loss.

     Interest rate fair value hedges— In October 2001, the Company entered into an interest rate swap to convert the fixed interest rate$250 million of $250.0 million offixed-rate debt securities that were issued in August 2000 to floating rate debt. The interest rate fair value hedge is at a floating rate based on a six-month London Interbank Offered Rate (“LIBOR”), which is re-priced semiannually through 2005. In August 2003, the Company entered into two additional interest rate swaps to convert the fixed interest rate$100 million of $100.0 million offixed-rate debt securities issued on August 16, 2000 to floating rate debt. These interest rate fair value hedges are also at a floating rate based on six-month LIBOR, which is re-priced semiannually through 2030. The swaps meet conditions which permit the assumption of no ineffectiveness, as defined by SFAS No. 133. As such, for the life of the swaps no ineffectiveness will be recognized. As of September 30, 2003,March 31, 2004, the fair value of the interest rate swaps of $17.8was a $17 million wasasset, which is included in the Consolidated Balance Sheets as Unrealized Gainsgains or Losseslosses on Tradingmark-to-market and Hedging Transactionshedging transactions with an offset to the underlying debt included in Long Term Debt.term debt.

     Commodity Derivatives — Trading and Marketing— The trading and marketing of energy related products and services exposes the Company to the fluctuations in the market values of traded and marketed instruments. The Company manages its tradedtrading and marketed instrument portfoliosmarketing portfolio with strict policies which limit exposure to market risk and require daily reporting to management of potential financial exposure. These policies include statistical risk tolerance limits using historical price movements to calculate a daily valueearnings at risk measurement.

4.5. Asset Retirement Obligations

     In June 2001,The following table summarizes changes in the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or normal use of the asset. The Company’s asset retirement obligations relate primarily to the retirement of various gathering pipelines and processing facilities, obligations related to right-of-way easement agreements and contractual leases for land use.

      SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognizedfor the quarters ended March 31, 2004 and 2003, respectively.

6. Goodwill and Other Intangibles

     The changes in the period in which it is incurred, if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of goodwill for the associated asset. This additional carrying amount is then depreciated over the life of the asset. The liability increases due to the passage of time based on the time value of money until the obligation is settled.three months ended March 31, 2004 are as follows:

     The Company identified various assets as having an indeterminate life in accordance with SFAS No. 143, which do not trigger a requirement to establish a fair valueThere were no impairments of goodwill for future retirement obligations associated with such assets. These assets include certain pipelines, gathering systems and processing facilities. A liability for these asset retirement obligations will be recorded if and when a future retirement obligation is identified.the quarter ended March 31, 2004.

      SFAS No. 143 was effective for fiscal years beginning after June 15, 2002, and was adopted by the Company on January 1, 2003. At January 1, 2003, the implementation of SFAS No. 143 resulted in a net increase in total assets of $25.1 million, consisting of an increase in net property, plant and equipment. Long term liabilities increased by $42.5 million, which represents the establishment of an asset retirement obligation liability. A cumulative-effect of a change in accounting principle adjustment of $17.4 million was recorded in the first quarter of 2003, as a reduction in earnings.11

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     The gross carrying amount and accumulated amortization for commodity sales and purchases contracts are as follows:

     During each of the quarters ended March 31, 2004 and 2003, the Company recorded amortization expense associated with commodity sales and purchases contracts of $3 million. The following table shows the asset retirement obligation liability as though SFAS No. 143 had been in effectaverage remaining amortization period for these contracts is 6.8 years. Estimated amortization for these contracts for the prior three years.next five years is as follows:

      The asset retirement obligation is adjusted each quarter for any liabilities incurred or settled during the period, accretion expense and any revisions made to the estimated cash flows. The following table rolls forward the asset retirement obligation from the balance at December 31, 2002 to September 30, 2003.

5. Financing

     Credit Facility with Financial Institutions —On March 28, 2003,26, 2004, the Company entered into a new credit facility (the “Facility”). The Facility replaces the credit facility that matured on March 28, 2003.26, 2004. The Facility is used to support the Company’s commercial paper program and for working capital and other general corporate purposes. The Facility matures on March 26, 2004;25, 2005; however, any outstanding loansborrowings under the Facility at maturity may, at the Company’s option, be converted to a one-year term loan. The Facility is a $350.0$250 million revolving credit facility, all of which $100.0 million can be used for letters of credit. The Facility requires the Company to maintain at all times a debt to total capitalization ratio of less than or equal to 53%; and maintain at the end of each fiscal quarter an interest coverage ratio (defined to be the ratio of adjusted EBITDA, as defined by the Facility, for the four most recent quarters to interest expense for the same period) of at least 2.5 to 1 (adjusted EBITDA, asis defined by the Facility, is defined to be earnings before interest, taxes and depreciation and amortization and other adjustments); and contains various restrictions applicable to dividends and other payments to the Company’s members.. The Facility bears interest at a rate equal to, at the Company’s option and based on the Company’s current debt rating, either (1) LIBOR plus 1.25%1.125% per year or (2) the higher of (a) the JP Morgan Chase Bank prime rate plus 0.25%0.125% per year and (b) the Federal Funds rate plus 0.75%0.625% per year. At September 30, 2003,March 31, 2004, there were no borrowings or letters of credit drawn against the Facility.

     On March 28, 2003, the Company also entered into a $100.0$100 million funded short-term loan with a bank (the “Short-Term Loan”). The Short-Term Loan was used for working capital and other general corporate purposes. The Short-Term Loan matured oncontained an original maturity of September 30, 2003, andbut was able to be repaid at any time prior to that date. The Short-Term Loan had the same financial covenants as the Facility and bore interest at a rate equal to, at the Company’s option, either (1) LIBOR plus 1.35% per year or (2) the higher of (a) the bank’s prime rate and (b) the Federal Funds rate plus 0.50% per year. During the three months ended September 30,by August 2003 the Company repaid the entire Short-Term Loan with funds generated from asset sales and operations.

     On November 3, 2003, subsequent to the end of the third quarter, the Company executed a $32.0$32 million irrevocable standby letter of credit expiring on May 15, 2004 to be used to secure transaction exposure with a counterparty. As of March 31, 2004, this letter of credit was still in effect.

     In May 2003, the FASB issuedPreferred Financing –Upon adoption of SFAS No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 requires that certain financial instruments that could previously be accounted for as equity, be classified as liabilities in the balance sheets and initially recorded at fair value. Upon adoption on July 1, 2003, the Company reclassified its preferred members’ interest, which are mandatorily redeemable securities, of $200.0$200 million from mezzanine equity to long term debt. These mandatorily redeemable securities pay a cumulative preferential distribution of 9.5% per annum which are mandatorily payable semi-annually, unless deferred. These securities must be redeemed in cash no later than August 2030 or uponDuring 2003, subsequent to the Company’s consummation of an initial public

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offering of equity securities. During the third quarter of 2003,reclassification, the Company redeemed $125.0 million of these securities and the outstanding balance at September 30, 2003 is $75.0remaining $200 million. Beginning on July 1, 2003, accrued or paid distributions previously classified as dividends on these securitiesthe preferred members’ interest are prospectively classified as interest expense. Interest expense forin the three months ended September 30, 2003 on these securities was approximately $4.4 million.Consolidated Statements of Operations.

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8. Commitments and Contingent Liabilities

Litigation— The midstream industry has seen a number of class action lawsuits involving royalty disputes, mismeasurement and mispayment allegations. Although the industry has seen these types of cases before, they were typically brought by a single plaintiff or small group of plaintiffs. A number of these cases are now being brought as class actions. The Company and its subsidiaries are currently named as defendants in some of these cases. Management believes the Company and its subsidiaries have meritorious defenses to these cases, and therefore will continue to defend them vigorously. However, these class actions can be costly and time consuming to defend. Management believes that, the final disposition ofbased on currently known information, these proceedings will not have a material adverse effect on the consolidated results of operations, or financial position or cash flows of the Company.

7.General Insurance— The Company carries insurance coverage, with an affiliate of Duke Energy, that management believes is consistent with companies engaged in similar commercial operations with similar type properties. The Company’s insurance coverage includes (1) commercial general public liability insurance for liabilities arising to third parties for bodily injury and property damage resulting from our operations; (2) workers’ compensation liability coverage to required statutory limits; (3) automobile liability insurance for all owned, non-owned and hired vehicles covering liabilities to third parties for bodily injury and property damage, and (4) property insurance covering the replacement value of all real and personal property damage, excluding electric transmission and distribution lines, including damages arising from boiler and machinery breakdowns, earthquake, flood damage and business interruption/extra expense. All coverages are subject to certain deductibles, terms and conditions common for companies with similar types of operations.

     The Company also maintains excess liability insurance coverage above the established primary limits for commercial general liability and automobile liability insurance. Limits, terms, conditions and deductibles are comparable to those carried by other energy companies of similar size. The cost of the Company’s general insurance coverages continued to fluctuate over the past year reflecting the changing conditions of the insurance markets.

Environmental- The operation of pipelines, plants and other facilities for gathering, transporting, processing, treating, or storing natural gas, NGLs and other products is subject to stringent and complex laws and regulations pertaining to health, safety and the environment. As an owner or operator of these facilities, we must comply with United States and Canadian laws and regulations at the federal, state and local levels that relate to air and water quality, hazardous and solid waste management and disposal, and other environmental matters. The cost of planning, designing, constructing and operating pipelines, plants, and other facilities must incorporate compliance with environmental laws and regulations and safety standards. Failure to comply with these laws and regulations may trigger a variety of administrative, civil and potentially criminal enforcement measures, including citizen suits, which can include the assessment of monetary penalties, the imposition of remedial requirements, the issuance of injunctions or restrictions on operation. Management believes that, based on currently known information, compliance with these laws and regulations will not have a material adverse effect on the consolidated results of operations, financial position or cash flows of the Company.

Severance Program— On October 30, 2003, the Company communicated a company-wide voluntary and involuntary severance program to its employees to reduce approximately 6% of the Company’s workforce. The plan was completed on December 8, 2003 and includes the reduction of 160 employees over the period of December 2003 to June 2004. The severance liability that was recorded in the fourth quarter of 2003 was $6 million at December 31, 2003. Approximately $4 million of the accrued severance payouts were paid in the first quarter of 2004. Included in General and administrative expense in the Consolidated Statement of Operations during the first quarter of 2004, the Company expensed an additional $1 million related to this severance program, and any remaining expense, which is not considered significant, will be recognized in the second quarter of 2004, the remaining future service period.

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9. Business Segments

     The Company operates in two principal business segments as follows:segments:

     (1) natural gas gathering, compression, treatment, processing, transportation and storage, from which the Company generates revenues primarily by providing services such as compression, gathering, treating, processing, transportation of residue gas, storage and trading and marketing and storage (“Natural(the “Natural Gas Segment”), and

     (2) NGLs fractionation, transportation, marketing and trading, from which the Company generates revenues from transportation fees, market center fractionation and the marketing (“and trading of NGLs (the “NGLs Segment”).

     Intersegment activity is primarily related to the sale of NGLs from the Natural Gas Segment to the NGLs Segment at market based transfer prices.

     These segments are monitored separately by management for performance against its internal forecast and are consistent with the Company’s internal financial reporting. These segments have been identified based on the differing products and services, regulatory environment and the expertise required for these operations. The following table includes the components of theMargin is a performance measures usedmeasure utilized by management to monitor the business of each segment. The accounting policies for the segments are the same as those described in Note 2. Foreign operations are not material and are therefore not separately identified.

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     The following table sets forth the Company’s segment information.

     Three months ended March 31, 2004 (millions):