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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 15, 1999
LAKEHEAD PIPE LINE COMPANY, LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
DELAWARE 333-59597 39-1715851
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
LAKE SUPERIOR PLACE, 21 WEST SUPERIOR STREET, DULUTH, MN 55802-2067
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (218) 725-0100
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ITEM 5. OTHER EVENTS
The Consolidated Statement of Financial Position of Lakehead Pipe Line
Company, Inc., at December 31, 1998 and 1997 has been prepared and is included
as Exhibit 99.1 to this Form 8-K. Lakehead Pipe Line Company, Inc., is the
General Partner of Lakehead Pipe Line Partners, L.P., and Lakehead Pipe Line
Company, Limited Partnership.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
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Exhibit No. Description
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<S> <C>
99.1 Consolidated Statement of Financial Position of Lakehead Pipe Line Company, Inc. at December 31,
1998 and 1997, together with Report of Independent Public Accountants.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
LAKEHEAD PIPE LINE COMPANY, LIMITED PARTNERSHIP
(registrant)
By: Lakehead Pipe Line Company, Inc.
as General Partner
--------------------------------------
M. A. Maki
Chief Accountant
(Principal Financial and Accounting
Officer)
Date: April 15, 1999
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EXHIBIT 99.1
LAKEHEAD PIPE LINE COMPANY, INC.
--------------------------------
(A WHOLLY OWNED SUBSIDIARY OF ENBRIDGE PIPELINES INC.)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
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DECEMBER 31, 1998 AND 1997
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and
Board of Directors of
Lakehead Pipe Line Company, Inc.
In our opinion, the accompanying consolidated statement of financial position,
presents fairly, in all material respects, the financial position of Lakehead
Pipe Line Company, Inc. (a wholly owned subsidiary of Enbridge Pipelines Inc.)
and its subsidiaries at December 31, 1998 and 1997 in conformity with generally
accepted accounting principles. This financial statement is the responsibility
of the Company's management; our responsibility is to express an opinion on this
financial statement based on our audit. We conducted our audit of this statement
in accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statement is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statement, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
January 8, 1999
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LAKEHEAD PIPE LINE COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF ENBRIDGE PIPELINES INC.)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
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(UNITED STATES DOLLARS IN MILLIONS)
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December 31, 1998 1997
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ASSETS
Current Assets
Cash $ 0.6 $ 0.2
Accounts receivable 4.7 2.8
Loans to affiliated companies (Note 7) 35.5 13.7
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40.8 16.7
Loans to Affiliated Companies (Note 7) 457.8 198.6
Investment in Master Limited Partnership (Note 3) 44.2 42.0
Investment in Frontier Pipeline Company (Note 4) 8.8 6.5
Deferred Charges and Other 8.0 4.8
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$ 559.6 $ 268.6
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LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable and other $ 4.8 $ 1.7
Income and other taxes 1.9 2.2
Loans from affiliated companies (Note 7) - 6.5
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6.7 10.4
Long-term Debt (Note 5) 259.2 -
Other Long-term Liabilities 2.0 -
Deferred Income Taxes 142.1 144.1
Minority Interest (Note 2) 0.3 0.2
Contingencies (Note 8)
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410.3 154.7
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Shareholder's Equity
Common stock
Authorized - 500,000 shares, at $50 par value each
Issued - 400,000 shares 20.0 20.0
Contributed surplus 6.6 6.6
Retained earnings 122.7 87.3
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149.3 113.9
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$ 559.6 $ 268.6
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The accompanying notes to the consolidated financial statement are an integral
part of this statement.
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LAKEHEAD PIPE LINE COMPANY, INC.
(A WHOLLY OWNED SUBSIDIARY OF ENBRIDGE PIPELINES INC.)
NOTES TO THE 1998 AND 1997 CONSOLIDATED STATEMENT
OF FINANCIAL POSITION
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(UNITED STATES DOLLARS IN MILLIONS)
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1. NATURE OF OPERATIONS
Lakehead Pipe Line Company, Inc. ("Company") is the general partner of Lakehead
Pipe Line Partners, L.P. and Lakehead Pipe Line Company, Limited Partnership,
collectively known as the "Partnership". As the sole general partner, the
Company is responsible for management and operation of the Partnership.
Consolidated subsidiaries primarily engage in investment and lending activities.
The Company is owned by Enbridge Pipelines Inc. ("Enbridge Pipelines") (formerly
Interprovincial Pipe Line Inc.), a Canadian corporation owned by Enbridge Inc.
("Enbridge") (formerly IPL Energy Inc.) of Calgary, Alberta, Canada.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated statement of financial position of the Company is prepared in
accordance with generally accepted accounting principles in the United States
which requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and related disclosures.
PRINCIPLES OF CONSOLIDATION
The consolidated statement of financial position includes the accounts of the
Company, its wholly owned subsidiaries, IPL Energy Finance Company ("Finance
Co."), IPL Energy (Atlantic) Inc., LPL Financial Inc., Enbridge Holdings
(Frontier) Inc. (formerly IPL Frontier Holdings (U.S.A.) Inc.), Westcoast Oil &
Gas Corp. and LPL Commerce (Cayman) Inc., and its 99% limited partner interest
in Lakehead Services, Limited Partnership ("Services Partnership"). The 1%
general partner interest in the Services Partnership is accounted for as a
minority interest. The equity method is used to account for the effective 2%
general partner and 14.6% limited partner interest in the Partnership and a
43.75% partnership interest in Frontier Pipeline Company ("Frontier") because
the Company significantly influences their operations. The Partnership and
Frontier are not consolidated due to the absence of majority ownership and
control by the Company. Although the Company is the sole general partner of the
Partnership, the partnership agreement provides unaffiliated limited partners
with important voting rights with respect to the Partnership's operations and
the Company's continued existence as its general partner.
DEFERRED INCOME TAXES
Deferred income taxes are accounted for using the liability method. Under this
method, deferred income taxes reflect the impact of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations. These deferred income
taxes are measured by applying currently enacted tax laws.
COMPARATIVE AMOUNTS
Certain comparative amounts are reclassified to conform with the current year's
financial statement presentation.
OFF BALANCE SHEET FINANCIAL INSTRUMENTS
Gains and losses on financial instruments used to hedge the Company's tax
exposure to foreign exchange fluctuations upon repayment of the Canadian dollar
denominated debt are deferred and recognized concurrently with the related tax
expense.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The Company's functional currency for its foreign subsidiaries is the Canadian
dollar. Assets and liabilities are translated into U.S. dollars using the
exchange rate on the balance sheet date, except non-monetary items which are
translated on a historical basis.
3. INVESTMENT IN MASTER LIMITED PARTNERSHIP
On December 27, 1991, the Company transferred substantially all of its assets
and liabilities related to its pipeline business to the Partnership, a Delaware
Master Limited Partnership. The Company has an effective 2% general partner and
14.6% limited partner interest in the Partnership.
The assets, liabilities and partners' capital of the Partnership are summarized
below:
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DECEMBER 31, 1998 1997
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Current assets $ 111.3 $ 208.5
Deferred charges and other 6.9 4.4
Property, plant and equipment, net 1,296.2 850.3
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$ 1,414.4 $ 1,063.2
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Current liabilities $ 102.3 $ 69.8
Long-term debt 814.5 463.0
Accrued rate refunds and related interest - 26.1
Minority interest 2.6 2.5
Partners' capital 495.0 501.8
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$ 1,414.4 $ 1,063.2
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4. FRONTIER PIPELINE COMPANY
Frontier is a Wyoming general partnership, which owns and operates a 290-mile
crude oil pipeline in Utah and Wyoming. Following the February 1, 1997
acquisition of an additional 8.75% interest in Frontier for $3.2 million, the
Company now holds a 43.75% general partner interest and is required to support
Frontier's financial obligations to this extent.
5. DEBT
LONG-TERM DEBT
On October 13, 1998, Finance Co. borrowed Canadian $400.0 million under a
committed extendible credit facility. The debt matures on October 13, 2004 and
can be extended a further 364 days based upon an annual request. The interest
rate is 5.7% and will be reset quarterly based upon the Canadian dollar
three-month LIBOR rate plus 32.5 basis points. The U.S. dollar equivalent of the
debt at December 31, 1998 is $259.2 million. This credit facility is guaranteed
by Enbridge.
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5. DEBT (CONTINUED)
REVOLVING CREDIT FACILITY AGREEMENT
The Services Partnership has a $350.0 million ($205.0 million prior to June 18,
1998) Revolving Credit Facility Agreement scheduled to mature during September
2003, but is subject to extension. Each year, on the anniversary date of the
facility, the current maturity date may be extended by one year subject to the
approval of the lending banks. Under the terms of the facility, the Services
Partnership and the Partnership may draw down funds up to a combined maximum
amount of $350.0 million. The Partnership is entitled to require the Services
Partnership to repay amounts owed by the Services Partnership in order to allow
the Partnership to borrow thereunder. Upon drawdown by the Services Partnership,
the loans are collateralized with U.S. or Canadian government securities. At
December 31, 1998, $305.0 million (1997 - $153.0 million) of the facility was
utilized by the Partnership and none (1997 - $52.0 million) was utilized by the
Services Partnership. The facility provides for borrowing at variable interest
rates and contains various restrictive covenants applicable to the Services
Partnership, including restrictions on the incurrence of certain other
indebtedness and liens, mergers and investments.
In conjunction with its borrowings under this facility during 1991, the Services
Partnership had irrevocably placed U.S. government securities in a trust to be
used solely for satisfying its scheduled payments of both interest and principal
on these borrowings. This transaction had been recognized as an in-substance
defeasance and the debt was considered to be extinguished. During 1998, the
scheduled payments of interest and principal were fully extinguished by the
trust. The remaining trust assets of $4.1 million were distributed to the
Services Partnership.
6. INCOME TAXES
Deferred income tax liabilities of $142.1 million at December 31, 1998 (1997 -
$144.1 million) have arisen principally as a result of the gain deferral, for
income tax purposes, on the transfer of assets to the Partnership.
7. RELATED PARTY TRANSACTIONS
At December 31, 1998, accounts receivable includes $0.4 million (1997 - $2.0
million) from the Partnership and $4.2 million from affiliated companies.
Accounts payable at December 31, 1998 includes $0.6 million (1997 - $1.2
million) to an affiliated company.
During October 1998, Enbridge Pipelines issued a Canadian dollar denominated
note to the Company for $400.0 million. The note matures on October 13, 1999 and
can be extended upon request. The interest rate is 6.04% and will be reset
quarterly based upon the Canadian three-month LIBOR rate plus 66.5 basis points.
The U.S. dollar equivalent of the note at December 31, 1998 is $259.2 million.
At December 31, 1996, the Company had Canadian dollar denominated short-term
loans outstanding to Enbridge of Canadian $265.2 million, with a U.S. dollar
equivalent of $193.6 million. These short-term loans had interest rates ranging
from 3.32% to 6.38%. As these loans matured during August 1997, they were
converted to a 15-year U.S. dollar denominated long-term loan. At December 31,
1998 and December 31, 1997, the amount outstanding for the long-term loan to
Enbridge was $198.6 million due to mature on August 22, 2012. The interest rate
on the loan is 8.0% per annum, payable semi-annually.
During the third quarter of 1998, the Company approved a $200.0 million
uncommitted lending facility to the Partnership to provide an alternative
source of funds in the event that a temporary disruption in the capital markets
delays anticipated Partnership debt and equity issuances. Under this facility,
in late September 1998, the Partnership borrowed $37.0 million at an interest
rate of 8.75%. This loan was repaid in early October.
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7. RELATED PARTY TRANSACTIONS (CONTINUED)
At December 31, 1997, the Company had short-term loans outstanding from Enbridge
of $6.5 million. These demand loans carried an interest rate of 8.0% and were
repaid during 1998.
From time to time, the Company makes demand loans to various affiliated
companies. Generally, these short-term demand loans bear interest at 130% of the
monthly short-term applicable federal rate. During 1998, the interest on these
demand loans averaged 6.70% (1997 - 7.43%).
Loan balances at December 31, are as follows:
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12/31/98
CURRENCY RATE MATURITY 1998 1997
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Loans to Affiliated Companies:
Enbridge Pipelines Canadian 6.0% 1999 $ 259.2 $ -
Enbridge USD 8.0% 2012 198.6 198.6
Enbridge USD 5.5% Demand 10.2 -
Enbridge (U.S.) Inc. USD 5.5% Demand 23.1 13.0
Enbridge Pipelines (Toledo) Inc. USD 5.5% Demand 1.8 0.1
Enbridge (Pennsylvania) Inc. USD 5.5% Demand 0.4 -
Enbridge Holdings (Mustang) Inc. USD Demand - 0.6
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493.3 212.3
Current Portion (35.5) (13.7)
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$ 457.8 $ 198.6
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8. CONTINGENCIES
In connection with the transfer of its pipeline business to the Partnership, the
Company will indemnify the Partnership from and against substantially all
liabilities, including liabilities relating to environmental matters, arising
from operations prior to the transfer. This indemnification does not apply to
amounts that the Partnership would be able to recover in its tariff rates (if
not recovered through insurance), or to any liabilities relating to a change in
laws after December 27, 1991. In addition, in the event of default, the Company,
as sole general partner, is subject to recourse with respect to the
Partnership's First Mortgage Notes and Revolving Credit Facility Agreement which
amounted to $615.0 million at December 31, 1998 (1997 - $463.0 million).
9. FINANCIAL INSTRUMENTS
Based on the lending and borrowing rates currently available for instruments
with similar terms and the same remaining maturities, the carrying amount of the
intercompany advances and loans approximate fair value.
Based on quoted market prices for the Partnership's publicly held Class A Common
Units as at December 31, 1998, the fair value of the Company's 16.6% ownership
of the Partnership, which is carried at $44.2 million (1997 - $42.0 million), is
estimated to be approximately $215.7 million (1997 - $194.3 million). This
method values the general partner interest (2%) on the same basis as the limited
partner's interest, and does not attribute any value to the General Partner's
right to receive incentive distributions.
The Company has financial instruments denominated in Canadian dollars at
December 31, 1998 that have exposure to fluctuations in exchange rates.
Accordingly, the Company enters into foreign exchange contracts with major
financial institutions to offset the impact of U.S. income taxes on gains and
losses arising from the translation of these financial instruments. At December
31, 1998, the Company had foreign exchange contracts, maturing on October 13,
2003, to sell Canadian $234.6 million dollars for a contracted amount of $150.0
million. Based on quoted market prices at December 31, 1998, the Company would
have received foreign exchange contracts with similar terms and remaining
maturities at approximately $153 million, resulting in a fair value foreign
exchange contract liability of $3 million.
