UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
Commission File Number 333-88577
NORTHERN BORDER PIPELINE COMPANY
(Exact name of registrant as specified in its charter)
Texas 74-2684967
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1111 South 103rd Street
Omaha, Nebraska 68124-1000
(Address of principal executive (Zip code)
offices)
(402) 398-7700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
1 of 14
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NORTHERN BORDER PIPELINE COMPANY
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Statement of Income -
Three Months Ended March 31, 2000 and 1999 3
Balance Sheet - March 31, 2000
and December 31, 1999 4
Statement of Cash Flows -
Three Months Ended March 31, 2000 and 1999 5
Statement of Changes in Partners' Capital -
Three Months Ended March 31, 2000 6
Notes to Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk 12
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 13
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<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NORTHERN BORDER PIPELINE COMPANY
STATEMENT OF INCOME
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
OPERATING REVENUES, NET $76,241 $73,635
OPERATING EXPENSES
Operations and maintenance 9,055 9,102
Depreciation and amortization 14,837 12,785
Taxes other than income 7,721 7,477
Operating expenses 31,613 29,364
OPERATING INCOME 44,628 44,271
INTEREST EXPENSE 16,289 14,399
OTHER INCOME 405 443
NET INCOME TO PARTNERS $28,744 $30,315
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
NORTHERN BORDER PIPELINE COMPANY
BALANCE SHEET
(In Thousands)
(Unaudited)
<CAPTION>
March 31, December 31,
ASSETS 2000 1999
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 39,398 $ 17,310
Accounts receivable 32,684 27,049
Materials and supplies, at cost 5,002 3,645
Under recovered cost of service 733 3,068
Total current assets 77,817 51,072
NATURAL GAS TRANSMISSION PLANT
Property, plant and equipment 2,364,341 2,368,021
Less: Accumulated provision for
depreciation and amortization 650,709 636,627
Property, plant and equipment, net 1,713,632 1,731,394
OTHER ASSETS 13,987 14,225
Total assets $1,805,436 $1,796,691
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Current maturities of long-term debt $ 66,000 $ 66,000
Accounts payable 1,976 5,588
Accrued taxes other than income 28,327 26,290
Accrued interest 7,564 16,504
Accumulated provision for rate refunds 9,233 2,317
Total current liabilities 113,100 116,699
LONG-TERM DEBT, NET OF CURRENT MATURITIES 849,161 834,459
RESERVES AND DEFERRED CREDITS 10,468 10,698
PARTNERS' CAPITAL 832,707 834,835
Total liabilities and partners' capital $1,805,436 $1,796,691
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
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<TABLE>
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
NORTHERN BORDER PIPELINE COMPANY
STATEMENT OF CASH FLOWS
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income to partners $ 28,744 $ 30,315
Adjustments to reconcile net income to partners
to net cash provided by operating activities:
Depreciation and amortization 14,889 12,788
Provision for rate refunds 6,916 --
Changes in components of working capital (11,649) (5,894)
Other (462) 75
Total adjustments 9,694 6,969
Net cash provided by operating activities 38,438 37,284
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property, plant
and equipment (377) (57,261)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Partners (30,872) (38,015)
Issuance of long-term debt 15,000 65,000
Long-term debt financing costs (101) --
Net cash provided by (used in)
financing activities (15,973) 26,985
NET CHANGE IN CASH AND CASH EQUIVALENTS 22,088 7,008
Cash and cash equivalents-beginning of period 17,310 37,389
Cash and cash equivalents-end of period $ 39,398 $ 44,397
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest (net of amount capitalized) $ 25,415 $ 18,540
Changes in components of working capital:
Accounts receivable $ (5,635) $ (8,160)
Materials and supplies (1,357) 451
Under recovered cost of service 2,335 3,290
Accounts payable (89) 541
Accrued taxes other than income 2,037 2,217
Accrued interest (8,940) (4,233)
Total $(11,649) $ (5,894)
<FN>
The accompanying notes are an integral part of these financial
statements.
</TABLE>
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<TABLE>
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
NORTHERN BORDER PIPELINE COMPANY
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(In Thousands)
(Unaudited)
<CAPTION>
TC Northern
PipeLines Border
Intermediate Intermediate Total
Limited Limited Partners'
Partnership Partnership Capital
<S> <C> <C> <C>
Partners' Capital at December 31, 1999 $250,450 $584,385 $834,835
Net income to partners 8,623 20,121 28,744
Distributions to partners (9,261) (21,611) (30,872)
Partners' Capital at March 31, 2000 $249,812 $582,895 $832,707
<FN>
The accompanying notes are an integral part of this financial
statement.
</TABLE>
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PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
NORTHERN BORDER PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. The financial statements included herein have been prepared by
Northern Border Pipeline Company ("Northern Border Pipeline")
without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they reflect
all adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial results for
the interim periods. Certain information and notes normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. However,
Northern Border Pipeline believes that the disclosures are
adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the
financial statements and the notes thereto included in Northern
Border Pipeline's Annual Report on Form 10-K for the year ended
December 31, 1999.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. In October 1998, Northern Border Pipeline filed a certificate
application with the Federal Energy Regulatory Commission
("FERC") to seek approval to expand and extend its pipeline
system into Indiana ("Project 2000"). When completed, Project
2000 would afford shippers on the expanded and extended pipeline
system access to industrial gas consumers in northern Indiana.
The certificate application was subsequently amended by Northern
Border Pipeline in March and December 1999. On March 16, 2000,
the FERC issued an order granting Northern Border Pipeline's
application for a certificate to construct and operate the
proposed facilities. The FERC approved Northern Border
Pipeline's request for rolled-in rate treatment based upon the
proposed project costs. Upon completion of acquisition of
necessary right-of-way, permits and equipment, construction will
proceed. The capital expenditures for Project 2000 are estimated
to be approximately $94 million.
3. Northern Border Pipeline filed a rate proceeding with the FERC
in May 1999 for, among other things, a redetermination of its
allowed equity rate of return. The total annual cost of service
increase due to Northern Border Pipeline's proposed changes is
approximately $30 million. A number of Northern Border
Pipeline's shippers and competing pipelines have filed
interventions and protests. In June 1999, the FERC issued an
order in which the proposed changes were suspended until December
1, 1999, after which the proposed changes were implemented with
subsequent billings subject to refund. For the three months
ended March 31, 2000, Northern Border Pipeline recorded a $6.9
million provision for rate refunds, which is netted against
operating revenues on the statement of income. The June order
and a subsequent clarification issued by the FERC in August 1999
set for hearing not only Northern Border Pipeline's proposed
changes but also several issues raised by intervenors including
the appropriateness of Northern Border Pipeline's cost of service
tariff; rolled-in rate treatment of The Chicago Project, which
was Northern Border Pipeline's expansion and extension project
placed in service in December 1998; capital project cost
containment mechanism ("PCCM") amount recorded for The Chicago
Project; depreciation schedule and creditworthiness standards. A
procedural schedule has been established which provides for the
hearing to commence in July 2000. At this time, Northern Border
Pipeline can give no assurance as to the outcome on any of these
issues.
As agreed to in a prior rate case settlement, the PCCM was
implemented to limit Northern Border Pipeline's ability to
include cost overruns on The Chicago Project in rate base and to
provide incentives for cost underruns. The PCCM amount is
computed by comparing the final cost of The Chicago Project to
the budgeted cost, adjusted for the effects of inflation and
project scope changes as defined in the prior rate case
settlement. Testimony filed by the FERC staff and intervenors in
the current rate case proceeding has proposed changes to the PCCM
computation, which would result in rate base reductions ranging
from $32 million to $43 million. Although Northern Border
Pipeline believes the PCCM computation has been made in
accordance with the terms of the prior rate case settlement, it
is unable to predict at this time whether any adjustments will be
required. Should developments in the current rate case result in
rate base reductions, a non-cash charge to write down
transmission plant would result and such charge could be material
to the operating results of Northern Border Pipeline.
4. Income taxes are the responsibility of the partners and are
not reflected in these financial statements. However, the
Northern Border Pipeline FERC tariff establishes the method of
accounting for and calculating income taxes and requires Northern
Border Pipeline to reflect in its cost of service the income
taxes that would have been paid or accrued if Northern Border
Pipeline were organized during the period as a corporation. As a
result, for purposes of calculating the return allowed by the
FERC, partners' capital and rate base are reduced by the amount
equivalent to the net accumulated deferred income taxes. Such
amounts were approximately $319 million and $316 million at
March 31, 2000 and December 31, 1999, respectively, and are
primarily related to accelerated depreciation and other plant-
related differences.
5. Northern Border Pipeline makes distributions to its general
partners approximately one month following the end of the
quarter. The distribution computed for the first quarter of 2000
of approximately $33.5 million was paid May 2, 2000.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NORTHERN BORDER PIPELINE COMPANY
Results of Operations
Northern Border Pipeline Company's ("Northern Border
Pipeline") revenue is derived from agreements with various
shippers for the transportation of natural gas. It transports
gas under a Federal Energy Regulatory Commission ("FERC")
regulated tariff that provides an opportunity to recover all of
the operations and maintenance costs of the pipeline, taxes other
than income taxes, interest, depreciation and amortization, an
allowance for income taxes and a regulated return on equity.
Northern Border Pipeline is generally allowed to collect from its
shippers a return on regulated rate base as well as recover that
rate base through depreciation and amortization. The return
amount Northern Border Pipeline may collect from its shippers
declines as the rate base is recovered. Billings for the firm
transportation agreements are based on contracted volumes to
determine the allocable share of the cost of service and are not
dependent upon the percentage of available capacity actually
used.
First Quarter 2000 Compared With First Quarter 1999
Operating revenues, net increased $2.6 million (4%) for the
first quarter of 2000, as compared to the same period in 1999,
due primarily to recovery of increased depreciation and
amortization expense and interest expense.
Depreciation and amortization expense increased $2.1 million
(16%) for the first quarter of 2000, as compared to the same
period in 1999, due primarily to an increase in the depreciation
rate applied to transmission plant from 2.0% to 2.3%. The
increase in the depreciation rate was approved as part of a
previous rate case settlement.
Interest expense increased $1.9 million (13%) for the first
quarter of 2000, as compared to the same period in 1999, due
primarily to an increase in interest rates between 1999 and 2000.
Liquidity and Capital Resources
General
In August 1999, Northern Border Pipeline completed a private
offering of $200 million of 7.75% Senior Notes due 2009, which
notes were subsequently exchanged in a registered offering for
notes with substantially identical terms ("Senior Notes"). The
proceeds from the Senior Notes were used to reduce indebtedness
under a June 1997 credit agreement.
In June 1997, Northern Border Pipeline entered into a credit
agreement ("Pipeline Credit Agreement") with certain financial
institutions. The Pipeline Credit Agreement is comprised of a
term loan and a $200 million five-year revolving credit facility,
both maturing in June 2002. At March 31, 2000, $439.0 million
was outstanding under the term loan and $15.0 million was
outstanding under the five-year revolving credit facility.
At March 31, 2000, Northern Border Pipeline also had
outstanding $250 million of senior notes issued in a private
placement under a July 1992 note purchase agreement. The note
purchase agreement provides for four series of notes, Series A
through D, maturing between August 2000 and August 2003. The
Series A Notes with a principal amount of $66 million mature in
August 2000. Northern Border Pipeline anticipates borrowing on
the revolving credit facility to repay the Series A Notes.
Short-term liquidity needs will be met by internal sources and
through the revolving credit facility discussed above. Long-term
capital needs may be met through the ability to issue long-term
indebtedness.
Cash Flows From Operating Activities
Cash flows provided by operating activities increased $1.2
million to $38.4 million for the first quarter of 2000, as
compared to the same period in 1999, primarily due to recovery of
increased depreciation and amortization expense and the billings
collected subject to refund related to Northern Border Pipeline's
current rate proceeding (see Note 3 - Notes to Financial
Statements). These increases were partially offset by a
reduction in working capital primarily due to a decrease in
accrued interest. Interest on the Senior Notes is payable semi-
annually in March and September.
Cash Flows From Investing Activities
Capital expenditures of $0.4 million for the first quarter of
2000 are primarily related to Project 2000 (see Note 2 - Notes to
Financial Statements). For the comparable period in 1999,
capital expenditures were $57.3 million and included $51.9 for
The Chicago Project, which was Northern Border Pipeline's
expansion and extension project placed in service in December
1998. The remaining capital expenditures for 1999 were primarily
related to renewals and replacements of existing facilities.
Total capital expenditures for 2000 are estimated to be $27
million, including $15 million for Project 2000. The remaining
capital expenditures planned for 2000 are for renewals and
replacements of existing facilities. Northern Border Pipeline
currently anticipates funding its 2000 capital expenditures
primarily by using internal sources and borrowing on the
revolving credit facility.
Cash Flows From Financing Activities
Cash flows used in financing activities were $16.0 million for
the first quarter of 2000 as compared to cash flows provided by
financing activities of $27.0 million for the first quarter of
1999. Distributions paid to the general partners decreased $7.1
million to $30.9 million for the first quarter of 2000 as
compared to the same period of 1999. The distribution for 1999
included distributions for four months activity, rather than
three months, resulting from a change in the timing of
distribution payments. Borrowings under the Pipeline Credit
Agreement decreased $50 million for the first quarter of 2000 as
compared to the same period in 1999. Borrowings in 1999 were
used to finance a portion of the capital expenditures for The
Chicago Project.
Information Regarding Forward Looking Statements
The statements in this Quarterly Report that are not
historical information are forward looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Such forward looking
statements include the discussions in "Management's Discussion
and Analysis of Financial Condition and Results of Operations"
and in "Notes to Financial Statements" regarding Northern Border
Pipeline's efforts to pursue opportunities to further increase
its capacity. Although Northern Border Pipeline believes that
its expectations regarding future events are based on reasonable
assumptions within the bounds of its knowledge of its business,
it can give no assurance that its goals will be achieved or that
its expectations regarding future developments will be realized.
Important factors that could cause actual results to differ
materially from those in the forward looking statements herein
include industry results, future demand for natural gas,
availability of supplies of Canadian natural gas, political and
regulatory developments that impact FERC proceedings involving
Northern Border Pipeline, Northern Border Pipeline's success in
sustaining its positions in such proceedings or the success of
intervenors in opposing Northern Border Pipeline's positions,
Northern Border Pipeline's ability to replace its rate base as it
is depreciated and amortized, competitive developments by
Canadian and U.S. natural gas transmission peers, political and
regulatory developments in Canada, and conditions of the capital
markets and equity markets.
<PAGE>
PART I. FINANCIAL INFORMATION - (Concluded)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
NORTHERN BORDER PIPELINE COMPANY
Northern Border Pipeline's interest rate exposure results from
its variable rate borrowings from commercial banks. To mitigate
potential fluctuations in interest rates, Northern Border
Pipeline maintains a significant portion of its debt portfolio in
fixed rate debt. Northern Border Pipeline also uses interest
rate swap agreements to manage the portion of its fixed rate
debt. Since December 31, 1999, there has not been any material
change to Northern Border Pipeline's interest rate exposure.
<PAGE>
PART II. OTHER INFORMATION
NORTHERN BORDER PIPELINE COMPANY
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
NORTHERN BORDER PIPELINE COMPANY
(A Texas General Partnership)
Date: May 12, 2000 By:JERRY L. PETERS
Jerry L. Peters
Vice President, Finance and
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 0
<SECURITIES> 39,398
<RECEIVABLES> 32,684
<ALLOWANCES> 0
<INVENTORY> 5,002
<CURRENT-ASSETS> 77,817
<PP&E> 2,364,341
<DEPRECIATION> 650,709
<TOTAL-ASSETS> 1,805,436
<CURRENT-LIABILITIES> 113,100
<BONDS> 849,161
0
0
<COMMON> 0
<OTHER-SE> 832,707
<TOTAL-LIABILITY-AND-EQUITY> 1,805,436
<SALES> 0
<TOTAL-REVENUES> 76,241
<CGS> 0
<TOTAL-COSTS> 31,613
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,289
<INCOME-PRETAX> 28,744
<INCOME-TAX> 0
<INCOME-CONTINUING> 28,744
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,744
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
