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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): September 25, 1997
LAKEHEAD PIPE LINE PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 1-10934 39-1715850
(State or other jurisdiction (Commission File No.) (I.R.S. Employer
of incorporation) Identification No.)
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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, 1996 and 1995 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.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits:
Exhibit No. Description
- ----------- -----------
99.1 Consolidated Statement of Financial Position of Lakehead Pipe
Line Company, Inc. at December 31, 1996 and 1995, 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 PARTNERS, L.P.
(Registrant)
By: Lakehead Pipe Line Company, Inc.
as General Partner
/s/ M. A. Maki
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M. A. Maki
Chief Accountant
(Principal Financial and
Accounting Officer)
Date: September 25, 1997
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Exhibit 99.1
Report of Independent Accountants
January 13, 1997
To the Shareholder and
Board of Directors of
Lakehead Pipe Line Company, Inc.
In our opinion, the accompanying balance sheet presents fairly, in all material
respects, the financial position of Lakehead Pipe Line Company, Inc. (a wholly
owned subsidiary of Interprovincial Pipe Line Inc.) and its subsidiaries at
December 31, 1996 and 1995 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 audits in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Minneapolis, Minnesota
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LAKEHEAD PIPE LINE COMPANY, INC.
(a wholly owned subsidiary of Interprovincial Pipe Line Inc.)
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(United States dollars in millions)
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December 31,
1996 1995
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ASSETS
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Current Assets:
Cash and cash equivalents....................................................... $ 1.7 $ 1.0
Accounts receivable............................................................. 4.1 6.4
Loans to affiliated companies (Note 7).......................................... 197.5 185.0
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203.3 192.4
Investment in Master Limited Partnership (Note 3).................................. 24.7 24.6
Investment in Frontier Pipeline Company (Note 6)................................... 1.2 0.8
Deferred Charges and Other......................................................... 5.0 6.6
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$ 234.2 $ 224.4
========= =========
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LIABILITIES AND SHAREHOLDER'S EQUITY
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Current Liabilities:
Loans from affiliated company (Note 7).......................................... $ 1.6 $ 1.3
Accounts payable and other...................................................... 2.9 2.8
Income and other taxes.......................................................... - 1.5
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4.5 5.6
Deferred Income Taxes.............................................................. 138.9 150.3
Minority Interests (Note 2)........................................................ 0.2 1.2
Contingencies (Note 8).............................................................
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143.6 157.1
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Shareholder's Equity:
Common stock....................................................................
Authorized - 500,000 shares, at $50 par value each...........................
Issued - 400,000 shares...................................................... 20.0 20.0
Contributed surplus............................................................. 6.6 6.6
Retained earnings............................................................... 64.0 40.7
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90.6 67.3
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$ 234.2 $ 224.4
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The accompanying notes are an integral part of this consolidated statement.
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LAKEHEAD PIPE LINE COMPANY, INC.
(a wholly owned subsidiary of Interprovincial Pipe Line Inc.)
NOTES TO THE 1996 AND 1995 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(United States dollars in millions)
NOTE 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 Interprovincial Pipe Line Inc., a Canadian corporation
owned by IPL Energy Inc. ("IPLE") of Calgary, Alberta, Canada.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company are prepared in accordance
with generally accepted accounting principles in the United States and conform
in all material respects with the historical cost accounting standards of the
International Accounting Standards Committee. The preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosure of contingent assets and liabilities.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, its
wholly owned subsidiaries, LPL Financial Inc., Westcoast Oil & Gas Corp. ("WOG")
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 16% limited partner interest in the Partnership and a 35%
partnership interest in Frontier Pipeline Company ("Frontier"). At December 31,
1995, the consolidated financial statements also include the accounts of LPL
Commerce Inc., a majority owned subsidiary with a minority interest consisting
of 200 redeemable preferred shares valued at $5,000 per share. This subsidiary
was liquidated in December 1996.
Cash Equivalents
Cash equivalents are defined as all highly marketable securities with a maturity
of three months or less when purchased and are accounted for as held-to-maturity
securities and valued at amortized cost.
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.
NOTE 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
16% limited partner interest in the Partnership.
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The assets and liabilities of the Partnership are summarized below:
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December 31,
1996 1995
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Current assets..................................................................... $ 207.5 $ 184.6
Deferred charges and other......................................................... 4.9 5.5
Property, plant and equipment, net................................................. 763.5 725.1
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$ 975.9 $ 915.2
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Current liabilities................................................................ $ 61.6 $ 107.7
Long-term debt..................................................................... 463.0 395.0
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Accrued rate refunds and related interest.......................................... 50.3 -
Minority interest.................................................................. 1.4 1.4
Partners' capital.................................................................. 399.6 411.1
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$ 975.9 $ 915.2
========= =========
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NOTE 4 - REVOLVING CREDIT FACILITY AGREEMENT
The Services Partnership has a $205.0 million Revolving Credit Facility
Agreement which was amended in September 1996 to effectively reduce the interest
rate spread and extend the maturity date to at least September 2001. The
maturity date is subject to extension on an annual basis. Under the terms of the
facility, the Services Partnership and the Partnership may draw down funds up to
a combined maximum amount of $205.0 million. Upon drawdown by the Services
Partnership, the loans are collateralized with U.S. government securities. The
facility provides for variable interest rates and currently carries a facility
fee of 0.085% per annum on the entire $205.0 million. At December 31, 1996,
$52.0 million (1995 - $120.0 million) and $153.0 million (1995 - $85.0 million )
of the facility was utilized by the Services Partnership and the Partnership,
respectively. In conjunction with its borrowings under this facility, the
Services Partnership has irrevocably placed $55.8 million (1995 - $124.0
million) of 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 has been recognized as an in-substance defeasance
and the debt is considered to be extinguished. The facility contains various
restrictive covenants applicable to the Services Partnership, including
restrictions on the incurrence of certain indebtedness and liens, mergers and
investments.
NOTE 5 - INCOME TAXES
Net deferred income tax liabilities of $138.9 million at December 31, 1996 (1995
- - $150.3 million) are comprised of deferred tax liabilities of $141.5 million
(1995 - $151.6 million), which are partially offset by deferred tax assets of
$2.6 million (1995 - $1.3 million). Deferred income tax liabilities have arisen
principally as a result of the gain deferral, for income tax purposes, on the
transfer of assets to the Partnership. Deferred tax assets of $4.1 million at
December 31, 1996 (1995 - $3.7 million) have arisen from unutilized net
operating loss carryforwards and unrealized foreign exchange losses principally
on loans to affiliates (denominated in Canadian dollars) which are not
recognized for tax purposes until maturity. The operating loss carryforwards are
due to expire by December 31, 1997 and are available only to WOG due to separate
return limitation rules. A valuation allowance of $1.5 million (1995 - $2.4
million) has been provided which represents the portion of the operating loss
carryforwards that are not expected to be realized, resulting in a net deferred
tax asset of $2.6 million (1995 - $1.3 million).
NOTE 6 - FRONTIER PIPELINE COMPANY
The Company has a 35% general partner interest in Frontier and is required to
support, to this extent, Frontier's financial obligations. Frontier is a Wyoming
general partnership which owns and operates a 290 mile crude oil pipeline in
Utah and Wyoming.
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NOTE 7 - RELATED PARTY TRANSACTIONS
At December 31, 1996, accounts receivable include $1.3 million (1995 - $1.4
million) from the Partnership. Accounts payable include $1.2 million (1995 -
$1.3 million) to Parent and affiliated companies.
At December 31, 1996, the Company had Canadian dollar denominated short-term
loans outstanding to IPLE of $265.2 million Canadian, with a U.S. equivalent of
$193.6 million (December 31, 1995 - $252.6 million Canadian with a U.S.
equivalent of $185.0 million). These loans have interest rates ranging from
3.32% to 6.38% (December 31, 1995 - 6.61% to 8.06%).
At December 31, 1996, the Company has short-term loans outstanding from IPL
Energy (U.S.A.) Inc., an affiliated Delaware Corporation owned by IPLE, of $1.6
million (1995 - $1.3 million). These loans bear interest at 130% of the monthly
short-term applicable federal rate and averaged 7.02% during the year (1995 -
rates ranged from 6.48% to 6.74%).
At December 31, 1996, the Company has short-term loans outstanding to Portal
Pipe Line Company, a wholly owned subsidiary of IPL Energy (U.S.A.) Inc., of
$3.9 million. These loans bear interest at 130% of the monthly published
short-term applicable federal rate and average 7.56% during the year.
NOTE 8 - CONTINGENCIES
In conjunction with the transfer of its pipeline business to the Partnership,
the Company agreed to 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 or 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
long-term debt which amounted to $463.0 million at December 31, 1996.
NOTE 9 -FINANCIAL INSTRUMENTS
The carrying amounts of cash equivalents approximate fair value because of the
short maturity of these 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 Preference
Units as at December 31, 1996, the fair value of the Company's 18% ownership of
the Partnership, which is carried at $24.7 million (1995 - $24.6 million), is
estimated to be approximately $151.9 million (1995 - $112.3 million). This
method values the general partner interest (2%) in the same fashion as the
limited partner interest. As the general partner receives incentive
distributions, after certain target distribution levels are met, its value could
be more.
The Company's net monetary assets denominated in Canadian dollars (December 31,
1996 - $265.2 million Canadian; December 31, 1995 - $252.6 million Canadian)
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
the Company's Canadian dollar denominated monetary items on IPLE's consolidated
earnings. At December 31, 1996, the Company had foreign exchange contracts,
maturing at various times in 1997, to purchase $150.5 million (December 31, 1995
- - $149.8 million) Canadian dollars for a contracted amount of $112.1 million
(1995 - $109.3 million). Based on quoted market prices at December 31, 1996, the
fair value of the Company's foreign exchange contracts was $109.9 million
December 31, 1995 - $109.7 million).
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