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, 1996
Commission File Number 1-12202
NORTHERN BORDER PARTNERS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 93-1120873
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
Enron Building
1400 Smith Street
Houston, Texas 77002
(Address of principal executive (Zip Code)
Offices)
(713) 853-6161
(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 12
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NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statement of Income -
Three Months Ended March 31, 1996 and 1995 3
Consolidated Balance Sheet - March 31, 1996
and December 31, 1995 4
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1996 and 1995 5
Consolidated Statement of Changes in Partners'
Capital - Three Months Ended March 31, 1996 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 11
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per Unit Amounts)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
OPERATING REVENUE $52,953 $52,188
OPERATING EXPENSES
Operations and maintenance 6,789 6,334
Depreciation and amortization 13,435 11,808
Taxes other than income 6,404 6,310
Operating expenses 26,628 24,452
OPERATING INCOME 26,325 27,736
INTEREST EXPENSE ON LONG-TERM DEBT 8,463 9,026
OTHER INCOME (EXPENSE)
Other income (expense), net 461 (147)
Allowance for equity funds used
during construction 62 22
Other income (expense) 523 (125)
MINORITY INTERESTS IN NET INCOME 5,538 5,625
NET INCOME TO PARTNERS $12,847 $12,960
NET INCOME PER UNIT $ .48 $ .48
NUMBER OF UNITS USED IN COMPUTATION 26,200 26,200
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
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<TABLE>
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(In Thousands)
(Unaudited)
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 38,863 $ 39,418
Accounts receivable 17,047 18,928
Related party receivables 3,203 2,883
Materials and supplies, at cost 3,880 4,437
Total current assets 62,993 65,666
NATURAL GAS TRANSMISSION PLANT
Property, plant and equipment 1,501,104 1,499,893
Less: Accumulated provision for
depreciation and amortization 550,985 542,306
Net property, plant and equipment 950,119 957,587
OTHER ASSETS 13,074 18,086
Total assets $1,026,186 $1,041,339
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Current maturities of long-term debt $ 22,500 $ 15,000
Accounts payable 1,259 1,193
Accrued taxes other than income 20,917 19,903
Accrued interest 5,087 10,516
Over recovered cost of service 5,427 2,508
Total current liabilities 55,190 49,120
LONG-TERM DEBT, net of current maturities 377,500 395,000
MINORITY INTERESTS IN PARTNERS' CAPITAL 164,928 166,789
OTHER RESERVES AND DEFERRED CREDITS 11,308 11,313
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL
General Partners 8,345 8,382
Common Units 308,715 310,089
Subordinated Units 100,200 100,646
Total partners' capital 417,260 419,117
Total liabilities and partners' capital $1,026,186 $1,041,339
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
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<TABLE>
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income to partners $ 12,847 $ 12,960
Adjustments to reconcile net income to partners
to net cash provided by operating activities:
Depreciation and amortization 13,443 11,808
Minority interests in net income 5,538 5,625
Changes in other current assets and liabilities 688 (3,323)
Other 199 1,012
Total adjustments 19,868 15,122
Net cash provided by operating activities 32,715 28,082
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment, net (1,167) (765)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions
Common Units (10,879) (10,879)
Subordinated Units (3,531) (3,531)
General Partners (294) (294)
Minority Interests (7,399) (7,147)
Retirement of long-term debt (10,000) (20,000)
Net cash used in financing activities (32,103) (41,851)
NET CHANGE IN CASH AND CASH EQUIVALENTS (555) (14,534)
Cash and cash equivalents-beginning of period 39,418 44,122
Cash and cash equivalents-end of period $ 38,863 $ 29,588
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest (net of amount capitalized) $ 13,558 $ 14,144
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
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<TABLE>
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(In Thousands)
(Unaudited)
<CAPTION>
Total
General Common Subordinated Partners'
Partners Units Units Capital
<S> <C> <C> <C> <C>
Partners' Capital at December 31, 1995 $8,382 $310,089 $100,646 $419,117
Net income to partners 257 9,505 3,085 12,847
Distributions to partners (294) (10,879) (3,531) (14,704)
Partners' Capital at March 31, 1996 $8,345 $308,715 $100,200 $417,260
<FN>
The accompanying notes are an integral part of this consolidated
financial statement.
</TABLE>
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PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Concluded)
NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein have
been prepared by Northern Border Partners, L.P. (the
"Partnership") 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, the Partnership believes that the disclosures are
adequate to make the information presented not misleading. These
consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto
included in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1995. The Partnership owns a 70% general
partner interest in Northern Border Pipeline Company.
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. On April 18, 1996, the Partnership declared a cash
distribution of $0.55 per unit for the first quarter ended March
31, 1996. The distribution is payable May 15, 1996, to
unitholders of record as of April 30, 1996. This quarterly
distribution is consistent with the previously announced
indicated annual rate of $2.20 per unit.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
Results of Operations
Northern Border Partners, L.P. (the "Partnership") owns a 70%
general partner interest in Northern Border Pipeline Company
("Northern Border Pipeline"). Northern Border Pipeline's 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
unrecovered 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. The firm transportation contract
shippers are obligated to pay their allocable share of the cost
of service regardless of the volumes actually transported. Based
on existing contracts and capacity, 100% of the pipeline system's
capacity is contractually committed through October 2001.
First Quarter 1996 Compared With First Quarter 1995
Operating revenue increased $0.8 million (1%) for the first
quarter of 1996, as compared to the same period in 1995, due to
recoveries of higher operations and maintenance expense and
depreciation and amortization expense. These recoveries were
partially offset by returns on a lower rate base and lower
interest expense on long-term debt.
Depreciation and amortization expense increased $1.6 million
(14%) for the first quarter of 1996, as compared to the same
period in 1995. The increase is primarily due to an increase in
the depreciation rate for Northern Border Pipeline's transmission
plant from 4.4% for the three months ended March 31, 1995 to 5.0%
for the comparable period in 1996, as authorized in its FERC
tariff.
Interest expense on long-term debt decreased $0.6 million (6%)
for the first quarter of 1996, as compared to the same period in
1995, due to a decrease in average debt outstanding. Average
debt outstanding has decreased approximately $31 million between
the two periods reflecting principal payments made by Northern
Border Pipeline under its bank loan agreement.
Other income increased $0.6 million for the first quarter of
1996, as compared to the same period in 1995, primarily due to a
decrease in other expenses. Other expenses in 1995 reflected a
reserve provision for regulatory issues recorded by Northern
Border Pipeline.
Liquidity and Capital Resources
General
Short-term liquidity needs of the Partnership will be met by
internal sources. In addition, the Partnership has the ability
to establish lines of credit with one or more financial institutions.
Long-term capital needs can be met by the Partnership's ability to issue
additional limited partner interests in the Partnership.
Cash Flows From Operating Activities
The Partnership generated cash flows from operations of $32.7
million for the three month period ended March 31, 1996
reflecting, among other things, net income and depreciation and
amortization for the period of $12.8 million and $13.4 million,
respectively. For the comparable period in 1995, the Partnership
generated cash flows from operations of $28.1 million reflecting,
among other things, net income and depreciation and amortization
for the period of $13.0 million and $11.8 million, respectively.
Cash Flows From Investing Activities
In October 1995, Northern Border Pipeline filed an application
with the FERC to expand its existing system and to extend its
pipeline from its current terminus near Harper, Iowa to a point
near Manhattan, Illinois at an estimated cost of $800 million in
1995 dollars. Subject to the receipt of FERC approval, the
project is expected to be ready for service by the spring of
1998.
Net plant additions of $1.2 million for the first quarter of
1996 include $0.4 million for the proposed expansion and
extension project. The remaining $0.8 million of net plant
additions in 1996 are primarily related to renewals and
replacements of existing facilities. For the comparable period
in 1995, net plant additions were $0.8 million which included
$0.4 million for the proposed expansion and extension project.
Total capital expenditures for 1996 are estimated to be $24.0
million for the proposed expansion and extension project and
$11.1 million for renewals and replacements for the existing
facilities. Funds required to meet the 1996 capital expenditures
are anticipated to be provided from additional debt borrowings,
internal sources and equity contributions from minority interest
holders.
Cash Flows From Financing Activities
Cash flows used in financing activities of $32.1 million for
the three month period ended March 31, 1996 reflect distributions
made to partners and minority interests of $14.7 million and $7.4
million, respectively, and $10.0 million in principal payments
under the Northern Border Pipeline bank loan agreement. For the
comparable period in 1995, cash flows used in financing
activities totaled $41.8 million and reflect distributions made
to partners and minority interests of $14.7 million and $7.1
million, respectively, and $20.0 million in principal payments
under the Northern Border Pipeline bank loan agreement.
Information Regarding Forward Looking Statements
The statements in this Quarterly Report that are not
historical 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 discussion in "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and
Capital Resources" on Northern Border Pipeline's proposed
expansion and extension project. Although the Partnership
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 political and regulatory developments
that impact FERC and state utility commission proceedings,
Northern Border Pipeline's success in sustaining its positions in
such proceedings or the success of intervenors in opposing
Northern Border Pipeline's positions, 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 during the periods covered by the
forward looking statements.
<PAGE>
PART II. OTHER INFORMATION
NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
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 PARTNERS, L.P.
(A Delaware Limited Partnership)
Date: May 9, 1996 By: /s/ Jerry L. Peters
Jerry L. Peters
Chief Financial and Accounting
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 19,122
<SECURITIES> 19,741
<RECEIVABLES> 20,250
<ALLOWANCES> 0
<INVENTORY> 3,880
<CURRENT-ASSETS> 62,993
<PP&E> 1,501,104
<DEPRECIATION> 550,985
<TOTAL-ASSETS> 1,026,186
<CURRENT-LIABILITIES> 55,190
<BONDS> 377,500
0
0
<COMMON> 0
<OTHER-SE> 417,260
<TOTAL-LIABILITY-AND-EQUITY> 1,026,186
<SALES> 0
<TOTAL-REVENUES> 52,953
<CGS> 0
<TOTAL-COSTS> 26,628
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,463
<INCOME-PRETAX> 12,847
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,847
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,847
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
