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, 1997
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 13
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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, 1997 and 1996 3
Consolidated Balance Sheet - March 31, 1997
and December 31, 1996 4
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1997 and 1996 5
Consolidated Statement of Changes in Partners'
Capital - Three Months Ended March 31, 1997 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 12
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<TABLE>
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,
1997 1996
<S> <C> <C>
OPERATING REVENUE $46,646 $52,953
OPERATING EXPENSES
Operations and maintenance 7,125 6,789
Depreciation and amortization 9,626 13,435
Taxes other than income 6,077 6,404
Operating expenses 22,828 26,628
OPERATING INCOME 23,818 26,325
INTEREST EXPENSE 7,861 8,463
OTHER INCOME
Other income, net 2,997 461
Allowance for equity funds used
during construction 117 62
Other income 3,114 523
MINORITY INTERESTS IN NET INCOME 5,600 5,538
NET INCOME TO PARTNERS $13,471 $12,847
NET INCOME PER UNIT $ .50 $ .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>
<PAGE>
<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 1997 1996
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 55,124 $ 41,390
Accounts receivable 21,247 16,907
Related party receivables 2,576 2,364
Materials and supplies, at cost 3,584 4,128
Total current assets 82,531 64,789
NATURAL GAS TRANSMISSION PLANT
Property, plant and equipment 1,516,364 1,513,116
Less: Accumulated provision for
depreciation and amortization 583,954 575,257
Net property, plant and equipment 932,410 937,859
OTHER ASSETS 13,004 13,836
Total assets $1,027,945 $1,016,484
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Current maturities of long-term debt $ 42,500 $ 17,500
Note payable 10,000 10,000
Accounts payable 937 3,463
Accrued taxes other than income 21,512 20,968
Accrued interest 5,041 10,353
Over recovered cost of service 7,636 4,236
Accumulated provision for rate refunds 32,879 12,227
Total current liabilities 120,505 78,747
LONG-TERM DEBT, net of current maturities 335,000 360,000
MINORITY INTERESTS IN PARTNERS' CAPITAL 154,025 158,089
RESERVES AND DEFERRED CREDITS 9,062 9,062
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL
General Partners 8,187 8,212
Common Units 302,865 303,777
Subordinated Units 98,301 98,597
Total partners' capital 409,353 410,586
Total liabilities and partners' capital $1,027,945 $1,016,484
<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,
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income to partners $ 13,471 $ 12,847
Adjustments to reconcile net income to partners
to net cash provided by operating activities:
Depreciation and amortization 9,641 13,443
Minority interests in net income 5,600 5,538
Provision for rate refunds 20,652 --
Changes in other current assets and liabilities (7,902) 688
Other (411) 199
Total adjustments 27,580 19,868
Net cash provided by operating activities 41,051 32,715
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment, net (3,131) (1,167)
Other 182 --
Net cash used in investing activities (2,949) (1,167)
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 (9,664) (7,399)
Retirement of long-term debt -- (10,000)
Net cash used in financing activities (24,368) (32,103)
NET CHANGE IN CASH AND CASH EQUIVALENTS 13,734 (555)
Cash and cash equivalents-beginning of period 41,390 39,418
Cash and cash equivalents-end of period $ 55,124 $ 38,863
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest (net of amount capitalized) $ 12,837 $ 13,558
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<PAGE>
<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>
General Common Subordinated Partners'
Partners Units Units Capital
<S> <C> <C> <C> <C>
Partners' Capital at December 31, 1996 $8,212 $303,777 $98,597 $410,586
Net income to partners 269 9,967 3,235 13,471
Distributions to partners (294) (10,879) (3,531) (14,704)
Partners' Capital at March 31, 1997 $8,187 $302,865 $98,301 $409,353
<FN>
The accompanying notes are an integral part of this consolidated
financial statement.
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
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, 1996.
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.
The Partnership owns a 70% general partner interest in
Northern Border Pipeline Company ("Northern Border Pipeline").
As a result of an acquisition during the third quarter of 1996,
the Partnership has a non-controlling ownership position of 60.5%
in Black Mesa Holdings, Inc.
2. In November 1995, Northern Border Pipeline filed a rate case
in compliance with its Federal Energy Regulatory Commission
("FERC") tariff for the determination of its allowed equity rate
of return. In December 1995, the FERC issued an order that
permitted Northern Border Pipeline to begin collecting the
requested increase in the equity rate of return effective June 1,
1996, subject to refund. Northern Border Pipeline filed for FERC
approval of a Stipulation and Agreement ("Stipulation") on
October 15, 1996, to settle its rate case. On November 19, 1996,
the Stipulation was certified by an Administrative Law Judge
("ALJ") to the FERC for review and approval. In accordance with
the terms of the Stipulation, Northern Border Pipeline's allowed
equity rate of return would be reduced from a requested 14.25% to
12.75% for the period June 1, 1996 to October 1, 1996 and to 12%
thereafter. Additionally, the Stipulation would reduce the
effective depreciation rate applied to Northern Border Pipeline's
gross transmission plant from 3.6% to 2.7% for the period June 1,
1996 to December 31, 1996, resulting in an average effective
depreciation rate of 3.1% for the year ended December 31, 1996.
Beginning January 1, 1997, the depreciation rate would be reduced
to 2.5%. To reflect the terms of the Stipulation, Northern
Border Pipeline has recorded a provision for rate refunds which
reduced operating revenue by approximately $20.6 million for the
three months ended March 31, 1997, which includes $18.4 million
attributable to the reduction in depreciation and amortization
expense. Northern Border Pipeline must receive FERC approval of
the Stipulation before it can implement all of the filed for
terms and any associated refunds. The Partnership is unable to
predict if or when the Stipulation will be approved as filed and
thus actual results could differ from amounts recorded.
In August 1996, the FERC issued an order which contained a
preliminary determination favorable to Northern Border Pipeline's
October 1995 amended application with the FERC for a proposed
expansion and extension of its pipeline from its current terminus
near Harper, Iowa to a point near Manhattan, Illinois ("The
Chicago Project"). The preliminary determination found that The
Chicago Project serves the public convenience and necessity and
authorizes the project facility costs to be included with
existing facility costs in the determination of rates. The
preliminary determination contemplates issuance of a final order
by the FERC, subject to completion of the environmental review.
In September 1996, Northern Border Pipeline filed an amendment to
its October 1995 application to reflect limited facility
modifications which among other things, reduced environmental
impacts and project costs. In December 1996, the FERC issued a
draft Environmental Impact Statement ("EIS") which concluded The
Chicago Project would have a limited adverse environmental impact
and would be environmentally acceptable after adoption of certain
recommended mitigation measures. Northern Border Pipeline's
September 1996 application with the FERC for The Chicago Project
facilities proposes construction and operation of 243 miles of
pipeline, 147 miles of pipeline loop and a total of 228,500
compressor horsepower at eight compressor stations. The
application also requests approval to remove from service 100,000
compressor horsepower at five existing compressor stations to be
replaced with 175,000 compressor horsepower. Project to date
expenditures on The Chicago Project, which are included on the
consolidated balance sheet in property, plant and equipment at
March 31, 1997 and December 31, 1996, are $19.8 million and $16.8
million, respectively. The project is expected to cost, using
certain construction cost escalation assumptions, approximately
$837 million and, subject to timely regulatory approvals, be
ready for service in November 1998. A final EIS and FERC order
approving construction and operation of The Chicago Project are
anticipated in the second quarter of 1997.
3. On April 15, 1997, the Partnership declared a cash
distribution of $0.55 per unit for the first quarter ended March
31, 1997. The distribution is payable May 15, 1997, to
unitholders of record as of April 30, 1997. This quarterly
distribution is consistent with the previously announced
indicated annual rate of $2.20 per unit.
4. In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 -
"Earnings per Share" ("SFAS No. 128"), which specifies the
computation, presentation and disclosure requirements for
earnings per share ("EPS"). SFAS No. 128 is effective for
interim and annual periods ending after December 15, 1997 and
requires retroactive restatement of prior periods EPS. The
statement replaces the primary EPS calculation with a newly
defined basic EPS and modifies the computation of diluted EPS.
Adoption of the statement is not expected to have any effect on
the Partnership's reported net income 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
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.
As a result of an acquisition during the third quarter of
1996, the Partnership has a non-controlling ownership position of
60.5% in Black Mesa Holdings, Inc. ("Black Mesa"). Black Mesa,
through a wholly-owned subsidiary, transports coal-water slurry
through a 273-mile, 18-inch diameter pipeline that originates at
a coal mine in Kayenta, Arizona and ends at the 1,500 megawatt
Mohave Power Station located in Laughlin, Nevada. Black Mesa is
the sole source of fuel for the Mohave plant. The capacity of
Black Mesa is fully contracted to the Mohave Power Station coal
supplier through the year 2005.
First Quarter 1997 Compared With First Quarter 1996
Operating revenue decreased $6.3 million (12%) for the first
quarter of 1997, as compared to the same period in 1996, due
primarily to lower depreciation and amortization expense, lower
equity returns on a lower rate base and lower interest expense.
Northern Border Pipeline has recorded a provision for rate
refunds which reduced operating revenue for the first quarter of
1997 by approximately $20.6 million to reflect the terms of the
Stipulation and Agreement ("Stipulation") filed by Northern
Border Pipeline for FERC approval to settle its rate case (See
Note 2 - Notes to Consolidated Financial Statements).
Depreciation and amortization expense decreased $3.8 million
(28%) for the first quarter of 1997, as compared to the same
period in 1996. In accordance with the terms of the Stipulation
discussed above, the depreciation rate applied to Northern Border
Pipeline's gross transmission plant would be reduced from the
7.6% effective rate in its FERC tariff to 2.5% resulting in a
reduction of depreciation and amortization expense of
approximately $18.4 million for the first quarter of 1997. The
depreciation rate applied to gross transmission plant for the
first quarter of 1996 was 3.6%.
Interest expense decreased $0.6 million (7%) for the first
quarter of 1997, as compared to the same period in 1996, due
primarily to a decrease in average debt outstanding reflecting
principal payments made under the Northern Border Pipeline bank
loan agreement.
Other income increased $2.6 million for the first quarter of
1997, as compared to the same period in 1996, primarily due to
reimbursement received by Northern Border Pipeline for vacating
certain microwave frequency bands as well as earnings on the
Partnership's ownership interest in Black Mesa.
Liquidity and Capital Resources
General
Short-term liquidity needs of the Partnership will be met by
internal sources and through its 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.
On October 4, 1996, Northern Border Pipeline entered into a
one-year $50 million revolving credit agreement with a financial
institution. Borrowings under the revolving credit agreement,
which are shown as a note payable in the consolidated balance
sheet, are expected to be used by Northern Border Pipeline to
fund working capital, construction and other general business
purposes.
In April 1997, Northern Border Pipeline entered into an
agreement with certain financial institutions wherein such
institutions committed to make loans to Northern Border Pipeline
up to an aggregate principal amount of $750 million, subject to
the execution of definitive loan documents on or before June 30,
1997. The proposed financing transaction is comprised of a $200
million five-year revolving credit agreement to be used for
repayment of Northern Border Pipeline's bank loan agreement
amounts outstanding and for general business purposes, and a $550
million three-year construction revolving credit agreement to be
used for financing Northern Border Pipeline's expenditures
related to the expansion and extension of its existing system
(See "Cash Flows From Investing Activities"). The construction
revolving credit agreement may not be accessed until Northern
Border Pipeline receives final regulatory approvals for the
construction.
Cash Flows From Operating Activities
Cash flow provided by operating activities increased $8.3
million to $41.1 million for the three month period ended March
31, 1997 as compared to the same period in 1996 primarily related
to amounts which have been collected and may be refunded in
accordance with the Stipulation (See Note 2 - Notes to
Consolidated Financial Statements).
Cash Flows From Investing Activities
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 ("The Chicago Project") (See Note 2 - Notes to Consolidated
Financial Statements). The project is expected to cost, using certain
construction cost escalation assumptions, approximately $837
million and subject to timely regulatory approvals, be ready for
service in November 1998.
Net plant additions of $3.1 million for the first quarter of
1997 include $2.9 million for The Chicago Project. The remaining
$0.2 million of net plant additions in 1997 are primarily related
to renewals and replacements of the existing facilities. For the
comparable period in 1996, net plant additions were $1.2 million
which included $0.4 million for The Chicago Project.
Total capital expenditures for 1997 are estimated to be $211
million for The Chicago Project and $18 million for renewals and
replacements of the existing facilities. Funds required to meet
the 1997 capital expenditures are anticipated to be provided from
debt borrowings, internal sources and equity contributions from
minority interest holders.
Cash Flows From Financing Activities
Cash flows used in financing activities of $24.4 million for
the three month period ended March 31, 1997 reflect distributions
made to partners and minority interests of $14.7 million and $9.7
million, respectively. For the comparable period in 1996, cash
flows used in financing activities totaled $32.1 million and
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.
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 discussions in "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and
Capital Resources" and in "Notes to Consolidated Financial
Statements" on The Chicago 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 14, 1997 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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 22,551
<SECURITIES> 32,573
<RECEIVABLES> 23,823
<ALLOWANCES> 0
<INVENTORY> 3,584
<CURRENT-ASSETS> 82,531
<PP&E> 1,516,364
<DEPRECIATION> 583,954
<TOTAL-ASSETS> 1,027,945
<CURRENT-LIABILITIES> 120,505
<BONDS> 335,000
0
0
<COMMON> 0
<OTHER-SE> 409,353
<TOTAL-LIABILITY-AND-EQUITY> 1,027,945
<SALES> 0
<TOTAL-REVENUES> 46,646
<CGS> 0
<TOTAL-COSTS> 22,828
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,861
<INCOME-PRETAX> 13,471
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,471
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
