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 June 30, 1998
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 17
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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 June 30, 1998 and 1997
and Six Months Ended June 30, 1998 and 1997 3
Consolidated Balance Sheet - June 30, 1998
and December 31, 1997 4
Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1998 and 1997 5
Consolidated Statement of Changes in Partners'
Capital - Six Months Ended June 30, 1998 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 5. Other Information 16
ITEM 6. Exhibits and Reports on Form 8-K 16
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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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
OPERATING REVENUE $53,782 $48,069 $106,602 $94,715
OPERATING EXPENSES
Operations and maintenance 9,364 8,516 19,946 15,641
Depreciation and amortization 10,647 9,837 21,067 19,463
Taxes other than income 6,054 5,961 12,222 12,038
Operating expenses 26,065 24,314 53,235 47,142
OPERATING INCOME 27,717 23,755 53,367 47,573
INTEREST EXPENSE 10,814 8,190 20,605 16,051
OTHER INCOME
Allowance for funds used
during construction
Debt 3,485 570 6,211 851
Equity 2,888 315 4,513 432
Other income, net 587 1,578 1,389 4,294
Other income 6,960 2,463 12,113 5,577
MINORITY INTERESTS IN NET INCOME 7,453 5,275 13,532 10,875
NET INCOME TO PARTNERS $16,410 $12,753 $ 31,343 $26,224
NET INCOME PER UNIT $ .55 $ .48 $ 1.05 $ .98
NUMBER OF UNITS USED IN COMPUTATION 29,347 26,242 29,342 26,221
<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>
June 30, December 31,
ASSETS 1998 1997
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 48,830 $ 106,757
Accounts receivable 18,291 19,919
Materials and supplies, at cost 4,369 4,458
Under recovered cost of service 1,029 --
Total current assets 72,519 131,134
TRANSMISSION PLANT
Property, plant and equipment 2,025,981 1,749,862
Less: Accumulated provision for
depreciation and amortization 622,393 631,498
Net property, plant and equipment 1,403,588 1,118,364
OTHER ASSETS 19,325 17,419
Total assets $1,495,432 $1,266,917
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Current maturities of long-term debt $ 2,661 $ 2,523
Accounts payable 67,208 64,668
Accrued taxes other than income 18,679 20,508
Accrued interest 11,245 10,766
Over recovered cost of service -- 4,601
Total current liabilities 99,793 103,066
LONG-TERM DEBT, net of current maturities 643,466 478,832
MINORITY INTERESTS IN PARTNERS' CAPITAL 237,181 174,424
RESERVES AND DEFERRED CREDITS 9,897 9,867
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL
General Partners 10,102 10,015
Common Units 399,603 394,587
Subordinated Units 95,390 96,126
Total partners' capital 505,095 500,728
Total liabilities and partners' capital $1,495,432 $1,266,917
<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>
Six Months Ended
June 30,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income to partners $ 31,343 $ 26,224
Adjustments to reconcile net income to partners
to net cash provided by operating activities:
Depreciation and amortization 21,075 19,495
Minority interests in net income 13,532 10,875
Provision for rate refunds -- 41,112
Changes in other current assets and liabilities (4,749) (11,695)
Other (6,327) (888)
Total adjustments 23,531 58,899
Net cash provided by operating activities 54,874 85,123
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property, plant
and equipment, net (299,760) (33,039)
Acquisition and consolidation of businesses -- 3,374
Other -- 465
Net cash used in investing activities (299,760) (29,200)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to Unitholders and
General Partners (34,438) (29,408)
Contributions received from
(distributions to) Minority Interests, net 49,225 (19,936)
Issuance of partnership interests, net 7,462 71
Issuance of long-term debt 166,000 160,000
Long-term debt financing costs (62) (675)
Retirement of long-term debt (1,228) (127,500)
Repayment of note payable -- (10,000)
Net cash provided by
(used in) financing activities 186,959 (27,448)
NET CHANGE IN CASH AND CASH EQUIVALENTS (57,927) 28,475
Cash and cash equivalents-beginning of period 106,757 41,390
Cash and cash equivalents-end of period $ 48,830 $ 69,865
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest (net of amount capitalized) $ 13,673 $ 15,984
<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 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, 1997 $10,015 $394,587 $96,126 $500,728
Net income to partners 627 23,995 6,721 31,343
Issuance of partnership interests, net 149 7,387 (74) 7,462
Distributions to partners (689) (26,366) (7,383) (34,438)
Partners' Capital at June 30, 1998 $10,102 $399,603 $95,390 $505,095
<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, 1997.
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").
The remaining general partner interests in Northern Border
Pipeline are owned by wholly-owned subsidiaries of TransCanada
PipeLines Limited ("TransCanada"). Black Mesa Holdings, Inc.,
Black Mesa Pipeline Operations, L.L.C. and Williams Technologies,
Inc. are wholly-owned subsidiaries of the Partnership.
2. Property, plant and equipment balances include construction
work in progress of approximately $421.6 million and $211.4
million at June 30, 1998 and December 31, 1997, respectively.
Approximately $421.2 million and $197.9 million of construction
work in progress at June 30, 1998 and December 31, 1997,
respectively, represent project-to-date costs on Northern Border
Pipeline's expansion and extension of its pipeline system from
its current terminus near Harper, Iowa to a point near Manhattan,
Illinois ("The Chicago Project"). At June 30, 1998 and December
31, 1997, respectively, approximately $46.2 million and $44.2
million of project costs incurred but not paid for The Chicago
Project were recorded in accounts payable and property, plant and
equipment on the consolidated balance sheet and were excluded
from the changes in other current assets and liabilities and
capital expenditures for property, plant and equipment, net on
the consolidated statement of cash flows. The estimated cost of
The Chicago Project, as filed with the Federal Energy Regulatory
Commission, is $839 million and it is expected to be ready for
service in December 1998.
3. In June 1998, Pan-Alberta Gas (U.S.) Inc. ("PAGUS"), Northern
Border Pipeline's largest shipper, signed amendments to its
transportation contracts covering 741 million cubic feet per day
of capacity. The amendments extend the contracts for two years
through October 2003.
PAGUS became an affiliate of Northern Border Pipeline after
the merger of NOVA Corporation and TransCanada effective July 2,
1998. At the time of the merger, the parent company of PAGUS was
a subsidiary of NOVA Corporation. On August 6, 1998, Pan-Alberta
Gas Ltd., the parent company of PAGUS, announced the pending sale
of its business, once certain conditions are met.
4. On July 20, 1998, the Partnership declared a cash distribution
of $0.575 per unit for the second quarter ended June 30, 1998.
The distribution is payable August 14, 1998, to unitholders of
record as of July 31, 1998. The indicated annual distribution
rate is $2.30 per unit.
5. In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 - "Accounting
for Derivative Instruments and Hedging Activities" (SFAS No.
133), which establishes accounting and reporting standards
requiring that every derivative instrument be recorded on the
balance sheet as either an asset or liability measured at its
fair value. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and
losses to offset related results on the hedged item in the income
statement. SFAS No. 133 is effective for fiscal years beginning
after June 15, 1999, but may be implemented as of the beginning
of any fiscal quarter after issuance. Adoption of the statement
is not expected to have a material effect on the Partnership's
consolidated financial position or results of operation.
<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. 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.
In August 1997, after receiving final authorization from the
FERC, Northern Border Pipeline commenced construction of
facilities to expand and extend its pipeline system 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 estimated cost of The
Chicago Project, as filed with the FERC, is $839 million. While
the Partnership expects that Northern Border Pipeline will
complete The Chicago Project in December 1998 within the budgeted
cost, certain events and conditions could delay completion or
increase the actual cost. These include possible delays and
costs due to inclement weather or other problems in completing
the physical construction of the pipeline facilities. Under a
settlement agreement in a recent rate case, Northern Border
Pipeline agreed to a capital project cost containment mechanism
which would limit its ability to include cost overruns in its
rate base.
As a result of acquisitions during 1997, the Partnership
increased its ownership position in Black Mesa Holdings, Inc. and
Black Mesa Pipeline Operations, L.L.C. (collectively "Black
Mesa") to 100% and began to reflect Black Mesa in the
Partnership's consolidated financial statements. Prior to June
1997, the Partnership's investment in Black Mesa had been
accounted for using the equity method. Black Mesa, through a
wholly-owned subsidiary, transports coal slurry through a 273-
mile, 18-inch diameter pipeline (the "Black Mesa 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 Pipeline is the sole source of fuel for the Mohave
plant. The capacity of Black Mesa Pipeline is fully contracted
to the Mohave Power Station coal supplier through the year 2005.
Williams Technologies, Inc. ("WTI"), a wholly-owned subsidiary of
the Partnership and a leading consultant in slurry pipeline
technology, is the operator of Black Mesa, pursuant to a
management agreement.
Second Quarter 1998 Compared With Second Quarter 1997
Operating revenue increased $5.7 million for the second
quarter of 1998, as compared to the same period in 1997.
Operating revenue from the combined operations of Black Mesa and
WTI was $4.9 million in 1998 as compared to $1.8 million in 1997,
which represented one month of revenue. Operating revenue
attributable to Northern Border Pipeline increased $2.6 million
due primarily to returns on higher levels of invested equity.
Operations and maintenance expense increased $0.8 million for
the second quarter of 1998, as compared to the same period in
1997. Operations and maintenance expense from the combined
operations of Black Mesa and WTI was $3.6 million in 1998 as
compared to $1.1 million in 1997, which represented one month of
expense. Operations and maintenance expense attributable to
Northern Border Pipeline decreased $1.7 million primarily due to
a regulatory credit recorded in 1998. During the construction of
The Chicago Project, Northern Border Pipeline will place in
service certain new facilities to maintain gas flow at firm
contracted capacity while existing facilities are being modified.
A regulatory credit of approximately $1.9 million, recorded in
the second quarter of 1998, offsets the increase in cost of
service for the new facilities placed in service to date.
Northern Border Pipeline is allowed to recover the regulatory
credit from its shippers over a ten-year period commencing with
the in service date of The Chicago Project.
Depreciation and amortization expense increased $0.8 million
for the second quarter of 1998, as compared to the same period in
1997. Depreciation and amortization expense from the combined
operations of Black Mesa and WTI was $0.6 million in 1998 as
compared to $0.2 million in 1997, which represented one month of
expense. Depreciation and amortization expense attributable to
Northern Border Pipeline increased $0.4 million.
Interest expense increased $2.6 million for the second quarter
of 1998, as compared to the same period in 1997. Interest
expense attributable to Northern Border Pipeline and the
Partnership increased $2.2 million due primarily to an increase
in average debt outstanding, reflecting amounts borrowed to
finance a portion of the capital expenditures for The Chicago
Project. The remainder of the increase in interest expense is
from the combined operations of Black Mesa and WTI, which was
$0.6 million for 1998 as compared to $0.2 million for one month
in 1997.
Other income increased $4.5 million for the second quarter of
1998, as compared to the same period in 1997. The increase was
primarily due to a $5.5 million increase in the allowance for
funds used during construction. The increase in the allowance
for funds used during construction primarily relates to Northern
Border Pipeline's expenditures for The Chicago Project (See "Cash
Flows From Investing Activities"). Other income for 1997
included $0.8 million received by Northern Border Pipeline for
vacating certain microwave frequency bands.
Six Months June 30, 1998 Compared With Six Months Ended
June 30, 1997
Operating revenue increased $11.9 million for the six months
ended June 30, 1998, as compared to the same period in 1997.
Operating revenue from the combined operations of Black Mesa and
WTI was $10.2 million in 1998 as compared to $1.8 million in
1997, which represented one month of revenue. Operating revenue
attributable to Northern Border Pipeline increased $3.5 million
due primarily to returns on higher levels of invested equity.
Operations and maintenance expense increased $4.3 million for
the six months ended June 30, 1998, as compared to the same
period in 1997. Operations and maintenance expense from the
combined operations of Black Mesa and WTI was $7.1 million in
1998 as compared to $1.1 million in 1997, which represented one
month of expense. Operations and maintenance expense
attributable to Northern Border Pipeline decreased $1.7 million
primarily due to a regulatory credit recorded in 1998. During
the construction of The Chicago Project, Northern Border Pipeline
will place in service certain new facilities to maintain gas flow
at firm contracted capacity while existing facilities are being
modified. A regulatory credit of approximately $2.2 million,
recorded in the six months ended June 30, 1998, offsets the
increase in cost of service for the new facilities placed in
service to date. Northern Border Pipeline is allowed to recover
the regulatory credit from its shippers over a ten-year period
commencing with the in service date of The Chicago Project.
Depreciation and amortization expense increased $1.6 million
for the six months ended June 30, 1998, as compared to the same
period in 1997. Depreciation and amortization expense from the
combined operations of Black Mesa and WTI was $1.3 million in
1998 as compared to $0.2 million in 1997, which represented one
month of expense. Depreciation and amortization expense
attributable to Northern Border Pipeline increased $0.5 million.
Interest expense increased $4.6 million for the six months
ended June 30, 1998, as compared to the same period in 1997.
Interest expense attributable to Northern Border Pipeline and the
Partnership increased $3.6 million due primarily to an increase
in average debt outstanding, reflecting amounts borrowed to
finance a portion of the capital expenditures for The Chicago
Project. The remainder of the increase in interest expense is
from the combined operations of Black Mesa and WTI, which was
$1.2 million for 1998 as compared to $0.2 million for one month
in 1997.
Other income increased $6.5 million for the six months ended
June 30, 1998, as compared to the same period in 1997. The
increase was primarily due to a $9.4 million increase in the
allowance for funds used during construction. The increase in
the allowance for funds used during construction primarily
relates to Northern Border Pipeline's expenditures for The
Chicago Project (See "Cash Flows From Investing Activities").
Other income for 1997 included $2.8 million received by Northern
Border Pipeline for vacating certain microwave frequency bands.
Liquidity and Capital Resources
General
In June 1997, Northern Border Pipeline entered into a credit
agreement ("Pipeline Credit Agreement") with certain financial
institutions to borrow up to an aggregate principal amount of
$750 million. The Pipeline Credit Agreement is comprised of a
$200 million five-year revolving credit facility to be used for
the retirement of Northern Border Pipeline's bank loan agreements
and for general business purposes, and a $550 million three-year
revolving credit facility to be used for the construction of The
Chicago Project. The three-year revolving credit facility may,
if certain conditions are met, be converted to a term loan
maturing in June 2002. At June 30, 1998, $127.5 million and
$171.5 million had been borrowed on the five-year and three-year
revolving credit facilities, respectively.
In November 1997, the Partnership entered into a credit
agreement ("Partnership Credit Agreement") with certain financial
institutions to borrow up to an aggregate principal amount of
$175 million under a revolving credit facility. The Partnership
Credit Agreement is to be used for interim funding of the
Partnership's required capital contributions to Northern Border
Pipeline for construction of The Chicago Project. The amount
available under the Partnership Credit Agreement is reduced to
the extent the Partnership issues additional limited partner
interests to fund the Partnership's capital contributions for The
Chicago Project in excess of $25 million. The public offerings
of Common Units discussed in the following paragraph reduced the
amount available under the Partnership Credit Agreement to $104
million. After The Chicago Project has been placed in service,
the Partnership Credit Agreement allows the Partnership to borrow
any undrawn amounts up to an aggregate principal amount of $40
million for general business purposes. The maturity date of the
Partnership Credit Agreement will be November 2000 if Northern
Border Pipeline converts its $550 million three-year revolving
credit facility to a term loan; otherwise the maturity date is
June 2000. At June 30, 1998, $76 million had been borrowed on
the Partnership Credit Agreement.
In November 1997, the Partnership filed a registration
statement with the Securities and Exchange Commission for a
proposed offering of $225 million in Common Units. In December
1997, the Partnership sold, through an underwritten public
offering, 2,750,000 Common Units. In conjunction with the
issuance of the Common Units, the Partnership's General Partners
made capital contributions to the Partnership to maintain a 2%
general partner interest in accordance with the partnership
agreements. The net proceeds of approximately $90.9 million are
being used by the Partnership to fund a portion of the capital
contributions to Northern Border Pipeline for construction of The
Chicago Project. As part of the underwritten public offering,
the Partnership granted the underwriters an over-allotment option
to purchase a limited number of additional Common Units. This
option was exercised on January 5, 1998, and the Partnership sold
an additional 225,000 Common Units resulting in additional net
proceeds, including the general partners' capital contributions,
of approximately $7.5 million.
Short-term liquidity needs will be met by internal sources and
through the lines of credit discussed above. Long-term capital
needs may be met through the ability to issue long-term
indebtedness as well as additional limited partner interests
of the Partnership either through the registration statement
filed in November 1997 or separate registrations.
Cash Flows From Operating Activities
Cash flows provided by operating activities decreased $30.2
million to $54.9 million for the six month period ended June 30,
1998, as compared to the same period in 1997. Operating
activities for the 1997 period included $41.1 million collected
by Northern Border Pipeline that was subsequently refunded to its
shippers in October 1997 in accordance with its rate case
settlement.
Cash Flows From Investing Activities
Capital expenditures of $299.8 million for the six months
ended June 30, 1998 include $286.7 million for The Chicago
Project and $10.0 million for linepack gas acquired from Northern
Border Pipeline's shippers. The remaining capital expenditures
for 1998 are primarily related to renewals and replacements of
the existing facilities. For the comparable period in 1997,
capital expenditures were $33.0 million, which included $31.1
million for The Chicago Project.
Total capital expenditures for 1998 are estimated to be $652
million for The Chicago Project, $12 million for linepack gas and
$14 million for renewals and replacements of the existing
facilities. Northern Border Pipeline anticipates funding
approximately 65% of its 1998 capital expenditures by borrowing
on the Pipeline Credit Agreement. Funds required to meet the
remainder of Northern Border Pipeline's capital expenditures will
be provided primarily from capital contributions from the
Partnership and minority interest holders. The Partnership
intends to use a combination of proceeds from the sale of Common
Units, capital contributions from its general partners and
borrowings on the Partnership Credit Agreement to finance its
capital contributions to Northern Border Pipeline. The
Partnership anticipates selling additional Common Units to repay
amounts borrowed on the Partnership Credit Agreement to finance
capital contributions for The Chicago Project.
Cash Flows From Financing Activities
Cash flows provided by financing activities were $187.0
million for the six months ended June 30, 1998, as compared to
cash flows used in financing activities of $27.4 million for the
comparable period in 1997. Cash distributions to the common and
subordinated unitholders and the general partners increased $5.0
million reflecting the additional Common Units outstanding and an
increase in the quarterly distribution from $0.55 per Unit to
$0.575 per Unit. Net cash contributions received from minority
interest holders were $49.2 million for the six months ended June
30, 1998, which included amounts needed to finance a portion of
the capital expenditures for The Chicago Project, as compared to
cash distributions of $19.9 million for the comparable period in
1997. Financing activities for 1998 reflect $7.5 million in net
proceeds from the issuance of 225,000 Common Units and related
capital contributions by the Partnership's general partners in
January 1998. Additionally in the six months ended June 30,
1998, borrowings under the Pipeline Credit Agreement and
Partnership Credit Agreement totaled $166.0 million and were used
to finance a portion of the capital expenditures for The Chicago
Project. For the comparable period in 1997, borrowings under
the Pipeline Credit Agreement of $160.0 million were used
primarily to retire amounts related to Northern Border Pipeline's
existing bank loan and credit agreements of $137.5 million.
Year 2000
As a result of computer programs being written using two
digits rather than four to define the applicable year, computer
programs that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. If not
corrected, many computer applications could fail or create
erroneous results. The effects of the Year 2000 problem are
compounded because of the interdependence of computer and
telecommunication systems in the United States and throughout the
world. This interdependence is true for the Partnership,
its subsidiaries and their respective suppliers and customers.
The Partnership and its subsidiaries are developing a
coordinated plan to address Year 2000 problems (the "Plan"). The
Plan includes taking inventory of the capabilities of its
computer hardware and software and embedded chips; correcting
problems to the maximum practicable extent; verifying and testing
the corrections implemented; determining which aspects cannot be
practicably remediated before January 1, 2000; communicating with
outside entities to identify the progress made in modifying those
systems which affect the Partnership and its subsidiaries
("Outside Systems"); and developing contingency plans to minimize
the consequences of potential problems that have not been
identified or cannot be remediated by that date. Management
cannot at this time accurately estimate the total costs of
implementing the Plan through January 1, 2000 and beyond, but
those costs are not expected to be material to the Partnership's
financial position or results of operations. Year 2000 costs are
difficult to estimate accurately because of unanticipated vendor
delays, technical difficulties, the impact of tests of Outside
Systems and similar events. There can be no assurance that all
Outside Systems will be adequately remediated so that they are
Year 2000 ready by January 1, 2000, or that despite the
Partnership's diligent, prudent efforts under its Plan,
there are Year 2000-related failures that create substantial
disruptions to the Partnership's business, which could have a
material adverse impact on the Partnership's business.
Moreover, the estimated costs of implementing the Plan do not
take into account the costs, if any, that might be incurred
as a result of Year 2000-related failures that occur despite
the Partnership's implementation of the Plan.
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 Consolidated Financial Statements" on The
Chicago Project and the discussions in "Year 2000". 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 extreme weather
conditions that could delay construction, the failure of vendors
and contractors to adhere to contract delivery and timing
specifications, 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 5. Other Information
In May 1998, Northern Border Pipeline Company ("Northern
Border Pipeline") announced that it plans to seek approval from
the Federal Energy Regulatory Commission ("FERC") to extend its
pipeline system into Indiana by November 2000 ("Project 2000").
In addition to providing incremental Canadian natural gas to U.S.
markets, Project 2000 would afford shippers on the extended
pipeline system access to industrial gas consumers in northern
Indiana. Project 2000 capital expenditures are estimated at $165
million to $175 million. Northern Border Pipeline anticipates
filing the FERC application for Project 2000 in the fall of 1998.
In May 1998, the proposed Illinois-Wisconsin Express Project,
a joint venture to develop a $220 million to $280 million
pipeline to serve Northern Illinois and Wisconsin markets, was
announced. An open season to determine interested shippers,
specific market location and desired demand is planned for later
this summer. The Partnership plans to participate in the joint
venture.
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 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: August 12, 1998 By: /s/ Jerry L. Peters
Jerry L. Peters
Chief Financial and Accounting
Officer
<PAGE>
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