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, 1999
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 18
<PAGE>
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, 1999 and 1998 3
Consolidated Balance Sheet - March 31, 1999
and December 31, 1998 4
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1999 and 1998 5
Consolidated Statement of Changes in Partners'
Capital - Three Months Ended March 31, 1999 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk 16
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 17
<PAGE>
<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,
1999 1998
<S> <C> <C>
OPERATING REVENUES $78,895 $52,820
OPERATING EXPENSES
Operations and maintenance 12,763 10,582
Depreciation and amortization 13,449 10,420
Taxes other than income 7,635 6,168
Operating expenses 33,847 27,170
OPERATING INCOME 45,048 25,650
INTEREST EXPENSE
Interest expense 16,258 9,791
Interest expense capitalized (14) (2,726)
Interest expense, net 16,244 7,065
OTHER INCOME
Allowance for equity funds used
during construction 16 1,625
Other income, net 1,905 802
Other income 1,921 2,427
MINORITY INTERESTS IN NET INCOME 9,094 6,079
NET INCOME TO PARTNERS $21,631 $14,933
NET INCOME PER UNIT $ .72 $ .50
NUMBER OF UNITS USED IN COMPUTATION 29,347 29,338
<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 1999 1998
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 50,058 $ 41,042
Accounts receivable 31,196 21,547
Materials and supplies, at cost 3,721 4,189
Under recovered cost of service -- 2,781
Total current assets 84,975 69,559
TRANSMISSION PLANT
Property, plant and equipment 2,385,707 2,345,700
Less: Accumulated provision for
depreciation and amortization 627,793 615,224
Net property, plant and equipment 1,757,914 1,730,476
OTHER ASSETS 25,292 25,731
Total assets $1,868,181 $1,825,766
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Current maturities of long-term debt $ 2,880 $ 2,805
Accounts payable 29,485 46,032
Accrued taxes other than income 22,511 20,140
Accrued interest 8,187 12,462
Over recovered cost of service 509 --
Total current liabilities 63,572 81,439
LONG-TERM DEBT, net of current maturities 1,033,278 974,027
MINORITY INTERESTS IN PARTNERS' CAPITAL 250,721 253,031
RESERVES AND DEFERRED CREDITS 9,843 9,843
PARTNERS' CAPITAL
General Partners 10,215 10,148
Common Units 500,552 401,388
Subordinated Units -- 95,890
Total partners' capital 510,767 507,426
Total liabilities and partners' capital $1,868,181 $1,825,766
<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 CASH FLOWS
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income to partners $ 21,631 $ 14,933
Adjustments to reconcile net income to partners
to net cash provided by operating activities:
Depreciation and amortization 13,452 10,423
Minority interests in net income 9,094 6,079
Changes in components of working capital (7,619) (586)
Other 194 (1,777)
Total adjustments 15,121 14,139
Net cash provided by operating activities 36,752 29,072
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property, plant
and equipment, net (57,368) (103,912)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to Unitholders and
General Partners (18,290) (17,219)
(Distributions to) contributions received
from Minority Interests, net (11,404) 18,147
Issuance of partnership interests, net -- 7,462
Issuance of long-term debt 65,000 10,000
Retirement of long-term debt (5,674) (606)
Net cash provided by financing activities 29,632 17,784
NET CHANGE IN CASH AND CASH EQUIVALENTS 9,016 (57,056)
Cash and cash equivalents-beginning of period 41,042 106,757
Cash and cash equivalents-end of period $ 50,058 $ 49,701
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest (net of amount capitalized) $ 20,405 $ 12,101
<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>
Total
General Common Subordinated Partners'
Partners Units Units Capital
<S> <C> <C> <C> <C>
Partners' Capital at December 31, 1998 $10,148 $401,388 $95,890 $507,426
Subordinated Units converted to
Common Units -- 95,890 (95,890) --
Net income to partners 455 21,176 -- 21,631
Distributions to partners (388) (17,902) -- (18,290)
Partners' Capital at March 31, 1999 $10,215 $500,552 $ -- $510,767
<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, 1998.
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").
Black Mesa Holdings, Inc., Black Mesa Pipeline Operations, L.L.C.
and Williams Technologies, Inc. are wholly-owned subsidiaries of
the Partnership.
2. In October 1998, Northern Border Pipeline filed a certificate
application with the Federal Energy Regulatory Commission
("FERC") to seek approval to expand and extend its pipeline
system into Indiana by November 2000 ("Project 2000"). If
approved and constructed, Project 2000 would afford shippers on
the extended pipeline system access to industrial gas consumers
in northern Indiana. As a result of permanent releases of
capacity between several existing and project shippers originally
included in the October 1998 application, Northern Border
Pipeline amended its application with the FERC in March 1999.
Project 2000 revised capital expenditures are estimated to be
approximately $126 million and, with timely regulatory approvals,
construction activities are expected to begin in late 1999.
Numerous parties have filed to intervene in this proceeding.
Several parties have protested this application asking that the
FERC deny Northern Border Pipeline's request for rolled-in rate
treatment for the new facilities and that Northern Border
Pipeline be required to solicit indications of interest from
existing shippers for capacity releases that would possibly
eliminate the construction of certain new facilities.
3. On January 19, 1999, the 6,420,000 outstanding subordinated
units were converted into an equal number of common units. The
Partnership Policy Committee, which manages the Partnership,
determined the subordination period had ended as a result of
satisfying the criteria set forth in the partnership agreement.
4. Accounts payable shown on the accompanying consolidated
balance sheet includes approximately $20.7 million and $37.4
million at March 31, 1999 and December 31, 1998, respectively, of
project costs incurred but not paid on Northern Border Pipeline's
expansion and extension of its pipeline system that was placed
into service in late December 1998. These costs are recorded in
property, plant and equipment on the accompanying consolidated
balance sheet and are excluded from the changes in components of
working capital and capital expenditures for property, plant and
equipment, net on the accompanying consolidated statement of cash
flows.
5. Net income per unit is computed by dividing net income, after
deduction of the general partners' allocation, by the weighted
average number of outstanding common units. The general
partners' allocation is equal to an amount based upon their
collective 2% general partner interest adjusted for incentive
distributions.
On January 19, 1999, the Partnership declared a cash distribution
of $0.61 per unit ($2.44 per unit on an annualized basis) for the
quarter ended December 31, 1998. The distribution was paid
February 12, 1999, to the general partners and to the unitholders
of record at January 29, 1999. On April 19, 1999, the
Partnership declared a cash distribution of $0.61 per unit ($2.44
per unit on an annualized basis) for the quarter ended March 31,
1999. The distribution is payable May 14, 1999, to unitholders
of record at April 30, 1999. Each quarter's distribution
includes an incentive distribution to the general partners of
approximately $24 thousand.
<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 December 1998, Northern Border Pipeline completed an
expansion and extension of its pipeline system ("The Chicago
Project"). As a result of placing the facilities for The Chicago
Project into service, Northern Border Pipeline has added
approximately $875 million to its gas plant in service through
March 31, 1999 ($840 million through December 31, 1998). The
final construction cost is estimated to be $892 million.
First Quarter 1999 Compared With First Quarter 1998
Operating revenue increased $26.1 million for the first
quarter of 1999, as compared to the same period in 1998, due
primarily to Northern Border Pipeline placing the facilities for
The Chicago Project into service. New firm transportation
agreements with 27 shippers provided for additional receipt
capacity of 700 million cubic feet per day, a 42% increase. The
Chicago Project increased Northern Border Pipeline's rate base,
which increased Northern Border Pipeline's return for the first
quarter of 1999. Recoveries of pipeline operating expenses also
increased due to the new facilities.
Operations and maintenance expense increased $2.2 million for
the first quarter of 1999, from the comparable period in 1998,
due primarily to operations and maintenance expenses for The
Chicago Project facilities and administrative expenses for
Northern Border Pipeline.
Depreciation and amortization expense increased $3.0 million
for the first quarter of 1999, as compared to the same period in
1998, due primarily to Northern Border Pipeline placing the
facilities for The Chicago Project into service. The impact of
the additional facilities on depreciation and amortization
expense was partially offset by a decrease in the depreciation
rate applied to transmission plant from 2.5% to 2.0%. Northern
Border Pipeline agreed to reduce the depreciation rate at the
time The Chicago Project was placed into service, as part of a
previous rate case settlement.
Taxes other than income increased $1.5 million for the first
quarter of 1999, as compared to the same period in 1998, due
primarily to ad valorem taxes attributable to the facilities
placed into service for The Chicago Project.
Interest expense, net increased $9.2 million for the first
quarter of 1999, as compared to the same period in 1998, due to
an increase in interest expense of $6.5 million and a decrease in
interest expense capitalized of $2.7 million. Interest expense
attributable to Northern Border Pipeline and the Partnership
increased $6.5 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
impact of the increased borrowings on interest expense was
partially offset by a decrease in Northern Border Pipeline's
average interest rates between 1998 and 1999. The decrease in
interest expense capitalized is due to the completion of
construction of The Chicago Project in December 1998.
Other income decreased $0.5 million for the first quarter of
1999, as compared to the same period in 1998, primarily due to a
decrease in the allowance for equity funds used during
construction. The decrease in the allowance for equity funds
used during construction is due to the completion of construction
of The Chicago Project in December 1998.
Minority interests in net income increased $3.0 million for
the first quarter of 1999, as compared to the same period in
1998, due to increased net income for Northern Border Pipeline.
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 previously
outstanding 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.
Effective March 1999, in accordance with the provisions of the
Pipeline Credit Agreement, Northern Border Pipeline converted the
three-year revolving credit facility to a term loan maturing in
June 2002. At March 31, 1999, $127.5 million and $549.5 million
had been borrowed on the five-year revolving credit facility and
the term loan, 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. Public offerings
of Common Units in December 1997 and January 1998 reduced the
amount available under the Partnership Credit Agreement to
$104 million. With the conversion of Northern Border Pipeline's
three-year revolving credit facility to a term loan, the maturity
date of the Partnership Credit Agreement is November 2000.
At March 31, 1999, $90 million had been borrowed on the Partnership
Credit Agreement.
In September 1998, Northern Border Pipeline executed interest
rate forward agreements with an aggregate notional amount of $150
million to hedge the interest rate for a planned issuance of
fixed rate debt during 1999. Northern Border Pipeline plans to
use the proceeds from the debt borrowing to repay amounts
borrowed on the Pipeline Credit Agreement.
In February 1999, the Partnership filed two registration
statements with the Securities and Exchange Commission ("SEC").
One registration statement was for a proposed offering of $200
million in Common Units and debt securities to be used by the
Partnership for general business purposes including repayment of
debt, future acquisitions, capital expenditures and working
capital. The other registration statement was for a proposed
offering of 3,210,000 Common Units that are presently owned by
Northwest Border Pipeline Company, a general partner, and PEC
Midwest, L.L.C., for which the Partnership will not receive any
proceeds.
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 statements
previously discussed or separate registrations.
Cash Flows From Operating Activities
Cash flows provided by operating activities increased $7.7
million to $36.8 million for the first quarter of 1999, as
compared to the same period in 1998, primarily attributed to The
Chicago Project facilities placed into service in late December
1998.
Cash Flows From Investing Activities
Capital expenditures of $57.4 million for the first quarter of
1999 include $51.9 million for The Chicago Project. The
remaining capital expenditures for 1999 are primarily related to
renewals and replacements of Northern Border Pipeline's existing
facilities. For the comparable period in 1998, capital
expenditures were $103.9 million, which included $102.2 million
for The Chicago Project.
Total capital expenditures for 1999 are estimated to be $131
million including $30 million for Project 2000 (see Note 2 -
Notes to Consolidated Financial Statements) and $85 million for
The Chicago Project. Approximately $37 million of the capital
expenditures for The Chicago Project is for construction
completed in 1998. An additional $16 million of 1999 capital
expenditures is planned for renewals and replacements of the
existing facilities. Northern Border Pipeline anticipates
funding its 1999 capital expenditures primarily by borrowing on
the Pipeline Credit Agreement and using working capital. The
Partnership anticipates selling additional Common Units to repay
amounts borrowed on the Partnership Credit Agreement which
financed its capital contributions for The Chicago Project.
Cash Flows From Financing Activities
Cash flows provided by financing activities increased $11.8
million to $29.6 million for the first quarter of 1999, as
compared to the same period in 1998. Cash distributions to the
unitholders and the general partners increased $1.1 million
reflecting an increase in the quarterly distribution from $0.575
per Unit to $0.61 per Unit. Distributions paid to minority
interest holders were $11.4 million for the first quarter of
1999, as compared to net cash contributions received from
minority interest holders of $18.1 million for the first quarter
of 1998, which included amounts needed to finance a portion of
the capital expenditures for The Chicago Project. Financing
activities for the first quarter of 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. Borrowings under the Pipeline Credit
Agreement increased $55 million for the first quarter of 1999 as
compared to the same period in 1998, which were used to finance a
portion of the capital expenditures for The Chicago Project.
During the first quarter of 1999, $5.0 million was repaid on the
Partnership Credit Agreement.
Year 2000
The Partnership and its subsidiaries, similar to most
businesses, rely heavily on information systems technology to
operate in an efficient and effective manner. Much of this
technology takes the form of computers and associated hardware
for data processing and analysis. In addition, a great deal of
information processing technology is embedded in microelectronic
devices. The Year 2000 problem results from the use in computer
hardware and software of two digits rather than four digits to
define the applicable year. As a result, 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 have developed a plan,
which will be modified as events warrant, to address Year 2000
problems (the "Plan"). The Plan is designed to take reasonable
steps to prevent mission-critical functions from being impaired
due to the Year 2000 problem. "Mission-critical" functions are
pipeline operations, operated in a manner that is safe for
personnel and the public. Pipeline operations include the flow
of natural gas through the pipeline with the operation of
thirteen natural gas fired compressor stations, two electric
powered compressor stations, measurement stations for receipt and
delivery of gas and the supervisory control and data acquisition
("SCADA") computer system. The Partnership and its subsidiaries
are committed to allocating the resources necessary to implement
the Plan. A core team of individuals has been established to
implement and complete the Plan (the "Y2K Team"). The Plan includes
developing a comprehensive component inventory of computer hardware,
software, embedded chips and third-party interfaces; assessing the
risk of non-compliance of each component; identifying the impact
of any component failure; assessing Year 2000 compliance of each
component; identifying and implementing solutions for non-
compliance of components; testing of solutions implemented; and
developing contingency plans for critical components and systems.
Computer software, hardware, embedded chips, and third-party
interfaces have been identified, inventoried, and assessed.
Where necessary, remediation, replacement, or adequate
workarounds have been identified and implemented or are in the
process of being implemented. The workaround the Partnership has
employed in very limited instances is to turn the system clocks
back to a past date so that the systems will not rollover to the
year 2000 for several years. At this time, the Partnership
believes its mission critical systems are Year 2000 ready. As
far as non-mission critical systems, the Partnership estimates
that at the current time the systems are approximately 90% Year
2000 ready, based on the work effort involved. Additional work
remaining consists primarily of completing upgrades of certain
off-the-shelf software.
The Plan recognizes that the computer, telecommunications and
other systems ("Outside Systems") of outside entities ("Outside
Entities") have the potential for major, mission-critical,
adverse effects on the conduct of the Partnership's and its
subsidiaries' businesses. The Partnership and its subsidiaries
do not have control of these Outside Systems. However, the Plan
includes an ongoing process of identifying and contacting Outside
Entities whose systems have or may have a substantial effect on
the Partnership's and its subsidiaries' ability to continue to
conduct the mission-critical aspects of their businesses without
disruption from Year 2000 problems. The Plan requires the
Partnership and its subsidiaries to attempt to inventory and
assess the extent to which these Outside Systems may not be Year
2000 compatible. The Y2K Team will attempt reasonably to
coordinate with these Outside Entities in an ongoing effort to
obtain assurances these Outside Systems will be Year 2000
compatible well before January 1, 2000.
A listing of critical Outside Entities has been developed
which includes shippers, electrical suppliers, and
interconnecting pipelines. Currently, the Y2K Team is in the
process of contacting these entities to determine their Year 2000
readiness and the extent to which joint testing or mutual
contingency planning is required. The Partnership has made
initial contacts with all critical third-party entities and has
received responses from all but two of the parties contacted.
The Partnership will continue its efforts with the remaining two
entities to determine their Year 2000 readiness. All Outside
Entities contacted have Year 2000 readiness programs underway and
they expect to be Year 2000 ready before the end of the year.
The assessment of the Year 2000 readiness of Outside Entities is
an important factor in the internal contingency planning process.
The processes of inventorying, assessing, analyzing,
remediating through replacement or adequate workarounds, testing,
and developing contingency plans for mission-critical functions
in anticipation of the year 2000 are necessarily iterative
processes. That is, the steps are repeated as the Y2K Team
learns more about the Year 2000 problem and its effects on
internal systems and on Outside Systems, and about the effects
that embedded chips may have on the Partnership's and its
subsidiaries' systems and Outside Systems. As the steps are
repeated, it is likely that new problems will be identified and
addressed. The Partnership knows of no specific systems that are
susceptible to problems that can only be identified after January
1, 2000.
The Partnership has in place a contingency plan designed to
address specific Year 2000 related problems including loss of all
commercial electrical power, loss of all commercial
telecommunications, and unforeseen failures in critical systems.
In the event of loss of commercial power, all critical facilities
have back up power sources including auxiliary generators and
battery back up except for the two electric powered compressor
stations. The Partnership has its own internal, private
communications systems for voice, data, and SCADA traffic. All
of the communications sites have back-up power sources. The
Partnership also has a redundant back-up site for critical
operation and systems functions. All compressor facilities will
be manned at year end so that unforeseen issues can be dealt with
immediately.
The Partnership and its subsidiaries have not incurred
material historical costs associated with the Year 2000 issues.
Further, the Partnership and its subsidiaries anticipate that
their future costs of implementing the Plan will not be material.
Although management believes its estimates are reasonable, there
can be no assurance, for the reasons stated in the following
paragraph, that the actual costs of implementing the Plan will
not differ materially from the estimated costs or that the
Partnership and its subsidiaries will not be adversely affected
by Year 2000 issues.
The extent and magnitude of the Year 2000 problem as it may
affect the Partnership and its subsidiaries, both before and for
some period after January 1, 2000, are difficult to predict or
quantify for a number of reasons. Among the most important is
the potential complexity of locating embedded microprocessors
that may be in a great variety of hardware used for process or
flow control, environmental, transportation, access,
communications and other systems. The Partnership and its
subsidiaries believe that they will be able to identify and
remediate mission-critical systems containing embedded
microprocessors. Other important difficulties relate to the lack
of control over and difficulty inventorying, assessing,
remediating, verifying and testing Outside Systems; the complexity
of evaluating all software (computer code) internal to the Partnership
and its subsidiaries that may not be Year 2000 compatible; and the
potential limited availability of certain necessary internal or
external resources, including but not limited to trained hardware
and software engineers, technicians and other personnel to
perform adequate remediation, verification and testing of
internal systems or Outside Systems. 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 for
example that all Outside Systems will be adequately remediated so
that they are Year 2000 ready by January 1, 2000, or by some
earlier date, so as not to create a material disruption to
business. If, despite diligent, prudent efforts under the Plan,
there are Year 2000-related failures that create substantial
disruptions to the Partnership and its subsidiaries' businesses,
the adverse impact could be material. Moreover, the estimated
costs of pursuing the current course of action do not take into
account the costs, if any, that might be incurred as a result of
Year 2000-related failures that occur despite implementation of
the Plan, as it may be modified over time.
In a recent SEC release regarding Year 2000 disclosures, the
SEC stated that public companies must disclose the most
reasonably likely worst case Year 2000 scenario. Analysis of the
most reasonably likely worst case Year 2000 scenarios the
Partnership may face leads to contemplation of the following
possibilities: widespread failure of electrical, gas, and similar
supplies by utilities serving the Partnership; widespread
disruption of the services of communications common carriers;
similar disruption to means and modes of transportation for the
Partnership and its employees, contractors, suppliers, and
customers; significant disruption to the Partnership's ability to
gain access to, and remain working in, office buildings and other
facilities; and the failure of Outside Systems, the effects of
which would have a cumulative material adverse impact on the
Partnership's mission-critical systems. Among other things, the
Partnership could face substantial claims due to service
interruptions, inability to fulfill contractual obligations,
inability to account for certain revenues or obligations or to
bill shippers accurately and on a timely basis, and increased
expenses associated with litigation, stabilization of operations
following mission-critical failures, and the execution of
contingency plans. The Partnership could also experience an
inability by shippers to pay, on a timely basis or at all,
obligations owed to the Partnership. Under these circumstances,
the adverse effect on the Partnership, and the diminution of the
Partnership's revenues, would be material, although not
quantifiable at this time. The Partnership will continue to
monitor business conditions with the aim of assessing and
quantifying material adverse effects, if any, that result or may
result from the Year 2000 problem.
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" regarding
Northern Border Pipeline's efforts to pursue opportunities to
further increase its capacity. 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 industry results, future demand for
natural gas, availability of supplies of Canadian natural gas,
political and regulatory developments that impact FERC
proceedings involving Northern Border Pipeline, Northern Border
Pipeline's success in sustaining its positions in such
proceedings or the success of intervenors in opposing Northern
Border Pipeline's positions, Northern Border Pipeline's ability
to replace its rate base as it is depreciated and amortized,
competitive developments by Canadian and U.S. natural gas
transmission peers, political and regulatory developments in
Canada, conditions of the capital markets and equity markets, and
the Partnership's ability to successfully implement the Year 2000
Plan during the periods covered by the forward looking
statements.
<PAGE>
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES
The Partnership's interest rate exposure results from its
variable rate borrowings from commercial banks. To mitigate
potential fluctuations in interest rates, the Partnership
maintains a significant portion of its consolidated debt
portfolio in fixed rate debt. The Partnership also uses interest
rate swap agreements to increase the portion of its fixed rate
debt and uses interest rate forward agreements to establish an
approximate effective borrowing rate for anticipated long-term
debt issuances. Since December 31, 1998, there has not been any
material changes to the Partnership's interest rate exposure.
<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: April 30, 1999 By: JERRY L. PETERS
Jerry L. Peters
Chief Financial and Accounting
Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 302
<SECURITIES> 49,276
<RECEIVABLES> 31,196
<ALLOWANCES> 0
<INVENTORY> 3,721
<CURRENT-ASSETS> 84,975
<PP&E> 2,385,707
<DEPRECIATION> 627,793
<TOTAL-ASSETS> 1,868,181
<CURRENT-LIABILITIES> 63,572
<BONDS> 1,033,278
0
0
<COMMON> 0
<OTHER-SE> 510,767
<TOTAL-LIABILITY-AND-EQUITY> 1,868,181
<SALES> 0
<TOTAL-REVENUES> 78,895
<CGS> 0
<TOTAL-COSTS> 33,847
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,258
<INCOME-PRETAX> 21,631
<INCOME-TAX> 0
<INCOME-CONTINUING> 21,631
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,631
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
</TABLE>
