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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2005
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________.
Commission File Number 333-88577
NORTHERN BORDER PIPELINE COMPANY
(Exact name of registrant as specified in its charter)
Texas 74-2684967
- -------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
13710 FNB Parkway
Omaha, Nebraska 68154-5200
- ------------------------------- --------------------------------
(Address of principal executive (Zip code)
offices)
(402) 492-7300
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. Not applicable.
1 OF 16
NORTHERN BORDER PIPELINE COMPANY
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Statement of Income -
Three Months Ended March 31, 2005 and 2004 3
Statement of Comprehensive Income -
Three Months Ended March 31, 2005 and 2004 3
Balance Sheet -
March 31, 2005 and December 31, 2004 4
Statement of Cash Flows -
Three Months Ended March 31, 2005 and 2004 5
Statement of Changes in Partners' Equity -
Three Months Ended March 31, 2005 6
Notes to 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 13
ITEM 4. Controls and Procedures 14
PART II. OTHER INFORMATION
ITEM 5. Other Information 15
ITEM 6. Exhibits 15
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NORTHERN BORDER PIPELINE COMPANY
STATEMENT OF INCOME
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2005 2004
------- -------
OPERATING REVENUES $82,825 $83,307
------- -------
OPERATING EXPENSES
Operations and maintenance 9,569 9,065
Depreciation and amortization 14,368 14,510
Taxes other than income 7,853 7,913
------- -------
Operating expenses 31,790 31,488
------- -------
OPERATING INCOME 51,035 51,819
------- -------
INTEREST EXPENSE 10,583 10,221
------- -------
OTHER INCOME (EXPENSE)
Other income 332 285
Other expense (153) (126)
------- -------
Other income (expense) 179 159
------- -------
NET INCOME TO PARTNERS $40,631 $41,757
======= =======
NORTHERN BORDER PIPELINE COMPANY
STATEMENT OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2005 2004
------- -------
Net income to partners $40,631 $41,757
Other comprehensive income:
Change associated with current period hedging transactions (365) (402)
------- -------
Total comprehensive income $40,266 $41,355
======= =======
The accompanying notes are an integral part of these financial statements.
3
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NORTHERN BORDER PIPELINE COMPANY
BALANCE SHEET
(IN THOUSANDS)
(UNAUDITED)
MARCH 31, DECEMBER 31,
2005 2004
---------- ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 26,098 $ 20,355
Accounts receivable (net of allowance for doubtful accounts of
$4,269 and $4,208 at March 31, 2005 and December 31, 2004,
respectively) 32,574 33,870
Materials and supplies, at cost 3,469 3,409
Prepaid expenses and other 1,005 1,688
---------- ----------
Total current assets 63,146 59,322
---------- ----------
NATURAL GAS TRANSMISSION PLANT
Property, plant and equipment 2,452,425 2,447,497
Less: Accumulated provision for depreciation and amortization 918,124 903,664
---------- ----------
Property, plant and equipment, net 1,534,301 1,543,833
---------- ----------
OTHER ASSETS
Unamortized debt expense 3,634 3,837
Regulatory asset 12,111 11,807
Other 5,561 4,549
---------- ----------
Total other assets 21,306 20,193
---------- ----------
Total assets $1,618,753 $1,623,348
========== ==========
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 5,000 $ --
Accounts payable 11,174 9,344
Accrued taxes other than income 26,923 27,113
Accrued interest 14,536 11,365
---------- ----------
Total current liabilities 57,633 47,822
---------- ----------
LONG-TERM DEBT, net of current maturities 603,321 603,860
---------- ----------
RESERVES AND DEFERRED CREDITS 4,491 4,526
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 3)
PARTNERS' EQUITY
Partners' capital 949,911 963,378
Accumulated other comprehensive income 3,397 3,762
---------- ----------
Total partners' equity 953,308 967,140
---------- ----------
Total liabilities and partners' equity $1,618,753 $1,623,348
========== ==========
The accompanying notes are an integral part of these financial statements.
4
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NORTHERN BORDER PIPELINE COMPANY
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2005 2004
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income to partners $ 40,631 $ 41,757
-------- ---------
Adjustments to reconcile net income to partners to net cash provided by
operating activities:
Depreciation and amortization 14,456 14,601
Reserves and deferred credits (140) (48)
Changes in components of working capital 6,545 1,599
Other (1,967) (156)
-------- ---------
Total adjustments 18,894 15,996
-------- ---------
Net cash provided by operating activities 59,525 57,753
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property, plant
and equipment (4,684) (282)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution from partners -- 65,000
Distributions to partners (54,098) (48,198)
Issuance of long-term debt 13,000 --
Retirement of long-term debt (8,000) (57,000)
-------- ---------
Net cash used in financing activities (49,098) (40,198)
-------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 5,743 17,273
Cash and cash equivalents-beginning of period 20,355 28,732
-------- ---------
Cash and cash equivalents-end of period $ 26,098 $ 46,005
======== =========
Supplemental Disclosures of Cash Flow Information:
Cash paid for:
Interest (net of amount capitalized) $ 7,830 $ 8,298
======== =========
Changes in components of working capital:
Accounts receivable $ 1,689 $ 962
Materials and supplies (60) 6
Prepaid expenses and other 684 729
Accounts payable 1,251 (2,032)
Accrued taxes other than income (190) (123)
Accrued interest 3,171 2,057
-------- ---------
Total $ 6,545 $ 1,599
======== =========
The accompanying notes are an integral part of these financial statements.
5
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
NORTHERN BORDER PIPELINE COMPANY
STATEMENT OF CHANGES IN PARTNERS' EQUITY
(IN THOUSANDS)
(UNAUDITED)
TC NORTHERN
PIPELINES BORDER ACCUMULATED
INTERMEDIATE INTERMEDIATE OTHER TOTAL
LIMITED LIMITED COMPREHENSIVE PARTNERS'
PARTNERSHIP PARTNERSHIP INCOME EQUITY
------------ ------------ ------------- ---------
Balance at December 31, 2004 $289,014 $674,364 $3,762 $967,140
Net income to partners 12,189 28,442 -- 40,631
Change associated with current period
hedging transactions -- -- (365) (365)
Distributions to partners (16,229) (37,869) -- (54,098)
-------- -------- ------ --------
Balance at March 31, 2005 $284,974 $664,937 $3,397 $953,308
======== ======== ====== ========
The accompanying notes are an integral part of these financial statements.
6
PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
NORTHERN BORDER PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In this report, references to "we", "us" or "our" collectively refer to
Northern Border Pipeline Company.
We have prepared the financial statements included herein without audit
pursuant to the rules and regulations of the Securities and Exchange Commission.
The financial statements reflect all normal and recurring adjustments that are,
in the opinion of management, necessary for a fair presentation of the financial
results for the interim periods presented. Certain information and notes
normally included in financial statements prepared in accordance with U.S.
generally accepted accounting principles ("U.S. GAAP") have been condensed or
omitted pursuant to such rules and regulations. However, we believe that the
disclosures are adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the financial statements
and the notes thereto included in our Annual Report on Form 10-K for the year
ended December 31, 2004.
The preparation of financial statements in conformity with U.S. GAAP
requires management to make assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
2. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We use financial instruments in the management of our interest rate
exposure. A control environment has been established which includes policies and
procedures for risk assessment as well as the approval, reporting and monitoring
of financial instrument activities. At March 31, 2005, we have no outstanding
interest rate swap agreements.
We record in accumulated other comprehensive income amounts related to
terminated interest rate swap agreements for cash flow hedges with such amounts
amortized to interest expense over the term of the hedged debt. During the three
months ended March 31, 2005, we amortized $0.4 million related to the terminated
interest rate swap agreements as a reduction to interest expense from
accumulated other comprehensive income. We expect to amortize a comparable
amount in each of the remaining quarters of 2005.
We record in long-term debt amounts received or paid related to terminated
interest rate swap agreements for fair value hedges with such amounts amortized
to interest expense over the remaining life of the interest rate swap agreement.
During the first quarter of 2005, we amortized approximately $0.6 million as a
decrease to interest expense and expect to amortize approximately $0.5 million
in each of the remaining quarters of 2005.
3. COMMITMENTS AND CONTINGENCIES
Various legal actions that have arisen in the ordinary course of business
are pending. We believe that the resolution of these issues will not have a
material adverse impact on our results of operations or financial position.
7
PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 1. FINANCIAL STATEMENTS - (CONTINUED)
NORTHERN BORDER PIPELINE COMPANY
NOTES TO FINANCIAL STATEMENTS
4. ACCOUNTING PRONOUNCEMENTS
In March 2005, the Financial Accounting Standards Board ("FASB") issued
Interpretation ("FIN") No. 47, "Accounting for Conditional Asset Retirement
Obligations-an interpretation of FASB Statement No. 143." The statement
clarifies that the term conditional asset retirement obligation, as used in SFAS
No. 143, "Accounting for Asset Retirement Obligations," refers to a legal
obligation to perform an asset retirement activity in which the timing and (or)
method of settlement are conditional on a future event that may or may not be
within the control of the entity. This interpretation also clarifies when an
entity would have sufficient information to reasonably estimate the fair value
of an asset retirement obligation. The effective date of this interpretation is
no later than the end of the fiscal year ending after December 15, 2005. The
effect of adopting FIN 47 is not expected to be material to our results of
operations or financial position.
5. SUBSEQUENT EVENTS
We make distributions to our general partners approximately one month
following the end of the quarter. The distributions for the first quarter of
2005 of approximately $52.4 million were paid on May 2, 2005.
8
PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NORTHERN BORDER PIPELINE COMPANY
Our discussion and analysis of our financial condition and results of
operations is based on our Financial Statements, which are prepared in
accordance with U.S. GAAP. You should read the following discussion and analysis
in conjunction with the Financial Statements included elsewhere in this report.
OVERVIEW
We own a 1,249-mile natural gas transmission pipeline system extending
from the United States-Canadian border near Port of Morgan, Montana, to a
terminus near North Hayden, Indiana. This pipeline system connects with multiple
pipelines that provide shippers with access to the various natural gas markets
served by those pipelines.
There are several major business drivers that have an impact on our
business. These factors are discussed in the "Overview" section of Management's
Discussion and Analysis of Financial Condition and Results of Operations in our
2004 Form 10-K.
As previously disclosed in Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Overview" in our Form 10-K for
the year ended December 31, 2004, we had approximately 800 million cubic feet
per day ("mmcfd") or 28% of summer design capacity under contracts that expired
or are due to expire by May 31, 2005. Most of this capacity is available from
Port of Morgan, Montana to the Ventura, Iowa delivery point. We previously
disclosed a possible reduction of $7 million to $14 million to 2005 net income
and cash flow and that the impact could vary outside this range depending on
actual natural gas basis differentials. As a result of contracting activity to
date, we believe a greater reduction is now likely.
For the month of April, approximately 600 mmcfd of our firm transportation
capacity was available for contracting. This firm capacity was not contracted
for the month primarily due, we believe, to the unusually high summer to winter
price differentials causing greater than average natural gas storage injections
from Western Canadian supply sources. The impact to our revenues for the month
of April is estimated to be a reduction of approximately $6 million.
As of May 1, 2005, we have 340 mmcfd that remains available for
contracting in May. We believe that the greatest risk of unsold capacity exists
during the second quarter but some weakness could continue through the balance
of the year based on weather conditions and mid-continent pricing. Consequently,
we now believe that the most likely range of impact on our revenues from unsold
capacity in 2005 is $15 million to $28 million. Due to the difficulty in
predicting all of the variables that can affect the marketability of our
capacity, this estimate is subject to change.
9
PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
NORTHERN BORDER PIPELINE COMPANY
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Certain amounts included in or affecting our Financial Statements and
related disclosures must be estimated, requiring us to make certain assumptions
with respect to values or conditions that cannot be known with certainty at the
time the financial statements are prepared. The preparation of financial
statements in conformity with U.S GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
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. Any effects
on our business, financial position or results of operations resulting from
revisions to these estimates are recorded in the period in which the facts that
give rise to the revision become known.
Our significant accounting policies are summarized in Note 2 - Notes to
Financial Statements included in our Annual Report on Form 10-K for the year
ended December 31, 2004. Certain of our accounting policies are of more
significance in our financial statement preparation process than others.
Our accounting policies conform to Statement of Financial Accounting
Standards ("SFAS") No. 71, "Accounting for the Effects of Certain Types of
Regulation." Accordingly, certain assets that result from the regulated
ratemaking process are recorded that would not be recorded under U.S GAAP for
nonregulated entities. We continually assess whether the regulatory assets are
probable of future recovery by considering such factors as regulatory changes
and the impact of competition. If future recovery ceases to be probable, we
would be required to write off the regulatory assets at that time. At March 31,
2005, we have reflected regulatory assets of $12.1 million, which are expected
to be recovered or are being recovered from our shippers over varying time
periods up to 44 years.
Our long-lived assets are stated at original cost. We must use estimates
in determining the economic useful lives of those assets. Useful lives are based
on historical experience and are adjusted when changes in planned use,
technological advances or other factors show that a different life would be more
appropriate. The depreciation rate used for utility property is an integral part
of our Federal Energy Regulatory Commission ("FERC") tariff. Any revisions to
the estimated economic useful lives of our assets will change our depreciation
and amortization expense prospectively. For utility property, no retirement gain
or loss is included in income except in the case of retirements or sales of
entire regulated operating units. The original cost of utility property retired
is charged to accumulated depreciation and amortization, net of salvage and cost
of removal.
Our accounting for financial instruments follows SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that
every derivative instrument be recorded on the balance sheet as either an asset
or liability measured at its fair value. The statement 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 of the hedged
item in the income statement. At March 31, 2005, we had no derivative financial
instruments outstanding.
RESULTS OF OPERATIONS
Net income to partners decreased $1.1 million for the first quarter of
2005, as compared to the same period in 2004. The decrease in our net income was
the result of lower operating revenues and increases in operations and
maintenance expenses.
10
PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
NORTHERN BORDER PIPELINE COMPANY
Operating revenues decreased $0.5 million for the first quarter of 2005,
as compared to the same period in 2004. The decrease was primarily a result of
there being one less day of transportation revenue in the first quarter of 2005
than in 2004 due to leap year.
Operations and maintenance expense increased $0.5 million for the first
quarter of 2005, as compared to the same period in 2004. The increase is
primarily related to increases in salary and benefit expenses.
LIQUIDITY AND CAPITAL RESOURCES
DEBT AND CREDIT FACILITIES
Our debt and credit facilities outstanding at March 31, 2005, are as
follows:
Payments Due by Period
-------------------------------
Current Portion Long-Term
Total (Less Than 1 Year) Portion
-------- ------------------ ---------
(In Thousands)
$175 million Pipeline Credit
Agreement, average 3.32%,
due 2005 (a) $ 5,000 $ 5,000 $ --
6.25% Senior Notes due 2007 150,000 -- 150,000
7.75% Senior Notes due 2009 200,000 -- 200,000
7.50% Senior Notes due 2021 250,000 -- 250,000
-------- -------- --------
Total $605,000 $ 5,000 $600,000
======== ======== ========
(a) We are required to pay a facility fee of 0.125% on the principal
commitment amount of our credit.
Short-term liquidity needs will be met by operating cash flows and through
the Pipeline Credit Agreement or a similar facility. We have commenced
discussions with financial institutions regarding replacement of the Pipeline
Credit Agreement, which expires in May 2005, and expect to have a facility with
similar terms and conditions in place prior to expiration. At May 6, 2005, we
have $32.0 million borrowed under the Pipeline Credit Agreement. Long-term
capital needs may be met through the ability to issue long-term indebtedness.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows provided by operating activities were $59.5 million for the
first quarter of 2005 as compared to $57.8 million in 2004. The increase in cash
flows from operating activities is primarily the result of an increase in
accruals due to timing of payments.
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures were $4.7 million for the first quarter of 2005 as
compared to $0.3 million in 2004. The capital expenditures for 2005 and 2004
were primarily related to renewals and replacements of existing facilities.
11
PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
NORTHERN BORDER PIPELINE COMPANY
Total capital expenditures for 2005 are estimated to be approximately $39
million, which includes approximately $14 million for the Chicago III Expansion
Project, a proposed expansion of the pipeline system into the Chicago market
area. Refer to the Form 10-K for the year ended December 31, 2004 for further
discussion regarding this expansion project. The remaining capital expenditures
for 2005 are primarily related to renewals and replacements of existing
facilities. We currently anticipate funding our 2005 capital expenditures
primarily by borrowing on our credit facility and using operating cash flows.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows used in financing activities were $49.1 million for the first
quarter of 2005 as compared to $40.2 million in 2004. Distributions to partners
were $54.1 million and $48.2 million for the first quarters of 2005 and 2004,
respectively. The increase in distributions can be primarily attributed to an
increase in net income offset by an increase in capital expenditures in the
fourth quarter of 2004 as compared to the fourth quarter of 2003. Distributions
paid out in the first quarter are based on the results of the fourth quarter of
the previous year.
In the first quarter of 2004, we received contributions of $65.0 million
from our partners and retired $57.0 million of existing bank debt. In the first
quarter of 2005, we had debt borrowings of $13.0 million and debt retirements of
$8.0 million.
UPDATE ON THE IMPACT OF ENRON'S CHAPTER 11 FILING ON OUR BUSINESS
Please read our Form 10-K for the year ended December 31, 2004 for the
full discussion of impacts of Enron's Chapter 11 Filing on our business.
As a result of a settlement agreement, approved by the Bankruptcy Court in
March 2005, among Enron North America ("ENA"), Enron and us, each of ENA and
Enron have agreed to allow our claim of approximately $20.6 million. Based upon
this settlement among the parties, at December 31, 2004, we adjusted our
allowance for doubtful accounts to reflect a $1.1 million estimated recovery for
previously billed amounts under the transportation contracts.
We estimate that we could recognize additional net income, through future
operating results, of $6 million to $9 million for the claims in the Enron
bankruptcy proceedings. However, there can be no assurances on the amounts
actually recovered or timing of distributions under the Chapter 11 Plan.
12
PART I. FINANCIAL INFORMATION - (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - (CONCLUDED)
NORTHERN BORDER PIPELINE COMPANY
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. These forward-looking statements are identified as any statement that does
not relate strictly to historical or current facts. Forward-looking statements
are not guarantees of performance. They involve risks, uncertainties and
assumptions. The future results of our operations may differ materially from
those expressed in these forward-looking statements. Such forward-looking
statements include the discussions in "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview" and "Liquidity and
Capital Resources -- Overview" regarding our contracting and estimated capital
expenditures for 2005. Although we believe that our expectations regarding
future events are based on reasonable assumptions within the bounds of our
knowledge of our business, we can give no assurance that our goals will be
achieved or that our 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: developments in the
December 2, 2001 filing by Enron of a voluntary petition for bankruptcy
protection under Chapter 11 of the United States Bankruptcy Code; any costs
related to changes in the systems and services currently provided to us by Enron
Corp. and CrossCountry Energy and their affiliates and costs related to
replacing these systems and services or transitioning them to ONEOK; ability to
recover costs associated with the settlement with the Fort Peck Tribes on
rights-of-way and tax issues in our rates; ability to include in our rates an
allowance for income taxes; ability to control operating costs; ability to
market pipeline capacity on favorable terms; performance of contractual
obligations by the shippers; the impact of unsold pipeline capacity being
greater than expected; weather conditions; industry results, future demand for
natural gas; availability of supplies of Canadian natural gas; natural gas
development in the Western Canadian Sedimentary Basin; availability of
additional storage capacity; political and regulatory developments that impact
FERC proceedings involving us; our success in sustaining our positions in such
proceedings or the success of interveners in opposing our positions; our ability
to complete growth projects and their future performance; regulatory actions and
receipt of expected regulatory clearances; competitive developments by Canadian
and U.S. natural gas transmission peers; competitive conditions in the overall
natural gas and electricity markets; prices of natural gas; political and
regulatory developments in Canada; actions by rating agencies; and conditions of
the capital markets and our ability to access the capital markets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our interest rate exposure results from variable rate borrowings from
commercial banks. To mitigate potential fluctuations in interest rates, we
attempt to maintain a significant portion of our debt portfolio in fixed rate
debt. We also use interest rate swap agreements as a means to manage interest
expense by converting a portion of fixed rate debt into variable rate debt. At
March 31, 2005, we had $5.0 million of variable rate debt outstanding
(approximately 1% of our debt portfolio) and no interest rate swaps outstanding.
For additional information on our derivative financial instruments, see Note 2
to the Financial Statements, included elsewhere in this report.
13
PART I. FINANCIAL INFORMATION - (CONCLUDED)
ITEM 4. CONTROLS AND PROCEDURES
NORTHERN BORDER PIPELINE COMPANY
Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of those officers
of Northern Plains that are the equivalent of our principal executive officer
and principal financial officer of the effectiveness of disclosure controls and
procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934, as amended. Based on their evaluation, they have concluded
that as of the end of the period covered by this report, our disclosure controls
and procedures were effective in recording, processing, summarizing and
reporting information, and timely alerting them to material information relating
to us required to be included in our periodic filings with the Securities and
Exchange Commission.
Changes in Internal Control over Financial Reporting.
During the most recently completed fiscal quarter, we continued to
implement changes to our internal control over financial reporting related to
the transition from Enron systems to ONEOK systems or other systems ("Transition
Project"). As of January 1, 2005, most of our financial and accounting systems
had been transitioned from Enron systems to ONEOK systems. The Transition
Project is anticipated to be completed by mid-May 2005. We anticipate that there
will be additional changes in internal control over financial reporting as a
result of the Transition Project.
As part of the transition process, we evaluate the impact of these changes
on our internal control over financial reporting and have determined that these
changes have not materially affected, or are not reasonably likely to materially
affect, our internal control over financial reporting.
14
PART II. OTHER INFORMATION
NORTHERN BORDER PIPELINE COMPANY
ITEM 5. OTHER INFORMATION
On May 4, 2005, the FERC issued a policy statement as a result of its
request for comments on the proper tax allowance treatment for capital
structures involving partnerships and other forms of ownership. Under the new
policy, an income tax allowance would be permitted on all partnership interests
if the owner of that interest has an actual or potential income tax liability on
that income. As previously disclosed, our tariff provides for an income tax
allowance. We believe that the policy statement generally is a positive
development regarding income tax allowances in the derivation of rates for
pipelines. In the event the policy statement is applied to us, the issue of
whether a particular owner has an actual or potential income tax liability and
related matters may be resolved in individual rate proceedings.
ITEM 6. EXHIBITS
10.1 Form of Termination Agreement dated as of January 5, 2005,
incorporated by reference to Exhibit 99.1 to Northern Border
Partners, L.P. Form 8-K filed on January 11, 2005 (File No.
1-12202).
10.2 ONEOK, Inc. 2005 Supplemental Executive Retirement Plan filed as
Exhibit 99.2 to Northern Border Partners, L.P. Form 8-K filed on
January 11, 2005 (File No. 1-12202).
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial and
Accounting Officer.
32.1 Section 1350 Certification of Chief Executive Officer.
32.2 Section 1350 Certification of Chief Financial and Accounting
Officer.
15
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 PIPELINE COMPANY
(A Texas General Partnership)
By: Northern Plains Natural Gas
Company, LLC, Operator
Date: May 9, 2005 By: /s/ Jerry L. Peters
--------------------------------
Jerry L. Peters
Vice President, Finance and
Treasurer
16
Index to Exhibits
Exhibit No Description
- ---------- -----------
10.1 Form of Termination Agreement dated as of January 5, 2005,
incorporated by reference to Exhibit 99.1 to Northern Border
Partners, L.P. Form 8-K filed on January 11, 2005 (File No. 1-12202).
10.2 ONEOK, Inc. 2005 Supplemental Executive Retirement Plan filed as
Exhibit 99.2 to Northern Border Partners, L.P. Form 8-K filed on
January 11, 2005 (File No. 1-12202).
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial and
Accounting Officer.
32.1 Section 1350 Certification of Chief Executive Officer.
32.2 Section 1350 Certification of Chief Financial and Accounting
Officer.