10-Q 1 0001.txt 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, 2000 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 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, 2000 and 1999 and Six Months Ended June 30, 2000 and 1999 3 Consolidated Balance Sheet - June 30, 2000 and December 31, 1999 4 Consolidated Statement of Cash Flows - Six Months Ended June 30, 2000 and 1999 5 Consolidated Statement of Changes in Partners' Capital - Six Months Ended June 30, 2000 6 Notes to Consolidated Financial Statements 7 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 15 PART II. OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K 16 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)
Three Months Ended Six Months Ended June 30, June 30, 2000 1999 2000 1999 OPERATING REVENUES, NET $82,536 $78,012 $164,053 $156,907 OPERATING EXPENSES Operations and maintenance 14,684 12,564 27,558 25,327 Depreciation and amortization 15,203 13,559 30,705 27,008 Taxes other than income 7,815 7,547 15,698 15,182 Operating expenses 37,702 33,670 73,961 67,517 OPERATING INCOME 44,834 44,342 90,092 89,390 INTEREST EXPENSE 19,249 16,326 37,940 32,570 OTHER INCOME 1,281 1,226 1,303 3,147 MINORITY INTERESTS IN NET INCOME 8,824 8,681 17,447 17,775 NET INCOME TO PARTNERS $18,042 $20,561 $ 36,008 $ 42,192 NET INCOME PER UNIT $ 0.60 $ 0.69 $ 1.19 $ 1.41 NUMBER OF UNITS USED IN COMPUTATION 29,347 29,347 29,347 29,347 The accompanying notes are an integral part of these consolidated financial statements.
PART I. FINANCIAL INFORMATION (Continued) ITEM 1. FINANCIAL STATEMENTS (Continued) NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In Thousands) (Unaudited)
June 30, December 31, ASSETS 2000 1999 CURRENT ASSETS Cash and cash equivalents $ 53,945 $ 22,927 Accounts receivable 35,495 30,238 Materials and supplies, at cost 6,032 4,410 Under recovered cost of service -- 3,068 Total current assets 95,472 60,643 TRANSMISSION PLANT Property, plant and equipment 2,409,926 2,410,133 Less: Accumulated provision for depreciation and amortization 694,277 664,777 Property, plant and equipment, net 1,715,649 1,745,356 INVESTMENTS AND OTHER ASSETS Investment in unconsolidated affiliate 54,537 31,895 Other 26,041 25,543 Total investments and other assets 80,578 57,438 Total assets $1,891,699 $1,863,437 LIABILITIES AND PARTNERS' CAPITAL CURRENT LIABILITIES Current maturities of long-term debt $ 69,285 $ 183,617 Accounts payable 4,709 8,279 Accrued taxes other than income 25,450 26,608 Accrued interest 18,360 17,608 Over recovered cost of service 674 -- Accumulated provision for rate refunds 16,090 2,317 Total current liabilities 134,568 238,429 LONG-TERM DEBT, NET OF CURRENT MATURITIES 985,870 848,369 MINORITY INTERESTS IN PARTNERS' CAPITAL 248,601 250,450 RESERVES AND DEFERRED CREDITS 10,725 10,920 PARTNERS' CAPITAL General Partners 10,239 10,305 Common Units 501,696 504,964 Total partners' capital 511,935 515,269 Total liabilities and partners' capital $1,891,699 $1,863,437 The accompanying notes are an integral part of these consolidated financial statements.
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)
Six Months Ended June 30, 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net income to partners $ 36,008 $ 42,192 Adjustments to reconcile net income to partners to net cash provided by operating activities: Depreciation and amortization 30,837 27,014 Minority interests in net income 17,447 17,775 Provision for rate refunds 13,773 -- Changes in components of working capital (3,590) (2,490) Other 283 1,078 Total adjustments 58,750 43,377 Net cash provided by operating activities 94,758 85,569 CASH FLOWS FROM INVESTING ACTIVITIES: Investment in unconsolidated affiliate (23,299) -- Capital expenditures for property, plant and equipment (4,094) (77,460) Net cash used in investing activities (27,393) (77,460) CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions to Unitholders and General Partners (39,342) (36,580) Distributions to Minority Interests (19,296) (20,332) Issuance of long-term debt 169,783 65,000 Retirement of long-term debt (146,018) (21,366) Long-term debt financing costs (1,474) -- Net cash used in financing activities (36,347) (13,278) NET CHANGE IN CASH AND CASH EQUIVALENTS 31,018 (5,169) Cash and cash equivalents-beginning of period 22,927 41,042 Cash and cash equivalents-end of period $ 53,945 $ 35,873 Supplemental Disclosures of Cash Flow Information: Cash paid for: Interest (net of amount capitalized) $ 37,436 $ 32,159 Changes in components of working capital: Accounts receivable $ (5,257) $ (7,650) Materials and supplies (1,622) 494 Over/under recovered cost of service 3,742 6,904 Accounts payable (47) (1,970) Accrued taxes other than income (1,158) (430) Accrued interest 752 162 Total $ (3,590) $ (2,490) The accompanying notes are an integral part of these consolidated financial statements.
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)
Total General Common Partners' Partners Units Capital Partners' Capital at December 31, 1999 $10,305 $504,964 $515,269 Net income to partners 1,124 34,884 36,008 Distributions to partners (1,190) (38,152) (39,342) Partners' Capital at June 30, 2000 $10,239 $501,696 $511,935 The accompanying notes are an integral part of this consolidated financial statement.
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, 1999. 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 NBP Energy Pipelines, L.L.C. ("NBP Energy") are wholly-owned subsidiaries of the Partnership. NBP Energy owns a 39% common membership interest and 80% of the non-voting class A shares in Bighorn Gas Gathering, L.L.C. ("Bighorn"), which is reflected as an investment in unconsolidated affiliate on the consolidated balance sheet. The common membership interest was acquired in December 1999 and the class A shares were acquired in June 2000. 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 ("Project 2000"). When completed, Project 2000 would afford shippers on the expanded and extended pipeline system access to industrial gas consumers in northern Indiana. The certificate application was subsequently amended by Northern Border Pipeline in March and December 1999. On March 16, 2000, the FERC issued an order granting Northern Border Pipeline's application for a certificate to construct and operate the proposed facilities. The FERC approved Northern Border Pipeline's request for rolled-in rate treatment based upon the proposed project costs. The project has a targeted in-service date of November 2001. The capital expenditures for the project are estimated to be approximately $94 million. 3. Northern Border Pipeline filed a rate proceeding with the FERC in May 1999 for, among other things, a redetermination of its allowed equity rate of return. The total annual cost of service increase due to Northern Border Pipeline's proposed changes is approximately $30 million. A number of Northern Border Pipeline's shippers and competing pipelines have filed interventions and protests. In June 1999, the FERC issued an order in which the proposed changes were suspended until December 1, 1999, after which the proposed changes were implemented with subsequent billings subject to refund. The June order and a subsequent clarification issued by the FERC in August 1999 set for hearing not only Northern Border Pipeline's proposed changes but also several issues raised by intervenors including the appropriateness of Northern Border Pipeline's cost of service tariff; rolled-in rate treatment of The Chicago Project, which was Northern Border Pipeline's expansion and extension project placed in service in December 1998; capital project cost containment mechanism ("PCCM") amount recorded for The Chicago Project; depreciation schedule and creditworthiness standards. As agreed to in a prior rate case settlement, the PCCM was implemented to limit Northern Border Pipeline's ability to include cost overruns on The Chicago Project in rate base and to provide incentives for cost underruns. The PCCM amount is computed by comparing the final cost of The Chicago Project to the budgeted cost, adjusted for the effects of inflation and project scope changes as defined in the prior rate case settlement. Testimony filed by the FERC staff and intervenors in the current rate case proceeding has proposed changes to the PCCM computation, which would result in rate base reductions ranging from $32 million to $43 million. In June 2000, Northern Border Pipeline reached an agreement in principle with a majority of its customers and the FERC staff to settle the issues in the rate case. Terms of the settlement are confidential until a stipulation and agreement is finalized by the parties and filed with the FERC for approval. For the three month and six month periods ending June 30, 2000, respectively, Northern Border Pipeline recorded a $6.7 million and $13.5 million provision for rate refunds, which reflects the anticipated refund obligation to its customers. The provision for rate refunds is netted against operating revenues on the consolidated statement of income. Based upon the agreement in principle, the procedural schedule in the rate case proceeding has been suspended until October 2000. While the parties in the rate case are meeting to finalize the stipulation and agreement, the Partnership can give no assurance whether it will be filed and subsequently approved by the FERC. 4. In June 2000, the Partnership completed a private offering of $150 million of 8 7/8% Senior Notes due 2010 ("Partnership Senior Notes"). The proceeds from the private offering, net of debt discounts and issuance costs, were primarily used to reduce existing indebtedness under a November 1997 credit agreement and to acquire the class A shares in Bighorn (see Note 1). The indenture under which the Partnership Senior Notes were issued does not limit the amount of indebtedness or other obligations that the Partnership may incur, but does contain material financial covenants, including restrictions on the incurrence of secured indebtedness. The Partnership also entered into a registration rights agreement with the initial purchasers in the private offering in which the Partnership agreed, among other things, to use its reasonable best efforts to exchange the Partnership Senior Notes in a registered offering for notes with substantially identical terms. In June 2000, the Partnership entered into interest rate swap agreements with an aggregate notional principal amount of $150 million. The interest rate swap agreements are scheduled to terminate in June 2010. Under the agreements, the Partnership makes payments to counterparties at variable rates based on the London Interbank Offered Rate (6.86% at June 30, 2000) and in return receives payments based on an average fixed rate of 7.64%. In June 2000, the Partnership entered into two credit agreements with certain financial institutions, a $75 million 364- day credit agreement and a $75 million three-year revolving credit agreement (collectively, "Partnership Credit Agreements"). The Partnership Credit Agreements are to be used for capital expenditures, working capital and general business purposes. Upon proper notification to the financial institutions, the maturity date of the Partnership Credit Agreements may be extended to June 2005. The Partnership Credit Agreements permit the Partnership to choose among various interest rate options, to specify the portion of the borrowings to be covered by specific interest rate options and to specify the interest rate period. The Partnership is required to pay a fee on the principal commitment amount of $150 million. At June 30, 2000, no funds had been borrowed under the Partnership Credit Agreements. 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. The distribution to partners amount shown on the accompanying consolidated statement of changes in partners' capital includes incentive distributions to the general partners of approximately $0.4 million. On July 19, 2000, the Partnership declared a cash distribution of $0.65 per unit ($2.60 per unit on an annualized basis) for the quarter ended June 30, 2000. The distribution is payable August 14, 2000, to unitholders of record at July 31, 2000. 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. Northern Border Pipeline filed a rate proceeding with the FERC in May 1999 for, among other things, a redetermination of its allowed equity rate of return. The total annual cost of service increase due to Northern Border Pipeline's proposed changes is approximately $30 million. In June 1999, the FERC issued an order in which the proposed changes were suspended until December 1, 1999, after which the proposed changes were implemented with subsequent billings subject to refund. In June 2000, Northern Border Pipeline reached an agreement in principle with a majority of its customers and the FERC staff to settle the issues in the rate case. Terms of the settlement are confidential until a stipulation and agreement is finalized by the parties and filed with the FERC for approval. For the three month and six month periods ending June 30, 2000, respectively, Northern Border Pipeline recorded a $6.7 million and $13.5 million provision for rate refunds, which reflects the anticipated refund obligation to its customers. The provision for rate refunds is netted against operating revenues on the consolidated statement of income. While the parties in the rate case are meeting to finalize the stipulation and agreement, the Partnership can give no assurance whether it will be filed and subsequently approved by the FERC. Second Quarter 2000 Compared With Second Quarter 1999 Operating revenues, net increased $4.5 million (6%) for the second quarter of 2000, as compared to the same period in 1999, due primarily to recovery of increased operations and maintenance expense, depreciation and amortization expense and interest expense by Northern Border Pipeline. Operations and maintenance expense increased $2.1 million (17%) for the second quarter of 2000, as compared to the same period in 1999, due primarily to expenses incurred in connection with Northern Border Pipeline's pending rate case as well as increased administrative expenses for the pipeline. Depreciation and amortization expense increased $1.6 million (12%) for the second quarter of 2000, as compared to the same period in 1999, due primarily to an increase in the depreciation rate applied to Northern Border Pipeline's transmission plant from 2.0% to 2.3%. The increase in the depreciation rate was approved as part of a previous rate case settlement. Interest expense increased $2.9 million (18%) for the second quarter of 2000, as compared to the same period in 1999. Interest expense for Northern Border Pipeline increased approximately $1.8 million, due primarily to an increase in interest rates between 1999 and 2000. Interest expense for the Partnership increased approximately $1.2 million, due to additional borrowings and an increase in interest rates. The additional borrowings were made primarily for the acquisition of a 39% common membership interest and 80% of the non-voting class A shares in Bighorn Gas Gathering, L.L.C. ("Bighorn") (see Note 1 - Notes to Consolidated Financial Statements). Six Months June 30, 2000 Compared With Six Months Ended June 30, 1999 Operating revenues, net increased $7.1 million (5%) for the first half of 2000, as compared to the same period in 1999, due primarily to recovery of increased operations and maintenance expense, depreciation and amortization expense and interest expense by Northern Border Pipeline. Operations and maintenance expense increased $2.2 million (9%) for the first half of 2000, as compared to the same period in 1999, due primarily to expenses incurred in connection with Northern Border Pipeline's pending rate case as well as increased administrative expenses for the pipeline. Depreciation and amortization expense increased $3.7 million (14%) for the first half of 2000, as compared to the same period in 1999, due primarily to an increase in the depreciation rate applied to Northern Border Pipeline's transmission plant from 2.0% to 2.3%. The increase in the depreciation rate was approved as part of a previous rate case settlement. Interest expense increased $5.4 million (16%) for the first half of 2000, as compared to the same period in 1999. Interest expense for Northern Border Pipeline increased approximately $3.7 million, due primarily to an increase in interest rates between 1999 and 2000. Interest expense for the Partnership increased approximately $1.8 million, due to additional borrowings and an increase in interest rates. The additional borrowings were made primarily for the acquisition of a 39% common membership interest and 80% of the non-voting class A shares in Bighorn (see Note 1 - Notes to Consolidated Financial Statements). Other income decreased $1.8 million (59%) for the first half of 2000, as compared to the same period in 1999. The 2000 results include $1.2 million of income earned from third-party usage of capacity on Northern Border Pipeline's microwave system. The 1999 results included $3.0 million of other non-operating income. Liquidity and Capital Resources General In August 1999, Northern Border Pipeline completed a private offering of $200 million of 7.75% Senior Notes due 2009, which notes were subsequently exchanged in a registered offering for notes with substantially identical terms ("Pipeline Senior Notes"). The proceeds from the Pipeline Senior Notes were used to reduce indebtedness under a June 1997 credit agreement. In June 1997, Northern Border Pipeline entered into a credit agreement ("Pipeline Credit Agreement") with certain financial institutions. The Pipeline Credit Agreement is comprised of a term loan and a $200 million five-year revolving credit facility, both maturing in June 2002. At June 30, 2000, $429.0 million was outstanding under the term loan. No funds were outstanding under the revolving credit facility. At June 30, 2000, Northern Border Pipeline also had outstanding $250 million of senior notes issued in a private placement under a July 1992 note purchase agreement. The note purchase agreement provides for four series of notes, Series A through D, maturing between August 2000 and August 2003. The Series A Notes with a principal amount of $66 million mature in August 2000. Northern Border Pipeline anticipates borrowing on the revolving credit facility to repay the Series A Notes. In June 2000, the Partnership completed a private offering of $150 million of 8 7/8% Senior Notes due 2010 ("Partnership Senior Notes"). The Partnership also entered into a registration rights agreement with the initial purchasers in the private offering in which the Partnership agreed, among other things, to use its reasonable best efforts to exchange the Partnership Senior Notes in a registered offering for notes with substantially identical terms. In June 2000, the Partnership entered into interest rate swap agreements with an aggregate notional principal amount of $150 million. The interest rate swap agreements are scheduled to terminate in June 2010. Under the agreements, the Partnership makes payments to counterparties at variable rates based on the London Interbank Offered Rate (6.86% at June 30, 2000) and in return receives payments based on an average fixed rate of 7.64%. In June 2000, the Partnership entered into two credit agreements with certain financial institutions, a $75 million 364- day credit agreement and a $75 million three-year revolving credit agreement (collectively, "Partnership Credit Agreements"). The Partnership Credit Agreements are to be used for capital expenditures, working capital and general business purposes. Upon proper notification to and consent of the financial institutions, the maturity date of the Partnership Credit Agreements may be extended to June 2005. Prior to the termination of the Partnership Credit Agreements, the Partnership may request an increase in the commitment level to a maximum $200 million in the aggregate for both agreements. At June 30, 2000, no funds had been borrowed under the Partnership Credit Agreements. Short-term liquidity needs will be met by internal sources and through the credit facilities 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. Cash Flows From Operating Activities Cash flows provided by operating activities increased $9.2 million to $94.8 million for the first half of 2000, as compared to the same period in 1999, primarily due to recovery of increased depreciation and amortization expense by Northern Border Pipeline and the billings collected subject to refund related to Northern Border Pipeline's current rate proceeding (see Note 3 - Notes to Consolidated Financial Statements). Cash Flows From Investing Activities The investment in unconsolidated affiliate of $23.3 million for the first half of 2000 reflects capital contributions of $2.5 million to Bighorn for construction of gas gathering facilities and the acquisition of 80% of the non-voting class A shares in Bighorn for $20.8 million. The Partnership has agreed to make additional capital contributions to Bighorn for construction of gas gathering facilities. The Partnership's capital contributions to Bighorn are estimated to be approximately $12 million in 2000. The Partnership anticipates financing its obligations using the Partnership Credit Agreements. Capital expenditures of $4.1 million for the first half of 2000 include $2.3 million for Project 2000 (see Note 2 - Notes to Consolidated Financial Statements). For the comparable period in 1999, capital expenditures were $77.5 million and included $70.4 for The Chicago Project, which was Northern Border Pipeline's expansion and extension project placed in service in December 1998. The remaining capital expenditures for 2000 and 1999 were primarily related to renewals and replacements of Northern Border Pipeline's existing facilities. Total capital expenditures for 2000 are estimated to be $21 million, including $10 million for Project 2000. The remaining capital expenditures planned for 2000 are primarily for renewals and replacements of Northern Border Pipeline's existing facilities. Northern Border Pipeline currently anticipates funding its 2000 capital expenditures primarily by using internal sources and borrowing on its revolving credit facility. Cash Flows From Financing Activities Cash flows used in financing activities was $36.3 million for the first half of 2000 as compared to $13.3 million for the same period in 1999. Cash distributions to the unitholders and the general partners increased $2.8 million to $39.3 million reflecting an increase in the quarterly distribution from $0.61 per Unit to $0.65 per Unit. The proceeds from the private offering of the Partnership Senior Notes, net of associated debt discounts and issuance costs, totaled approximately $148.8 million. The net proceeds were used to repay the Partnership's existing indebtedness of $119.5 million and to fund the acquisition of the Bighorn class A shares of $20.8 million discussed previously. Borrowings under the Pipeline Credit Agreement decreased $50 million to $15 million for the first half of 2000 as compared to the same period in 1999. Borrowings in 1999 were used to finance a portion of the capital expenditures for The Chicago Project. 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 and Northern Border Pipeline's efforts to finalize settlement of its rate case. 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, and conditions of the capital markets and equity markets. PART I. FINANCIAL INFORMATION - (Concluded) ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES The Partnership's interest rate exposure results from the portion of its consolidated debt portfolio subject to variable rates. 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 manage its level of exposure to interest rate changes. Since December 31, 1999, there has not been any material change in the Partnership's interest rate exposure. PART II. OTHER INFORMATION NORTHERN BORDER PARTNERS, L.P. AND SUBSIDIARIES ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits. 4.1 Indenture, dated as of June 2, 2000, between the registrants and Bank One Trust Company, N.A., as trustee. 4.2 Registration Rights Agreement, dated June 2, 2000, by and among the registrants and Banc of America Securities LLC, Banc One Capital Markets, Inc. and SunTrust Equitable Securities, as Initial Purchasers. 10.1 364-Day Credit Agreement dated as of June 28, 2000 between Northern Border Partners, L.P., Bank Of America, N.A., Administrative Agent, SunTrust Bank, Syndication Agent, Bank One, NA, Documentation Agent, Banc of America Securities LLC, Lead Arranger and Lenders (as defined therein). 10.2 Revolving Credit Agreement dated as of June 28, 2000 between Northern Border Partners, L.P., Bank Of America, N.A., Administrative Agent, SunTrust Bank, Syndication Agent, Bank One, NA, Documentation Agent, Banc of America Securities LLC, Lead Arranger and Lenders (as defined therein). (b) Reports on Form 8-K. None. 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: August 11, 2000 By: JERRY L. PETERS Jerry L. Peters Chief Financial and Accounting Officer