Exhibit 99.3
UNAUDITED INTERIM FINANCIAL STATEMENTS OF
NORTHERN BORDER PIPELINE COMPANY
NORTHERN BORDER PIPELINE COMPANY
STATEMENT OF INCOME
(Unaudited)
| | Three Months Ended
March 31, | |
| | 2006 | | 2005 | |
| | (In thousands) | |
| | | | | |
Operating revenue | | $ | 79,827 | | $ | 82,825 | |
Operating expenses: | | | | | |
Operations and maintenance | | 9,458 | | 9,569 | |
Depreciation and amortization | | 14,566 | | 14,368 | |
Taxes other than income | | 8,106 | | 7,853 | |
Operating expenses | | 32,130 | | 31,790 | |
Operating income | | 47,697 | | 51,035 | |
Interest expense | | 10,689 | | 10,583 | |
Other income (expense): | | | | | |
Other income | | 437 | | 332 | |
Other expense | | (92 | ) | (153 | ) |
Other income, net | | 345 | | 179 | |
Net income to partners | | $ | 37,353 | | $ | 40,631 | |
NORTHERN BORDER PIPELINE COMPANY
STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
| | Three Months Ended
March 31, | |
| | 2006 | | 2005 | |
| | (In thousands) | |
| | | | | |
Net income to partners | | $ | 37,353 | | $ | 40,631 | |
Other comprehensive income: | | | | | |
Changes associated with current period hedging transactions | | (389 | ) | (365 | ) |
Total comprehensive income | | $ | 36,964 | | $ | 40,266 | |
The accompanying notes are an integral part of these financial statements.
NORTHERN BORDER PIPELINE COMPANY
BALANCE SHEET
(Unaudited)
| | March 31,
2006 | | December 31,
2005 | |
| | (In thousands) | |
ASSETS | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | | $ | 15,065 | | $ | 22,039 | |
Accounts receivable | | 29,883 | | 40,546 | |
Materials and supplies, at cost | | 3,601 | | 3,566 | |
Prepaid expenses and other | | 912 | | 1,540 | |
Total current assets | | 49,461 | | 67,691 | |
Property, plant and equipment: | | | | | |
Natural gas transmission plant | | 2,486,367 | | 2,476,815 | |
Less: Accumulated provision for depreciation and amortization | | 974,879 | | 960,740 | |
Property, plant and equipment, net | | 1,511,488 | | 1,516,075 | |
Other assets: | | | | | |
Unamortized debt expense | | 3,267 | | 3,434 | |
Regulatory assets | | 14,588 | | 13,853 | |
Other | | 4,740 | | 3,645 | |
Total other assets | | 22,595 | | 20,932 | |
Total assets | | $ | 1,583,544 | | $ | 1,604,698 | |
| | | | | |
LIABILITIES AND PARTNERS’ EQUITY | | | | | |
Current liabilities: | | | | | |
Current maturities of long-term debt | | $ | 7,000 | | $ | 27,000 | |
Accounts payable | | 9,963 | | 14,105 | |
Accrued taxes other than income | | 26,769 | | 27,637 | |
Accrued interest | | 14,574 | | 11,525 | |
Other | | 1,454 | | 2,755 | |
Total current liabilities | | 59,760 | | 83,022 | |
Long-term debt, net of current maturities | | 601,448 | | 601,916 | |
Reserves and deferred credits | | 5,064 | | 4,775 | |
Commitments and contingencies (Note 4) | | | | | |
Partners’ equity: | | | | | |
Partners’ capital | | 915,399 | | 912,723 | |
Accumulated other comprehensive income | | 1,873 | | 2,262 | |
Total partners’ equity | | 917,272 | | 914,985 | |
Total liabilities and partners’ equity | | $ | 1,583,544 | | $ | 1,604,698 | |
The accompanying notes are an integral part of these financial statements.
NORTHERN BORDER PIPELINE COMPANY
STATEMENT OF CASH FLOWS
(Unaudited)
| | Three Months Ended
March 31, | |
| | 2006 | | 2005 | |
| | (In thousands) | |
| | | | | |
CASH FLOW FROM OPERATING ACTIVITIES | | | | | |
Net income to partners | | $ | 37,353 | | $ | 40,631 | |
Adjustments to reconcile net income to partners to net cash provided by operating activities: | | | | | |
Depreciation and amortization | | 14,658 | | 14,456 | |
Reserves and deferred credits | | (333 | ) | (140 | ) |
Changes in components of working capital | | 7,993 | | 6,545 | |
Other | | (2,062 | ) | (1,967 | ) |
Total adjustments | | 20,256 | | 18,894 | |
Net cash provided by operating activities | | 57,609 | | 59,525 | |
| | | | | |
CASH FLOW FROM INVESTING ACTIVITIES | | | | | |
Capital expenditures for property, plant and equipment | | (9,906 | ) | (4,684 | ) |
Net cash used in investing activities | | (9,906 | ) | (4,684 | ) |
| | | | | |
CASH FLOW FROM FINANCING ACTIVITIES | | | | | |
Equity contributions from partners | | 10,330 | | — | |
Distributions to partners | | (45,007 | ) | (54,098 | ) |
Issuance of long-term debt | | 21,000 | | 13,000 | |
Retirement of long-term debt | | (41,000 | ) | (8,000 | ) |
Net cash used in financing activities | | (54,677 | ) | (49,098 | ) |
Net change in cash and cash equivalents | | (6,974 | ) | 5,743 | |
Cash and cash equivalents at beginning of period | | 22,039 | | 20,355 | |
Cash and cash equivalents at end of period | | $ | 15,065 | | $ | 26,098 | |
| | | | | |
Supplemental disclosures for cash flow information: | | | | | |
Cash paid for interest, net of amount capitalized | | $ | 8,047 | | $ | 7,830 | |
| | | | | |
Changes in components of working capital: | | | | | |
Accounts receivable | | $ | 10,663 | | $ | 1,689 | |
Materials and supplies | | (35 | ) | (60 | ) |
Prepaid expenses and other | | 627 | | 684 | |
Accounts payable and other current liabilities | | (5,443 | ) | 1,251 | |
Accrued taxes other than income | | (868 | ) | (190 | ) |
Accrued interest | | 3,049 | | 3,171 | |
Total | | $ | 7,993 | | $ | 6,545 | |
The accompanying notes are an integral part of these financial statements.
NORTHERN BORDER PIPELINE COMPANY
STATEMENT OF CHANGES IN PARTNERS’ EQUITY
(Unaudited)
| | TC PipeLines
Intermediate
Limited
Partnership | | Northern
Border
Intermediate
Limited
Partnership | | Accumulated
Other
Comprehensive
Income | | Total Partners’
Equity | |
| | (In thousands) | |
| | | | | | | | | |
Partners’ equity at December 31, 2005 | | $ | 273,818 | | $ | 638,905 | | $ | 2,262 | | $ | 914,985 | |
Net income to partners | | 11,206 | | 26,147 | | — | | 37,353 | |
Changes associated with current period hedging transactions | | — | | — | | (389 | ) | (389 | ) |
Equity contributions received | | 3,099 | | 7,231 | | — | | 10,330 | |
Distributions paid | | (13,502 | ) | (31,505 | ) | — | | (45,007 | ) |
Partners’ equity at March 31, 2006 | | $ | 274,621 | | $ | 640,778 | | $ | 1,873 | | $ | 917,272 | |
The accompanying notes are an integral part of these financial statements.
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 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) are 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, 2005.
The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions, with respect to values or conditions which cannot be known with certainty, that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions also affect the reported amounts of revenue and expenses during the reporting period. Although we believe these estimates are reasonable, actual results could differ from our estimates. There has been no change to our critical accounting policies and estimates during the first quarter ended March 31, 2006. Information about our critical accounting policies and estimates is included in Note 2 of the Financial Statements in our annual report on Form 10-K for the year ended December 31, 2005.
Certain reclassifications were made to the 2005 financial statements to conform to the current year presentation.
2. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We utilize financial instruments to reduce our market risk exposure to interest rate fluctuations and achieve a more predictable cash flow. We follow established policies and procedures to assess risk and approve, monitor and report our financial instrument activities. We do not use these instruments for trading purposes. As of March 31, 2006, there were 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 and amortize these amounts to interest expense over the term of the hedged debt. During the three months ended March 31, 2006, we amortized approximately $0.4 million related to terminated interest rate swap agreements as a reduction to interest expense from accumulated other comprehensive income. We expect to amortize approximately $0.4 million in each of the remaining quarters of 2006.
We record in long-term debt amounts received or paid related to terminated interest rate swap agreements for fair value hedges and amortize these amounts to interest expense over the remaining life of the interest rate swap agreement. During the three months ended March 31, 2006, we amortized approximately $0.5 million as a reduction to interest expense. We expect to amortize approximately $0.5 million in each of the remaining quarters of 2006.
3. RATES AND REGULATORY ISSUES
As required by the provisions of the settlement of our last rate case, on November 1, 2005, we filed a rate case with the Federal Energy Regulatory Commission (FERC). In December 2005, the FERC issued an order that identified issues that were raised in the proceeding, accepted the proposed rates but suspended their effectiveness until May 1, 2006, at which time the new rates will be collected subject to refund until final resolution of the rate case. Information about our regulatory proceedings is included in Note 4 of the Financial Statements in our annual report on Form 10-K for the year ended December 31, 2005.
4. 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.
5. ACCOUNTING PRONOUNCEMENTS
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123R, “Share-Based Payment,” which requires companies to expense the fair value of share-based payments and includes changes related to the expense calculation for share-based payments. Northern Plains adopted SFAS No. 123R as of January 1, 2006, and will charge us for our proportionate share of the expense recorded by Northern Plains. The impact of adopting SFAS No. 123R does not have a material impact on our results of operations or financial position.
6. SUBSEQUENT EVENTS
We make distributions to our general partners approximately one month following the end of the quarter. A cash distribution of approximately $48.6 million was declared and paid on May 1, 2006, for the first quarter of 2006.
In April 2006, Northern Border Partners completed the sale of a 20% partnership interest in us to TC PipeLines under the Partnership Interest Purchase and Sale Agreement dated as of December 31, 2005. Northern Border Partners and TC PipeLines each now own a 50% interest in us. As a result of the transaction, our General Partnership Agreement was amended and restated effective April 6, 2006. The major provisions adopted or changed are identified in Item 2 of our Form 10Q for the quarterly period ended March 31, 2006.
In April 2006, we entered into an Operating Agreement with an affiliate of TransCanada. Under the new Operating Agreement, the TransCanada affiliate will become our operator effective April 1, 2007.
