-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SPmLwW+GsA3QRZSgo4fsPpNtwmtZH9TCvt0C/FBTFhf6E1XqUeze8x0ZttD/wbnF uJSe8B6PGv/96Ca2SmYyPA== 0000950129-05-007617.txt : 20050804 0000950129-05-007617.hdr.sgml : 20050804 20050803200904 ACCESSION NUMBER: 0000950129-05-007617 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20050803 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050804 DATE AS OF CHANGE: 20050803 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTHERN BORDER PARTNERS LP CENTRAL INDEX KEY: 0000909281 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION [4922] IRS NUMBER: 931120873 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-12202 FILM NUMBER: 05997388 BUSINESS ADDRESS: STREET 1: 13710 FIRST NATIONAL BANK STREET 2: PARKWAY CITY: OMAHA STATE: NE ZIP: 68154-5200 BUSINESS PHONE: 4024927300 MAIL ADDRESS: STREET 1: 13710 FIRST NATIONAL BANK STREET 2: PARKWAY CITY: OMAHA STATE: NE ZIP: 68154-5200 8-K 1 h27523ae8vk.txt NORTHERN BORDER PARTNERS, L.P. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): AUGUST 3, 2005 NORTHERN BORDER PARTNERS, L.P. (Exact name of registrant as specified in its charter) DELAWARE 1-12202 93-1120873 (State or other jurisdiction of (Commission (IRS Employer incorporation) File Number) Identification No.) 13710 FNB PARKWAY OMAHA, NEBRASKA 68154-5200 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (402) 492-7300 ------------------------------------- (Former name or former address, if changed since last report.) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION AND ITEM 7.01 REGULATION FD DISCLOSURE. Attached as Exhibit 99.1 is a copy of Northern Border Partners, L.P.'s press release, dated August 3, 2005, announcing Northern Border Partners, L.P.'s financial results for the quarter ended June 30, 2005, and updated earnings guidance for 2005. ITEM 8.01 OTHER EVENTS. NORTHERN BORDER PIPELINE TRANSPORTATION CAPACITY As previously disclosed in Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations-Overview" in our Form 10-Q for the quarter ended March 31, 2005 ("First Quarter 10-Q"), our Form 8-K filed May 4, 2005, and our Form 8-K filed July 14, 2005, we disclosed that we had contracts for firm transportation capacity primarily on the Port of Morgan, Montana to Ventura, Iowa portion of the pipeline expiring during 2005. We believe that shifting fundamentals may cause the natural gas price differentials (or so called "basis differentials") for sales in Alberta, Canada as compared to sales in the Midwest U.S. to narrow annually in the spring and fall months. Increased withdrawals from storage in Western Canada combined with winter demand in the Midwest U.S. may, conversely, cause the winter basis differentials to widen. Summer demand should remain strong due to electric generation loads. As a result, we believe that Northern Border Pipeline's revenue may be more seasonal in the future as increased volumes are available for transport from Canada to Midwest U.S. markets when the basis differentials widen and some discounting may be required at times to maximize revenue when the basis differentials narrow. We believe the greatest impact for 2005 of unsold and discounted capacity on Northern Border Pipeline occurred during the second quarter due to relatively high levels of Canadian natural gas storage injections and additional supply from other sources. Northern Border Pipeline's capacity for July through September has been contracted at more favorable rates. We expect that throughout the duration of the 2005/2006 heating season, Northern Border Pipeline will be fully contracted at or near maximum rates. Consequently, we expect Northern Border Pipeline's operating revenue for 2005 to be in the range of $15 million to $18 million ($11 million to $13 million, net to the Partnership) lower than 2004, due to discounted and uncontracted capacity. However, the sale of the Claims (described below) will add to revenues in 2005, offsetting some of the revenue decline from Northern Border Pipeline's discounted and uncontracted capacity. UPDATE ON THE IMPACT OF ENRON'S CHAPTER 11 FILING ON OUR BUSINESS Please refer to our Form 10-K for the year ended December 31, 2004 ("2004 10-K"), and our Form 10-Q for the quarter ended March 31, 2005 ("First Quarter 10-Q"), "Management's Discussion and Analysis of Financial Condition and Results of Operations-Update On The Impact of Enron's Chapter 11 Filing On Our Business" regarding the bankruptcy claims held by Northern Border Pipeline Company, Crestone Gas Gathering, and Bear Paw Energy, LLC against Enron Corp., and/or Enron North America Corp. ("ENA") (the "Claims"). We reported that settlement agreements had been entered into and approved by the bankruptcy court for certain of the Claims. In June 2005, Northern Border Pipeline Company, Crestone Gathering Services, a wholly-owned subsidiary of Crestone Energy Ventures, and Bear Paw Energy, LLC executed term sheets with a third party for the sale of their unsecured claims held against Enron and Enron North America. Proceeds from the sale are expected to be $14.6 million. In 2004, we adjusted our allowance for doubtful accounts to reflect an estimated $3.4 million ($3.0 million, net to the Partnership) recovery for our Claims. In the second quarter of 2005, we made favorable adjustments to our allowance for doubtful accounts of approximately $1.8 million ($1.6 million, net to the Partnership) to reflect the agreements for the sales. As a result of the sale, we anticipate recognizing additional income of $9.4 million ($6.6 million, net to the Partnership) later in 2005. NATURAL GAS GATHERING AND PROCESSING SEGMENT INTEREST IN FORT UNION GAS GATHERING - In July 2005, Crestone Energy Ventures executed a purchase and sale agreement to acquire an additional 3.7% interest, bringing its total interest to approximately 37% of Fort Union Gas Gathering, L.L.C. for approximately $5.3 million, subject to normal closing adjustments. We expect to close the transaction in August of 2005. BIGHORN GAS GATHERING PREFERRED A SETTLEMENT - During third quarter 2005, we anticipate recognizing $5.4 million from a settlement related to a special income allocation from Bighorn Gas Gathering. The settlement with our partner in Bighorn eliminates provisions of the joint venture agreement that provided for cash flow incentives based on well connections. Therefore, in the future, we will receive its distributions and earnings based on our 49 percent ownership interest in Bighorn Gas Gathering. FORWARD-LOOKING STATEMENT The statements above 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. 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: INTERSTATE PIPELINE SEGMENT: o the impact of unsold capacity on Northern Border Pipeline being greater than expected; o the ability to market pipeline capacity on favorable terms, which is affected by: o future demand for and prices of natural gas; o competitive conditions in the overall natural gas and electricity markets; o availability of supplies of Canadian natural gas; o availability of additional storage capacity; weather conditions; and o competitive developments by Canadian and U.S. natural gas transmission peers; o performance of contractual obligations by the shippers; o political and regulatory developments that impact Federal Energy Regulatory Commission, or FERC, proceedings involving interstate pipelines and the interstate pipelines' success in sustaining their positions in such proceedings; o the ability to recover costs of property, plant and equipment and regulatory assets in our rates; GENERAL: o 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 affecting our settled claims; o prices of natural gas and natural gas liquids. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibits. 99.1 Northern Border Partners, L.P. press release dated August 3, 2005. 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 hereunto duly authorized. NORTHERN BORDER PARTNERS, L.P. Date: August 3, 2005 By: /s/ Jerry L. Peters -------------------------------- Name: Jerry L. Peters Title: Chief Financial and Accounting Officer EXHIBIT INDEX Exhibit 99.1 -- Northern Border Partners, L.P. press release dated August 3, 2005. EX-99.1 2 h27523aexv99w1.txt PRESS RELEASE EXHIBIT 99.1 [NORTHERN BORDER News 13710 FNB Parkway PARTNERS, L.P. LOGO] Release Omaha, NE 68154-5200 For Further Information Contact: Media Contact: Beth Jensen (402) 492-3400 Investor Contact: NORTHERN BORDER PARTNERS, L.P. Ellen Konsdorf REPORTS SECOND QUARTER RESULTS (877) 208-7318 AND INCREASES 2005 GUIDANCE FOR IMMEDIATE RELEASE: Wednesday, August 3, 2005 OMAHA - Northern Border Partners, L.P. (NYSE: NBP) today reported second quarter 2005 net income of $28.1 million or $0.55 per unit compared with net income of $33.3 million or $0.66 per unit in the second quarter 2004. Year-to-date 2005, Northern Border Partners reported net income of $62.8 million, or $1.24 per unit, as compared with $69.9 million, or $1.39 per unit for the same period in 2004. Cash flows as measured by earnings before interest, taxes, depreciation and amortization (EBITDA) were $80.5 million in the second quarter 2005 down from $87.1 million in the second quarter of 2004. Year-to-date 2005 EBITDA was $171.2 million compared with $178.4 million for the same period one year ago. "Although our second quarter 2005 results were lower than the comparable quarter last year, they were stronger than we anticipated, driven primarily by strong performance in the gathering and processing business segment, both in terms of volumes and margins. For our interstate pipelines, demand for Northern Border Pipeline's capacity increased throughout the second quarter as anticipated. In the third quarter all available capacity has been contracted. We also anticipate Northern Border Pipeline will be fully contracted at or near maximum rates for the upcoming winter season," said Bill Cordes, chief executive officer of Northern Border Partners. "Looking at the total year 2005, we are increasing our earnings guidance. Net income is expected to be in the range of $2.62 per unit to $2.69 per unit. Distributable cash flows (DCF) are expected to be $3.52 to $3.59 per unit. These increases stem primarily from the sale of capacity on Northern Border Pipeline and recognition of an additional $6.6 million gain from the sale of our Enron bankruptcy claims," Cordes said. SECOND QUARTER 2005 HIGHLIGHTS Second quarter results included: o Lower operating revenue from Northern Border Pipeline of approximately $11.7 million in second quarter 2005 ($8.2 million net to the Partnership) resulting from uncontracted and discounted capacity. o Increased operating income of approximately $7.4 million from the Partnership's Williston Basin gathering and processing operations as a result of a 13 percent increase in volumes gathered and processed as well as higher commodity prices realized. o Consolidated interest expense of approximately $21.4 million in second quarter 2005 compared with $18.5 million in the second quarter 2004 due to higher average interest rates partially offset by lower average debt outstanding. o A $1.6 million (net to the Partnership) favorable adjustment to our allowance for doubtful accounts related to the Enron bankruptcy claims. o Equity earnings from our joint venture investments of $0.8 million greater in second quarter 2005 than second quarter 2004 due to higher volumes at Lost Creek in the Wind River Basin and Fort Union in the Powder River Basin. INTERSTATE NATURAL GAS PIPELINE SEGMENT The interstate natural gas pipeline segment contributed net income of $24.0 million in second quarter 2005, compared with $33.2 million in second quarter 2004. Operating revenue for Northern Border Pipeline was down 14 percent or $11.7 million for the 2005 quarter ($8.2 million net to the Partnership), which includes: - a decrease of $13.0 million related to uncontracted capacity and capacity sold at discounted rates; - an increase in short-term and other transportation service revenue of $1.3 million. Average daily throughput for the interstate natural gas pipeline segment decreased 5.7 percent in the quarter totaling 2,889 million cubic feet per day (mmcfd) compared with 3,065 mmcfd in second quarter 2004. NATURAL GAS GATHERING AND PROCESSING SEGMENT Net income from the natural gas gathering and processing segment during second quarter 2005 was $15.1 million, an increase of 94 percent or $7.3 million over the second quarter 2004. The primary differences between the periods were: o Gathering and processing volumes in the Williston Basin were 63 mmcfd compared with 56 mmcfd in second quarter 2004, a 13 percent increase, primarily due to customers' increased production in the Bakken Play. o Increased prices realized for natural gas and natural gas liquids. Average prices realized, net of hedging, during the second quarter were $0.87 per gallon for natural gas liquids and $6.15 per million British thermal units (mmBtu). The combined impact of increased inlet volumes and prices realized was an increase in gross margins for Williston Basin of $7.0 million compared with the second quarter of 2004. o Volumes on the Partnership's wholly-owned gathering systems in the Powder River Basin of 183 mmcfd versus 204 mmcfd in second quarter 2004. This decrease is due to the loss of high-pressure gathered volumes associated with a customer that moved its volumes to its own newly constructed system. o Lower operations and maintenance expense due to a $1.2 million favorable adjustment to our allowance for doubtful accounts related to Enron bankruptcy claims. o Increased equity earnings of $0.8 million due to overall growth in the Powder and Wind River Basins that resulted in higher volumes at Fort Union and Lost Creek. WHOLLY-OWNED POWDER RIVER BASIN GATHERING
REVENUE AND VOLUME SUMMARY - ---------------------------------------------------------------------------------------------------------------- SECOND QUARTER 2005 FIRST QUARTER 2005 ---------------------------------- ------------------------------------- LEVELS OF SERVICE % OF VOLUME % OF REVENUE % OF VOLUME % OF REVENUE - ---------------------------------------------------------------------------------------------------------------- LOW PRESSURE 78.2% 89.6% 71.2% 89.3% HIGH PRESSURE 21.8 10.4 28.8 10.7 - ---------------------------------------------------------------------------------------------------------------- TOTAL 100.0% 100.0% 100.0% 100.0% ================================================================================================================
Note: Levels of service are separated into low pressure and high pressure gathering because of the significant difference in volumes and fees related to the categories of service. Low pressure gathering, which is a higher margin service, involves providing service from a low pressure delivery point, compressing the gas and delivering to the downstream pipeline. High pressure gathering is providing service after the gas has been aggregated and compressed by producers. This service requires less capital and expense and, as a result, is a lower margin service. COAL SLURRY PIPELINE SEGMENT Net income for the coal slurry pipeline segment was $1.1 million for second quarter 2005, up from $0.9 million for the second quarter 2004. Upon expiration of our transportation contract at the end of this year, the Partnership expects Black Mesa Pipeline to be temporarily shut down. Interested parties are working to resolve water supply, coal supply and transportation contracting issues in order for operations to resume. In addition, a final environmental impact statement for the project must be issued which is anticipated late in 2006. We believe that successful resolution of these issues should result in the modification and reconstruction of our coal slurry pipeline in late 2008 and 2009. BUSINESS OUTLOOK Net income for 2005 is now expected to range from $132 million to $135 million ($2.62 per unit to $2.69 per unit). EBITDA is expected to be in the range of $352 million to $362 million. Distributable cash flow is expected to be $174 million to $178 million or $3.52 per unit to $3.59 per unit. NORTHERN BORDER PARTNERS
RECONCILIATION OF EBITDA TO NET INCOME - PROJECTED 2005 - -------------------------------------------------------------------------------------------------------------------- INTERSTATE NATURAL GAS GATHERING & CONSOLIDATED GAS PIPELINES PROCESSING COAL SLURRY - -------------------------------------------------------------------------------------------------------------------- LOW HIGH LOW HIGH LOW HIGH LOW HIGH - -------------------------------------------------------------------------------------------------------------------- EBITDA $352 $362 $276 $283 $74 $79 $7 $8 MINORITY INTEREST (45) (47) (45) (47) - - - - INTEREST EXPENSE, NET (86) (88) (44) (45) - - - - DEPRECIATION & AMORTIZATION EXPENSE (87) (89) (66) (67) (16) (17) (4) (5) INCOME TAXES (2) (4) (2) (3) - - 0 (1) - -------------------------------------------------------------------------------------------------------------------- NET INCOME $132 $135 $118 $122 $58 $61 $3 $3 ====================================================================================================================
Note: The reconciliation of EBITDA and Net Income does not total due to use of ranges for the various components of the reconciliation and unallocated Partnership expenses. INTERSTATE NATURAL GAS PIPELINE SEGMENT The Partnership believes that shifting fundamentals may cause the Alberta, Canada to the Midwest U.S. basis to narrow annually in the spring and fall months. Increased withdrawals from storage in Western Canada combined with winter demand in the Midwest U.S. may, conversely, cause the winter basis to widen. Summer demand should remain strong due to electric generation loads. As a result, the Partnership believes revenue on Northern Border Pipeline may be more seasonal in the future and some discounting may be required at times to maximize revenue. The Partnership previously disclosed that Northern Border Pipeline had contracts for firm transportation capacity, primarily on the Port of Morgan, Montana to Ventura, Iowa segment of the pipeline, expiring during 2005. As a result, during second quarter 2005, there was firm transportation capacity on Northern Border Pipeline that was available for contracting and was not sold and some capacity was sold at discounted rates. The following summarizes the contracting status of this segment of the pipeline:
NORTHERN BORDER PIPELINE COMPANY CAPACITY STATUS AS OF JULY 31, 2005 (MILLION CUBIC FEET PER DAY) PORT OF MORGAN, MONTANA TO VENTURA, IOWA - ------------------------------------------------------------------------------------------------------------ NOV- APRIL MAY JUNE JULY AUG SEP OCT DEC - ------------------------------------------------------------------------------------------------------------ MAXIMUM-RATE FIRM CONTRACTS 1,922 1,730 1,685 1,686 1,913 2,058 1,959 1,565 DISCOUNTED-RATE FIRM CONTRACTS(1) 15 352 505 688 461 316 315 108 AVAILABLE CAPACITY(2) 437 292 184 -- -- -- 100 701 - ------------------------------------------------------------------------------------------------------------ TOTAL DESIGN CAPACITY(3) 2,374 2,374 2,374 2,374 2,374 2,374 2,374 2,374 ============================================================================================================= AVERAGE PERCENTAGE OF MAXIMUM RATE FOR DISCOUNTED CONTRACTS N/A 81% 79% 87% 88% 87% 87% 96% =============================================================================================================
(1) Includes maximum-rate contracts shorter than one month. (2) Unsold capacity based on summer design. (3) Refers to a summer design pipeline, capable of transporting, at a minimum, the stated capacity at all times of the year The Partnership believes the greatest impact of unsold and discounted capacity occurred during the second quarter due to relatively high levels of Canadian natural gas storage injections and additional supply from other sources. Northern Border Pipeline capacity for July through September has been sold out at more favorable rates. The Partnership expects that throughout the duration of the 2005/2006 heating season, Northern Border Pipeline will be fully contracted at or near maximum rates. Consequently, the Partnership now expects revenues on Northern Border Pipeline for 2005 to be $15 million to $18 million ($11 million to $13 million net to the Partnership) lower than 2004, due to discounted and uncontracted capacity. Recently, the Partnership sold its claims in the Enron bankruptcy proceeding to an unrelated third party for $14.6 million. As a result, we anticipate recognizing an additional $9.4 million gain ($6.6 million net to the Partnership) later in 2005. This transaction will add to revenues in 2005, offsetting some of the decline from the Northern Border Pipeline discounted and uncontracted capacity. NATURAL GAS GATHERING AND PROCESSING SEGMENT The Partnership anticipates that favorable natural gas and natural gas liquids volumes and prices will continue to generate strong results for our natural gas gathering and processing segment in line with previous expectations. For the remainder of 2005, approximately 67 percent of anticipated natural gas and natural gas liquids volumes are hedged. For 2006, approximately 23 percent of our anticipated volumes are hedged. The Partnership recently completed an agreement to purchase an additional 3.7 percent interest in Fort Union Gas Gathering for approximately $5.3 million, subject to normal closing adjustments, which will bring the Partnership's total ownership position to 37.0 percent. During third quarter 2005, we anticipate recognizing $5.4 million from a settlement related to a special income allocation from Bighorn Gas Gathering. The settlement with our partner in Bighorn eliminates provisions of the joint venture agreement that provided for cash flow incentives based on well connections. Therefore, in the future, the Partnership will receive its distributions and earnings based solely on its 49 percent ownership interest in Bighorn Gas Gathering. DISTRIBUTION DECLARATION On July 19, 2005, the Partnership Policy Committee declared the Partnership's quarterly cash distribution of $0.80 per unit for the second quarter of 2005. The indicated annual rate is $3.20. The distribution is payable August 12, 2005 to unitholders of record on July 29, 2005. CONFERENCE CALL Northern Border Partners will host a conference call on Thursday, August 4, 2005 at 10:00 a.m. Eastern Time to review second quarter 2005 results and discuss 2005 guidance. This call may be accessed via the Partnership's website at http://www.northernborderpartners.com. An audio replay of the call will be available through August 11, 2005 by dialing, toll free in the United States and Canada, 800-405-2236 and entering passcode 11035132. NON-GAAP FINANCIAL MEASURES The Partnership has disclosed in this press release EBITDA and DCF amounts that are non-GAAP financial measures. Management believes EBITDA and DCF provide useful information to investors as a measure of comparability to peer companies. However, these calculations may vary from company to company, so the Partnership's computations may not be comparable to those of other companies'. Management further uses EBITDA to compare the financial performance of its segments and to internally manage those business segments. The three and six months ended 2005 and 2004 reconciliations of EBITDA to net income and EBITDA to cash flow from operating activities, and computations of DCF are included in the financial information with this release. On a consolidated basis, EBITDA is reconciled to cash flow from operating activities determined under GAAP. For segment information of this press release, EBITDA is reconciled to net income rather than to cash flow from operating activities, since the Partnership does not determine segment cash flow from operating activities due to its intercompany cash management activity. Reconciliations of 2005 projected EBITDA to projected net income and computations of projected DCF are also included with this release. Northern Border Partners, L.P. is a publicly traded partnership formed to own, operate and acquire a diversified portfolio of energy assets. The Partnership owns and manages natural gas pipelines and is engaged in the gathering and processing of natural gas. More information can be found at http://www.northernborderpartners.com. FORWARD-LOOKING STATEMENT This press release includes 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. Although Northern Border Partners believes that its expectations regarding future events are based on reasonable assumptions, it can give no assurance that its goals will be achieved. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein include: INTERSTATE NATURAL GAS PIPELINE SEGMENT: o the impact of unsold capacity on Northern Border Pipeline being greater than expected; o the ability to market pipeline capacity on favorable terms, which is affected by: o future demand for and prices of natural gas; o competitive conditions in the overall natural gas and electricity markets; o availability of supplies of Canadian natural gas; o availability of additional storage capacity; weather conditions; and o competitive developments by Canadian and U.S. natural gas transmission peers; o performance of contractual obligations by the shippers; o political and regulatory developments that impact Federal Energy Regulatory Commission, or FERC, proceedings involving interstate pipelines and the interstate pipelines' success in sustaining their positions in such proceedings; o the ability to recover costs in our rates; NATURAL GAS GATHERING AND PROCESSING SEGMENT: o the rate of development, gas quality, and competitive conditions in gas fields near our natural gas gathering systems in the Powder River and Williston Basins and our investments in the Powder River and Wind River Basins; o prices of natural gas and natural gas liquids; o the composition and quality of the natural gas we gather and process in our plants; o the efficiency of our processing plants in extracting natural gas and natural gas liquids. COAL SLURRY PIPELINE SEGMENT: o renewal of the coal slurry pipeline transportation contract under favorable terms; GENERAL: o 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 affecting our settled claims; o regulatory actions and receipt of expected regulatory clearances; o actions by rating agencies; o the ability to control operating costs; o conditions in the capital markets and the ability to access the capital markets; and o acts of nature, sabotage, terrorism or other similar acts causing damage to our facilities. NORTHERN BORDER PARTNERS, L.P. FINANCIAL HIGHLIGHTS (Unaudited: In Millions Except Per Unit Amounts)
SECOND QUARTER YEAR TO DATE 2005 2004 2005 2004 ------- ------- ------- -------- Operating Revenue $ 149.4 $ 142.5 $ 309.8 $ 286.2 Income From Continuing Operations $ 27.7 $ 32.9 $ 62.1 $ 68.7 Net Income $ 28.1 $ 33.3 $ 62.8 $ 69.9 Per Unit Income From Continuing Operations $ 0.54 $ 0.65 $ 1.22 $ 1.37 Per Unit Net Income $ 0.55 $ 0.66 $ 1.24 $ 1.39 Cash Flows From Operating Activities $ 44.2 $ 56.5 $ 111.3 $ 129.8 EBITDA (1) $ 80.5 $ 87.1 $ 171.2 $ 178.4 Distributable Cash Flow $ 36.5 $ 44.2 $ 83.9 $ 101.1 Distributable Cash Flow Per Unit $ 0.73 $ 0.89 $ 1.69 $ 2.06
CONSOLIDATED STATEMENT OF INCOME (Unaudited: In Millions Except Per Unit Amounts)
SECOND QUARTER YEAR TO DATE 2005 2004 2005 2004 ------- ------- ------- ------- Operating Revenue $ 149.4 $ 142.5 $ 309.8 $ 286.2 ------- ------- ------- ------- Operating Expenses Product Purchases 35.5 23.5 68.0 44.9 Operations and Maintenance 30.0 29.0 63.2 58.4 Depreciation and Amortization 21.5 21.3 42.8 42.8 Taxes Other Than Income 8.9 8.1 18.8 17.8 ------- ------- ------- ------- Total Operating Expenses 95.9 81.9 192.8 163.9 ------- ------- ------- ------- Operating Income 53.5 60.6 117.0 122.3 Interest Expense, Net (21.4) (18.5) (42.5) (37.1) Other Income, Net 0.8 0.9 1.4 1.2 Equity Earnings from Investments 4.4 3.6 8.9 10.0 Minority Interest (8.6) (12.4) (20.8) (24.9) ------- ------- ------- ------- Income From Continuing Operations Before Income Taxes 28.7 34.2 64.0 71.5 Income Taxes 1.0 1.3 1.9 2.8 ------- ------- ------- ------- Income From Continuing Operations 27.7 32.9 62.1 68.7 Discontinued Operations, net of tax 0.4 0.4 0.7 1.2 ------- ------- ------- ------- Net Income $ 28.1 $ 33.3 $ 62.8 $ 69.9 ======= ======= ======= ======= Per Unit Income From Continuing Operations $ 0.54 $ 0.65 $ 1.22 $ 1.37 ======= ======= ======= ======= Per Unit Net Income $ 0.55 $ 0.66 $ 1.24 $ 1.39 ======= ======= ======= ======= Average Units Outstanding 46.4 46.4 46.4 46.4 ======= ======= ======= =======
NORTHERN BORDER PARTNERS, L.P. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited: In Millions Except Per Unit Amounts)
RECONCILIATION OF EBITDA TO NET INCOME SECOND QUARTER YEAR TO DATE 2005 2004 2005 2004 -------- ------- ------- ------- EBITDA (1) $ 80.5 $ 87.1 $ 171.2 $ 178.4 Minority Interest (8.6) (12.4) (20.8) (24.9) Interest Expense, Net (21.4) (18.5) (42.5) (37.1) Depreciation and Amortization (including amounts in Other Income, Net and Discontinued Operations) (21.5) (21.5) (43.0) (43.2) Income taxes (including amounts in Discontinued Operations) (1.0) (1.4) (2.2) (3.3) Equity AFUDC (included in Other Income, Net) 0.1 0.0 0.1 0.0 -------- ------- ------- ------- Net Income $ 28.1 $ 33.3 $ 62.8 $ 69.9 ======== ======= ======= ======== RECONCILIATION OF EBITDA TO CASH FLOWS FROM OPERATING ACTIVITIES EBITDA (1) $ 80.5 $ 87.1 $ 171.2 $ 178.4 Interest Expense, Net (21.4) (18.5) (42.5) (37.1) Changes in Current Assets and Liabilities (9.6) (7.0) (5.9) (0.6) Equity Earnings from Investments (4.4) (3.6) (8.9) (10.0) Distributions Received from Equity Investments 1.5 3.2 2.7 7.5 Changes in Reserves and Deferred Credits (0.5) (0.7) (0.9) (3.1) Other (1.9) (4.0) (4.4) (5.3) -------- ------- ------- ------- Cash Flows From Operating Activities $ 44.2 $ 56.5 $ 111.3 $ 129.8 ======== ======= ======= ======== RECONCILIATION OF EBITDA TO DISTRIBUTABLE CASH FLOW EBITDA (1) $ 80.5 $ 87.1 $ 171.2 $ 178.4 Interest Expense, Net (21.4) (18.5) (42.5) (37.1) Maintenance Capital (7.0) (7.2) (13.0) (7.8) Distributions to Minority Interest (15.7) (16.9) (32.0) (31.3) Other 0.1 (0.3) 0.2 (1.1) -------- ------- ------- ------- Distributable Cash Flow $ 36.5 $ 44.2 $ 83.9 $ 101.1 ======== ======= ======= ======== Distributable Cash Flow Per Unit $ 0.73 $ 0.89 $ 1.69 $ 2.06 ======== ======= ======= ========
NORTHERN BORDER PARTNERS, L.P. OTHER FINANCIAL INFORMATION (Unaudited: In Millions)
JUNE 30, DECEMBER 31, 2005 2004 ------------ ------------ SUMMARY BALANCE SHEET DATA Total assets by segment: Interstate Natural Gas Pipeline $ 1,852.7 $ 1,900.6 Natural Gas Gathering and Processing 576.2 570.1 Coal Slurry Pipeline 15.8 18.3 Other (assets not allocated to segments) 21.1 21.6 ------------ ------------ Total consolidated assets $ 2,465.8 $ 2,510.6 ============ ============ Consolidated capitalization: Long-term debt, including current maturities $ 1,332.2 $ 1,330.4 Partners' capital 763.1 780.2 Minority interests in partners' equity 278.8 290.1 Accumulated other comprehensive income 3.5 9.2 ------------ ------------ Total capitalization 2,377.6 2,409.9 Consolidated other current liabilities and reserves and deferred credits 88.2 100.7 ------------ ------------ Total liabilities and capitalization $ 2,465.8 $ 2,510.6 ============ ============
SECOND QUARTER YEAR TO DATE 2005 2004 2005 2004 ------------ ------------ ------------ ------------ CAPITAL EXPENDITURES AND EQUITY INVESTMENTS (2) Maintenance - Interstate Natural Gas Pipeline $ 4.4 $ 5.3 $ 8.9 $ 5.5 Natural Gas Gathering and Processing 1.2 0.5 2.2 0.8 Coal Slurry Pipeline 0.0 1.4 0.0 1.5 Other 1.4 0.0 1.9 0.0 ------------ ------------ ------------ ------------ 7.0 7.2 13.0 7.8 ------------ ------------ ------------ ------------ Growth - Interstate Natural Gas Pipeline 3.3 (0.1) 4.1 0.1 Natural Gas Gathering and Processing 3.0 0.4 7.4 1.6 Coal Slurry Pipeline 0.0 0.0 0.0 0.0 ------------ ------------ ------------ ------------ 6.3 0.3 11.5 1.7 ------------ ------------ ------------ ------------ Total $ 13.3 $ 7.5 $ 24.5 $ 9.5 ============ ============ ============ ============
(1) EBITDA is computed from (a) net income plus (b) minority interest; (c) interest expense, net,(d) income taxes; and (e) depreciation and amortization less (f) equity AFUDC. (2) Management classifies expenditures that are expected to generate additional revenues or significant operating efficiency as growth capital expenditures and equity investments. Any remaining capital expenditures are classified as maintenance. (3) Volume information presented in operating results includes 100% of the volumes for joint ventures and equity investments as well as for wholly-owned subsidiaries. NORTHERN BORDER PARTNERS, L.P. SUMMARY SEGMENT INFORMATION (Unaudited)
SECOND QUARTER YEAR TO DATE 2005 2004 2005 2004 ---------- ---------- ---------- ---------- INTERSTATE NATURAL GAS PIPELINE SEGMENT Operating Results (3): Gas Delivered (mmcf) 257,171 272,763 563,864 575,578 Average Throughput (mmcfd) 2,889 3,065 3,193 3,237 Financial Results (In Millions): Operating Revenue $ 82.6 $ 94.5 $ 179.2 $ 192.1 ---------- ---------- ---------- ---------- Operating Expenses Operations and Maintenance 14.1 13.9 29.8 27.5 Depreciation and Amortization 16.5 16.7 33.0 33.3 Taxes Other Than Income 8.0 7.2 16.9 16.1 ---------- ---------- ---------- ---------- Total Operating Expenses 38.6 37.8 79.7 76.9 ---------- ---------- ---------- ---------- Operating Income 44.0 56.7 99.5 115.2 Interest Expense, Net (11.3) (10.6) (22.4) (21.4) Other Income, Net 0.6 0.4 0.9 0.6 Equity Earnings from Investments 0.2 0.2 0.6 0.6 ---------- ---------- ---------- ---------- Income Before Income Taxes 33.5 46.7 78.6 95.0 Income Taxes 0.9 1.1 1.6 2.6 ---------- ---------- ---------- ---------- Net Income 32.6 45.6 77.0 92.4 Net income to Minority Interest (8.6) (12.4) (20.8) (24.9) ---------- ---------- ---------- ---------- Net Income to Northern Border Partners $ 24.0 $ 33.2 $ 56.2 $ 67.5 ========== ========== ========== ========== EBITDA (1) $ 61.2 $ 74.0 $ 134.1 $ 149.9 ========== ========== ========== ========== Distributions from Northern Border Pipeline: Paid to Northern Border Partners $ 36.7 $ 39.3 $ 74.5 $ 73.1 Paid to Minority Interest $ 15.7 $ 16.9 $ 32.0 $ 31.3 ---------- ---------- ---------- ---------- Total Distributions $ 52.4 $ 56.2 $ 106.5 $ 104.4 ========== ========== ========== ========== RECONCILIATION OF EBITDA TO NET INCOME EBITDA (1) $ 61.2 $ 74.0 $ 134.1 $ 149.9 Minority Interest (8.6) (12.4) (20.8) (24.9) Interest Expense, Net (11.3) (10.6) (22.4) (21.4) Depreciation and Amortization (16.5) (16.7) (33.2) (33.5) Income taxes (0.9) (1.1) (1.6) (2.6) Equity AFUDC (included in Other Income (Expense)) 0.1 0.0 0.1 0.0 ---------- ---------- ---------- ---------- Net Income $ 24.0 $ 33.2 $ 56.2 $ 67.5 ========== ========== ========== ==========
NORTHERN BORDER PARTNERS, L.P. SUMMARY SEGMENT INFORMATION (Unaudited)
SECOND QUARTER YEAR TO DATE 2005 2004 2005 2004 ---------- ---------- ---------- ---------- NATURAL GAS GATHERING AND PROCESSING SEGMENT Operating Results (3): Volumes (mmcfd): Gathering 1,005 1,020 1,029 998 Processing 63 56 62 53 Financial Results (In Millions): Operating Revenue $ 61.0 $ 42.6 $ 118.6 $ 83.3 ---------- ---------- ---------- ---------- Operating Expenses Product Purchases 35.5 23.5 68.0 44.9 Operations and Maintenance 10.0 10.4 21.0 20.7 Depreciation and Amortization 4.0 3.8 7.9 7.4 Taxes Other Than Income 0.7 0.6 1.4 1.2 ---------- ---------- ---------- ---------- Total Operating Expenses 50.2 38.3 98.3 74.2 ---------- ---------- ---------- ---------- Operating Income 10.8 4.3 20.3 9.1 Interest Expense, Net 0.0 (0.1) (0.1) (0.2) Other Income (Expense) 0.1 0.2 0.3 0.2 Equity Earnings from Investments 4.2 3.4 8.3 9.4 ---------- ---------- ---------- ---------- Income Before Income Taxes 15.1 7.8 28.8 18.5 Income Taxes 0.0 0.0 0.0 0.0 ---------- ---------- ---------- ---------- Net Income 15.1 7.8 28.8 18.5 ========== ========== ========== ========== EBITDA (1) $ 19.1 $ 11.7 $ 36.8 $ 26.1 ========== ========== ========== ========== Distributions Received from Equity Investments $ 1.5 $ 3.2 $ 2.7 $ 7.5 ========== ========== ========== ========== RECONCILIATION OF EBITDA TO NET INCOME EBITDA (1) $ 19.1 $ 11.7 $ 36.8 $ 26.1 Interest Expense, Net 0.0 (0.1) (0.1) (0.2) Depreciation and Amortization (4.0) (3.8) (7.9) (7.4) Income taxes 0.0 0.0 0.0 0.0 ---------- ---------- ---------- ---------- Net Income $ 15.1 $ 7.8 $ 28.8 $ 18.5 ========== ========== ========== ==========
NORTHERN BORDER PARTNERS, L.P. SUMMARY SEGMENT INFORMATION (Unaudited)
SECOND QUARTER YEAR TO DATE 2005 2004 2005 2004 ---------- ---------- ---------- ---------- COAL SLURRY PIPELINE SEGMENT Operating Results: Tons of Coal Shipped (In Thousands) 1,102 975 2,384 2,129 Financial Results (In Millions): Operating Revenue $ 5.8 $ 5.4 $ 12.0 $ 10.8 ---------- ---------- ---------- ---------- Operating Expenses Operations and Maintenance 3.5 3.3 7.5 6.6 Depreciation and Amortization 1.0 0.8 1.9 2.1 Taxes Other Than Income 0.1 0.2 0.4 0.4 ---------- ---------- ---------- ---------- Total Operating Expenses 4.6 4.3 9.8 9.1 ---------- ---------- ---------- ---------- Operating Income 1.2 1.1 2.2 1.7 Other Income 0.0 0.0 0.0 0.0 ---------- ---------- ---------- ---------- Income Before Income Taxes 1.2 1.1 2.2 1.7 Income Taxes 0.1 0.2 0.3 0.2 ---------- ---------- ---------- ---------- Net Income $ 1.1 $ 0.9 $ 1.9 $ 1.5 ========== ========== ========== ========== EBITDA (1) $ 2.2 $ 1.9 $ 4.1 $ 3.8 ========== ========== ========== ========== RECONCILIATION OF EBITDA TO NET INCOME EBITDA (1) $ 2.2 $ 1.9 $ 4.1 $ 3.8 Depreciation and Amortization (1.0) (0.8) (1.9) (2.1) Income taxes (0.1) (0.2) (0.3) (0.2) ---------- ---------- ---------- ---------- Net Income $ 1.1 $ 0.9 $ 1.9 $ 1.5 ========== ========== ========== ==========
NORTHERN BORDER PARTNERS, L.P. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited: In Millions Except Per Unit Amounts) RECONCILIATION OF EBITDA TO NET INCOME - PROJECTED 2005
Projected 2005 ----------------- Low High ----- ----- EBITDA $ 352 $ 362 Minority Interest $ (45) $ (47) Interest Expense, Net $ (86) $ (88) Depreciation and Amortization Expense $ (87) $ (89) Income Taxes $ (2) $ (4) ===== ===== Net Income* $ 132 $ 135 ===== =====
*The reconciliation of EBITDA and Net Income does not total due to use of ranges for the various components of the reconciliation. RECONCILIATION OF EBITDA TO DISTRIBUTABLE CASH FLOW - PROJECTED 2005
Projected 2005 ----------------- Low High ----- ----- EBITDA (from above) $ 352 $ 362 Interest Expense, Net $ (86) $ (88) Maintenance Capital $ (36) $ (39) Distributions to Minority Interest $ (58) $ (60) Other $ (2) $ (3) ===== ===== Distributable Cash Flow** $ 174 $ 178 ===== ===== Distributable Cash Flow per Unit $3.52 $3.59 ===== =====
**The reconciliation of EBITDA and Distributable Cash Flow does not total due to use of ranges for the various components of the reconciliation. -----END PRIVACY-ENHANCED MESSAGE-----