-----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, HkjVPATpXSnqUdK9/BjNMnrHHl+ODtGb2zhmIoDN3PNYyEboxyitQex8JpnkzMwy ZAznPwn4nUU8NH7sWj3VCQ== 0000950129-05-010452.txt : 20051103 0000950129-05-010452.hdr.sgml : 20051103 20051102210736 ACCESSION NUMBER: 0000950129-05-010452 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20051102 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Cost Associated with Exit or Disposal Activities ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20051103 DATE AS OF CHANGE: 20051102 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: 051174757 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 h29898e8vk.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): NOVEMBER 2, 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. Attached as Exhibit 99.1 is a copy of Northern Border Partners, L.P.'s press release, dated November 2, 2005, announcing Northern Border Partners, L.P.'s financial results for the quarter ended September 30, 2005, and earnings guidance for the remainder of 2005 and for 2006. ITEM 2.05 COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES. We expect Black Mesa Pipeline to be temporarily shut down upon expiration of our coal slurry transportation contract on December 31, 2005. The Mohave Generating Station (Mohave) co-owners, the Hopi Tribe, the Navajo Nation, Peabody Western Coal Company and other interested parties continue to negotiate water and coal supply issues. Black Mesa is working to resolve coal slurry transportation issues so that operations may resume in the future. If there are successful resolutions of all of these issues and the project receives a favorable Environmental Impact Statement, we believe our coal slurry pipeline will be modified and reconstructed in late 2008 and 2009. We anticipate that the capital expenditures for the Black Mesa refurbishment project will be in the range of $175 million to $200 million, which will be supported by revenues from a new transportation contract. We expect to incur temporary shut down and stand by cash costs of up to $11.5 million, which include:
Dollars in Millions Severance (one time cost) $0.8 Pension Plan Termination 3.5 (includes $1.0 previously reserved) On-going Expenses (to 2008) 3.7-7.2 ----------- Total $8.0 - 11.5
If the issues are not resolved and the Mohave is permanently closed, we expect to incur pipeline removal and remediation costs of approximately $2 million to $4 million, net of salvage, and to take a non-cash impairment charge of approximately $12 million related to goodwill and the remaining undepreciated cost of the pipeline. The costs associated with permanent shut down are pre-tax and do not consider tax implications. Depending on how negotiations progress and in accordance with accounting rules an impairment charge may be required prior to final resolution of the issues concerning Mohave even though the project may ultimately proceed. ITEM 7.01 REGULATION FD DISCLOSURE. Attached as Exhibit 99.1 is a copy of Northern Border Partners, L.P.'s press release, dated November 2, 2005, announcing Northern Border Partners, L.P.'s financial results for the quarter ended September 30, 2005, and earnings guidance for the remainder of 2005 and for 2006. ITEM 8.01 OTHER EVENTS. 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 the Claims held against Enron and ENA. Proceeds from the sale of the Claims are expected to be $14.6 million of which $14.0 million have been received. In the third quarter of 2005, Northern Border Pipeline recognized revenue of $9.4 million ($6.6 million, net to the Partnership) as a result of the sale. BIGHORN GAS GATHERING PREFERRED A SETTLEMENT During third quarter 2005, we recognized $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: o renewal of the coal slurry pipeline transportation contract under reasonable terms; o the impact of a potential impairment charge related to Black Mesa. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (c) Exhibits. 99.1 Northern Border Partners, L.P. press release dated November 2, 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: November 2, 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 November 2, 2005. EX-99.1 2 h29898exv99w1.txt PRESS RELEASE DATED NOVEMBER 2, 2005 EXHIBIT 99.1 News 13710 FNB Parkway [NORTHERN BORDER Release Omaha, NE 68154-5200 PARTNERS, L.P. LOGO] For Further Information Contact: Media Contact: Beth Jensen (402) 492-3400 NORTHERN BORDER PARTNERS, L.P. REPORTS HIGHER THIRD QUARTER Investor Contact: RESULTS, INCREASES 2005 GUIDANCE Ellen Konsdorf AND PROVIDES INITIAL 2006 GUIDANCE (877) 208-7318 FOR IMMEDIATE RELEASE: Wednesday, November 2, 2005 OMAHA - Northern Border Partners, L.P. (NYSE: NBP) today reported third quarter 2005 net income of $48.4 million or $0.98 per unit compared with net income of $34.7 million or $0.69 per unit for third quarter 2004. Year-to-date 2005, Northern Border Partners reported net income of $111.1 million, or $2.22 per unit, compared with $104.6 million, or $2.08 per unit for the same period in 2004. Cash flow as measured by earnings before interest, taxes, depreciation and amortization (EBITDA) was $106.9 million for third quarter 2005 up from $88.1 million in the third quarter of 2004. Year-to-date 2005 EBITDA was $278.0 million compared with $266.5 million for the same period one year ago. "All business segments delivered strong third quarter results. This, coupled with non-recurring items realized in the quarter, resulted in record quarterly earnings," said Bill Cordes, chief executive officer of Northern Border Partners. "Therefore, we are increasing our earnings guidance for the full year 2005. Net income is expected to be in the range of $2.83 per unit to $2.89 per unit. Distributable cash flow (DCF) is expected to be $3.61 per unit to $3.67 per unit." "Our results for 2006 are expected to be fairly consistent with 2005 from a base business perspective excluding non-recurring items," Cordes continued. "We anticipate net income to be in the range of $2.50 per unit to $2.60 per unit and distributable cash flow to be in the range of $3.65 per unit to $3.85 per unit." THIRD QUARTER 2005 HIGHLIGHTS Third quarter results included: o Higher operating revenue from interstate pipelines of approximately $8.2 million in third quarter 2005, resulting primarily from the sale of bankruptcy claims held against Enron and Enron North America. Northern Border Pipeline realized $9.4 million ($6.6 million net to the Partnership) of non-recurring revenue from the sale of the bankruptcy claims which was offset by a $2.0 million ($1.4 million net to the Partnership) reduction in revenue as a result of capacity sold at discounted rates. o Increased operating income of approximately $5.4 million from the Partnership's Williston Basin gathering and processing operations. Gathered and processed volumes increased by 20 percent and the average price realized for natural gas increased by 39 percent while the average price realized for natural gas liquids increased by 26 percent. o Consolidated interest expense of approximately $22.1 million in third quarter 2005 compared with $19.3 million in the third quarter 2004 due to higher average interest rates, offset by slightly lower average debt outstanding. o Equity earnings from our joint venture investments which were $6.5 million greater in third quarter 2005 than third quarter 2004, due primarily to a settlement of our preferred distributions from Bighorn Gas Gathering. In the third quarter of 2005, Northern Border Partners recognized $5.4 million for settlement of Preferred A distributions related to 2004 and 2005. o In August, the Partnership completed the purchase of an additional 3.7 percent interest in Fort Union Gas Gathering for approximately $5.1 million. This brings the Partnership's total ownership position in this gathering system to 37 percent. o In September, Northern Border Pipeline accepted the Federal Energy Regulatory Commission's (FERC) certificate of public convenience and necessity for the Chicago III Expansion Project. This project will add 130 mmcfd of transportation capacity from Harper, Iowa to Chicago, Illinois and is fully subscribed by four shippers under long-term firm service transportation agreements with terms ranging from five and one-half to ten years. Construction is estimated to cost approximately $21 million and the target in-service date is April 2006. 2 INTERSTATE NATURAL GAS PIPELINE SEGMENT The interstate natural gas pipeline segment contributed net income of $36.7 million in third quarter 2005, compared with $30.6 million in third quarter 2004. Operating revenue for the segment includes: o Northern Border Pipeline's $9.4 million of non-recurring revenue from the sale of its bankruptcy claims; o a decrease of $2.0 million related to capacity on Northern Border Pipeline sold at discounted rates; o higher revenues on Midwestern Gas Transmission of $0.6 million and Viking Gas Transmission of $0.2 million. Average daily throughput for the interstate natural gas pipeline segment increased 8 percent in the quarter totaling 3,264 million cubic feet per day (mmcfd) compared with 3,029 mmcfd in third quarter 2004. Northern Border Pipeline had 63 mmcfd of transportation capacity that was unsold for October. As of October 31, 2005, 88 mmcfd was available for contracting for November and December 2005 on the Port of Morgan to Ventura segment. The following chart provides additional information related to Northern Border Pipeline's contracting levels and revenue for the three and nine months ended September 30, 2005. Northern Border Pipeline rates are based on the distance of the transportation path. As a result, the weighted average system rate varies due to the changing transportation paths as well as discounting activity. NORTHERN BORDER PIPELINE COMPANY TOTAL SYSTEM REVENUE SUMMARY
===================================================================================================== THIRD QUARTER YEAR TO DATE ------------------------------------------------------- 2005 2004 2005 2004 - ----------------------------------------------------------------------------------------------------- PERCENT CONTRACTED(1) 101% 100% 97% 101% WEIGHTED AVERAGE SYSTEM RATE ($/MCF)(2) $0.360(3) $0.374 $0.372(3) $0.376 TOTAL REVENUE (MILLIONS) $79.6(3) $81.6 $232.3(3) $246.4 (1) Compared to a design capacity of 2,374 mmcfd. (2) Amounts shown in dollars per thousand cubic feet (mcf). (3) Amounts exclude revenue from sale of Enron bankruptcy claims. - -----------------------------------------------------------------------------------------------------
3 NATURAL GAS GATHERING AND PROCESSING SEGMENT Net income from the natural gas gathering and processing segment during third quarter 2005 was $22.1 million, an increase of 56 percent or $7.9 million over the third quarter 2004. The primary differences between the periods were: o Gathering and processing volumes in the Williston Basin of 67 mmcfd compared with 56 mmcfd in third quarter 2004, a 20 percent increase, primarily attributable to increased production and system expansions in the Grasslands and Marmarth systems. o Increased prices realized for natural gas and natural gas liquids. Average prices realized, net of hedging, during the third quarter were $0.93 per gallon for natural gas liquids and $6.83 per million British thermal units (mmBtu) for natural gas. The combined impact of increased inlet volumes and prices realized was an increase in gross margins for Williston Basin of $8.3 million compared with the third quarter of 2004. o Volumes on the Partnership's wholly-owned gathering systems in the Powder River Basin of 177 mmcfd versus 216 mmcfd or a 18 percent decline compared to the third quarter 2004. Since this decrease is primarily due to the loss of high-pressure gathered volumes, our revenues from these systems declined by only 8 percent. Approximately 78 percent of the volumes for the third quarter 2005 in our wholly-owned Powder River Basin gathering systems are low pressure volumes and we derive approximately 88 percent of our revenues from these volumes. o Higher operations and maintenance expense of approximately $5.8 million. In third quarter 2004, operations and maintenance expense included a recovery of $1.8 million of allowance for doubtful accounts related to bankruptcy claims and a gain from the sale of gathering assets of $3.1 million. Third quarter 2005 included higher operating expenses primarily as a result of system expansions. o Increased equity earnings of $6.3 million due to of the Bighorn Gas Gathering Preferred A settlement ($5.4 million) and better performance for Bighorn Gas Gathering, Fort Union Gas Gathering, and Lost Creek Gas Gathering. 4 COAL SLURRY PIPELINE SEGMENT Net income for the coal slurry pipeline segment was $1.7 million for third quarter 2005, up from $0.9 million for the third quarter 2004 primarily the result of adjustments to depreciation expense for the assets of Black Mesa. BUSINESS OUTLOOK Net income for 2005 is now expected to range from $142 million to $145 million ($2.83 per unit to $2.89 per unit). EBITDA is expected to be in the range of $363 million to $370 million. Distributable cash flow is expected to be $178 million to $182 million or $3.61 per unit to $3.67 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 $363 $370 $283 $286 $81 $84 $5 $6 MINORITY INTEREST (45) (46) (45) (46) - - - - INTEREST EXPENSE, NET (86) (88) (44) (45) - - - - DEPRECIATION & AMORTIZATION EXPENSE (85) (86) (66) (67) (15) (16) (2) (3) INCOME TAXES (5) (6) (3) (4) - - (1) (1) - ---------------------------------------------------------------------------------------------------------------------- NET INCOME $142 $145 $122 $124 $65 $67 $1 $2 ======================================================================================================================
Note: The reconciliations of EBITDA and Net Income do not total due to use of ranges for the various components of the reconciliation and unallocated Partnership expenses. Results for 2006 are expected to be in line with 2005 results from a base business perspective. The base business perspective would exclude 2005 non-recurring items including the Preferred A settlement of $5.4 million from Bighorn Gas Gathering and the income from the sale of bankruptcy claims totaling approximately $8.2 million, net to the Partnership. Additionally, the temporary shut-down of Black Mesa Pipeline is expected to reduce 2006 net income compared to 2005 by approximately $5.0 million. Net income for 2006 is now expected to range from $126 million to $131 million ($2.50 per unit to $2.60 per unit). EBITDA is expected to be in the range of $348 million to $358 5 million. Distributable cash flow is expected to be $181 million to $189 million or $3.65 per unit to $3.85 per unit. NORTHERN BORDER PARTNERS RECONCILIATION OF EBITDA TO NET INCOME - PROJECTED 2006
==================================================================================================================== INTERSTATE NATURAL GAS GATHERING & CONSOLIDATED GAS PIPELINES PROCESSING COAL SLURRY - -------------------------------------------------------------------------------------------------------------------- LOW HIGH LOW HIGH LOW HIGH LOW HIGH - -------------------------------------------------------------------------------------------------------------------- EBITDA $348 $358 $272 $277 $86 $91 ($7) ($3) MINORITY INTEREST (41) (42) (41) (42) - - - - INTEREST EXPENSE, NET (90) (93) (44) (45) - - - - DEPRECIATION & AMORTIZATION EXPENSE (89) (91) (70) (72) (17) (18) - - INCOME TAXES (2) (3) (4) (5) - - 3 1 - -------------------------------------------------------------------------------------------------------------------- NET INCOME $126 $131 $112 $115 $69 $73 ($4) ($2) ====================================================================================================================
Note: The reconciliations of EBITDA and Net Income do 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's projections for transportation demand on its interstate natural gas pipelines assume: o Midwestern will have strong southbound flows as shippers look for alternatives to Gulf Coast supply; and Viking will remain flat to 2005. o Canadian natural gas supply will remain steady and import levels will be similar in 2006 as in 2005. o The anticipated natural gas price differential during the upcoming April and May shoulder months compared with the 2006-07 winter heating season are expected to impact demand for Northern Border Pipeline transportation capacity again in 2006. o Northern Border Pipeline is likely to again experience seasonal fluctuations in throughput during 2006 and some discounting may be required to maximize revenue. o Northern Border Pipeline's Chicago III Expansion Project goes into service in April 2006. 6 Based on those assumptions, the following table represents a forecast of Northern Border Pipeline contracting levels and corresponding revenue for the remainder of the current year, along with 2006. Included for comparison purposes is actual contracting levels and revenue for 2004. NORTHERN BORDER PIPELINE COMPANY TOTAL SYSTEM REVENUE FORECAST (YEARS ENDED DECEMBER 31)
================================================================================================================= 2004 2005 2006 ------------------------------------------------------------ ACTUAL FORECAST FORECAST - ----------------------------------------------------------------------------------------------------------------- PERCENT CURRENTLY CONTRACTED(1) 101% 97% 71% PERCENT EXPECTED TO BE CONTRACTED N/A 97% - 98% 97% - 102% WEIGHTED AVERAGE SYSTEM RATE ($/mcf)(2) $0.375 $0.363 - $0.368(3) $0.345 - $0.362 TOTAL REVENUE (MILLIONS) $329 $310 - $314(3) $305 - $320 (1) Compared to a design capacity of 2,374 mmcfd. (2) Amounts shown in dollars per thousand cubic feet (mcf). (3) Amounts exclude revenue from sale of Enron bankruptcy claims. - -----------------------------------------------------------------------------------------------------------------
As required by the provisions of the settlement of its last rate case, on November 1, 2005, Northern Border Pipeline filed a rate case with the FERC. The filing proposes: o an increase in rates based on an increase in overall revenue requirement of 7.8 percent; o a change to the rate design approach with a supply zone and market area utilizing a fixed rate per dekatherm and a dekatherm-mile rate, respectively; o a compressor usage surcharge primarily to recover costs related to powering electric compressors; and o the implementation of a short-term, firm-service rate structure on a prospective basis. Additionally, the filing incorporates: o an overall cost of capital of 10.56 percent based on a rate of return on equity of 14.20 percent; o an adjustment in the billing determinants primarily to reflect discounting of capacity; o an increase in the depreciation rate for transmission plant from 2.25 percent to 2.84 percent and the institution of a negative salvage rate of 0.59 percent; 7 o the continuation of the inclusion of income taxes in the calculation of the rates. The Partnership cannot predict the outcome or the timing of final resolution of this proceeding. NATURAL GAS GATHERING AND PROCESSING SEGMENT The Partnership's outlook for this segment is based on our expectations for the performance of the Basins where we have interests including these assumptions: o In the Williston Basin, the Partnership expects that casinghead gas volumes will continue to increase at least through 2006, but at a slower rate of growth than 2005. o The Partnership anticipates that favorable natural gas and natural gas liquids prices will continue in 2006. o For the remainder of 2005, approximately 77 percent of the projected natural gas equity volumes are hedged and 65 percent of the projected equity natural gas liquids volumes are hedged. For 2006, approximately 47 percent of the equity natural gas volumes and 24 percent of the equity natural gas liquids volumes are hedged. o Overall, drilling in the Powder River Basin is expected to continue to increase, led by positive developments in drilling in the Big George Coal in the western portion of the Basin. COAL SLURRY PIPELINE SEGMENT We expect Black Mesa Pipeline to be temporarily shut down upon expiration of our coal slurry transportation contract on December 31, 2005. The Mohave Generating Station (Mohave) co-owners, the Hopi Tribe, the Navajo Nation, Peabody Western Coal Company and other interested parties continue to negotiate water and coal supply issues. Black Mesa is working to resolve coal slurry transportation issues so that operations may resume in the future. If there are successful resolutions of all of these issues and the project receives a favorable Environmental Impact Statement, we believe our coal slurry pipeline will be modified and reconstructed in late 2008 and 2009. We expect to incur temporary shut down and standby costs of approximately $2 million in the fourth quarter of 2005 and approximately $4 to $6 million in 2006. If these issues are not resolved and Mohave is permanently closed, we expect to incur pipeline removal and 8 remediation costs of approximately $2 million to $4 million, (pre-tax), net of salvage, and to take a non-cash impairment charge of approximately $12 million (pre-tax) related to goodwill and the remaining undepreciated cost of the assets. Depending on how negotiations progress and in accordance with accounting rules an impairment charge may be required prior to final resolution of the issues concerning Mohave even though the project may ultimately proceed. Our 2005 and 2006 guidance includes the expected costs of a temporary shut-down of the Black Mesa Pipeline, but does not anticipate any impairment charges. DISTRIBUTION DECLARATION On October 20, 2005, the Partnership Policy Committee declared the Partnership's quarterly cash distribution of $0.80 per unit for the third quarter of 2005. The indicated annual rate is $3.20. The distribution is payable November 14, 2005 to unitholders of record on October 31, 2005. CONFERENCE CALL Northern Border Partners will host a conference call on Thursday, November 3, 2005 at 10:00 a.m. Eastern Time to review third quarter 2005 results and discuss 2005 and 2006 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 November 30, 2005 by dialing, toll free in the United States and Canada, 800-405-2236 and entering passcode 11041885. 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'. DCF is not necessarily the same as available cash as defined in the Partnership Agreements. Management further uses EBITDA to compare the financial performance of its segments and to internally manage those business segments. The three and nine 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 9 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 projected 2005 and projected 2006 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 or less 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 and United States natural gas; o availability of additional storage capacity; weather conditions; and o competitive developments by Canadian and U.S. natural gas transmission peers; o orders by the FERC which are significantly different than our assumptions related to Northern Border Pipeline's November 2005 rate case; 10 o our ability to successfully advocate our position before the FERC or reach a reasonable settlement with the FERC staff and opposing parties; o performance of contractual obligations by the shippers; o political and regulatory developments that impact FERC, proceedings involving interstate pipelines and the interstate pipelines' success in sustaining their positions in such proceedings; o the ability to recover operating costs, costs of property, plant and equipment and regulatory assets in our rates; o timely receipt of approval by FERC for construction and operation of the Midwestern Gas Transmission Eastern Extension Project and required regulatory clearances; our ability to acquire all necessary rights-of-way and obtain agreements for interconnects in a timely manner; our ability to promptly obtain all necessary materials and supplies required for construction. NATURAL GAS GATHERING AND PROCESSING SEGMENT: o the rate of development, well performance, 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 plants in processing natural gas and extracting natural gas liquids. COAL SLURRY PIPELINE SEGMENT: o renewal of the coal slurry pipeline transportation contract under reasonable terms; o the impact of a potential impairment charge. 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; 11 o the risk inherent in the use of information systems in our business, implementation of new software and hardware, and the impact on the timeliness of information for financial reporting; and o acts of nature, sabotage, terrorism or other similar acts causing damage to our facilities or our suppliers' or shippers' facilities. 12 NORTHERN BORDER PARTNERS, L.P. FINANCIAL HIGHLIGHTS (Unaudited: In Millions Except Per Unit Amounts)
THIRD QUARTER YEAR TO DATE 2005 2004 2005 2004 -------- -------- -------- -------- Operating Revenue $ 183.0 $ 147.3 $ 492.8 $ 433.6 Income From Continuing Operations $ 48.9 $ 34.4 $ 110.8 $ 103.1 Net Income $ 48.4 $ 34.7 $ 111.1 $ 104.6 Per Unit Income From Continuing Operations $ 0.99 $ 0.68 $ 2.21 $ 2.05 Per Unit Net Income $ 0.98 $ 0.69 $ 2.22 $ 2.08 Cash Flows From Operating Activities $ 91.3 $ 62.2 $ 202.6 $ 192.0 EBITDA (1) $ 106.9 $ 88.1 $ 278.0 $ 266.5 Distributable Cash Flow $ 63.3 $ 48.4 $ 148.4 $ 149.6 Distributable Cash Flow Per Unit $ 1.30 $ 0.98 $ 3.01 $ 3.04
CONSOLIDATED STATEMENT OF INCOME (Unaudited: In Millions Except Per Unit Amounts)
THIRD QUARTER YEAR TO DATE 2005 2004 2005 2004 -------- -------- -------- -------- Operating Revenue $ 183.0 $ 147.3 $ 492.8 $ 433.6 -------- -------- -------- -------- Operating Expenses Product Purchases 45.3 26.1 113.3 71.0 Operations and Maintenance 32.2 28.2 95.5 86.6 Depreciation and Amortization 20.4 21.3 63.2 64.2 Taxes Other Than Income 10.2 9.6 29.0 27.4 -------- -------- -------- -------- Total Operating Expenses 108.1 85.2 301.0 249.2 -------- -------- -------- -------- Operating Income 74.9 62.1 191.8 184.4 Interest Expense, Net (22.1) (19.3) (64.6) (56.4) Other Income (Expense), Net 1.5 0.3 2.8 1.5 Equity Earnings from Investments 10.4 3.9 19.3 13.9 Minority Interest (13.9) (11.3) (34.7) (36.2) -------- -------- -------- -------- Income From Continuing Operations Before Income Taxes 50.8 35.7 114.6 107.2 Income Taxes 1.9 1.3 3.8 4.1 -------- -------- -------- -------- Income From Continuing Operations 48.9 34.4 110.8 103.1 Discontinued Operations, net of tax (0.5) 0.3 0.3 1.5 -------- -------- -------- -------- Net Income $ 48.4 $ 34.7 $ 111.1 $ 104.6 ======== ======== ======== ======== Per Unit Income From Continuing Operations $ 0.99 $ 0.68 $ 2.21 $ 2.05 ======== ======== ======== ======== Per Unit Net Income $ 0.98 $ 0.69 $ 2.22 $ 2.08 ======== ======== ======== ======== 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 THIRD QUARTER YEAR TO DATE 2005 2004 2005 2004 -------- -------- -------- -------- EBITDA (1) $ 106.9 $ 88.1 $ 278.0 $ 266.5 Minority Interest (13.9) (11.3) (34.7) (36.2) Interest Expense, Net (22.1) (19.3) (64.6) (56.4) Depreciation and Amortization (including amounts in Other Income, Net and Discontinued Operations) (20.3) (21.4) (63.3) (64.7) Income taxes (including amounts in Discontinued Operations) (2.4) (1.4) (4.6) (4.7) Equity AFUDC (included in Other Income, Net) 0.2 0.0 0.3 0.1 -------- -------- -------- -------- Net Income $ 48.4 $ 34.7 $ 111.1 $ 104.6 ======== ======== ======== ======== RECONCILIATION OF EBITDA TO CASH FLOWS FROM OPERATING ACTIVITIES EBITDA (1) $ 106.9 $ 88.1 $ 278.0 $ 266.5 Interest Expense, Net (22.1) (19.3) (64.6) (56.4) Changes in Current Assets and Liabilities 11.4 3.1 5.6 2.5 Equity Earnings from Investments (10.4) (3.9) (19.3) (13.9) Distributions Received from Equity Investments 9.4 1.6 12.1 9.2 Changes in Reserves and Deferred Credits 0.4 (0.1) (0.4) (1.8) Gain on Sale of Assets 0.0 (3.2) 0.0 (3.4) Other (4.3) (4.1) (8.8) (10.7) -------- -------- -------- -------- Cash Flows From Operating Activities $ 91.3 $ 62.2 $ 202.6 $ 192.0 ======== ======== ======== ======== RECONCILIATION OF EBITDA TO DISTRIBUTABLE CASH FLOW EBITDA (1) $ 106.9 $ 88.1 $ 278.0 $ 266.5 Interest Expense, Net (22.1) (19.3) (64.6) (56.4) Maintenance Capital (7.3) (4.8) (18.9) (12.7) Distributions to Minority Interest (11.8) (15.5) (43.8) (46.8) Other (2.4) (0.1) (2.3) (1.0) -------- -------- -------- -------- Distributable Cash Flow $ 63.3 $ 48.4 $ 148.4 $ 149.6 ======== ======== ======== ======== Distributable Cash Flow Per Unit $ 1.30 $ 0.98 $ 3.01 $ 3.04 ======== ======== ======== ========
NORTHERN BORDER PARTNERS, L.P. OTHER FINANCIAL INFORMATION (Unaudited: In Millions)
SEPTEMBER 30, DECEMBER 31, 2005 2004 -------- -------- SUMMARY BALANCE SHEET DATA Total assets by segment: Interstate Natural Gas Pipeline $1,877.6 $1,904.7 Natural Gas Gathering and Processing 590.8 570.1 Coal Slurry Pipeline 16.7 18.3 Other (assets not allocated to segments) 21.2 21.6 -------- -------- Total consolidated assets $2,506.3 $2,514.7 ======== ======== Consolidated capitalization: Long-term debt, including current maturities $1,331.8 $1,330.4 Partners' capital 771.6 780.2 Minority interests in partners' equity 280.7 290.1 Accumulated other comprehensive income (11.9) 9.2 -------- -------- Total capitalization 2,372.2 2,409.9 Consolidated other current liabilities and reserves and deferred credits 134.1 104.8 -------- -------- Total liabilities and capitalization $2,506.3 $2,514.7 ======== ========
THIRD QUARTER YEAR TO DATE 2005 2004 2005 2004 ------- ------- ------- ------- Capital Expenditures and Equity Investments (2) Maintenance - Interstate Natural Gas Pipeline $ 5.6 $ 3.4 $ 14.5 $ 9.0 Natural Gas Gathering and Processing 0.6 1.3 1.5 2.1 Coal Slurry Pipeline 0.0 0.1 0.0 1.5 Other 1.1 0.0 2.9 0.1 ------- ------- ------- ------- 7.3 4.8 18.9 12.7 ------- ------- ------- ------- Growth - Interstate Natural Gas Pipeline 4.0 0.2 8.2 0.3 Natural Gas Gathering and Processing 10.7 3.3 19.4 4.9 Coal Slurry Pipeline 0.0 0.0 0.0 0.0 ------- ------- ------- ------- 14.7 3.5 27.6 5.2 ------- ------- ------- ------- Total $ 22.0 $ 8.3 $ 46.5 $ 17.9 ======= ======= ======= =======
(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)
THIRD QUARTER YEAR TO DATE 2005 2004 2005 2004 ---------- ---------- ---------- ---------- INTERSTATE NATURAL GAS PIPELINE SEGMENT Operating Results (3): Gas Delivered (mmcf) 293,079 271,929 856,943 847,505 Average Throughput (mmcfd) 3,264 3,029 3,216 3,167 Financial Results (In Millions): Operating Revenue $ 103.2 $ 95.0 $ 282.4 $ 287.1 ---------- ---------- ---------- ---------- Operating Expenses Operations and Maintenance 15.7 15.9 45.5 43.5 Depreciation and Amortization 16.9 16.8 49.9 50.0 Taxes Other Than Income 9.4 8.8 26.3 24.9 ---------- ---------- ---------- ---------- Total Operating Expenses 42.0 41.5 121.7 118.4 ---------- ---------- ---------- ---------- Operating Income 61.2 53.5 160.7 168.7 Interest Expense, Net (11.3) (10.7) (33.7) (32.1) Other Income, Net 1.2 (0.2) 2.1 0.4 Equity Earnings from Investments 0.6 0.4 1.2 1.0 ---------- ---------- ---------- ---------- Income Before Income Taxes 51.7 43.0 130.3 138.0 Income Taxes 1.1 1.1 2.7 3.7 ---------- ---------- ---------- ---------- Net Income 50.6 41.9 127.6 134.3 Net income to Minority Interest (13.9) (11.3) (34.7) (36.2) ---------- ---------- ---------- ---------- Net Income to Northern Border Partners $ 36.7 $ 30.6 $ 92.9 $ 98.1 ========== ========== ========== ========== EBITDA (1) $ 79.6 $ 70.5 $ 213.7 $ 220.4 ========== ========== ========== ========== Distributions from Northern Border Pipeline: Paid to Northern Border Partners $ 27.6 $ 36.1 $ 102.1 $ 109.2 Paid to Minority Interest $ 11.8 $ 15.5 $ 43.8 $ 46.8 ---------- ---------- ---------- ---------- Total Distributions $ 39.4 $ 51.6 $ 145.9 $ 156.0 ========== ========== ========== ========== RECONCILIATION OF EBITDA TO NET INCOME EBITDA (1) $ 79.6 $ 70.5 $ 213.7 $ 220.4 Minority Interest (13.9) (11.3) (34.7) (36.2) Interest Expense, Net (11.3) (10.7) (33.7) (32.1) Depreciation and Amortization (16.8) (16.8) (50.0) (50.3) Income taxes (1.1) (1.1) (2.7) (3.7) Equity AFUDC (included in Other Income (Expense)) 0.2 0.0 0.3 0.0 ---------- ---------- ---------- ---------- Net Income $ 36.7 $ 30.6 $ 92.9 $ 98.1 ========== ========== ========== ==========
NORTHERN BORDER PARTNERS, L.P. SUMMARY SEGMENT INFORMATION (Unaudited)
THIRD QUARTER YEAR TO DATE 2005 2004 2005 2004 -------- -------- -------- -------- NATURAL GAS GATHERING AND PROCESSING SEGMENT Operating Results (3): Volumes (mmcfd): Gathering 1,037 1,041 1,032 1,013 Processing 67 56 64 54 Financial Results (In Millions): Operating Revenue $ 73.6 $ 46.8 $ 192.1 $ 130.1 -------- -------- -------- -------- Operating Expenses Product Purchases 45.3 26.1 113.3 71.0 Operations and Maintenance 11.4 5.6 32.4 26.3 Depreciation and Amortization 3.9 3.7 11.8 11.1 Taxes Other Than Income 0.7 0.6 2.0 1.8 -------- -------- -------- -------- Total Operating Expenses 61.3 36.0 159.5 110.2 -------- -------- -------- -------- Operating Income 12.3 10.8 32.6 19.9 Interest Expense, Net (0.1) (0.1) (0.2) (0.3) Other Income (Expense) 0.1 0.0 0.5 0.2 Equity Earnings from Investments 9.8 3.5 18.1 12.9 -------- -------- -------- -------- Income Before Income Taxes 22.1 14.2 51.0 32.7 Income Taxes 0.0 0.0 0.0 0.0 -------- -------- -------- -------- Net Income 22.1 14.2 51.0 32.7 ======== ======== ======== ======== EBITDA (1) $ 26.1 $ 18.0 $ 63.0 $ 44.1 ======== ======== ======== ======== Distributions Received from Equity Investments $ 9.4 $ 1.6 $ 12.1 $ 9.2 ======== ======== ======== ======== RECONCILIATION OF EBITDA TO NET INCOME EBITDA (1) $ 26.1 $ 18.0 $ 63.0 $ 44.1 Interest Expense, Net (0.1) (0.1) (0.2) (0.3) Depreciation and Amortization (3.9) (3.7) (11.8) (11.1) Income taxes 0.0 0.0 0.0 0.0 -------- -------- -------- -------- Net Income $ 22.1 $ 14.2 $ 51.0 $ 32.7 ======== ======== ======== ========
NORTHERN BORDER PARTNERS, L.P. SUMMARY SEGMENT INFORMATION (Unaudited)
THIRD QUARTER YEAR TO DATE 2005 2004 2005 2004 -------- -------- -------- -------- COAL SLURRY PIPELINE SEGMENT Operating Results: Tons of Coal Shipped (In Thousands) 1,150 1,217 3,534 3,346 Financial Results (In Millions): Operating Revenue $ 6.3 $ 5.5 $ 18.3 $ 16.3 -------- -------- -------- -------- Operating Expenses Operations and Maintenance 4.1 3.4 11.6 9.9 Depreciation and Amortization (0.5) 0.8 1.4 3.0 Taxes Other Than Income 0.2 0.2 0.6 0.6 -------- -------- -------- -------- Total Operating Expenses 3.8 4.4 13.6 13.5 -------- -------- -------- -------- Operating Income 2.5 1.1 4.7 2.8 Other Income 0.0 0.0 0.0 0.0 -------- -------- -------- -------- Income Before Income Taxes 2.5 1.1 4.7 2.8 Income Taxes 0.8 0.2 1.1 0.4 -------- -------- -------- -------- Net Income $ 1.7 $ 0.9 $ 3.6 $ 2.4 ======== ======== ======== ======== EBITDA (1) $ 2.0 $ 1.9 $ 6.1 $ 5.8 ======== ======== ======== ======== RECONCILIATION OF EBITDA TO NET INCOME EBITDA (1) $ 2.0 $ 1.9 $ 6.1 $ 5.8 Depreciation and Amortization 0.5 (0.8) (1.4) (3.0) Income taxes (0.8) (0.2) (1.1) (0.4) -------- -------- -------- -------- Net Income $ 1.7 $ 0.9 $ 3.6 $ 2.4 ======== ======== ======== ========
NORTHERN BORDER PARTNERS, L.P. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (Unaudited: In Millions Except Per Unit Amounts) RECONCILIATION OF EBITDA TO NET INCOME - PROJECTED 2005 AND 2006
Projected 2005 Projected 2006 -------------- -------------- Low High Low High --- ---- --- ---- EBITDA $ 363 $ 370 $ 348 $ 358 Minority Interest ($ 45) ($ 46) ($ 41) ($ 42) Interest Expense, Net ($ 86) ($ 88) ($ 90) ($ 93) Depreciation and Amortization Expense ($ 85) ($ 86) ($ 89) ($ 91) Income Taxes ($ 5) ($ 6) ($ 2) ($ 3) ===== ===== ===== ===== Net Income* $ 142 $ 145 $ 126 $ 131 ===== ===== ===== ===== Per Unit Net Income $2.83 $2.89 $2.50 $2.60 ===== ===== ===== =====
* The reconciliations of EBITDA and Net Income do not total due to use of ranges for the various components of the reconciliation. RECONCILIATION OF EBITDA TO DISTRIBUTABLE CASH FLOW - PROJECTED 2005 AND 2006
Projected 2005 Projected 2006 -------------- -------------- Low High Low High --- ---- --- ---- EBITDA (from above) $ 363 $ 370 $ 348 $ 358 Interest Expense, Net ($ 86) ($ 88) ($ 90) ($ 93) Maintenance Capital ($ 37) ($ 39) ($ 23) ($ 28) Distributions to Minority Interest ($ 60) ($ 62) ($ 53) ($ 55) Other ($ 2) ($ 3) ($ 2) ($ 3) ===== ===== ===== ===== Distributable Cash Flow** $ 178 $ 182 $ 181 $ 189 ===== ===== ===== ===== Distributable Cash Flow per Unit $3.61 $3.67 $3.65 $3.85 ===== ===== ===== =====
** The reconciliations of EBITDA and Distributable Cash Flow do not total due to use of ranges for the various components of the reconciliation. -----END PRIVACY-ENHANCED MESSAGE-----