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Press release from CNW Group

VERESEN INC. ANNOUNCES 2010 FOURTH QUARTER AND ANNUAL RESULTS, UPDATED 2011 GUIDANCE AND APPOINTMENT OF THE CHAIRMAN OF THE BOARD

Thursday, March 03, 2011

VERESEN INC. ANNOUNCES 2010 FOURTH QUARTER AND ANNUAL RESULTS, UPDATED 2011 GUIDANCE AND APPOINTMENT OF THE CHAIRMAN OF THE BOARD17:50 EST Thursday, March 03, 2011 << /NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/ Trading Symbol: VSN Exchange: TSX >>CALGARY, March 3 /CNW/ - Veresen Inc. ("Veresen" or "the Company"), formerly Fort Chicago Energy Partners L.P., today announced its results for the three and 12 months ended December 31, 2010. Mr. Stephen H. White, President and Chief Executive Officer commented, "We are very pleased with our performance in 2010. Each of our businesses either met or exceeded our expectations by generating strong results from operations."Highlights for the Three Months and Year Ended December 31, 2010 << - Adjusted net income and Net income for the year of $79.7 million or $0.55 per Unit - Distributable cash for the year of $180.6 million or $1.24 per Unit - Cash from operating activities for the year of $237.4 million - Adjusted net income and Net income for the three months of $16.7 million or $0.11 per Unit - Distributable cash for the three months of $46.2 million or $0.30 per Unit - Cash from operating activities for the three months of $43.8 million - Acquired $83.1 million, 33 megawatt run-of-river hydro facility in New York state in March - Acquired Swift Power Corp. for $9 million in August - Entered into agreement to acquire interests in a portfolio of run-of- river hydro facilities and development projects in British Columbia for $114.9 million (transaction closed in February 2011) - Acquired Pristine Power Inc. for $100.2 million in November - Issued $86.25 million Series C Convertible Debentures in July - Finalized agreement for new $450 million corporate revolving credit facility in December - Completed plan of arrangement to facilitate conversion to a corporation on January 1, 2011 >>Financial Highlights << Three months ended Year ended December 31 December 31 ------------------------------------------------------------------------- ($ Thousands, except per Unit amounts) 2010 2009 2010 2009 ------------------------------------------------------------------------- Revenues Pipelines(1) 111,916 110,269 415,932 422,912 Midstream 55,116 57,534 179,404 149,709 Power 26,618 18,027 98,662 75,709 Veresen - Corporate 226 43 424 803 ------------------------------------------------------------------------- 193,876 185,873 694,422 649,133 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Adjusted net income (loss) before tax and non- controlling interest(2) Pipelines 25,117 25,383 99,305 105,923 Midstream 25,725 17,921 74,876 41,333 Power 2,158 (4,815) 10,294 (853) Veresen - Corporate (24,060) (16,215) (73,216) (46,093) ------------------------------------------------------------------------- 28,940 22,274 111,259 100,310 Tax expense (12,034) (3,052) (31,324) (16,771) Non-controlling interest (194) - (194) ------------------------------------------------------------------------- Adjusted net income 16,712 19,222 79,741 83,539 Per Unit ($) 0.11 0.14 0.55 0.61 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Net of intersegment eliminations. (2) This item is not a standard measure under GAAP and may not be comparable to similar measures presented by other entities. See reconciliation of adjusted net income to net income in the schedules attached to this news release. For more information about non-GAAP measures used by Veresen, see the section entitled "Non-GAAP Financial Measures" contained in Veresen's 2010 Management's Discussion and Analysis. >>Adjusted net income for the three months ended December 31, 2010, which equaled net income, was $16.7 million or $0.11 per Unit compared to $19.2 million or $0.14 per Unit for the same period last year. Fourth quarter adjusted net income before tax from Veresen's pipeline business was consistent with the same period last year. Midstream adjusted net income before tax increased by $7.8 million to $25.7 million reflecting a significant increase in Aux Sable's margin-based lease revenues. Results from Veresen's power business increased by $7.0 million reflecting incremental earnings from assets acquired in 2010 and stronger performance from the Company's U.S. gas-fired generation facilities. Power adjusted net income before tax and non-controlling interest also includes an aggregate $4.2 million of non-cash fair value gains recorded in the fourth quarter in relation to the Company's exchangeable debentures and derivative financial instruments, comprised of interest rate swaps that serve to hedge interest rates in relation to York Energy Centre L.P.'s floating-rate construction loan. These increases were more than offset by higher corporate costs, reflecting increased foreign exchange losses, general, administrative and project development costs, and interest expense. Further, taxes increased due to higher earnings from Aux Sable.Adjusted net income for the year ended December 31, 2010, which equaled net income, was $79.7 million or $0.55 per Unit compared to $83.5 million or $0.61 per Unit for 2009. Midstream adjusted net income increased by $33.5 million to $74.9 million reflecting a significant increase in Aux Sable's margin-based lease revenues. Results from Veresen's power business increased by $11.1 million reflecting incremental earnings from assets acquired in 2010, stronger performance from the Company's U.S. gas-fired generation facilities and an aggregate $5.4 million of non-cash fair value gains recorded during the year in relation to the Company's exchangeable debentures and derivative financial instruments. These increases were more than offset by higher corporate costs, reflecting increased foreign exchange losses, interest expense, and general, administrative and project development costs. Further, taxes increased due to higher earnings from Aux Sable. << Three months ended Year ended December 31 December 31 ------------------------------------------------------------------------- ($ Thousands, except per Unit amounts) 2010 2009 2010 2009 ------------------------------------------------------------------------- Net income (loss) before tax and non-controlling interest ------------------------------------------------------------------------- Pipelines 25,117 25,383 99,305 105,923 Midstream 25,725 27,393 74,876 50,805 Power 2,158 (82,866) 10,294 (81,346) Veresen - Corporate (24,060) (16,215) (73,216) (46,093) ------------------------------------------------------------------------- 28,940 (46,305) 111,259 29,289 Tax recovery (expense) (12,034) 21,851 (31,324) 8,286 Non-controlling interest (194) - (194) - ------------------------------------------------------------------------- Net income (loss) 16,712 (24,454) 79,741 37,575 Per Unit ($) 0.11 (0.18) 0.55 0.28 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>Net income for the three and 12 months ended December 31, 2010 increased substantially from the same periods last year. For the three months ended December 31, 2010, Veresen generated net income of $16.7 million or $0.11 per Unit compared to a net loss of $24.5 million or $0.18 per Unit for the same period in 2009. For the year ended December 31, 2010, net income was $79.7 million or $0.55 per Unit compared to $37.6 million or $0.28 per Unit for 2009. 2009 net income was severely impacted by a non-cash asset impairment loss of $50.8 million (after tax) recorded in the fourth quarter of 2009 related to the Company's California cogeneration facilities, partially offset by a $7.1 million gain (after tax) recorded in the fourth quarter of 2009 relating to Aux Sable's liability settlement in association with its off-gas facility. << Three months ended Year ended December 31 December 31 ------------------------------------------------------------------------- ($ Thousands, except per Unit amounts) 2010 2009 2010 2009 ------------------------------------------------------------------------- Distributable cash(3) Pipelines 35,911 32,650 142,249 134,413 Midstream 24,546 18,934 78,546 45,584 Power 5,430 (2,006) 18,573 14,841 Veresen - Corporate (12,788) (9,760) (41,972) (29,812) Taxes (6,883) (5,817) (16,819) (15,959) ------------------------------------------------------------------------- 46,216 34,001 180,577 149,067 ------------------------------------------------------------------------- Per Unit 0.30 0.25 1.24 1.10 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash from operating activities 43,844 43,687 237,384 210,743 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (3) This item is not a standard measure under GAAP and may not be comparable to similar measures presented by other entities. See reconciliation of distributable cash to cash from operating activities in the schedules attached to this news release. For more information about Non-GAAP measures used by Veresen, see the section entitled "Non-GAAP Financial Measures" contained in Veresen's 2010 Management's Discussion and Analysis. >>Distributable cash for the three and 12 months ended December 31, 2010 was $46.2 million or $0.30 per Unit and $180.6 million or $1.24 per Unit, respectively, compared to $34.0 million or $0.25 per Unit and $149.1 million or $1.10 per Unit for the same periods in 2009. The increases primarily reflect: << - significantly higher distributions from Aux Sable, due to the continued strength of NGL market conditions; - higher distributions from Alliance, primarily due to the receipt of $1.7 million and $6.2 million for the quarter and year, respectively, related to the settlement of litigation claims that arose during the initial construction of the pipeline; and - increased distributable cash from Veresen's power business, reflecting contributions from assets acquired in 2010 and improved performance from its California cogeneration facilities, partially offset by lower energy margins in California due to the 2009 change in SRAC pricing. >>The increases are partially offset by: << - higher corporate costs due to the Company's conversion to a corporate structure and power integration costs, and increased interest associated with new debt issuances in 2010 and 2009; and - higher cash taxes associated with increased Aux Sable earnings, partially offset by the effect of loss utilization made available through corporate restructuring in the second quarter of 2010. >>Veresen generated cash from operating activities of $43.8 million for the three months ended December 31, 2010, which approximates amounts generated during the same period last year. Alliance's cash from operating activities increased due to higher cost of service and toll depreciation recoveries. This was offset by lower cash from operating activities generated by Aux Sable, primarily reflecting non-cash working capital changes.For the year ended December 31, 2010, Veresen generated cash from operating activities of $237.4 million compared to $210.7 million for 2009. This increase reflects significantly higher operating cash flows from Aux Sable, reflecting higher margin-based lease revenues, and Alliance, due to higher cost of service and toll depreciation recoveries.2010 Highlights"2010 was a tremendous year for us," commented Mr. White. "Our pipeline business results were predictably solid. Our midstream segment, through Aux Sable, had a record-breaking year, and earnings and distributable cash from our power business continued to increase relative to prior years. We spent a great deal of 2010 positioning our power business as a strong player, particularly in markets where we enjoy competitive advantages."Alliance PipelineOn December 3, 2010, Alliance Pipeline announced its intention to provide new service offerings for natural gas receipts and deliveries. The timing of Alliance's announcement coincided with Alliance's shipper contract renewal notifications, which were due on December 1, 2010. The original 15-year agreements, which became effective in 2000, required shippers to give Alliance five years' notice to extend their contracts for a minimum of one year beyond 2015. As expected, the majority of shippers elected not to extend their commitments beyond 2015. The pipeline will remain fully contracted under existing firm service contracts until December 1, 2015.The capacity election process clears the way for Alliance to re-market pipeline capacity made available beyond 2015. While Alliance's cost and tariff structure will continue to provide cost-effective transportation to shippers seeking point-to-point service to Chicago, Alliance expects to further enhance its competitive position and generate revenues with the introduction of new services. Alliance is actively engaged in discussions with shippers to develop service offerings that address shipper objectives and will enhance the Alliance system. Alliance's competitive advantages include the unique ability to transport valuable liquids-rich natural gas for recovery and sale at Aux Sable's Channahon Facility; the pipeline's geographic proximity to key markets which allows Alliance to offer short haul delivery services to industrial customers in the Canadian market; and the pipeline's close proximity to the developing liquids-rich shale formations in the Montney region of Alberta and British Columbia, and the Bakken region of Saskatchewan and North Dakota.Aux SableThe Montney and Bakken shale formations continue to be a key focal point of Aux Sable's strategy to attract high-liquids content natural gas for transport on the Alliance pipeline to the Channahon Facility. In December 2009, Aux Sable purchased the Septimus Gas Plant, located in the Montney region. During this past year, Aux Sable expanded its Montney footprint by constructing the Septimus Pipeline, a 20-inch, 20-kilometre pipeline that transports the natural gas from the Septimus plant to the Alliance system. In February 2011, the processing capacity of the Septimus Gas Plant more than doubled to 60 million cubic feet per day.Aux Sable will continue to use a variety of tools to enhance its business prospects in the Montney and Bakken regions. These may include the continued build-out of facilities such as Septimus or directly contracting for natural gas liquids such as the recently announced agreement with Trilogy Energy Corp.In 2010, Aux Sable advanced the development of its Heartland off-gas facility near Fort Saskatchewan, Alberta by entering into a long-term agreement with a new customer. Aux Sable is making necessary adjustments to the facility to accommodate its new customer's needs. This work is underway and construction is expected to be completed in the summer of 2011.PowerOn November 8, 2010, the Company completed its acquisition of Pristine Power Inc. ("Pristine"), a Canadian developer and operator of electricity and steam generation facilities. Pristine's portfolio of assets included a 25 percent interest in East Windsor Cogeneration L.P. ("East Windsor Cogeneration"), in which the Company owns another 50 percent, a 25 percent interest and a right to acquire a further 50 percent interest in EnPower Green Energy Generation Limited Partnership, and a 50 percent interest in York Energy. York Energy is constructing the York Energy Centre, a 400 megawatt gas-fired facility north of Toronto. Like East Windsor Cogeneration, York Energy has a 20-year contract with the Ontario Power Authority to provide power generation. Construction of the York Energy Centre started in August 2010 and is expected to be completed in mid-2012.In 2010, the Company also took meaningful steps towards building its renewable power business. Veresen's recent acquisitions of Swift Power Corp., a run-of-river hydro development company, and a portfolio of operating run-of-river facilities and development projects mark the Company's entry into the B.C. renewable power market. "We believe B.C. run-of-river is an excellent fit with our strategic objectives," said Mr. White. "I am excited to be participating in the growth of B.C.'s run-of-river power capacity and believe there will be more opportunities to grow this business."Veresen's power development team is currently focused on advancing the Dasque-Middle and Culliton Creek run-of-river projects, with the goal of starting construction in 2011. The Company is also pursuing a number of other renewable power projects in various stages of development.CorporateIn December 2010, Veresen entered into a new unsecured committed revolving credit facility with a syndicate of Canadian and other financial institutions. The revolving credit facility, which provides a maximum principal amount of $450 million, matures on December 23, 2013 and replaces the Company's previous revolving credit facility, which was scheduled to mature in April 2011. At December 31, 2010, Veresen had a drawn balance of $40.8 million on its revolving credit facility, underscoring its strong liquidity position. The Company intends to utilize this facility to fund the power projects discussed earlier.During 2010, the Company's capital structure was bolstered by the issuance of over $200 million in equity, primarily through its dividend reinvestment program and its acquisition of Pristine.Appointment of Chairman of the BoardVeresen also advised that the Board of Directors have appointed Mr. Stephen W.C. Mulherin as Chairman of the Board effective following the annual meeting of shareholders, to be held on May 12, 2011. Mr. Mulherin will succeed Mr. Verne G. Johnson, who is retiring from his role as a Director and Chairman of the Board of Directors. Mr. White commented, "We welcome the appointment of Steve Mulherin as Chairman of the Board. Steve has served on the Board since the Company's inception in 1997 and brings a wealth of knowledge and experience to this position".Updated 2011 GuidanceVeresen today updated its guidance for 2011 distributable cash to be in the range of $0.90 per share to $1.20 per share, increasing the low end of the range from previously issued guidance by $0.10 per share. The updated range primarily reflects Aux Sable's solid start to 2011, as a trend of strong crude oil prices relative to weak natural gas prices continues to prevail. Continued strong North American natural gas supply, combined with current geo-political events which have strengthened crude oil pricing, are contributing to this dynamic. Further details concerning 2011 guidance can be found in the "Investor Information" section of Veresen's website - www.vereseninc.com.WebcastVeresen Inc. will hold a conference call and webcast at 9:00 a.m. Mountain time (11:00 a.m. Eastern time) on Friday, March 4, 2011, to discuss the 2010 fourth quarter and annual results. The call can be accessed at 1-888-231-8191 or 1-647-427-7450 conference ID 42413216 and will be broadcast live on the Internet. This can be accessed either through a link contained in the "Event Calendar" section located under the "Investor Information" section found on the home page of Veresen Inc.'s website or through the following URL:http://event.on24.com/r.htm?e=284390&s=1&k=44D5D6C44CF4779E5B0E37B8CB9DED55A replay will be available shortly thereafter at 1-800-642-1687 and 1-416-849-0833. The access code is 42413216 followed by the number sign.Veresen Inc.Veresen Inc. is a publicly traded dividend paying corporation based in Calgary, Alberta, that owns and operates energy infrastructure assets across North America. Its common shares and 5.75% convertible unsecured subordinated debentures, Series C due July 31, 2017 are listed on the Toronto Stock Exchange under the symbols "VSN" and "VSN.DB.C", respectively. Veresen Inc. is engaged in three principal businesses: a pipeline transportation business comprised of interests in two pipeline systems, the Alliance Pipeline and the Alberta Ethane Gathering System; an NGL extraction business which includes an interest in a world-class extraction facility near Chicago; and a power business with renewable and gas-fired facilities and development projects in Canada and the United States, and district energy systems in Ontario and Prince Edward Island. Veresen Inc. and each of its pipeline, NGL extraction and power businesses are also actively developing a number of greenfield investment opportunities. In the normal course of its business, Veresen Inc. and each of its businesses regularly evaluate and pursue acquisition and development opportunities.Certain information contained herein relating to, but not limited to, Veresen and its businesses constitutes forward-looking information under applicable securities laws. All statements, other than statements of historical fact, which address activities, events or developments that Veresen expects or anticipates may or will occur in the future, are forward-looking information. Forward-looking information typically contains statements with words such as "may", "estimate", "anticipate", "believe", "expect", "plan", "intend", "target", "project", "forecast" or similar words suggesting future outcomes or outlook. Forward-looking statements in this news release include, but are not limited to, statements with respect to: the ability of Alliance to successfully implement new services and to remarket available capacity post 2015; Alliance's ability to enhance its competitive position; the timing of completion of construction for Aux Sable's Heartland off-gas facility and York Energy Centre; the timing of commencement of construction for the Dasque-Middle and Culliton Creek run-of-river projects; Veresen's ability to realize its growth objectives; and the ability of each of its businesses to generate distributable cash in 2011. The risks and uncertainties that may affect the operations, performance, development and results of Veresen's businesses include, but are not limited to, the following factors: the ability of Veresen to successfully implement its strategic initiatives and achieve expected benefits; levels of oil and gas exploration and development activity; the status, credit risk and continued existence of contracted customers; the availability and price of capital; the availability and price of energy commodities; the availability of construction services and materials; fluctuations in foreign exchange and interest rates; Veresen's ability to successfully obtain regulatory approvals; changes in tax, regulatory, environmental, and other laws and regulations; competitive factors in the pipeline, midstream and power industries; operational breakdowns, failures, or other disruptions; and the prevailing economic conditions in North America. Additional information on these and other risks, uncertainties and factors that could affect Veresen's operations or financial results are included in its filings with the securities commissions or similar authorities in each of the provinces of Canada, as may be updated from time to time. Readers are also cautioned that the foregoing list of factors and risks is not exhaustive. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these factors are independent and management's future course of action would depend on its assessment of all information at that time. Although Veresen believes that the expectations conveyed by the forward-looking information are reasonable based on information available on the date of preparation, no assurances can be given as to future results, levels of activity and achievements. Undue reliance should not be placed on the information contained herein, as actual result achieved will vary from the information provided herein and the variations may be material. Veresen makes no representation that actual results achieved will be the same in whole or in part as those set out in the forward-looking information. Furthermore, the forward-looking statements contained herein are made as of the date hereof, and Veresen does not undertake any obligation to update publicly or to revise any forward-looking information, whether as a result of new information, future events or otherwise. Any forward-looking information contained herein is expressly qualified by this cautionary statement.Certain financial information contained in this news release may not be standard measures under Generally Accepted Accounting Principles ("GAAP") in Canada and may not be comparable to similar measures presented by other entities. These measures are considered to be important measures used by the investment community and should be used to supplement other performance measures prepared in accordance with GAAP in Canada. For further information on non-GAAP financial measures used by Veresen see Management's Discussion and Analysis, in particular, the section entitled "Non-GAAP Financial Measures" contained in the annual Management Discussion and Analysis, filed by Veresen with Canadian securities regulators. << Veresen Inc. (formerly "Fort Chicago Energy Partners L.P.") ------------------------------------------------------------------------- Consolidated Statement of Financial Position ------------------------------------------------------------------------- December December ($ Thousands; unaudited) 31, 2010 31, 2009 ------------------------------------------------------------------------- Assets Current assets Cash and short-term investments 66,270 57,945 Restricted cash 10,572 3,084 Receivables 97,997 59,155 Other 26,080 23,457 ------------------------------------------------------------------------- 200,919 143,641 Long-term receivables 315,563 351,629 Pipeline, plant and other capital assets 2,419,671 2,286,255 Intangible assets 164,106 59,647 Other assets 18,320 23,727 ------------------------------------------------------------------------- 3,118,579 2,864,899 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities Current liabilities Payables 103,292 91,264 Transportation security deposits 4,912 4,008 Distribution payable 4,493 6,406 Current portion of long-term senior debt 124,047 145,014 Subordinated convertible debentures and exchangeable debentures - 49,302 ------------------------------------------------------------------------- 236,744 295,994 Long-term senior debt 1,596,234 1,534,689 Subordinated convertible debentures 82,411 - Future taxes 295,459 291,279 Other long-term liabilities 53,803 44,211 ------------------------------------------------------------------------- 2,264,651 2,166,173 ------------------------------------------------------------------------- Non-controlling interest 14,318 - Partners' Equity Partners' capital account 1,270,285 1,057,239 Cumulative other comprehensive loss (61,367) (54,624) Cumulative net income 663,459 583,718 Cumulative distributions (1,032,767) (887,607) ------------------------------------------------------------------------- 839,610 698,726 ------------------------------------------------------------------------- 3,118,579 2,864,899 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statement of Income and Cumulative Income ------------------------------------------------------------------------- Three months ended Year ended December 31 December 31 ------------------------------------------------------------------------- ($ Thousands, except per Unit amounts; unaudited) 2010 2009 2010 2009 ------------------------------------------------------------------------- Revenues Operating revenues 193,633 174,264 690,524 633,729 Interest and other 243 11,609 3,898 15,404 ------------------------------------------------------------------------- 193,876 185,873 694,422 649,133 ------------------------------------------------------------------------- Expenses Operations and maintenance 57,737 62,975 210,673 204,466 Depreciation and amortization 39,068 34,574 142,658 140,903 Interest and other finance 29,543 26,297 112,895 103,401 General, administrative and project development 33,637 25,272 108,330 89,146 Foreign exchange and other 4,951 5,009 8,607 1,435 Asset impairment loss - 78,051 - 80,493 ------------------------------------------------------------------------- 164,936 232,178 583,163 619,844 ------------------------------------------------------------------------- Net income (loss) before taxes 28,940 (46,305) 111,259 29,289 Current taxes 6,986 5,923 17,317 16,330 Future taxes 5,048 (27,774) 14,007 (24,616) ------------------------------------------------------------------------- Net income (loss) before non-controlling interest 16,906 (24,454) 79,935 37,575 Non-controlling interest (194) - (194) - ------------------------------------------------------------------------- Net income (loss) 16,712 (24,454) 79,741 37,575 Cumulative net income at the beginning of the period 646,747 608,172 583,718 546,143 ------------------------------------------------------------------------- Cumulative net income at the end of the period 663,459 583,718 663,459 583,718 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net income (loss) per Unit Basic and diluted 0.11 (0.18) 0.55 0.28 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statements of Comprehensive Income and Cumulative Other Comprehensive Income ------------------------------------------------------------------------- Three months ended Year ended December 31 December 31 ------------------------------------------------------------------------- ($ Thousands; unaudited) 2010 2009 2010 2009 ------------------------------------------------------------------------- Net income (loss) 16,712 (24,454) 79,741 37,575 Other comprehensive loss, net of taxes Cumulative translation adjustment Unrealized foreign exchange loss on translation of self- sustaining foreign operations (13,770) (9,974) (17,823) (72,148) Cumulative translation adjustment reclassified to net income 9,154 5,015 14,260 7,150 Gain (loss) on hedge of self-sustaining foreign operation 736 1,035 (489) 15,419 Other (5,013) (222) (2,691) 2,261 ------------------------------------------------------------------------- (8,893) (4,146) (6,743) (47,318) ------------------------------------------------------------------------- Comprehensive income (loss) 7,819 (28,600) 72,998 (9,743) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cumulative other comprehensive loss at the beginning of the period (52,474) (50,478) (54,624) (7,306) Other comprehensive loss, net of taxes (8,893) (4,146) (6,743) (47,318) ------------------------------------------------------------------------- Cumulative other comprehensive loss at the end of the period (61,367) (54,624) (61,367) (54,624) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statement of Cash Flows ------------------------------------------------------------------------- Three months ended Year ended December 31 December 31 ------------------------------------------------------------------------- ($ Thousands; unaudited) 2010 2009 2010 2009 ------------------------------------------------------------------------- Operating Net income (loss) 16,712 (24,454) 79,741 37,575 Non-cash transportation revenue (6,817) (9,117) (2,748) (12,571) Depreciation, amortization and other non-cash items 36,744 31,674 141,517 138,716 Unrealized foreign exchange loss 8,179 8,674 11,182 4,030 Future taxes 5,048 (27,774) 14,007 (24,616) Asset impairment loss - 78,051 - 80,493 Non-controlling interest 194 - 194 - Changes in non-cash working capital (16,216) (13,367) (6,509) (12,884) ------------------------------------------------------------------------- 43,844 43,687 237,384 210,743 ------------------------------------------------------------------------- Financing Long-term debt issued, net of issue costs 14,754 64,888 14,754 263,003 Long-term debt repaid (41,966) (35,025) (82,658) (73,198) Net change in credit facilities (6,215) (50,029) (37,128) (249,424) Convertible debentures issued, net of issue costs - - 82,148 - Convertible debentures repaid (1,429) - (1,429) - Exchangeable debentures repaid (23,217) - (23,217) - Distributions paid (12,514) (20,066) (55,816) (96,876) Other 137 (4,661) 137 (4,744) ------------------------------------------------------------------------- (70,450) (44,893) (103,209) (161,239) ------------------------------------------------------------------------- Investing Acquisitions, net of cash acquired (5,724) - (95,582) - Cash acquired through acquisition of Pristine Power Inc. 28,233 - 28,233 - Pipeline, plant and other capital assets (22,226) (28,796) (43,378) (50,887) Restricted cash (4) 1,244 3,073 19,134 Other 3,335 (1,460) (84) (1,610) Changes in non-cash investing working capital (7,715) 2,880 (16,887) (6,455) ------------------------------------------------------------------------- (4,101) (26,132) (124,625) (39,818) ------------------------------------------------------------------------- Increase (decrease) in cash and short-term investments (30,707) (27,338) 9,550 9,686 Effect of foreign exchange rate changes on cash and short-term investments (1,407) (1,262) (1,225) (5,049) Cash and short-term investments at the beginning of the period 98,384 86,545 57,945 53,308 ------------------------------------------------------------------------- Cash and short-term investments at the end of the period 66,270 57,945 66,270 57,945 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributable Cash (4) ------------------------------------------------------------------------- Three months ended Year ended December 31 December 31 ------------------------------------------------------------------------- ($ Thousands, except where noted; unaudited) 2010 2009 2010 2009 ------------------------------------------------------------------------- Alliance distributions, prior to withholdings for capital expenditures and net of debt service 31,845 28,960 127,000 119,536 AEGS distributable cash, after non-recoverable capital expenditures and debt service 4,066 3,690 15,249 14,877 Aux Sable distributions, net of support payments, non- recoverable maintenance capital, and debt service 24,546 18,934 78,546 45,584 Power distributable cash, after maintenance capital expenditures and debt service(5) 5,430 (2,006) 18,573 14,841 ------------------------------------------------------------------------- 65,887 49,578 239,368 194,838 ------------------------------------------------------------------------- Corporate Interest income and other 97 41 1,856 4,029 General and administrative (5,881) (4,231) (18,459) (16,148) Interest and other finance (6,244) (4,762) (22,270) (14,248) Principal repayments on senior debt (760) (808) (3,099) (3,445) ------------------------------------------------------------------------- (12,788) (9,760) (41,972) (29,812) Taxes (6,883) (5,817) (16,819) (15,959) ------------------------------------------------------------------------- (19,671) (15,577) (58,791) (45,771) ------------------------------------------------------------------------- Distributable cash(4) 46,216 34,001 180,577 149,067 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributable cash per Unit ($)(6) 0.30 0.25 1.24 1.10 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributions paid/payable(7) 38,429 34,591 145,157 136,079 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Distributions paid/payable per Unit ($) 0.25 0.25 1.00 1.00 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (4) Distributable cash is not a standard measure under generally accepted accounting principles in Canada and may not be comparable to similar measures presented by other entities. Distributable cash represents the cash available to Veresen for distribution to shareholders after providing for debt service obligations and any capital expenditures that are not growth-oriented or recoverable but does not include distribution reserves, if any, held by Veresen's businesses, or project development costs, which represent discretionary costs, the recoverability of which has not been established, incurred to assess the commercial viability of new greenfield business initiatives unrelated to the Company's operating businesses. Distributable cash is an important measure used by the investment community to assess the source and sustainability of Veresen's cash distributions and should be used to supplement other performance measures prepared in accordance with generally accepted accounting principles in Canada. See the following table for the reconciliation of distributable cash to cash flow from operating activities. (5) In the case of Veresen's majority-owned power facilities, currently comprised of East Windsor Cogeneration LP and EnPower Green Energy Generation Limited Partnership, distributable cash is calculated based on our 75 percent ownership interests in each of these businesses. (6) The number of Units used to calculate distributable cash per Unit is based on the average number of Units outstanding at each record date. For the three months ended December 31, 2010, the average number of Units outstanding for this calculation was 153,780,657 and 160,553,392 (2009 -138,420,675 and 140,682,296) on a basic and diluted basis, respectively. For the year ended December 31, 2010, the average number of Units outstanding for this calculation was 145,217,385 and 150,043,209 (2009 - 136,133,938 and 138,395,559) on a basic and diluted basis, respectively. The number of Units outstanding would increase by 5,907,534 (2009 - 2,261,621) Units if the outstanding Convertible Debentures as at December 31, 2010 were converted into Units. (7) Includes $25.4 million and $91.3 million of distributions for the three and 12 months ended December 31, 2010, respectively, (2009 - $14.9 million and $44.0 million) satisfied through the issuance of Units under the Partnership's Distribution Reinvestment Plan. Reconciliation of Distributable Cash to Cash Flow from Operating Activities ------------------------------------------------------------------------- Three months ended Year ended December 31 December 31 ------------------------------------------------------------------------- ($ Thousands; unaudited) 2010 2009 2010 2009 ------------------------------------------------------------------------- Consolidated cash flow from operating activities 43,844 43,687 237,384 210,743 Adjusted for: Cash flow generated from operating activities applicable to jointly held businesses(8) (3,894) (8,133) (85,748) (90,164) ------------------------------------------------------------------------- Cash flow from operating activities applicable to wholly-owned businesses(9) 39,950 35,554 151,636 120,579 Add (deduct) amounts applicable to wholly-owned businesses: Project development costs(10) 4,317 2,224 15,813 10,632 Change in non-cash working capital (3,428) (4,137) 4,159 10,019 Principal repayments on senior notes (1,446) (1,457) (5,800) (6,001) Maintenance capital expenditures (36) (2,913) (4,449) (3,498) Distributions earned greater than distributions received(11) 6,859 4,730 19,218 17,336 ------------------------------------------------------------------------- Distributable cash 46,216 34,001 180,577 149,067 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (8) Represents the net of (i) cash flow from operating activities applicable to jointly held businesses which is not under the sole control of the Company and, consequently, is not included in distributable cash until distributions are declared by the jointly held businesses; and (ii) distributions received from jointly held businesses. (9) Net of support payments made to Alliance Canada Marketing and Sable NGL Services of $4.3 million and $11.3 million for the three and 12 months ended December 31, 2010 (2009 - $3.6 million and $10.0 million). (10)Represents costs incurred by the Company and its wholly-owned businesses in relation to projects where the recoverability of such costs has not yet been established. Amounts incurred for the three and 12 months ended December 31, 2010 relate primarily to the Jordan Cove LNG terminal project and the Pacific Connector Gas Pipeline project. (11) Represents the difference between distributions declared by jointly held businesses and distributions received. Reconciliation of Adjusted Net Income(12) to Net Income ------------------------------------------------------------------------- Three months ended Year ended December 31 December 31 ------------------------------------------------------------------------- ($ Thousands; unaudited) 2010 2009 2010 2009 ------------------------------------------------------------------------- Net income (loss) 16,712 (24,454) 79,741 37,575 Adjustments to net income for non-recurring (gains) losses: NGL - Aux Sable settlement(13) - (9,472) - (9,472) Power - asset impairment loss(14) - 78,051 - 78,051 Power - fair value loss reclassified from other comprehensive income(15) - - - 2,442 Taxes(16) - (24,903) - (25,057) ------------------------------------------------------------------------- Adjusted net income 16,712 19,222 79,741 83,539 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (12)Adjusted net income is not a standard measure under generally accepted accounting principles in Canada and may not be comparable to similar measures presented by other entities. Adjusted net income represents net income adjusted for specific items that are significant, but are not reflective of Veresen's underlying operations. Specific items are subjective, however, the Company uses its judgement and informed decision-making when identifying items to be included or excluded in calculating adjusted net income. Specific items may include, but are not limited to, certain income tax adjustments, bankruptcy settlements, gains or losses on sales of assets, certain fair value adjustments, and asset impairment losses. Veresen believes its use of adjusted net income provides useful information to management and its investors by improving the ability to compare financial results among reporting periods, and by enhancing the understanding of its operating performance and ability to fund distributions. (13)Net income for the three and 12 months ended December 31, 2009 included Aux-Sable's off-gas facility settlement. Veresen does not expect this item to recur and, as such, has deducted it from net income in arriving at adjusted net income. (14)Net income for the three and 12 months ended December 31, 2009 included a pre-tax $78.1 million asset impairment loss. The Company recorded this non-cash charge in relation to its California cogeneration facilities, which were adversely impacted by a regulatory decision. Veresen does not expect this item to recur and, as such, has added this amount back to net income in arriving at adjusted net income. (15)Net income for the year ended December 31, 2009 included a non-cash expense transferred from other comprehensive income to net income, representing the fair value decrease of the Company's investment in Pristine Power Inc. from Pristine's initial public offering in March 2008. As the Company considers such permanent decreases in the fair value of its investments to be non-typical, it has added this amount back to net income in arriving at adjusted net income. (16)Represents the related taxes on the adjusted item described above. >>For further information: Stephen H. White, President and C.E.O.; Richard G. Weech, Vice President, Finance and C.F.O., Veresen Inc., Livingston Place, Suite 440, 222 - 3rd Avenue S.W., Calgary, AB, T2P 0B4, Phone: (403) 296-0140, Fax: (403) 213-3648, www.vereseninc.com