Primary Energy Reports Second Quarter 2012 Results and Establishes a New Dividend Policy

OAK BROOK, IL, Aug. 9, 2012 /CNW/ - Primary Energy Recycling Corporation (the "Company" or "Primary Energy") (TSX: PRI), a clean energy company that generates revenue from capturing and recycling recoverable heat and byproduct fuels from industrial processes, today announced its financial and operational results for the three and six months ended June 30, 2012.

Financial Results
(in 000's of US$)
		Three Months Ended June 30,						Six Months Ended June 30
		2012			2011			2012			2011
Revenues		$	12,565		$	13,313		$	26,787		$	26,095
Operations and maintenance expense			4,165			4,123			8,376			6,866
Operating (loss) income			(5,385)			1,394			(3,076)			1,495
Net loss and comprehensive loss			(5,453)			(682)			(4,901)			(2,940)
EBITDA (1)			936			8,538			9,524			17,706
Adjusted EBITDA (2)			8,445			9,232			18,228			18,400
Net cash (used in) provided by operating activities			(743)			6,891			6,645			16,598
Free Cash Flow (3)			(6,589)			3,357			(893)			12,470
Cash and cash equivalents			30,898			22,459			-			-
Credit facility debt balance			85,000			58,403			-			-

 

Second Quarter Highlights

• The Board of Directors has established a new dividend policy. The Board is satisfied that the financial flexibility provided by the Company's recent financing, together with the Board's confidence in the expected renewal of the Cokenergy contract, will support a sustainable US$0.20 per share annual dividend, payable quarterly.  With respect to the third quarter of 2012, a US$0.05 per common share dividend is expected to be declared for payment on or about November 30, 2012 to shareholders of record on November 15, 2012.  Declarations and payments of dividends will be made in US dollars.  Declaration of any dividends will be at the discretion of the Board.
  
  
• Closed its transaction with Atlantic Power Corporation to purchase the 7,462,830 (14.3%) common membership interests in Primary Energy Recycling Holdings LLC not currently held by the Company and terminated the Management Agreement between the two companies for a total cost of approximately US$30.2 million. This transaction provides the Company with a clean, simple corporate structure, greater operational autonomy, and flexibility going forward;
  
  
• Announced the closing of a US$110 million senior secured credit facility of which US$85 million was drawn at close with the remaining US$25 million readily available under a revolving credit arrangement. The proceeds of the new credit facility have been applied to fully retire the Company's US$36.4 million term loan that was previously outstanding, to fund the purchase of the Primary Energy Recycling Holdings LLC common membership interests and for other corporate purposes.  The interest rate for the new credit facility is effectively 5.0%, a reduction from the 6.9% effective rate of the previous loan;
  
  
• Continued early stage contract renegotiation discussions with the site host for Cokenergy. The current contract expires in the third quarter of 2013;
  
  
• Substantially completed work on Phase II of the North Lake plant upgrade by the end of the quarter. As previously disclosed, the renewal contract requires the facility to be upgraded from its current rating of 75 MW to 90 MW.

"The second quarter was a transformational period for the Company," said John Prunkl, President and Chief Executive Officer of Primary Energy. "We now have more operational independence, improved financial flexibility and a dividend policy that should improve our cost of capital which in turn will help us excel as leaders in the energy recycling space. The renewal of the Cokenergy contract and execution of our capital programs remain our top priorities."

				Q2 2012				Q2 2011
Total Gross Electric Production (MWh)^(4)				313,023				327,826
Total Thermal Energy Delivered (MMBtu)^(5)				946,452				1,154,988
Harbor Coal Utilization^(6)				68.3%				93.6%

Second Quarter 2012 Financial Results

The Company's revenue of $12.6 million in the second quarter of 2012 decreased $0.7 million, or 5.6%, compared with revenue of $13.3 million for the second quarter of 2011.  The North Lake facility was out of service for the entire month of May 2012 due to a planned turbine upgrade but was fully operational during the second quarter of 2011, which had a negative impact on variable Energy Service revenue of $0.8 million.  Harbor Coal's utilization was reduced primarily due to the injection of low cost spot market natural gas and coal management strategies.  The Company's revenue of $26.8 million in the first six months of 2012 increased $0.7 million, or 2.7%, compared with revenue of $26.1 million for the first six months of 2011.  The Company's revenue of $26.8 million in the first six months of 2012 increased $0.7 million, or 2.7%, compared with revenue of $26.1 million for the first six months of 2011 primarily due to the North Lake facility being fully operational for five months of 2012 compared to three months in 2011 as a result of service outages for overhaul and upgrade activity. 

Operations and maintenance expense for the second quarter of 2012 was $4.2 million compared to $4.1 million for the second quarter of 2011, an increase of $0.1 million or 1.0%.  The Company incurred periodic costs during the second quarter of 2012 comprised of $1.1 million for boiler retubing work and $0.3 million for ductwork repairs compared to periodic costs for the second quarter of 2011 totaling $0.7 million for boiler retubing work. Operations and maintenance expense for the first six months of 2012 was $8.4 million compared to $6.8 million for the first six months of 2011, an increase of $1.6 million or 22.0%.  The Company incurred periodic costs for the first six months of 2012 comprised of $2.1 million for boiler retubing work and $0.4 million for ductwork repairs compared to periodic costs for the first six months of 2011 totaling $0.7 million for boiler retubing work.

Equity in earnings of the Harbor Coal joint venture for the second quarter of 2012 was $0.5 million compared to $1.1 million for the second quarter of 2011 and $1.2 million and $2.1 million for the six months ended June 30, 2012 and 2011 respectively.  Harbor Coal's utilization was reduced primarily due to the injection of low cost spot market natural gas and coal supply management strategies.

Operating loss for the second quarter of 2012 was $5.4 million compared to operating income of $1.4 million for the second quarter of 2011, a decrease of $6.8 million. $6.0 million of the decrease was attributed to the Management Agreement termination fee.  Operating loss for the first six months of 2012 was $3.1 million compared to operating income of $1.5 million for the first six months of 2011, a decrease of $4.6 million.

Net loss and comprehensive loss for the second quarter of 2012 was $5.4 million compared to $0.7 million for the second quarter of 2011, a decrease of $4.7 million. Net loss and comprehensive loss for the first six months of 2012 was $4.9 million compared to $2.9 million for the first six months of 2011, a decrease of $2.0 million.

Conference Call and Webcast

Management will host a conference call to discuss the second quarter results on Friday, August 10, 2012 at 10:00 a.m. ET. Following management's presentation, there will be a question and answer session. To participate in the conference call, please dial [phone] or [phone].

A digital conference call replay will be available until midnight on August 24, 2012 (ET) by calling [phone] or [phone]. Please enter the passcode 12698664 when instructed. A webcast replay will be available for 90 days by accessing a link through the Investor Information section at www.primaryenergyrecycling.com

Forward-Looking Statements

When used in this news release, the words "intend", "likely", "anticipate", "expect", "project", "believe", "estimate", "forecast", "outlook" and similar expressions, are intended to identify forward-looking statements, including statements regarding maintenance and capital expenditures and the declaration and payment of any dividends. Such statements are subject to certain risks, uncertainties and assumptions pertaining, but not limited, to recovery in the steel industry, continued strong performance from the mills we serve consistent with historical patterns, timely renewal of contracts at the Company's facilities, no protracted outages (planned or unplanned) for any of our facilities, operating and maintenance costs and general and administrative costs being similar to recent years except as described in this press release, regulatory parameters, weather and economic conditions and other factors discussed in the Company's public filings available on SEDAR at www.sedar.com. Additional risks and uncertainties not currently known or that are currently deemed to be immaterial may also materially and adversely affect the Company's business operations and outlook. Any of the matters highlighted in the Company's risk factor disclosure could have a material adverse effect on the Company's results of operations, business prospects and outlook, financial condition or cash flow, in which case, the market price or value of the Company's Common Shares could be adversely affected. These forward-looking statements are made as of the date of this press release and the Company assumes no obligation to update or revise them to reflect new events or circumstances, except as required by applicable securities laws.

About Primary Energy Recycling Corporation

Primary Energy Recycling Corporation, headquartered in Oak Brook, Illinois, owns and operates four recycled energy projects and a 50 per cent interest in a pulverized coal facility (collectively, the "Projects"). The Projects have a combined electrical generating capacity of 283 megawatts and a combined steam generating capacity of 1.8M lbs/hour. Primary Energy Recycling Corporation creates value for its customers by capturing and recycling waste energy from industrial and electric generation processes and converting it into reliable and economical electricity and thermal energy for resale back to its customers. For more information, please see www.primaryenergy.com

¹As used herein, EBITDA means earnings before interest, taxes, depreciation and amortization and certain other adjustments.   EBITDA is reconciled to net income (loss) and comprehensive income (loss) in the table below.  EBITDA is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. Therefore, EBITDA may not be comparable to similar measures presented by other companies.

²As used herein, references to Adjusted EBITDA are to EBITDA as adjusted for certain non-recurring adjustments for major maintenance/outage work expenses, management termination fee and non-cash stock based compensation that represent recorded expenses based on specific circumstances and are not expected to be part of the Company's ongoing business activity. Adjusted EBITDA is reconciled to net income (loss) and comprehensive income (loss) in the table below. Adjusted EBITDA is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. Therefore, Adjusted EBITDA may not be comparable to similar measures presented by other companies.

³As used herein, Free Cash Flow means net cash provided by operating activities as adjusted for capital expenditures.  Free Cash Flow is reconciled to net cash (used in) provided by operating activities in the table below.  Free Cash Flow is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. Therefore, Free Cash Flow may not be comparable to similar measures presented by other companies.

⁴Total Gross Electric Production means the aggregate amount of electricity produced by all of the Company's facilities during the period. The amount is gross generation and is not reduced by internal electric usage of the facilities' auxiliary equipment. The unit of measure is megawatt hours (MWh).  Due to the fixed and variable nature of customer contracts, MWh production cannot be directly tied to financial performance.

⁵Total Thermal Energy Delivered means the aggregate amount of heat energy contained in the steam and heated water delivered to customers by all of the Company's facilities during the period. The unit of measure is millions of British Thermal Units (MMBTU). Due to the fixed and variable nature of customer contracts, MMBTU production cannot be directly tied to financial performance.

⁶Harbor Coal Utilization is a factor that incorporates the production level of a blast furnace and the amount of coal utilization per unit of blast furnace production as compared to a reference blast furnace production level and coal utilization rate per unit of blast furnace production. The measurement unit is a ratio expressed as a percentage.

Management believes that EBITDA, Adjusted EBITDA, Free Cash Flow, Total Gross Electric Production, Total Thermal Energy Delivered and Harbor Coal Utilization provide useful supplemental information regarding the performance of the Company, facilitate comparisons of historical periods and are indicative of the Company's operating results.  Note, however, that these items are performance measures only, and do not provide any measure of the Company's cash flow or liquidity, and are not a substitute for IFRS financial measures.

Non-IFRS Measures

The Company reports its financial results in accordance with IFRS. The Company's management also evaluates and makes operating decisions using various other measures.  Three such measures are EBITDA, Adjusted EBITDA and Free Cash Flow, which are non-IFRS financial measures. We believe these measures provide useful supplemental information regarding the performance of the Company's business.

Reconcilation of Net Loss and Comprehensive Loss to Adjusted EBITDA (in 000's of US$)
		Three Months Ended June 30,						Six Months Ended June 30,
		2012			2011			2012			2011
Net loss and comprehensive loss		$	(5,453)		$	(682)		$	(4,901)		$	(2,940)
Adjustment to net loss and comprehensive loss :
	Depreciation and amortization		5,266			6,135			10,536			13,693
	Depreciation and amortization included in equity in
	earnings of Harbor Coal joint venture		1,009			1,009			2,018			2,018
	Interest expense		1,534			1,692			2,715			3,535
	Deferred finance fees expensed upon extinguishment of debt		765			-			765			-
	Realized and unrealized loss on derivative contracts		280			-			280			4
	Loss on derecognition		46			-			46			500
	Income tax (benefit) expense		(2,511)			384			(1,935)			896
EBITDA		$	936		$	8,538		$	9,524		$	17,706
Adjustments to EBITDA:
	Major maintenance (1)		1,393			694			2,486			694
	Management termination fee		6,000			-			6,000			-
	Professional fees related to the buyout of the non-controlling interest		90			-			192			-
	Non-cash stock based compensation		26			-			26			-
Adjusted EBITDA		$	8,445		$	9,232		$	18,228		$	18,400
1) Represents nonrecurring major maintenance expenditures for such things as boiler retubing work and related other maintenance expenditures and ductwork repairs.
Reconcilation of Net Cash Provided By Operating Activities to Free Cash Flow
(in 000's of US$)		Three Months Ended June 30,						Six Months Ended June 30,
		2012			2011			2012			2011
Net cash (used in) provided by operating activities		$	(743)		$	6,891		$	6,645		$	16,598
Less: Capital expenditures			(5,846)			(3,534)			(7,538)			(4,128)
Free Cash Flow		$	(6,589)		$	3,357		$	(893)		$	12,470

 

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of U.S. dollars)
ASSETS								June 30, 2012			December 31, 2011
Current assets:
	Cash and cash equivalents							$	30,898		$	20,567
	Accounts receivable								6,993			8,115
	Inventory, net								999			987
	Tax receivable								733			565
	Prepaid expenses								1,741			632
Total current assets									41,364			30,866
Non-current assets:
	Property, plant and equipment, net								185,659			180,844
	Intangible assets, net								18,477			24,632
	Restricted cash								3,445			1,930
	Interest rate cap								135			-
	Deferred tax asset, net								-			2,519
	Investment in Harbor Coal joint venture								60,672			63,190
	Other non-current assets								-			159
Total assets								$	309,752		$	304,140
LIABILITIES AND EQUITY
Current liabilities:
	Accounts payable							$	2,240		$	1,115
	Short-term debt								7,080			27,304
	Due to affiliates								-			333
	Accrued property taxes								954			1,963
	Accrued expenses								5,987			5,503
Total current liabilities									16,261			36,218
Non-current liabilities:
	Long-term debt								72,970			14,134
	Deferred income tax liability, net								15,261			-
	Interest rate swap								65			-
	Asset retirement obligations								4,462			4,239
Total liabilities									109,019			54,591
Equity
Equity attributable to equity owners of the Company
Common stock: no par value, unlimited shares authorized;
	44,706,186 issued and outstanding								274,479			274,479
Contributed surplus									37,108			3,316
Accumulated shareholders' deficit									(110,854)			(107,748)
Total equity attributable to equity owners of the Company									200,733			170,047
Non-controlling interest									-			79,502
Total equity									200,733			249,549
Total liabilities and equity								$	309,752		$	304,140

 

 

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of U.S. dollars, except share and per share amounts)
					Three Months Ended June 30,						Six Months Ended June 30,
					2012			2011			2012			2011
Revenue:
	Capacity				$	9,018		$	9,018		$	18,036		$	18,036
	Energy service					3,547			4,295			8,751			8,059
						12,565			13,313			26,787			26,095
Expenses:
	Operations and maintenance					4,165			4,123			8,376			6,866
	General and administrative					2,138			2,148			4,620			4,479
	Management termination fee					6,000			-			6,000			-
	Employee benefits					852			606			1,515			1,166
	Depreciation and amortization					5,266			6,135			10,536			13,693
	Loss on derecognition					46			-			46			500
Total operating expenses						18,467			13,012			31,093			26,704
Equity in earnings of Harbor Coal joint venture						517			1,093			1,230			2,104
Operating (loss) income						(5,385)			1,394			(3,076)			1,495
Other expense
	Interest expense					(1,534)			(1,692)			(2,715)			(3,535)
	Deferred finance fees expensed upon extinguishment of debt					(765)			-			(765)			-
	Realized and unrealized loss on derivative contracts					(280)			-			(280)			(4)
Loss before income taxes						(7,964)			(298)			(6,836)			(2,044)
Income tax benefit (expense)						2,511			(384)			1,935			(896)
Net loss and comprehensive loss					$	(5,453)		$	(682)		$	(4,901)		$	(2,940)
Net loss and comprehensive loss attributable to:
	Owners of the Company				$	(4,070)		$	-		$	(3,106)		$	(1,281)
	Non-controlling interest					(1,383)			(682)			(1,795)			(1,659)
					$	(5,453)		$	(682)		$	(4,901)		$	(2,940)
Net loss per share attributable to owners of the Company:
Weighted average number of shares outstanding - basic						44,706,186			44,706,186			44,706,186			44,706,186
Weighted average number of shares outstanding - diluted						44,706,186			44,706,186			44,706,186			44,706,186
Basic and diluted net loss per share attributable    to owners of the Company					$	(0.09)		$	-		$	(0.07)		$	(0.03)

 

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands of U.S. dollars)
		Attributable to equity owners of the Company
		Common stock			Contributed surplus			Accumulated deficit			Total			Non-controlling interest			Total equity
Balance - January 1, 2011		$	274,479		$	3,316		$	(107,784)		$	170,011		$	82,028		$	252,039
Net loss and comprehensive loss for the six months ended June 30, 2011			-			-			(1,281)			(1,281)			(1,770)			(3,051)
Balance - June 30, 2011		$	274,479		$	3,316		$	(109,065)		$	168,730		$	80,258		$	248,988
Balance - January 1, 2012		$	274,479		$	3,316		$	(107,748)		$	170,047		$	79,502		$	249,549
Net loss and comprehensive loss for the six months ended June 30, 2012			-			-			(3,106)			(3,106)			(1,795)			(4,901)
Buyout of non-controlling interest			-			33,766			-			33,766			(77,707)			(43,941)
Stock compensation expense			-			26			-			26			-			26
Balance - June 30, 2012		$	274,479		$	37,108		$	(110,854)		$	200,733		$	-		$	200,733

 

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
								Three Months Ended June 30,						Six Months Ended June 30,
								2012			2011			2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss and comprehensive loss for the period								$	(5,453)		$	(682)		$	(4,901)		$	(2,940)
Adjustments for:
Depreciation and amortization									5,266			6,135			10,536			13,693
Loss on derecognition									46			-			46			500
Unrealized loss on derivative contracts									280			-			280			4
Deferred finance fees expensed upon extinguishment of debt									765			-			765			-
Equity in earnings of Harbor Coal joint venture									(517)			(1,093)			(1,230)			(2,104)
Distributions from investment in Harbor Coal joint venture									1,761			2,012			3,747			3,547
Net cash settlement from derivative contracts									(187)			-			(187)			-
Non-cash interest expense									658			640			1,139			1,330
Non-cash stock based compensation									26			-			26			-
Income tax									(2,502)			386			(1,935)			896
									143			7,398			8,286			14,926
Net change in non-cash working capital balances									(886)			(507)			(1,641)			1,672
	Net cash (used in) provided by operating activities								(743)			6,891			6,645			16,598
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in restricted cash									(1,821)			249			(1,515)			547
Capital expenditures									(5,846)			(3,534)			(7,538)			(4,128)
	Net cash used in investing activities								(7,667)			(3,285)			(9,053)			(3,581)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt									85,000			-			85,000			-
Purchase of the non-controlling interest									(24,225)			-			(24,225)			-
Payments of deferred financing costs									(5,195)			-			(5,263)			-
Repayment of debt									(36,416)			(5,732)			(42,773)			(12,963)
	Net cash provided by (used in) financing activities								19,164			(5,732)			12,739			(12,963)
Net increase (decrease) in cash									10,754			(2,126)			10,331			54
Cash and cash equivalents - beginning of period									20,144			24,585			20,567			22,405
Cash and cash equivalents - end of period								$	30,898		$	22,459		$	30,898		$	22,459
Supplemental disclosure of cash flow information:
Cash paid during the period for interest								$	863		$	1,053		$	1,565		$	2,213
Cash paid during the period for income taxes								$	130		$	113		$	168		$	113

 

 

 

 

 

SOURCE: Primary Energy Recycling Corporation

Chief Financial Officer
Mike Alverson
630.230.1314
[email protected] 

Media and Investor Relations
Adam Peeler
TMX Equicom
416.815.0700 ext. 225
[email protected]