Primary Energy Reports Third Quarter 2012 Results

OAK BROOK, IL, Nov. 6, 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 nine months ended September 30, 2012.

Financial Results
(in 000's of US$)
		Three Months Ended September 30,						Nine Months Ended September 30,
		2012			2011			2012			2011
Revenues		$	13,660		$	13,808		$	40,447		$	39,903
Operations and maintenance expense			4,422			3,159			12,798			10,025
Operating income (loss)			1,193			3,479			(1,883)			4,974
Net (loss) income and comprehensive (loss) income			(213)			428			(5,114)			(2,512)
EBITDA (1)			7,498			9,738			17,022			27,444
Adjusted EBITDA (2)			9,149			10,138			27,377			28,544
Net cash provided by operating activities			5,409			7,012			12,054			23,610
Free Cash Flow (3)			1,255			6,716			332			19,186
Cash and cash equivalents			30,281			21,605			-			-
Credit facility debt balance			83,156			50,626			-			-

 

Third Quarter Highlights

• Implemented a new dividend policy to pay a US$0.20 per share annual dividend, payable quarterly.  A quarterly dividend payment of US$0.05 was declared with a record date of November 15, 2012 and a payment date of November 30, 2012;
• Average availability of facility operations was strong at 99.1%; 
• Portside's boiler turn down project is substantially complete and operating as expected.  The Portside condensing economizer is on schedule and on budget;
• North Lake's upgrades are substantially complete and on budget. Performance testing and final check out of all systems is expected to be completed in the fourth quarter of 2012.
• Contract renewal discussions with the site host for Cokenergy continued. The current contract expires in October of 2013;
• Harbor Coal volumes remain below normal due to low cost natural gas.

"The announcement of our new dividend policy improved the liquidity of the Company's shares," said John Prunkl, President and Chief Executive Officer of Primary Energy. "The transition to self-management has gone smoothly, and the corporate costs are about the same as the costs experienced under the prior third party manager arrangement.  For the short term, the renewal of the Cokenergy contract remains our primary focus."

Operational Highlights
		Q3 2012		Q3 2011
Total Gross Electric Production Megawatt Hours (MWh) (4)		354,942		375,406
Total Thermal Energy Delivered (MMBtu) (5)		996,276		971,103
Harbor Coal Utilization (%) (6)		68.4%		89.9%

 

Third Quarter 2012 Financial Results

The Company's revenue of $13.7 million in the third quarter of 2012 decreased $0.1 million, or 1.1%, compared with revenue of $13.8 million for the third quarter of 2011. The North Lake facility had reduced host operations during the third quarter of 2012 compared to the third quarter of 2011 which had a negative impact on Energy Service revenue of $0.2 million. This decrease was partially offset by increased revenue at the Portside facility associated with increased operating levels at the host site.

The Company's revenue of $40.4 million in the first nine months of 2012 increased $0.5 million, or 1.4%, compared with revenue of $39.9 million for the first nine months of 2011.  Revenue increased at the North Lake and Ironside facilities as a result of increased host operations in the current year.

Operations and maintenance expense for the third quarter of 2012 was $4.4 million compared to $3.2 million for the third quarter of 2011, an increase of $1.2 million or 40%.  The Company incurred periodic costs during the third quarter of 2012 comprised of $1.2 million for boiler retubing work and $0.2 million for ductwork repairs compared to periodic costs for the third quarter of 2011 totaling $0.4 million for boiler retubing work. In addition, the Company incurred $0.2 million of additional general operations and maintenance expenses during the quarter.

Operations and maintenance expense for the first nine months of 2012 was $12.8 million compared to $10.0 million for the first nine months of 2011, an increase of $2.8 million or 27.7%.  The Company incurred periodic costs for the first nine months of 2012 comprised of $3.3 million for boiler retubing work and $0.6 million for ductwork repairs compared to periodic costs for the first nine months of 2011 totaling $1.1 million for boiler retubing work.

Equity in earnings of the Harbor Coal joint venture for the third quarter of 2012 was $0.5 million compared to $1.0 million for the third quarter of 2011, a decrease of $0.5 million.  Equity in earnings of the Harbor Coal joint venture for the first nine months of 2012 was $1.8 million compared to $3.1 million for the first nine months of 2011, a decrease of $1.3 million.  The decreases noted are the result of reduced pulverized coal deliveries in favor of natural gas injection due to its low cost.

Operating income for the third quarter of 2012 was $1.2 million compared to $3.5 million for the third quarter of 2011, a decrease of $2.3 million.  Operating loss for the first nine months of 2012 was $1.9 million compared to operating income of $5.0 million for the first nine months of 2011, a decrease of $6.9 million. The largest driver impacting year to date results was the $6.0 million fee paid to terminate the Management Agreement at time of the buy-out of the non-controlling interest.

Net loss and comprehensive loss for the third quarter of 2012 was $0.2 million compared to net income and comprehensive income of $0.4 million for the third quarter of 2011, a decrease of $0.6 million.  Net loss and comprehensive loss for the first nine months of 2012 was $5.1 million compared to $2.5 million for the first nine months of 2011, an increase of $2.6 million.

Conference Call and Webcast

Management will host a conference call to discuss the third quarter results on Wednesday, November 7, 2012 at 9:00 am 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 November 21, 2012 (ET) by calling [phone] or [phone]. Please enter the passcode 38427835 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 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% 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 (loss) income and comprehensive (loss) income 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 agreement 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 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 million 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) Income and Comprehensive (Loss) Income
	to Adjusted EBITDA
(in 000's of US$)						Three Months Ended September 30,						Nine Months Ended September 30,
						2012			2011			2012			2011
Net (loss) income and comprehensive (loss) income						$	(213)		$	428		$	(5,114)		$	(2,512)
Adjustment to net (loss) income and comprehensive (loss) income:
	Depreciation and amortization						5,296			5,250			15,832			18,943
	Depreciation and amortization included in equity in
	earnings of Harbor Coal joint venture						1,009			1,009			3,027			3,027
	Interest expense						1,525			1,518			4,240			5,053
	Deferred finance fees expensed upon extinguishment of debt						-			-			765			-
	Realized and unrealized loss on derivative contracts						292			-			572			4
	Loss on derecognition						-			-			46			500
	Income tax (benefit) expense						(411)			1,533			(2,346)			2,429
EBITDA						$	7,498		$	9,738		$	17,022		$	27,444
Adjustments to EBITDA:
	Major maintenance (1)						1,471			400			3,957			1,100
	Management agreement termination fee						-			-			6,000			-
	Professional fees related to the buyout of the non-controlling interest						101			-			293			-
	Non-cash stock based compensation						79			-			105			-
Adjusted EBITDA						$	9,149		$	10,138		$	27,377		$	28,544
1)  Represents nonrecurring major maintenance expenditures for such items 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 September 30,						Nine Months Ended September 30,
						2012			2011			2012			2011
Net cash provided by operating activities						$	5,409		$	7,012		$	12,054		$	23,610
Less: Capital expenditures							(4,184)			(296)			(11,722)			(4,424)
Free Cash Flow						$	1,225		$	6,716		$	332		$	19,186

 

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of U.S. dollars)
ASSETS								September 30, 2012			December 31, 2011
Current assets:
	Cash and cash equivalents							$	30,281		$	20,567
	Accounts receivable								8,646			8,115
	Inventory, net								1,224			987
	Tax receivable								651			565
	Prepaid expenses								1,176			632
	Other current assets								414			-
Total current assets									42,392			30,866
Non-current assets:
	Property, plant and equipment, net								187,568			180,844
	Intangible assets, net								15,399			24,632
	Restricted cash								3,445			1,930
	Deferred tax asset, net								-			2,519
	Investment in Harbor Coal joint venture								59,707			63,190
	Other non-current assets								92			159
Total assets								$	308,603		$	304,140
LIABILITIES AND EQUITY
Current liabilities:
	Accounts payable							$	1,680		$	1,115
	Short-term debt								9,569			27,304
	Due to affiliates								-			333
	Accrued property taxes								1,338			1,963
	Accrued expenses								6,854			5,503
Total current liabilities									19,441			36,218
Non-current liabilities:
	Long-term debt								69,160			14,134
	Deferred income tax liability, net								14,738			-
	Interest rate swap								184			-
	Asset retirement obligations								4,451			4,239
Total liabilities									107,974			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									37,217			3,316
Accumulated shareholders' deficit									(111,067)			(107,748)
Total equity attributable to equity owners of the Company									200,629			170,047
Non-controlling interest									-			79,502
Total equity									200,629			249,549
Total liabilities and equity								$	308,603		$	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 September 30,							Nine Months Ended September 30,
						2012				2011			2012			2011
Revenue:
	Capacity					$	9,018			$	9,018		$	27,054		$	27,054
	Energy service						4,642				4,790			13,393			12,849
							13,660				13,808			40,447			39,903
Expenses:
	Operations and maintenance						4,422				3,159			12,798			10,025
	General and administrative						2,082				2,438			6,702			6,917
	Management agreement termination fee						-				-			6,000			-
	Employee benefits						1,216				510			2,731			1,676
	Depreciation and amortization						5,296				5,250			15,832			18,943
	Loss on derecognition						-				-			46			500
Total operating expenses							13,016				11,357			44,109			38,061
Equity in earnings of Harbor Coal joint venture							549				1,028			1,779			3,132
Operating income (loss)							1,193				3,479			(1,883)			4,974
Other expense
	Interest expense						(1,525)				(1,518)			(4,240)			(5,053)
	Deferred finance fees expensed upon extinguishment of debt						-				-			(765)			-
	Realized and unrealized loss on derivative
	contracts						(292)				-			(572)			(4)
(Loss) income before income taxes							(624)				1,961			(7,460)			(83)
Income tax benefit (expense)							411				(1,533)			2,346			(2,429)
Net (loss) income and comprehensive (loss) income						$	(213)			$	428		$	(5,114)		$	(2,512)
Net (loss) income and comprehensive (loss) income attributable to:
	Owners of the Company					$	(213)			$	745		$	(3,319)		$	(536)
	Non-controlling interest						-				(317)			(1,795)			(1,976)
						$	(213)			$	428		$	(5,114)		$	(2,512)
Net (loss) income 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				45,128,828			44,706,186			44,706,186
Basic and diluted net (loss) income per share attributable to owners of the Company						$	(0.00)			$	0.02		$	(0.07)		$	(0.01)

 

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands of U.S. dollars)
	Attributable to equity owners of the Company
		Common		Contributed		Accumulated				Non-controlling		Total
		stock		surplus		deficit		Total		interest		equity
Balance - January 1, 2011	$	274,479	$	3,316	$	(107,784)	$	170,011	$	82,028	$	252,039
Net loss and comprehensive loss
for the nine months ended September 30, 2011		-		-		(536)		(536)		(2,265)		(2,801)
Balance - September 30, 2011	$	274,479	$	3,316	$	(108,320)	$	169,475	$	79,763	$	249,238
Balance - January 1, 2012	$	274,479	$	3,316	$	(107,748)	$	170,047	$	79,502	$	249,549
Net loss and comprehensive loss
for the nine months ended September 30, 2012		-		-		(3,319)		(3,319)		(1,795)		(5,114)
Buyout of non-controlling interest		-		33,796		-		33,796		(77,707)		(43,911)
Stock compensation expense		-		105		-		105		-		105
Balance - September 30, 2012	$	274,479	$	37,217	$	(111,067)	$	200,629	$	-	$	200,629

 

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
								Three Months Ended September 30,						Nine Months Ended September 30,
								2012			2011			2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income and comprehensive (loss) income for the period								$	(213)		$	428		$	(5,114)		$	(2,512)
Adjustments for:
Depreciation and amortization									5,296			5,250			15,832			18,943
Loss on derecognition									-			-			46			500
Unrealized loss on derivative contracts									273			-			366			4
Deferred finance fees expensed upon extinguishment of debt									-			-			765			-
Equity in earnings of Harbor Coal joint venture									(549)			(1,028)			(1,779)			(3,132)
Distributions from investment in Harbor Coal joint venture									1,515			2,014			5,262			5,561
Non-cash interest expense									542			552			1,681			1,882
Non-cash stock based compensation									79			-			105			-
Income tax									(493)			1,484			(2,428)			2,380
									6,450			8,700			14,736			23,626
Net change in non-cash working capital balances									(1,041)			(1,688)			(2,682)			(16)
	Net cash provided by operating activities								5,409			7,012			12,054			23,610
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in restricted cash									-			207			(1,515)			754
Capital expenditures									(4,184)			(296)			(11,722)			(4,424)
	Net cash used in investing activities								(4,184)			(89)			(13,237)			(3,670)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt									-			-			85,000			-
Purchase of the non-controlling interest									-			-			(24,225)			-
Payments of deferred financing costs									2			-			(5,261)			-
Repayment of debt									(1,844)			(7,777)			(44,617)			(20,740)
	Net cash (used in) provided by financing activities								(1,842)			(7,777)			10,897			(20,740)
Net (decrease) increase in cash									(617)			(854)			9,714			(800)
Cash and cash equivalents - beginning of period									30,898			22,459			20,567			22,405
Cash and cash equivalents - end of period								$	30,281		$	21,605		$	30,281		$	21,605
Supplemental disclosure of cash flow information:
Cash paid during the period for interest								$	972		$	971		$	2,537		$	3,184
Cash paid during the period for income taxes								$	-		$	8		$	168		$	121

 

 

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]