Primary Energy Reports Improved Third Quarter Results

Oct 26, 2010, 23:09 ET from Primary Energy Recycling Corporation

- Revenue Up 3.9%, Adjusted EBITDA 6.2% Higher- 

OAK BROOK, IL, Oct. 26 /PRNewswire-FirstCall/ - 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 third quarter ended September 30, 2010.

Financial Highlights             

(in 000's of US$) Q3 2010 Q3 2009 Change 9-Months 2010 9-Months 2009 Change
Revenue $15,010 $14,449 +    3.9% $45,812 $42,133 +   8.7%
Operations and maintenance expense $  3,987 $  2,518 +   58.3% $10,935 $8,073 + 35.5%
Operating income (loss) $      83 $  1,250 ($ 1,167) $  1,866 $365 $   1,501
Net income (loss) and comprehensive income (loss) $(1,601) $21,035 $(22,636) $( 4,365) $10,516 $(14,881)
Adjusted EBITDA $10,155 $  9,566 +   6.2% $30,083 $27,383 +    9.9%
Net cash provided by operating activities   $  8,426 $  2,144 +293.0% $23,941 $7,143 +235.2%
Adjusted Cash Flow $10,155 $  9,566 +    6.2% $30,083 $27,383 +   9.9%
Cash & cash equivalents   $22,690 $  2,716 +735.4% - - -
Credit facility debt $79,461 $131,000 -   39.3% - - -

Third Quarter Highlights

  • Continued to make progress in contract renewal discussions for the North Lake Energy project with completion possible this fall;
  • Reached agreement with its largest customer to extend the Ironside Energy contract nine months, to April 2020;
  • Announced the appointment of a major shareholder representative to its Board of Directors, which supports Primary Energy's objective of further aligning the mutual interests of the Company and its shareholders;
  • Subsequent to the end of the quarter, received notification from Corporate Knights Magazine, a prominent corporate social responsibility publication, that it chose Primary Energy to be one of its 2010 Cleantech 10™ companies;
  • Third quarter results show increased revenue of 3.9% over the same period last year;
  • Interest expense decreased by $2.4 million in comparison to prior year due to reduced level of debt outstanding;
  • Adjusted EBITDA increased 6.2% over the same period last year.

"We continued to build momentum on several fronts this quarter," said John Prunkl, President and Chief Executive Officer of the Company. "The steel industry maintained its solid performance, which supported an increase in our revenues. The Company's facilities had a good quarter from a physical production perspective except for the previously disclosed 14-day forced outage at the beginning of the quarter at North Lake. Negotiations on North Lake steadily moved forward with completion possible this fall. We continue to pay down our debt at a rapid rate, making an $8.5 million principal payment during the third quarter. We are looking forward to the coming quarters as an opportunity to further strengthen Primary Energy."   

Operational Highlights

  Q3 2010 Q3 2009 Change 9-Month 2010 9-Month 2009 Change
1Total Gross Electric Production Megawatt Hours (MWh) 311,417 270,604 +15.1% 860,479 776,291 10.8%
2Total Thermal Energy Delivered (MMBtu) 885,418 1,079,328 -18.0% 3,749,156 3,920,693 -4.4%
3Harbor Coal Utilization (%) 89.3% 74.0% +15.3% 87.2% 63.9% 23.3%

Third Quarter and Year to Date Financial Results

In the third quarter of 2010, the Company earned revenue of $15.0 million, an increase of $0.6 million, or 3.9%, compared with revenue of $14.4 million for the third quarter of 2009. For the first nine months of 2010, the Company earned revenue of $45.8 million, an increase of $3.7 million, or 8.7%, compared with revenue of $42.1 million for the same period in 2009.  The increase in revenue for the three and nine month periods is primarily due to the variable portion of the Company's Energy Service revenue.  Market conditions in the steel industry improved in the third quarter of 2010 versus the same period in 2009 and resulted in increased steel production and product utilization at the Company's site hosts.

Operating and maintenance expense for the third quarter of 2010 was $4.0 million compared to $2.5 million for the third quarter of 2009, an increase of $1.5 million or 58.3%.  For the first nine months of 2010, operating and maintenance expense was $10.9 million compared to $8.1 million for the same period in 2009.  The increase in expenses for both the three and nine month periods is largely due to additional maintenance costs incurred for periodic boiler repairs and bag house component replacements that did not occur in 2009 and a scheduled steam turbine overhaul. The Company previously announced it was planning to spend $2.1 million in additional scheduled outage and major maintenance work in 2010. 

General and administrative expense for the third quarter of 2010 was $2.5 million compared to $2.2 million for the third quarter of 2009, an increase of $0.3 million.  For the first nine months of 2010, general and administrative expense was $7.7 million compared to $8.2 million for the same period in the prior year, a decrease of $0.5 million.   The decrease is primarily due to a reduction of $1.4 million in professional and management fees related to the restructuring efforts in 2009, offset by increased accrued property taxes of $0.9 million which had one-time accrual reductions of $2.2 million in 2009.

Operating income for the third quarter of 2010 was $0.1 million compared to $1.3 million for the third quarter of 2009, a decrease $1.2 million.  Operating income for the first nine months of 2010 was $1.9 million compared to $0.4 million for the same period in 2009, an improvement of $1.5 million.  The improvements noted are driven by the net effect of the items discussed above.

Interest expense for the third quarter of 2010 was $2.3 million compared to $4.7 million for the third quarter of 2009, a decrease of $2.4 million.  Interest expense for the first nine months of 2010 was $7.6 million compared to $14.0 million for the same period in 2009, a decrease of $6.4 million.  The decreases noted are primarily due to the reduced level of debt outstanding in the respective periods.

At the end of the third quarter, the Company had cash and cash equivalents of $22.7 million, a fully funded $3.4 million debt service reserve account and an outstanding loan balance of $79.5 million.  Since November 2009, $25.5 million has been paid down on the Company's senior credit facility. 

The Company's full financial statements and Management's Discussion and Analysis are available at www.sedar.com or the Company's website at www.primaryenergyrecycling.com.

Conference Call and Webcast

Management will host a conference call to discuss the third quarter results on October 27, 2010 at 10 am ET.  Following management's presentation, there will be a question and answer session. To participate in the conference call, please dial (888) 231-8191 or (647) 427-7450.

A digital conference call replay will be available until midnight on November 3, 2010 (ET) by calling (800) 642-1687 or (416) 849-0833. Please enter the passcode 17815388 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 "anticipate", "expect", "project", "believe", "estimate", "forecast" and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, uncertainties and assumptions pertaining, but not limited, to operating performance, regulatory parameters, weather and economic conditions and other factors discussed in the Company's public filings available on SEDAR at www.sedar.com. 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 owns a majority interest in Primary Energy Recycling Holdings LLC ("PERH"). PERH, headquartered in Oak Brook, Illinois, indirectly 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. PERH creates value for its customers by recycling recoverable heat and byproduct fuels 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.primaryenergyrecycling.com.

 

Non-GAAP Measures

Reconcilation of Net (Loss) Income to Adjusted EBITDA                
(in 000's of US$, except per share data)     Three Months Ended September 30,   Nine Months Ended September 30,
            2010   2009   2010   2009
                         
Net (loss) income        $            (1,601)   $            21,035   $            (4,365)   $            10,516
Adjustment to net (loss) income:                  
  Depreciation and amortization     8,428   8,503   25,284   25,481
  Interest expense       2,356   4,733   7,639   14,009
  Realized and unrealized loss (gain) on derivative contracts   8   14   184   (3,086)
  Realized and unrealized loss on foreign currency translation   -   6,679   -   10,716
  Gain on cancelation of debt     -   (32,609)   -   (32,609)
  Income tax expense       389   2,187   1,458   2,720
  Non-controlling preferred interest     -   237   -   970
  Non-controlling common interest     (1,069)   (1,026)   (3,050)   (2,871)
EBITDA         8,511   9,753   27,150   25,846
                         
Adjustments to EBITDA:                    
  ARO accretion                           44                       63                     133                     187
  Major maintenance/outage work                    1,600                       -                    2,800                     400
  General and administrative                         -                    1,400                       -                    1,700
  Property tax                            -                   (1,650)                       -                      (750)
Adjusted EBITDA        $           10,155    $            9,566    $           30,083    $           27,383
                         
                         
Reconcilation of Net Cash Provided By Operating Activities               
   to Adjusted Cash Flow                  
(in 000's of US$, except per share data)   Three Months Ended September 30,   Nine Months Ended September 30,
            2010   2009   2010   2009
                         
Net cash provided by operating activities   $             8,426   $             2,144   $            23,941   $             7,143
                         
Less: non-cash interest expense     (904)   (840)   (2,935)   (1,983)
Plus: interest expense       2,356   4,733   7,639   14,009
Plus: changes in working capital     (1,323)   3,779   (1,362)   6,864
Subtotal         8,555   9,816   27,283   26,033
                         
Adjustments:                      
  Plus: major maintenance/outage work                  1,600                       -                    2,800                     400
  Plus: general and administrative                        -                    1,400                       -                    1,700
  Plus: annualized property tax                         -                   (1,650)                       -                      (750)
  Total Adjustments                      1,600                    (250)                  2,800                  1,350
Adjusted Cash Flow        $           10,155    $            9,566    $           30,083    $           27,383
                         
 
       
                     

1 Total 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.  

2 Total 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.

3 Harbor 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 Adjusted EBITDA, Adjusted 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 historic periods and are indicative of the Company's operating results.  Note however, 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 GAAP financial measures.  (See the Company's Management Discussion and Analysis for definitions of Adjusted EBITDA and Adjusted Cash Flow.)

Primary Energy Recycling Corporation
CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars)
(Unaudited)
                     
                     
ASSETS       September 30, 2010   December 31, 2009
                     
Current assets:        
  Cash and cash equivalents   $                22,690   $               24,536
  Accounts receivable   9,483   9,532
  Spare parts inventory   1,015   991
  Current portion of future tax asset    881   1,003
  Other current assets   1,030   833
Total current assets   35,099   36,895
                     
Non-current assets:        
  Property, plant and equipment    212,237   219,377
  Contract rights    82,806   100,964
  Restricted cash    3,364   3,729
  Interest rate cap contract    2   186
  Other non-current assets   -   34
Total assets   $               333,508   $               361,185
                     
LIABILITIES, NON-CONTROLLING INTEREST        
  AND SHAREHOLDERS' EQUITY        
                     
Current liabilities:        
  Accounts payable   $                     970   $                     253
  Short-term debt    37,329   28,341
  Due to affiliates    468   478
  Accrued property taxes   2,467   2,520
  Accrued expenses   2,705   2,631
Total current liabilities   43,939   34,223
                     
Non-current liabilities:        
  Long-term debt    38,271   69,887
  Net long-term portion of future tax liability    16,185   14,680
  Asset retirement obligation    2,559   2,426
Total liabilities   100,954   121,216
                     
Commitments and contingencies         
                     
Non-controlling common interest    82,875   85,925
                     
Shareholders' equity:        
Common stock    274,479   274,479
Accumulated shareholders' deficit   (124,800)   (120,435)
Total shareholders' equity   149,679   154,044
Total liabilities, non-controlling        
   interest and shareholders' equity   $               333,508   $               361,185

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS AND
ACCUMULATED SHAREHOLDERS' DEFICIT
(In thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
                       
          Three Months Ended September 30,   Nine Months Ended September 30,
          2010   2009   2010   2009
                       
Revenue:                    
  Capacity       $                    9,018   $                    9,018   $                  27,054   $                  27,054
  Energy service     5,992   5,431   18,758   15,079
          15,010   14,449   45,812   42,133
Expenses:                    
  Operations and maintenance   3,987   2,518   10,935   8,073
  General and administrative   2,512   2,178   7,727   8,214
  Depreciation and amortization   8,428   8,503   25,284   25,481
                       
Operating income      83   1,250   1,866   365
Other (expense) income                 
  Interest expense      (2,356)   (4,733)   (7,639)   (14,009)
  Gain on cancellation of debt    -   32,609   -   32,609
  Realized and unrealized (loss) gain on derivative                
    contracts      (8)   (14)   (184)   3,086
  Realized and unrealized loss on foreign               
    currency translation    -   (6,679)   -   (10,716)
                       
(Loss) income before income taxes and non-controlling interest (2,281)   22,433   (5,957)   11,335
Income tax expense      (389)   (2,187)   (1,458)   (2,720)
                       
(Loss) income before non-controlling interest (2,670)   20,246   (7,415)   8,615
Non-controlling preferred interest    -   (237)   -   (970)
Non-controlling common interest    1,069   1,026   3,050   2,871
                       
Net (loss) income and comprehensive (loss) income $                  (1,601)   $                 21,035   $                  (4,365)   $                 10,516
                       
Accumulated shareholders' deficit - beginning of period (123,199)   (138,646)   (120,435)   (123,040)
Adjustment to opening shareholders' deficit due to adoption               
  of new accounting standard   -   -   -   215
Distributions     -   -   -   (5,302)
Accumulated shareholders' deficit - end of period  $             (124,800)    $             (117,611)    $             (124,800)    $             (117,611)
                       
Weighted average number of shares outstanding  134,118,561   18,172,628   134,118,561   7,394,982
Basic and diluted net (loss) income per share   $                   (0.01)    $                     1.16    $                   (0.03)    $                     1.42

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars, except share and per share amounts)
(Unaudited)
                             
                Three Months Ended September 30,   Nine Months Ended September 30,
                2010   2009   2010   2009
                             
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss (income) and comprehensive loss    $                      (1,601)    $                      21,035    $                      (4,365)    $                      10,516
Adjustments to reconcile net loss (income) to net cash                
  provided by operating activities:                
  Depreciation and amortization   8,428   8,503   25,284   25,481
  Realized and unrealized loss (gain) on                 
    derivative contracts   8   14   184   (3,086)
  Realized and unrealized loss on foreign currency                
    translation   -   6,679   -   10,716
  Gain on cancellation of debt   -   (32,609)   -   (32,609)
  Non-cash interest expense   904   840   2,935   1,983
  Non-controlling preferred interest   -   237   -   970
  Non-controlling common interest   (1,069)   (1,026)   (3,050)   (2,871)
  Income tax expense    389   2,187   1,458   2,720
  Accretion of asset retirement obligations   44   63   133   187
                7,103   5,923   22,579   14,007
  Net change in non-cash working capital balances   1,323   (3,779)   1,362   (6,864)
  Net cash provided by operating activities   8,426   2,144   23,941   7,143
                             
CASH FLOWS FROM INVESTING ACTIVITIES:                
  Change in restricted cash   245   -   365   -
  Net cash settlement from derivative contracts    -   (1,129)   -   (1,701)
  Capital expenditures   -   (13)   -   (30)
  Net cash provided by (used in) investing activities   245   (1,142)   365   (1,731)
                             
CASH FLOWS FROM FINANCING ACTIVITIES:                
Payments of deferred financing costs   -   (4,201)   (319)   (4,893)
Payments for stock issuance costs associated with the Rights Offering   -   -   (285)   -
Payments of fees associated with the Recapitalization   -   -   (9)   -
Repayment of debt   (8,489)   -   (25,539)   (4,000)
Distributions on non-controlling preferred interest   -   (493)   -   (1,230)
Distributions on non-controlling common interest   -   (228)   -   (1,553)
Distributions on Common Shares   -   -   -   (6,540)
  Net cash used in financing activities   (8,489)   (4,922)   (26,152)   (18,216)
Net increase (decrease) in cash   182   (3,920)   (1,846)   (12,804)
                             
Cash and cash equivalents - beginning of period   22,508   6,636   24,536   15,520
Cash and cash equivalents - end of period    $                     22,690    $                        2,716    $                     22,690    $                        2,716
                             
Supplemental disclosure of cash flow information:                
Cash paid during the period for interest    $                       1,461    $                        5,420    $                       4,725    $                      13,790

SOURCE Primary Energy Recycling Corporation