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Press release from CNW Group

Primary Energy Reports Third Quarter 2012 Results

Tuesday, November 06, 2012

Primary Energy Reports Third Quarter 2012 Results21:55 EST Tuesday, November 06, 2012OAK 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  $39,903Operations and maintenance expense  4,422  3,159  12,798  10,025Operating income (loss)   1,193  3,479  (1,883)  4,974Net (loss) income and comprehensive (loss) income  (213)  428  (5,114)  (2,512)EBITDA (1)  7,498  9,738  17,022  27,444Adjusted EBITDA (2)  9,149  10,138  27,377  28,544Net cash provided by operating activities  5,409  7,012  12,054  23,610Free Cash Flow (3)  1,255  6,716  332  19,186Cash and cash equivalents  30,281  21,605  -  -Credit facility debt balance  83,156  50,626  -  - Third Quarter HighlightsImplemented 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) 354,942 375,406Total Thermal Energy Delivered (MMBtu) (5) 996,276 971,103Harbor Coal Utilization (%) (6) 68.4% 89.9% Third Quarter 2012 Financial ResultsThe 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 (888) 231-8191 or (647) 427-7450.A digital conference call replay will be available until midnight on November 21, 2012 (ET) by calling (855) 859-2056 or (416) 849-0833. 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)  2,429EBITDA    $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 CorporationCONSOLIDATED 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  159Total 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  5,503Total 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  4,239Total 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  274,479Contributed surplus  37,217  3,316Accumulated shareholders' deficit  (111,067)  (107,748)Total equity attributable to equity owners of the Company  200,629  170,047Non-controlling interest   -  79,502Total equity  200,629  249,549Total liabilities and equity $308,603 $304,140 Primary Energy Recycling CorporationCONSOLIDATED 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  39,903Expenses:                 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  500Total 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  44,706,186Weighted average number of shares outstanding - diluted   44,706,186   45,128,828  44,706,186  44,706,186Basic and diluted net (loss) income per share attributable to owners of the Company  $(0.00)   $0.02  $(0.07)  $(0.01) Primary Energy Recycling CorporationCONSOLIDATED 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 equityBalance - 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 - 105Balance - September 30, 2012 $274,479 $37,217 $(111,067) $200,629 $- $200,629 Primary Energy Recycling CorporationCONSOLIDATED 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 CorporationFor further information: Chief Financial Officer Mike Alverson 630.230.1314 investorinfo@primaryenergy.com Media and Investor Relations Adam Peeler TMX Equicom 416.815.0700 ext. 225 apeeler@tmxequicom.com