Primary Energy Reports Stronger Second Quarter Results

OAK BROOK, IL, July 28 /CNW/ - Primary Energy Recycling Corporation (TSX: PRI), (the "Company") a clean energy company that generates revenue from capturing and recycling waste energy from industrial processes, today announced its financial and operational results for the second quarter ended June 30, 2010.

    
    Financial Highlights
    -------------------------------------------------------------------------
    (in 000's                                    6-Month   6-Month
     of US$)       Q2 2010   Q2 2009    Change      2010      2009    Change
    -------------------------------------------------------------------------
    Revenue      $  15,461 $  12,978    +19.1% $  30,802 $  27,684    +11.3%
    -------------------------------------------------------------------------
    Operations
     and
     maintenance
     expense     $   4,323 $   2,932    +47.5% $   6,948 $   5,555    +25.1%
    -------------------------------------------------------------------------
    Operating
     income
     (loss)      $      99 $  (1,310)  +$1,409 $   1,783 $    (885)  +$2,668
    -------------------------------------------------------------------------
    Net loss
     and
     comprehensive
     loss        $ (2,069) $  (5,383)  +$3,314 $ (2,764) $ (10,519)  +$7,755
    -------------------------------------------------------------------------
    (1)Adjusted
     EBITDA      $  9,672  $   7,891    +22.6% $ 19,828  $  17,817    +11.3%
    -------------------------------------------------------------------------
    Net cash
     provided
     by operating
     activities $   6,295  $   4,267    +47.5% $ 15,515  $   4,999   +210.4%
    -------------------------------------------------------------------------
    (2)Adjusted
     PERC Cash
     Flow       $   9,672  $   7,891    +22.6% $ 19,828  $  17,817    +11.3%
    -------------------------------------------------------------------------
    Cash &
     cash
     equiva-
     lents      $  22,508  $   6,636   +239.2%        -          -        -
    -------------------------------------------------------------------------
    Credit
     facility
     debt       $  87,950  $ 131,000    -32.9%        -          -        -
    -------------------------------------------------------------------------
    

Second Quarter Highlights

    
    -   19.1% increase in revenue for the second quarter of 2010 compared to
        the same period last year;
    -   $3.3 million improvement in net loss for the second quarter of 2010
        compared to the same period last year;
    -   22.6% increase in Adjusted EBITDA in the second quarter versus the
        same period in 2009;
    -   Electricity produced by all of the Company's facilities during the
        second quarter of 2010 was 15.0% greater than the same period last
        year;
    -   Made positive progress on contract renewal discussions with the host
        client at the North Lake project;
    -   Operations and maintenance expenses were higher in the quarter
        primarily due to the previously announced overhaul and long-term
        maintenance work being performed at Portside and Cokenergy; and
    -   Subsequent to the end of the quarter, North Lake experienced a 14-day
        unplanned outage. The unit is now back in service.
    

"We had a strong quarter from a financial and operational perspective," said John Prunkl, President and Chief Executive Officer of the Company. "The steel industry continued its recovery in the second quarter, which was reflected in our financial statements. Primary Energy's financial momentum continues to accelerate via stronger operating performance and paying down our senior credit facility. In addition, this quarter we are introducing both Financial and Operational Highlights as a part of our commitment to making our performance more transparent to investors."

    
    Operational Highlights
    -------------------------------------------------------------------------
                                                 6-Month   6-Month
                   Q2 2010   Q2 2009    Change      2010      2009    Change
    -------------------------------------------------------------------------
    (3)Total
     Gross
     Electric
     Production
     Megawatt
     Hours (MWh)   290,512   252,519    +15.0%   546,242   505,687     +8.0%
    -------------------------------------------------------------------------
    (4)Total
     Thermal
     Energy
     Delivered
     (MMBtu)     1,149,423 1,102,064     +4.3% 2,849,222 2,841,366    +0.28%
    -------------------------------------------------------------------------
    (5)Harbor
     Coal
     Utilization(%)  88.3%     49.6%    +38.7%     86.1%     58.8%    +27.3%
    -------------------------------------------------------------------------
    

Second Quarter and Year to Date Financial Results

In the second quarter of 2010, the Company earned revenue of $15.5 million, an increase of $2.5 million, or 19.1%, compared with revenue of $13.0 million for the second quarter of 2009. For the first six months of 2010, the Company earned revenue of $30.8 million, an increase of $3.1 million, or 11.3%, compared with revenue of $27.7 million for the same period in 2009. The increase in revenue for the three and six 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 second 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 second quarter of 2010 was $4.3 million compared to $2.9 million for the second quarter of 2009, an increase of $1.4 million or 47.5%. For the first six months of 2010, operating and maintenance expense was $6.9 million compared to $5.6 million for the same period in 2009. The increase in expenses for both the three and six month periods is largely due to additional maintenance costs incurred for scheduled boiler repairs and bag house component replacements to enhance efficiency 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 second quarter of 2010 was $2.6 million compared to $2.8 million for the second quarter of 2009, a decrease of $0.2 million or 8.9%. The decrease is primarily due to reductions in accrued property taxes of $0.4 million based upon reductions in tax rates. These decreases were offset by increased payroll cost of approximately $0.1 million related to employee compensation and professional fees of $0.1 million. For the first six months of 2010, general and administrative expense was $5.2 million compared to $6.0 million for the same period in the prior year. The decrease is primarily due to reductions in accrued property taxes of $0.8 million due to reductions in tax rates and reduced professional fees of $0.2 million. These decreases were offset by increased payroll costs of $0.2 million.

Operating income for the second quarter of 2010 was $0.1 million compared to an operating loss of $1.3 million for the second quarter of 2009, an improvement of $1.4 million. Operating loss for the first six months of 2010 was $1.8 million compared to an operating loss of $0.9 million for the same period in 2009, an improvement of $2.7 million. The improvements noted are driven by the net effect of the items discussed above.

Interest expense for the second quarter of 2010 was $2.5 million compared to $4.7 million for the second quarter of 2009, a decrease of $2.2 million. Interest expense for the first six months of 2010 was $5.3 million compared to $9.3 million for the same period in 2009. The decreases noted are primarily due to the reduced level of debt outstanding in the respective periods.

Net loss for the second quarter of 2010 was $2.1 million compared to $5.4 million for the second quarter of 2009, an improvement of $3.3 million. Net loss for the first six months of 2010 was $2.8 million compared to $10.5 million for the same period in 2009, an improvement of $7.7 million.

At the end of the second quarter, the Company had cash and cash equivalents of $22.5 million and an outstanding loan balance of $88.0 million. Since November 2009, $17.0 million or 16% has been paid down on the 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.primaryenergy.com.

Conference Call and Webcast

Management will host a conference call to discuss the first quarter results on Thursday, July 29, 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 August 5, 2010 (ET) by calling (800) 642-1687 or (416) 849-0833. Please enter the pass code 87568440 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, and weather and economic conditions and the 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 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.

Footnotes

The Company reports its financial results in accordance with generally accepted accounting principles in Canada ("GAAP"). The Company's management also evaluates and makes operating decisions using various other measures. Two such measures are Adjusted EBITDA and Adjusted PERC Cash Flow, which are non-GAAP financial measures. We believe these measures provide useful supplemental information regarding the performance of Company's business.

    
    (1) Adjusted EBITDA Definition: As used herein Adjusted EBITDA means
        earnings before interest, taxes, depreciation and amortization plus
        adding back ARO accretion and certain one time adjustments including
        major maintenance/outage work expenses, general and administrative
        expense ('G&A") adjustments, and property tax adjustments. The
        Adjusted EBITDA is reconciled to net loss on the table below.
        Adjusted EBITDA is not a recognized measure under GAAP and does not
        have standardized meanings prescribed by GAAP. Therefore, Adjusted
        EBITDA may not be comparable to similar measures presented by other
        companies.

                                      Three Months Ended    Six Months Ended
                                            June 30,            June 30,
                                     --------------------  ------------------
                                         2010      2009      2010      2009
                                        ------    ------    ------    ------

    Reconciliation of Net Loss to
     Adjusted EBITDA

    Net Loss                           ($2,069)  ($5,383)  ($2,764) ($10,519)
    Adjustment to net loss
      Depreciation and amortization     $8,428    $8,489   $16,856   $16,978
      Interest expense                  $2,520    $4,714    $5,283    $9,276
      Realized and unrealized loss
       (gain) on derivative contracts      $29   ($5,196)     $176   ($3,100)
      Realized and unrealized loss
       (gain) on foreign currency
       translation                           -    $6,712         -    $4,037
      Income tax expense (benefit)        $703   ($2,033)   $1,069      $533
      Non-controlling preferred
       interest                              -      $381         -      $733
      Non-controlling common interest  ($1,084)    ($505)  ($1,981)  ($1,845)
                                       --------  --------  --------  --------

    EBITDA                              $8,527    $7,179   $18,639   $16,093

    Adjustments to EBITDA
      ARO accretion                        $45       $62       $89      $124
      Major maint/outage work           $1,100      $200    $1,100      $400
      G&A Adjustments                        -         -         -      $300
      Property tax adjustments               -      $450         -      $900
    -------------------------------------------------------------------------
    Adjusted EBITDA                     $9,672    $7,891   $19,828   $17,817
    -------------------------------------------------------------------------

    (2) Adjusted PERC Cash Flow Definition: As used herein, Adjusted PERC
        Cash Flow means Net Cash Provided by Operating Activities less Non-
        Cash Interest Expense plus Interest Expense plus Capital Expenditures
        plus changes in working capital plus one time specified adjustments,
        including adding back major maintenance/outage work expenses, G&A one
        time adjustments, and annualized property tax adjustments. These
        amounts, except the specified adjustments, are derived from those
        reflected in the income statement and statement of cash flows of
        publicly filed financial statements. The specified adjustments are
        reconciled on the table below. Adjusted PERC Cash Flow is not a
        recognized measure under GAAP and does not have standardized meanings
        prescribed by GAAP. Therefore, Adjusted PERC Cash Flow may not be
        comparable to similar measures presented by other companies.


                                       Three Months Ended   Six Months Ended
                                             June 30,            June 30,
                                     --------------------  ------------------
                                          2010      2009      2010      2009
                                        ------    ------    ------    ------
    Net Cash Provided by
     Operating Activities               $6,295    $4,267   $15,515    $4,999

    - Less: Non-Cash Interest Expense     $968      $678    $2,031    $1,143
    + Plus: Interest Expense            $2,520    $4,714    $5,283    $9,276
    + Plus: Changes in Working Capital    $725   ($1,062)     ($39)   $3,085
                                       --------  --------  --------  --------
    Subtotal                            $8,572    $7,241   $18,728   $16,217

    Adjustments
    + Plus: Major Maint/Outage Work     $1,100      $200    $1,100      $400
    + Plus: G&A Adjustments                  -         -         -      $300
    + Plus: Annualized Prop.
       Tax Adj.(1)                           -      $450         -      $900
                                       --------  --------  --------  --------
    Total Adjustments                   $1,100      $650    $1,100    $1,600

    -------------------------------------------------------------------------
    Adjusted PERC Cash Flow             $9,672    $7,891   $19,828   $17,817
    -------------------------------------------------------------------------

    (3) 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.

    (4) 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.

    (5) 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 PERC 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.

    

                    Primary Energy Recycling Corporation
                         CONSOLIDATED BALANCE SHEETS
                       (In thousands of U.S. dollars)
                                 (Unaudited)


                                                       June 30,  December 31,
    ASSETS                                                2010          2009
    ------------------------------------------- -------------- --------------
    Current assets:
      Cash and cash equivalents                   $     22,508  $     24,536
      Accounts receivable                                9,678         9,532
      Spare parts inventory                                976           991
      Current portion of future tax asset                  765         1,003
      Other current assets                               1,028           833
                                                  ------------- -------------
    Total current assets                                34,955        36,895

    Non-current assets:
      Property, plant and equipment                    214,613       219,377
      Contract rights                                   88,859       100,964
      Restricted cash                                    3,609         3,729
      Interest rate cap contract                            10           186
      Other non-current assets                               8            34
                                                  ------------- -------------
    Total assets                                  $    342,054  $    361,185
                                                  ------------- -------------
                                                  ------------- -------------

    LIABILITIES, NON-CONTROLLING INTEREST
     AND SHAREHOLDERS' EQUITY
    -------------------------------------

    Current liabilities:
      Accounts payable                            $        461  $        253
      Short-term debt                                   36,714        28,341
      Due to affiliates                                    151           478
      Accrued property taxes                             2,178         2,520
      Accrued expenses                                   2,828         2,631
                                                  ------------- -------------
    Total current liabilities                           42,332        34,223

    Non-current liabilities:
      Long-term debt                                    46,472        69,887
      Net long-term portion of future tax
       liability                                        15,511        14,680
      Asset retirement obligation                        2,515         2,426
                                                  -------------- ------------
    Total liabilities                                  106,830       121,216

    Commitments and contingencies

    Non-controlling common interest                     83,944        85,925

    Shareholders' equity:
    Common stock                                       274,479       274,479
    Accumulated shareholders' deficit                 (123,199)     (120,435)
                                                  ---------------------------
    Total shareholders' equity                         151,280       154,044
                                                  ---------------------------
    Total liabilities, non-controlling
     interest and shareholders' equity            $     342,054  $   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 June 30,   Six Months Ended June 30,
                      --------------------------- ---------------------------
                          2010          2009          2010          2009
                      ------------- ------------- ------------- -------------

    Revenue:
      Capacity        $      9,018  $      9,018  $     18,036  $     18,036
      Energy service         6,443         3,960        12,766         9,648
                      ------------- ------------- ------------- -------------
                            15,461        12,978        30,802        27,684
    Expenses:
      Operations and
       maintenance           4,323         2,932         6,948         5,555
      General and
       administrative        2,611         2,867         5,215         6,036
      Depreciation and
       amortization          8,428         8,489        16,856        16,978
                      ------------- ------------- ------------- -------------

    Operating income            99        (1,310)        1,783          (885)
    Other (expense) income
      Interest expense      (2,520)       (4,714)       (5,283)       (9,276)
      Realized and
       unrealized (loss)
       gain on derivative
       contracts               (29)        5,196          (176)        3,100
      Realized and
       unrealized loss
       on foreign
       currency
       translation               -        (6,712)            -        (4,037)
                      ------------- ------------- ------------- -------------

    Loss before income
     taxes and
     non-controlling
     interest               (2,450)       (7,540)       (3,676)      (11,098)
    Income tax (expense)
     benefit                  (703)        2,033        (1,069)         (533)
                      ------------- ------------- ------------- -------------

    Loss before
     non-controlling
     interest               (3,153)       (5,507)       (4,745)      (11,631)
    Non-controlling
     preferred interest          -          (381)            -          (733)
    Non-controlling
     common interest         1,084           505         1,981         1,845
                      ------------- ------------- ------------- -------------

    Net loss and
     comprehensive
     loss             $     (2,069) $     (5,383) $     (2,764) $    (10,519)

    Accumulated
     shareholders'
     deficit -
     beginning of
     period               (121,130)     (131,058)     (120,435)     (123,040)
    Adjustment to
     opening shareholders'
     deficit due to
     adoption of new
     accounting standard         -             -             -           215
    Distributions                -        (2,205)            -        (5,302)
                      ------------- ------------- ------------- -------------
    Accumulated
     shareholders'
     deficit- end
     of period         $  (123,199)  $   (138,646) $   (123,199) $  (138,646)
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Weighted average
     number of shares
     outstanding        134,118,561     2,006,159   134,118,561    2,006,159
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------
    Basic and
     diluted net loss
     per share         $      (0.01) $      (2.68) $      (0.02) $     (5.24)
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------



                    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 June 30,   Six Months Ended June 30,
                      --------------------------- ---------------------------
                          2010          2009          2010          2009
                      ------------- ------------- ------------- -------------

    CASH FLOWS FROM
     OPERATING
     ACTIVITIES:
    Net loss and
     comprehensive
     loss             $     (2,069) $     (5,383) $     (2,764) $    (10,519)
    Adjustments to
     reconcile net
     loss to net cash
      provided by
       operating activities:
      Depreciation and
       amortization          8,428         8,489        16,856        16,978
      Realized and
       unrealized loss
       (gain) on
       derivative
       contracts                29        (5,196)          176        (3,100)
      Realized and
       unrealized loss on
       foreign currency
       translation               -         6,712             -         4,037
      Non-cash interest
       expense                 968           678         2,031         1,143
      Non-controlling
       preferred
       interest                  -           381             -           733
      Non-controlling
       common interest      (1,084)         (505)       (1,981)       (1,845)
      Income tax expense
       (benefit)               703        (2,033)        1,069           533
      Accretion of asset
       retirement
       obligations              45            62            89           124
                      ------------- ------------- ------------- -------------
                             7,020         3,205        15,476         8,084
      Net change in
       non-cash working
       capital balances       (725)        1,062            39        (3,085)
                      ------------- ------------- ------------- -------------
      Net cash provided
       by operating
       activities            6,295        4,267         15,515         4,999
                      ------------- ------------- ------------- -------------


    CASH FLOWS FROM
     INVESTING ACTIVITIES:
      Change in
       restricted cash         120            -            120             -
      Net cash settlement
       from derivative
       contracts                 -          674              -          (572)
      Capital expenditures       -          (17)             -           (17)
                      ------------- ------------- ------------- -------------
      Net cash provided
       by (used in)
       investing activities    120          657            120          (589)
                      ------------- ------------- ------------- -------------

    CASH FLOWS FROM
     FINANCING ACTIVITIES:
    Payments of deferred
     financing costs             -         (692)          (319)         (692)
    Payments for stock
     issuance costs
     associated with
     the rights offering         -            -           (285)            -
    Payments of fees
     associated with the
     recapitalization            -            -             (9)            -
    Repayment of debt       (6,888)      (4,000)       (17,050)       (4,000)
    Distributions on
     non-controlling
     preferred interest          -         (375)             -          (737)
    Distributions on
     non-controlling
     common interest             -         (674)             -        (1,325)
    Distributions on
     Common Shares               -       (3,391)             -        (6,540)
                      ------------- ------------- ------------- -------------
      Net cash used in
       financing
       activities           (6,888)      (9,132)       (17,663)      (13,294)
                      ------------- ------------- ------------- -------------
    Net decrease in cash      (473)      (4,208)        (2,028)       (8,884)

    Cash and cash
     equivalents -
     beginning of period    22,981       10,844         24,536        15,520
                      ------------- ------------- ------------- -------------
    Cash and cash
     equivalents -
     end of period    $     22,508  $     6,636   $     22,508 $       6,636
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    Supplemental
     disclosure of cash
     flow information:
    Cash paid during
     the period for
     interest         $      1,558  $      4,033  $      3,264  $      8,370
    

SOURCE Primary Energy Recycling Corporation

For further information: For further information: Chief Financial Officer, Mike Alverson, 630.230.1314, investorinfo@primaryenergy.com; Media and Investor Relations, Adam Peeler, 416.815.0700 ext. 225, apeeler@equicomgroup.com

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