Primary Energy Reports Third Quarter 2013 Results

OAK BROOK, IL, Oct. 29, 2013 /CNW/ - Primary Energy Recycling Corporation (TSX: PRI), a clean energy company that generates revenue from capturing and recycling recoverable heat and byproduct fuels from industrial processes, today announced its unaudited financial and operational results for the three and nine months ended September 30, 2013.

Financial Results
(in 000's of US$)
		Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenues	$	14,050		$	13,660		$	42,296		$	40,447
Operations and maintenance expense		5,081			4,422			14,602			12,798
Operating (loss) income		(101)			1,193			1,108			(1,883)
Net loss and comprehensive loss		(729)			(213)			(1,731)			(5,114)
EBITDA (1)		6,212			7,498			20,314			17,022
Adjusted EBITDA (2)		8,164			9,149			26,106			27,377
Net cash provided by operating activities		7,885			5,409			19,002			12,054
Free Cash Flow (3)		5,319			1,225			12,090			332
Cash and cash equivalents		28,217			30,281			-			-
Credit facility debt balance		72,609			83,156			-			-

 

Third Quarter Review

• Portside continued to perform as expected by generating $0.5 million of additional revenue in the third quarter of 2013 compared to the third quarter of 2012;
  
  
• Reported improved operations at North Lake and Harbor Coal compared to the second quarter of 2013 due to stronger customer blast furnace availability. However, compared to the third quarter of 2012, Harbor Coal produced lower operational results;
  
  
• Completed Ironside's forced turbine outage. The turbine should be back in service by early November 2013;
  
  
• Continued to work through the re-negotiation process for the Cokenergy agreements. The Company intends to provide an update as further developments occur;
  
  
• Subsequent to quarter end, on October 29, 2013, declared a $0.05 per Common Share dividend for payment on November 29, 2013 to shareholders of record on November 15, 2013.

"We experienced improved host operations during the third quarter, which resulted in increased production when compared to the second quarter of 2013," said John Prunkl, President and Chief Executive Officer of Primary Energy. "The Company had positive contributions from Cokenergy, North Lake and Portside during the reporting period. The repair of the Ironside turbine is almost complete and it will be back in service shortly. Portside successfully completed its planned October 2013 turbine overhaul and is back in service."

Operational Highlights
		Three Months Ending September 30,				Nine Months Ending September 30,
		2013		2012		2013		2012
Total Gross Electric Production Megawatt Hours (MWh) (4)		367,674		354,942		1,056,813		1,005,093
Total Thermal Energy Delivered (MMBtu) (5)		594,696		996,276		2,701,275		3,425,833
Harbor Coal Utilization (%) (6)		54.5%		68.4%		54.9%		71.1%

 

Third Quarter 2013 Financial Results

The Company's revenue of $14.1 million for the third quarter of 2013 increased $0.4 million, or 2.9%, compared with revenue of $13.7 million for the third quarter of 2012. Revenue at the Portside facility increased by $0.5 million during the third quarter of 2013 due to fuel cost savings of $0.4 million generated from the condensing economizer and boiler turndown capability and $0.1 million related to increased host operating levels.  Revenue at the Ironside facility was impacted by a net decrease of $0.1 million due to an unplanned outage starting in May of 2013.

The Company's revenue of $42.3 million for the first nine months of 2013 increased $1.9 million, or 4.6%, compared with revenue of $40.4 million for the first nine months of 2012.  Revenue at the Portside facility increased by $1.8 million during 2013 primarily due to fuel cost savings of $1.6 million generated from the condensing economizer and boiler turndown capability and $0.2 million related to increased host operating levels.  Revenue at the North Lake facility increased by $0.5 million primarily due to being fully operational for the first nine months in 2013 compared to only eight months of operation in 2012.  Revenue at the Ironside facility was impacted by a net decrease of $0.3 million due to an unplanned outage starting in May of 2013 and a decrease of $0.1 million due to reduced host operating levels.

Operations and maintenance expense for the third quarter of 2013 was $5.1 million compared to $4.4 million for the third quarter of 2012, an increase of $0.7 million or 14.9%. Operations and maintenance expense for the first nine months of 2013 was $14.6 million compared to $12.8 million for the first nine months of 2012, an increase of $1.8 million or 14.1%. The Company incurred periodic costs for the first nine months of 2013 comprised of $4.7 million for boiler retubing work, $0.6 million for an emergency boiler repair and $0.1 million for ductwork repairs compared to periodic costs for the first nine months of 2012 of $3.3 million for boiler retubing work and $0.6 million for ductwork repairs.

General and administrative expense totaled $2.1 million for the third quarter of 2013 and was flat when compared to the third quarter of 2012. General and administrative expense for the first nine months of 2013 was $6.0 million compared to $6.7 million for the first nine months of 2012, a decrease of $0.7 million or 9.9%. The Company did not incur management fees for the first nine months of 2013 resulting in a net cost savings totaling $1.1 million when compared to the same period in 2012.  In addition, the Company had reduced professional fees of $0.1 million compared to the prior nine month period offset by increased plant and liability insurance expenses of $0.2 million, IT expenses of $0.1 million, other general and administrative expenses of $0.1 million and accrued property taxes of $0.1 million.

Employee benefits expense for the third quarter of 2013 was $1.9 million compared to $1.2 million for the third quarter of 2012, an increase of $0.7 million. The increase is due to an additional payroll cost of $0.2 million, $0.1 million related to dividends paid on stock options and $0.4 million of stock based compensation inclusive of a one-time board compensation award.  Employee benefits expense for the first nine months of 2013 was $5.0 million compared to $2.7 million for the first nine months of 2012, an increase of $2.3 million. The increase is due to additional compensation cost of $1.1 million primarily associated with transferred employees hired by the Company upon termination of the Management Agreement, $0.4 million related to dividends paid on stock options, $0.4 million of cost recovery provided to the Company under the Management Agreement in the first nine months of 2012 that did not recur in the first nine months of 2013 and $0.4 million of stock based compensation inclusive of a one-time board compensation award.  Prior to June 1, 2012, the transferred employees were employees of the Company's former manager who previously provided operational and administrative services to the Company under the Management Agreement.  For the first nine months of 2012, management fees incurred by the Company of $1.1 million were recorded as general and administrative expenses.

On a combined basis, general and administrative expense and employee benefits expense for the third quarter of 2013 was $4.0 million compared to $3.3 million for the third quarter of 2012, an increase of $0.7 million.  The increase in expenses is comprised of $0.4 million of stock based compensation inclusive of a one-time board compensation award, $0.2 million of payroll cost related to new employees, $0.2 million of consulting fees and 0.1 million related to dividends paid on stock options.  The increase in expenses was offset by reduced professional fees of $0.1 million and other general and administrative expenses of $0.1 million.

On a combined basis, general and administrative expense and employee benefits expense for the first nine months of 2013 was $11.0 million compared to $9.4 million for the first nine months of 2012, an increase of $1.6 million.  The increase in expenses is comprised of $0.4 million related to dividends paid on stock options, $0.4 million of stock based compensation inclusive of a one-time board compensation award, $0.2 million of plant compensation expense, $0.2 million of corporate compensation expense, $0.2 million of plant and liability insurance, $0.1 million of IT expenses, $0.1 million of other general and administrative expenses and $0.1 million of accrued property taxes. The increase in expenses was offset by reduced professional fees of $0.1 million. 

Equity in earnings of the Harbor Coal joint venture for the third quarter of 2013 was $0.2 million compared to $0.5 million for the third quarter of 2012, a decrease of $0.3 million.  Equity in earnings of the Harbor Coal joint venture for the first nine months of 2013 was $0.7 million compared to $1.8 million for the first nine months of 2012, a decrease of $1.1 million.  The decrease is the result of reduced revenue based on increased natural gas injection and reductions to coal through-put for the current year as well as reduced blast furnace operation that began in the second quarter of 2013.

Operating loss for the third quarter of 2013 was $0.1 million compared to operating income of $1.2 million for the third quarter of 2012, a decrease of $1.3 million. The decrease was the result of the net effect of the items discussed above.

Operating income for the first nine months of 2013 was $1.1 million compared to an operating loss of $1.9 million for the first nine months of 2012, an increase of $3.0 million. The increase was the result of the net effect of the items discussed above.

Net loss and comprehensive loss for the third quarter of 2013 was $0.7 million compared to $0.2 million for the third quarter of 2012, an increase of $0.5 million. The increase was the result of the net effect of the items discussed above.

Net loss and comprehensive loss for the first nine months of 2013 was $1.7 million compared to $5.1 million for the first nine months of 2012, a decrease of $3.4 million. The decrease was the result of the net effect of the items discussed above.

Conference Call and Webcast

Management will host a conference call to discuss the third quarter results on Wednesday, October 30, 2013 at 10 am ET. The telephone numbers for the conference call are: [phone] or [phone].

A digital conference call replay will be available until midnight on November 13, 2013 (ET) by calling [phone] or [phone]. Please enter the password 71653061 when instructed. A webcast replay will be available for 365 days by accessing a link through the Events section at www.primaryenergyrecycling.com

Forward-Looking Statements

When used in this news release, the words "intend", "likely", "anticipate", "expect", "project", "believe", "estimate", "forecast", "outlook" and similar expressions, are intended to identify forward-looking statements, including statements regarding maintenance and capital expenditures and the acquisition of the minority interest in PERH and the termination of Primary Energy's management agreement. 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 percent interest in a pulverized coal facility (collectively, the "Projects"). The Projects have a combined electrical generating capacity of 298 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, professional fees and other general and administrative expenses related to the buyout of the non-controlling interest and internalization of management and 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 Company's business.

Reconcilation of Net Loss and Comprehensive Loss
	to Adjusted EBITDA
(in 000's of US$)						Three Months Ended September 30,						Nine Months Ended September 30,
						2013			2012			2013			2012
Net loss and comprehensive loss						$	(729)		$	(213)		$	(1,731)		$	(5,114)
Adjustment to net loss and comprehensive loss:
	Depreciation and amortization						5,304			5,296			16,062			15,832
	Depreciation and amortization included in equity in
	earnings of Harbor Coal joint venture						1,009			1,009			3,027			3,027
	Interest expense						1,243			1,525			3,763			4,240
	Deferred finance fees expensed upon extinguishment of debt						-			-			-			765
	Realized and unrealized loss (gain) on derivative contracts						178			292			(80)			572
	Loss on derecognition						-			-			117			46
	Income tax benefit						(793)			(411)			(844)			(2,346)
EBITDA						$	6,212		$	7,498		$	20,314		$	17,022
Adjustments to EBITDA:
	Major maintenance ^(1)						1,699			1,471			5,358			3,957
	Management Agreement termination fee						-			-			-			6,000
	Professional fees and other general and administrative expenses related to
	the buyout of the non-controlling interest and internalization of management						-			101			-			293
	Stock based compensation ^(2)						253			79			434			105
Adjusted EBITDA						$	8,164		$	9,149		$	26,106		$	27,377

1)  Represents nonrecurring major maintenance expenditures for such items as boiler retubing work and other related maintenance expenditures and ductwork repairs.
2)  The three month and nine month periods of 2013 are Inclusive of a one-time board compensation award.

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,
						2013			2012			2013			2012
Net cash provided by operating activities						$	7,885		$	5,409		$	19,002		$	12,054
Less: Capital expenditures							(2,566)			(4,184)			(6,912)			(11,722)
Free Cash Flow						$	5,319		$	1,225		$	12,090		$	332

 

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of U.S. dollars)
ASSETS								September 30, 2013			December 31, 2012
Current assets:
	Cash and cash equivalents							$	28,217		$	30,101
	Accounts receivable								7,467			8,266
	Inventory, net								1,442			1,126
	Tax receivable								803			691
	Prepaid expenses								1,479			987
	Other current assets								-			336
Total current assets									39,408			41,507
Non-current assets:
	Property, plant and equipment, net								183,288			185,355
	Intangible assets, net								3,213			12,321
	Restricted cash								3,275			3,445
	Interest rate cap								113			85
	Investment in Harbor Coal joint venture								55,383			58,600
Total assets								$	284,680		$	301,313
LIABILITIES AND EQUITY
Current liabilities:
	Accounts payable							$	1,210		$	971
	Short-term debt								10,248			11,133
	Accrued property taxes								1,453			1,725
	Accrued expenses								6,002			6,558
Total current liabilities									18,913			20,387
Non-current liabilities:
	Long-term debt								59,185			64,913
	Deferred income tax liability, net								1,009			1,753
	Interest rate swap								90			155
	Asset retirement obligations								2,693			3,063
Total liabilities									81,890			90,271
Equity
Common stock: no par value, unlimited shares authorized;
	44,706,186 issued and outstanding								274,479			274,479
Contributed surplus									37,650			37,466
Accumulated shareholders' deficit									(109,339)			(100,903)
Total equity									202,790			211,042
Total liabilities and equity								$	284,680		$	301,313

 

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,
						2013			2012			2013			2012
Revenue:
	Capacity					$	9,018		$	9,018		$	27,054		$	27,054
	Energy service						5,032			4,642			15,242			13,393
							14,050			13,660			42,296			40,447
Expenses:
	Operations and maintenance						5,081			4,422			14,602			12,798
	General and administrative						2,121			2,082			6,041			6,702
	Management Agreement termination fee						-			-			-			6,000
	Employee benefits						1,871			1,216			5,019			2,731
	Depreciation and amortization						5,304			5,296			16,062			15,832
	Loss on derecognition						-			-			117			46
Total operating expenses							14,377			13,016			41,841			44,109
Equity in earnings of Harbor Coal joint venture							226			549			653			1,779
Operating (loss) income							(101)			1,193			1,108			(1,883)
Other expense
	Interest expense						(1,243)			(1,525)			(3,763)			(4,240)
	Deferred finance fees expensed upon extinguishment of debt						-		-				-			(765)
	Realized and unrealized (loss) gain on derivative
	contracts						(178)			(292)			80			(572)
Loss before income taxes							(1,522)			(624)			(2,575)			(7,460)
Income tax benefit							793			411			844			2,346
Net loss and comprehensive loss						$	(729)		$	(213)		$	(1,731)		$	(5,114)
Net loss and comprehensive loss attributable to:
	Owners of the Company					$	(729)		$	(213)		$	(1,731)		$	(3,319)
	Non-controlling interest						-			-			-			(1,795)
						$	(729)		$	(213)		$	(1,731)		$	(5,114)
Net loss per share attributable
	to owners of the Company:
Weighted average number of shares outstanding - basic							44,706,186			44,706,186			44,706,186			44,706,186
Weighted average number of shares outstanding - diluted							44,706,186			44,706,186			44,706,186			44,706,186
Basic and diluted net loss per share attributable to owners of the Company						$	(0.02)		$	(0.00)		$	(0.04)		$	(0.07)

 

 

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In thousands of U.S. dollars)
	Common		Contributed		Accumulated				Non-controlling		Total
	stock		surplus		deficit		Total		interest		equity
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-based compensation		-		105		-		105		-		105
Balance - September 30, 2012	$	274,479	$	37,217	$	(111,067)	$	200,629	$	-	$	200,629
Balance - January 1, 2013	$	274,479	$	37,466	$	(100,903)	$	211,042	$	-	$	211,042
Net loss and comprehensive loss
for the nine months ended September 30, 2013		-		-		(1,731)		(1,731)		-		(1,731)
Dividends on Common Shares		-		-		(6,705)		(6,705)		-		(6,705)
Stock-based compensation		-		184		-		184		-		184
Balance - September 30, 2013	$	274,479	$	37,650	$	(109,339)	$	202,790	$	-	$	202,790

 

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,
								2013			2012			2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss and comprehensive loss for the period								$	(729)		$	(213)		$	(1,731)		$	(5,114)
Adjustments for:
Depreciation and amortization									5,304			5,296			16,062			15,832
Loss on derecognition									-			-			117			46
Unrealized loss (gain) on derivative contracts									117			273			(171)			366
Deferred finance fees expensed upon extinguishment of debt									-			-			-			765
Equity in earnings of Harbor Coal joint venture									(226)			(549)			(653)			(1,779)
Distributions from investment in Harbor Coal joint venture									901			1,515			3,869			5,262
Non-cash interest expense									410			542			1,213			1,681
Non-cash stock based compensation									54			79			184			105
Income tax									(718)			(493)			(744)			(2,428)
									5,113			6,450			18,146			14,736
Net change in non-cash working capital balances									2,772			(1,041)			856			(2,682)
	Net cash provided by operating activities								7,885			5,409			19,002			12,054
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in restricted cash									-			-			170			(1,515)
Capital expenditures									(2,566)			(4,184)			(6,912)			(11,722)
	Net cash used in investing activities								(2,566)			(4,184)			(6,742)			(13,237)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt									-			-			-			85,000
Purchase of non-controlling interest									-			-			-			(24,225)
Payments of deferred financing costs									-			2			-			(5,261)
Repayment of debt									(3,333)			(1,844)			(7,439)			(44,617)
Dividends on Common Shares									(2,235)			-			(6,705)			-
	Net cash (used in) provided by financing activities								(5,568)			(1,842)			(14,144)			10,897
Net (decrease) increase in cash									(249)			(617)			(1,884)			9,714
Cash and cash equivalents - beginning of period									28,466			30,898			30,101			20,567
Cash and cash equivalents - end of period								$	28,217		$	30,281		$	28,217		$	30,281
Supplemental disclosure of cash flow information:
Cash paid during the period for interest								$	903		$	972		$	2,665		$	2,537
Cash paid during the period for income taxes								$	-		$	-		$	12		$	168

 

SOURCE: Primary Energy Recycling Corporation

Chief Commercial Officer
Christopher Fanella
Primary Energy Recycling
630.560.4227
[email protected]

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