Primary Energy Reports Second Quarter 2013 Results

OAK BROOK, IL, Aug. 13, 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 six months ended June 30, 2013.

Financial Results
(in 000's of US$)
			Three Months Ended June 30,								Six Months Ended June 30,
				2013				2012				2013				2012
Revenues			$	13,571			$	12,565			$	28,246			$	26,787
Operations and maintenance expense				4,451				4,165				9,521				8,376
Operating (loss) income				(11)				(5,385)				1,209				(3,076)
Net loss and comprehensive loss				(893)				(5,453)				(1,002)				(4,901)
EBITDA (1)				6,480				936				14,102				9,524
Adjusted EBITDA (2)				8,045				8,445				17,942				18,228
Net cash provided by (used in) operating activities				4,102				(743)				11,117				6,645
Free Cash Flow (3)				2,902				(6,589)				6,771				(893)
Cash and cash equivalents				28,466				30,898				-				-
Credit facility debt balance				75,942				85,000				-				-

 

Second Quarter Review

• Customer blast furnace availability was down in the second quarter of 2013 which impacted operations of North Lake and Harbor Coal;
  
  
• The Ironside facility experienced a forced turbine outage in May and is expected to return to service in September 2013.  Lost variable revenue in the third quarter is expected to be recovered through business interruption insurance;
  
  
• The Cokenergy facility completed the major overhaul of its steam turbine and condenser on time and on budget;
  
  
• The Portside facility had a solid quarter with revenue contribution from the condensing economizer and boiler turndown projects;
  
  
• Contract renegotiation discussions continued with the site host for Cokenergy. Management anticipates an agreement on terms before the current contract expires in October 2013;
  
  
• The Company declared and paid a dividend of $0.05 per Common Share; and
  
  
• Subsequent to quarter end, on August 1, 2013, the Company declared a $0.05 per Common Share dividend for payment on August 30, 2013 to shareholders of record on August 15, 2013.

"Furnace-related challenges created downward pressure on North Lake and Harbor Coal production in the second quarter," said John Prunkl, President and Chief Executive Officer of Primary Energy. "Towards the end of the reporting period, we did see improvement in blast furnace production levels back to the low end of the typical operating range, but we will not be surprised if challenges continue to occur until the furnace is overhauled in 2014."

Operational Highlights
					Three Months Ending June 30,				Six Months Ending June 30,
					2013		2012		2013		2012
Total Gross Electric Production Megawatt Hours (MWh) (4)					304,779		313,023		689,139		650,151
Total Thermal Energy Delivered (MMBtu) (5)					918,254		946,452		2,106,579		2,429,557
Harbor Coal Utilization (%) (6)					42.9%		68.3%		55.2%		72.5%

 

Second Quarter 2013 Financial Results

The Company's revenue of $13.6 million for the second quarter of 2013 increased $1.0 million, or 8.0%, compared with revenue of $12.6 million for the second quarter of 2012.  Revenue at the Portside facility increased by $0.6 million during the second quarter of 2013 primarily due to fuel cost savings of $0.4 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 $0.8 million primarily due to being fully operational during the second quarter of 2013 compared to only two months of operation in the second quarter of 2012.  Revenue at the Ironside facility was impacted by a $0.3 million decrease due to an unplanned outage starting in May of 2013 and a decrease of $0.1 million due to reduced host operating levels.

The Company's revenue of $28.3 million for the first six months of 2013 increased $1.5 million, or 5.5%, compared with revenue of $26.8 million for the first six months of 2012.  Revenue at the Portside facility increased by $1.4 million during 2013 primarily due to fuel cost savings of $1.2 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 six months in 2013 compared to only five months of operation in 2012.  Revenue at the Ironside facility was impacted by a $0.3 million decrease 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 second quarter of 2013 was $4.5 million compared to $4.2 million for the second quarter of 2012, an increase of $0.3 million or 6.9%.  Operations and maintenance expense for the first six months of 2013 was $9.5 million compared to $8.4 million for the first six months of 2012, an increase of $1.1 million or 13.7%.  The Company incurred periodic costs for the first six months of 2013 comprised of $2.9 million for boiler retubing work, $0.7 million for an emergency boiler repair and $0.1 million for ductwork repairs compared to periodic costs for the first six months of 2012 totaling $2.1 million for boiler retubing work and $0.4 million for ductwork repairs.

General and administrative expense for the second quarter of 2013 was $2.0 million compared to $2.1 million for the second quarter of 2012, a decrease of $0.1 million or 3.6%. General and administrative expense for the first six months of 2013 was $3.9 million compared to $4.6 million for the first six months of 2012, a decrease of $0.7 million or 15.2%. The Company did not incur management fees for the first six months of 2013 resulting in a net cost savings totaling $1.1 million when compared to the same period in 2012 offset by increased expenses of $0.4 million comprised of plant and liability insurance, accrued property taxes, IT expenses and other general expenses.

Employee benefits expense for the second quarter of 2013 was $1.5 million compared to $0.8 million for the second quarter of 2012, an increase of $0.7 million.  Employee benefits expense for the first six months of 2013 was $3.1 million compared to $1.5 million for the first six months of 2012, an increase of $1.6 million.  The increases noted are primarily due to additional compensation costs associated with transferred employees hired by the Company upon termination of the Management Agreement as well as cost recovery fees provided to the Company under the Management Agreement in the first six months of 2012 that did not recur in the first six months of 2013.  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 period prior to June 1, 2012, management fees incurred by the Company totaled $1.1 million and were recorded as general and administrative expenses.

On a combined basis, general and administrative expense and employee benefits expense for the second quarter of 2013 was $3.5 million compared to $2.9 million for the second quarter of 2012, an increase of $0.6 million.  The increase in expenses is comprised of $0.3 million of accrued property taxes, $0.2 million of stock based compensation , $0.1 million of plant compensation expense and plant and liability insurance of $0.1 million.  The increase in expenses was offset by reduced professional fees of $0.1 million.  On a combined basis, general and administrative expense and employee benefits expense for the first six months of 2013 was $7.0 million compared to $6.1 million for the first six months of 2012, an increase of $0.9 million.  The increase in expenses is comprised of $0.3 million of stock based compensation, plant and liability insurance of $0.2 million, $0.2 million of plant compensation expense, $0.1 of IT expenses and $0.1 million of accrued property taxes offset by a reduction in professional fees of $0.2 million.

Equity in earnings of the Harbor Coal joint venture for the second quarter of 2013 was $(0.05) million compared to $0.5 million for the second quarter of 2012, a decrease of $0.6 million.

Equity in earnings of the Harbor Coal joint venture for the first six months of 2013 was $0.4 million compared to $1.2 million for the first six months of 2012, a decrease of $0.8 million.  The decrease noted in the current quarter is the result of reduced revenue due to reduced blast furnace operation.   Year to date revenue was down on a comparative basis due to increased natural gas injection due to its low cost and reduced coal through-put as well as reduced blast furnace operation that began in the second quarter.

Operating loss for the second quarter of 2013 was $0.01 million compared to $5.4 million for the second quarter of 2012, a decrease of $5.4 million.  The decrease was the result of the net effect of the items discussed above.

Operating income for the first six months of 2013 was $1.2 million compared to an operating loss of $3.1 million for the first six months of 2012, an increase of $4.3 million. The increase was the result of the net effect of the items discussed above.

Net loss and comprehensive loss for the second quarter of 2013 was $0.9 million compared to $5.4 million for the second quarter of 2012, a decrease of $4.5 million. The decrease was the result of the net effect of the items discussed above.

Net loss and comprehensive loss for the first six months of 2013 was $1.0 million compared to $4.9 million for the first six months of 2012, a decrease of $3.9 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 second quarter results on Wednesday, August 14, 2013 at 10 am ET. Following management's presentation, there will be a question and answer session.  To participate in the conference call, please dial [phone] or [phone].

A digital conference call replay will be available until midnight on August 28, 2013 (ET) by calling [phone] or [phone]. Please enter the password 20414104 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% 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 June 30,						Six Months Ended June 30,
						2013			2012			2013			2012
Net loss and comprehensive loss						$	(893)		$	(5,453)		$	(1,002)		$	(4,901)
Adjustment to net loss and comprehensive loss:
	Depreciation and amortization						5,365			5,266			10,758			10,536
	Depreciation and amortization included in equity in
	earnings of Harbor Coal joint venture						1,009			1,009			2,018			2,018
	Interest expense						1,188			1,534			2,520			2,715
	Deferred finance fees expensed upon extinguishment of debt						-			765			-			765
	Realized and unrealized (gain) loss on derivative contracts						(198)			280			(258)			280
	Loss on derecognition						117			46			117			46
	Income tax benefit						(108)			(2,511)			(51)			(1,935)
EBITDA						$	6,480		$	936		$	14,102		$	9,524
Adjustments to EBITDA:
	Major maintenance ^(1)						1,443			1,393			3,659			2,486
	Management Agreement termination fee						-			6,000			-			6,000
	Professional fees and other general and administrative expenses related to
	the buyout of the non-controlling interest and internalization of management						-			90			-			192
	Stock based compensation						122			26			181			26
Adjusted EBITDA						$	8,045		$	8,445		$	17,942		$	18,228

1)  Represents nonrecurring major maintenance expenditures for such items as boiler retubing work and other related 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 June 30,						Six Months Ended June 30,
						2013			2012			2013			2012
Net cash provided by (used in) operating activities						$	4,102		$	(743)		$	11,117		$	6,645
Less: Capital expenditures							(1,200)			(5,846)			(4,346)			(7,538)
Free Cash Flow						$	2,902		$	(6,589)		$	6,771		$	(893)

 

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of U.S. dollars)
ASSETS								June 30, 2013			December 31, 2012
Current assets:
	Cash and cash equivalents							$	28,466		$	30,101
	Accounts receivable								8,583			8,266
	Inventory, net								1,379			1,126
	Tax receivable								728			691
	Prepaid expenses								1,975			987
	Other current assets								30			336
Total current assets									41,161			41,507
Non-current assets:
	Property, plant and equipment, net								185,309			185,355
	Intangible assets, net								6,166			12,321
	Restricted cash								3,275			3,445
	Interest rate cap								148			85
	Investment in Harbor Coal joint venture								56,059			58,600
Total assets								$	292,118		$	301,313
LIABILITIES AND EQUITY
Current liabilities:
	Accounts payable							$	2,446		$	971
	Short-term debt								12,661			11,133
	Accrued property taxes								1,043			1,725
	Accrued expenses								5,996			6,558
Total current liabilities									22,146			20,387
Non-current liabilities:
	Long-term debt								59,702			64,913
	Deferred income tax liability, net								1,727			1,753
	Interest rate swap								84			155
	Asset retirement obligations								2,759			3,063
Total liabilities									86,418			90,271
Equity
Common stock: no par value, unlimited shares authorized;
	44,706,186 issued and outstanding								274,479			274,479
Contributed surplus									37,596			37,466
Accumulated shareholders' deficit									(106,375)			(100,903)
Total equity									205,700			211,042
Total liabilities and equity								$	292,118		$	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 June 30,						Six Months Ended June 30,
						2013			2012			2013			2012
Revenue:
	Capacity					$	9,018		$	9,018		$	18,036		$	18,036
	Energy service						4,553			3,547			10,210			8,751
							13,571			12,565			28,246			26,787
Expenses:
	Operations and maintenance						4,451			4,165			9,521			8,376
	General and administrative						2,060			2,138			3,920			4,620
	Management agreement termination fee						-			6,000			-			6,000
	Employee benefits						1,535			852			3,148			1,515
	Depreciation and amortization						5,365			5,266			10,758			10,536
	Loss on derecognition						117			46			117			46
Total operating expenses							13,528			18,467			27,464			31,093
Equity in earnings of Harbor Coal joint venture							(54)			517			427			1,230
Operating (loss) income							(11)			(5,385)			1,209			(3,076)
Other expense
	Interest expense						(1,188)			(1,534)			(2,520)			(2,715)
	Deferred finance fees expensed upon extinguishment of debt						-			(765)			-			(765)
	Realized and unrealized gain on derivative
	contracts						198			(280)			258			(280)
Loss before income taxes							(1,001)			(7,964)			(1,053)			(6,836)
Income tax benefit							108			2,511			51			1,935
Net loss and comprehensive loss						$	(893)		$	(5,453)		$	(1,002)		$	(4,901)
Net loss and comprehensive loss attributable to:
	Owners of the Company					$	(893)		$	(4,070)		$	(1,002)		$	(3,106)
	Non-controlling interest						-			(1,383)			-			(1,795)
						$	(893)		$	(5,453)		$	(1,002)		$	(4,901)
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)		$	(0.09)		$	(0.02)		$	(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 six months ended June 30, 2012		-		-		(3,106)		(3,106)		(1,795)		(4,901)
Buyout of non-controlling interest		-		33,766		-		33,766		(77,707)		(43,941)
Stock-based compensation		-		26		-		26		-		26
Balance - June 30, 2012	$	274,479	$	37,108	$	(110,854)	$	200,733	$	-	$	200,733
Balance - January 1, 2013	$	274,479	$	37,466	$	(100,903)	$	211,042	$	-	$	211,042
Net loss and comprehensive loss
for the six months ended June 30, 2013		-		-		(1,002)		(1,002)		-		(1,002)
Dividends on Common Shares		-		-		(4,470)		(4,470)		-		(4,470)
Stock-based compensation		-		130		-		130		-		130
Balance - June 30, 2013	$	274,479	$	37,596	$	(106,375)	$	205,700	$	-	$	205,700

 

 

Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
								Three Months Ended June 30,						Six Months Ended June 30,
								2013			2012			2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss and comprehensive loss for the period								$	(893)		$	(5,453)		$	(1,002)		$	(4,901)
Adjustments for:
Depreciation and amortization									5,365			5,266			10,758			10,536
Loss on derecognition									117			46			117			46
Unrealized gain on derivative contracts									(198)			93			(288)			93
Deferred finance fees expensed upon extinguishment of debt									-			765			-			765
Equity in earnings of Harbor Coal joint venture									54			(517)			(427)			(1,230)
Distributions from investment in Harbor Coal joint venture									1,527			1,761			2,968			3,747
Non-cash interest expense									348			658			803			1,139
Non-cash stock based compensation									71			26			130			26
Income tax									(85)			(2,502)			(26)			(1,935)
									6,306			143			13,033			8,286
Net change in non-cash working capital balances									(2,204)			(886)			(1,916)			(1,641)
	Net cash provided by (used in) operating activities								4,102			(743)			11,117			6,645
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in restricted cash									-			(1,821)			170			(1,515)
Capital expenditures									(1,200)			(5,846)			(4,346)			(7,538)
	Net cash used in investing activities								(1,200)			(7,667)			(4,176)			(9,053)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt									-			85,000			-			85,000
Purchase of non-controlling interest									-			(24,225)			-			(24,225)
Payments of deferred financing costs									-			(5,195)			-			(5,263)
Repayment of debt									(1,527)			(36,416)			(4,106)			(42,773)
Dividends on Common Shares									(2,235)			-			(4,470)			-
	Net cash (used in) provided by financing activities								(3,762)			19,164			(8,576)			12,739
Net (decrease) increase in cash									(860)			10,754			(1,635)			10,331
Cash and cash equivalents - beginning of period									29,326			20,144			30,101			20,567
Cash and cash equivalents - end of period								$	28,466		$	30,898		$	28,466		$	30,898
Supplemental disclosure of cash flow information:
Cash paid during the period for interest								$	895		$	863		$	1,762		$	1,565
Cash paid during the period for income taxes								$	-		$	130		$	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]