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Primary Energy Reports Second Quarter 2012 Results and Establishes a New Dividend Policy

August 9, 2012

OAK BROOK, IL, Aug. 9, 2012 /PRNewswire/ – 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 six months ended
June 30, 2012.


    Financial
    Results                                                                

    (in 000's of
    US$)                                                                   

                     Three Months Ended June 30,   Six Months Ended June 30

                        2012             2011         2012           2011

    Revenues         $  12,565   $        13,313   $  26,787   $     26,095

    Operations and
    maintenance
    expense              4,165             4,123       8,376          6,866

    Operating
    (loss) income      (5,385)             1,394     (3,076)          1,495

    Net loss and
    comprehensive
    loss               (5,453)             (682)     (4,901)        (2,940)

    EBITDA (1)             936             8,538       9,524         17,706

    Adjusted
    EBITDA (2)           8,445             9,232      18,228         18,400

    Net cash (used
    in) provided
    by operating
    activities           (743)             6,891       6,645         16,598

    Free Cash Flow
    (3)                (6,589)             3,357       (893)         12,470

    Cash and cash
    equivalents         30,898            22,459           -              -

    Credit
    facility debt
    balance             85,000            58,403           -              -

 

Second Quarter Highlights

        --  The Board of Directors has established a new dividend policy.
            The Board is satisfied that the financial flexibility provided
            by the Company's recent financing, together with the Board's
            confidence in the expected renewal of the Cokenergy contract,
            will support a sustainable US$0.20 per share annual dividend,
            payable quarterly.  With respect to the third quarter of 2012,
            a US$0.05 per common share dividend is expected to be declared
            for payment on or about November 30, 2012 to shareholders of
            record on November 15, 2012.  Declarations and payments of
            dividends will be made in US dollars.  Declaration of any
            dividends will be at the discretion of the Board.

        --  Closed its transaction with Atlantic Power Corporation to
            purchase the 7,462,830 (14.3%) common membership interests in
            Primary Energy Recycling Holdings LLC not currently held by the
            Company and terminated the Management Agreement between the two
            companies for a total cost of approximately US$30.2 million.
            This transaction provides the Company with a clean, simple
            corporate structure, greater operational autonomy, and
            flexibility going forward;

        --  Announced the closing of a US$110 million senior secured credit
            facility of which US$85 million was drawn at close with the
            remaining US$25 million readily available under a revolving
            credit arrangement. The proceeds of the new credit facility
            have been applied to fully retire the Company's US$36.4 million
            term loan that was previously outstanding, to fund the purchase
            of the Primary Energy Recycling Holdings LLC common membership
            interests and for other corporate purposes.  The interest rate
            for the new credit facility is effectively 5.0%, a reduction
            from the 6.9% effective rate of the previous loan;

        --  Continued early stage contract renegotiation discussions with
            the site host for Cokenergy. The current contract expires in
            the third quarter of 2013;

        --  Substantially completed work on Phase II of the North Lake
            plant upgrade by the end of the quarter. As previously
            disclosed, the renewal contract requires the facility to be
            upgraded from its current rating of 75 MW to 90 MW.

“The second quarter was a transformational period for the Company,” said
John Prunkl, President and Chief Executive Officer of Primary Energy.
“We now have more operational independence, improved financial
flexibility and a dividend policy that should improve our cost of
capital which in turn will help us excel as leaders in the energy
recycling space. The renewal of the Cokenergy contract and execution of
our capital programs remain our top priorities.”


                                                    Q2 2012        Q2 2011

    Total Gross Electric Production (MWh)(4)        313,023        327,826

    Total Thermal Energy Delivered (MMBtu)(5)       946,452       1,154,988

    Harbor Coal Utilization(6)                       68.3%           93.6%

Second Quarter 2012 Financial Results

The Company’s revenue of $12.6 million in the second quarter of 2012
decreased $0.7 million, or 5.6%, compared with revenue of $13.3 million
for the second quarter of 2011.  The North Lake facility was out of
service for the entire month of May 2012 due to a planned turbine
upgrade but was fully operational during the second quarter of 2011,
which had a negative impact on variable Energy Service revenue of $0.8
million.  Harbor Coal’s utilization was reduced primarily due to the
injection of low cost spot market natural gas and coal management
strategies.  The Company’s revenue of $26.8 million in the first six
months of 2012 increased $0.7 million, or 2.7%, compared with revenue
of $26.1 million for the first six months of 2011.  The Company’s
revenue of $26.8 million in the first six months of 2012 increased $0.7
million, or 2.7%, compared with revenue of $26.1 million for the first
six months of 2011 primarily due to the North Lake facility being fully
operational for five months of 2012 compared to three months in 2011 as
a result of service outages for overhaul and upgrade activity. 

Operations and maintenance expense for the second quarter of 2012 was
$4.2 million compared to $4.1 million for the second quarter of 2011,
an increase of $0.1 million or 1.0%.  The Company incurred periodic
costs during the second quarter of 2012 comprised of $1.1 million for
boiler retubing work and $0.3 million for ductwork repairs compared to
periodic costs for the second quarter of 2011 totaling $0.7 million for
boiler retubing work. Operations and maintenance expense for the first
six months of 2012 was $8.4 million compared to $6.8 million for the
first six months of 2011, an increase of $1.6 million or 22.0%.  The
Company incurred periodic costs for the first six months of 2012
comprised of $2.1 million for boiler retubing work and $0.4 million for
ductwork repairs compared to periodic costs for the first six months of
2011 totaling $0.7 million for boiler retubing work.

Equity in earnings of the Harbor Coal joint venture for the second
quarter of 2012 was $0.5 million compared to $1.1 million for the
second quarter of 2011 and $1.2 million and $2.1 million for the six
months ended June 30, 2012 and 2011 respectively.  Harbor Coal’s
utilization was reduced primarily due to the injection of low cost spot
market natural gas and coal supply management strategies.

Operating loss for the second quarter of 2012 was $5.4 million compared
to operating income of $1.4 million for the second quarter of 2011, a
decrease of $6.8 million. $6.0 million of the decrease was attributed
to the Management Agreement termination fee.  Operating loss for the
first six months of 2012 was $3.1 million compared to operating income
of $1.5 million for the first six months of 2011, a decrease of $4.6
million.

Net loss and comprehensive loss for the second quarter of 2012 was $5.4
million compared to $0.7 million for the second quarter of 2011, a
decrease of $4.7 million. Net loss and comprehensive loss for the first
six months of 2012 was $4.9 million compared to $2.9 million for the
first six months of 2011, a decrease of $2.0 million.

Conference Call and Webcast

Management will host a conference call to discuss the second quarter
results on Friday, August 10, 2012 at 10:00 a.m. 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 24, 2012 (ET) by calling (800) 642-1687 or (416) 849-0833.
Please enter the passcode 12698664 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 and the declaration and payment of any
dividends. 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 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. 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

(1)As used herein, EBITDA means earnings before interest, taxes,
depreciation and amortization and certain other adjustments.   EBITDA
is reconciled to net income (loss) and comprehensive income (loss) 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.

(2)As used herein, references to Adjusted EBITDA are to EBITDA as adjusted
for certain non-recurring adjustments for major maintenance/outage work
expenses, management 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.

(3)As used herein, Free Cash Flow means net cash provided by operating
activities as adjusted for capital expenditures.  Free Cash Flow is
reconciled to net cash (used in) provided by operating activities in
the table below.  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.

(4)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.

(5)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
millions of British Thermal Units (MMBTU). Due to the fixed and
variable nature of customer contracts, MMBTU production cannot be
directly tied to financial performance.

(6)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 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 and Comprehensive Loss to Adjusted EBITDA
    (in 000's of US$)

                      Three Months Ended June
                                30,             Six Months Ended June 30,

                         2012          2011         2012           2011

    Net loss and
    comprehensive
    loss              $ (5,453)    $    (682)    $ (4,901)    $   (2,940)

    Adjustment to net
    loss and
    comprehensive
    loss :                                                               

      Depreciation
      and
      amortization        5,266         6,135      10,536          13,693

      Depreciation
      and
      amortization
      included in
      equity in                                                          

      earnings of
      Harbor Coal
      joint venture       1,009         1,009        2,018          2,018

      Interest
      expense             1,534         1,692        2,715          3,535

      Deferred
      finance fees
      expensed upon
      extinguishment
      of debt               765             -          765              -

      Realized and
      unrealized loss
      on derivative
      contracts             280             -          280              4

      Loss on
      derecognition          46             -          46             500

      Income tax
      (benefit)
      expense           (2,511)           384      (1,935)            896

    EBITDA            $     936    $    8,538    $   9,524    $    17,706

    Adjustments to
    EBITDA:                                                              

      Major
      maintenance (1)     1,393           694        2,486            694

      Management
      termination fee     6,000             -        6,000              -

      Professional
      fees related to
      the buyout of
      the
      non-controlling
      interest               90             -          192              -

      Non-cash stock
      based
      compensation           26             -           26              -

    Adjusted EBITDA   $   8,445    $    9,232    $  18,228    $    18,400

     1) Represents nonrecurring major maintenance expenditures for such
    things 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 June
                                30,             Six Months Ended June 30,

                         2012          2011         2012           2011

    Net cash (used
    in) provided by
    operating
    activities        $   (743)    $    6,891    $   6,645    $    16,598

    Less: Capital
    expenditures        (5,846)       (3,534)      (7,538)        (4,128)

    Free Cash Flow    $ (6,589)    $    3,357    $   (893)    $    12,470

 


                              Primary Energy Recycling Corporation

                       CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

                                  (In thousands of U.S. dollars)

    ASSETS                                June 30, 2012   December 31, 2011

    Current assets:                                                        

      Cash and cash equivalents           $      30,898   $          20,567

      Accounts receivable                         6,993               8,115

      Inventory, net                                999                 987

      Tax receivable                                733                 565

      Prepaid expenses                            1,741                 632

    Total current assets                         41,364              30,866

    Non-current assets:                                                    

      Property, plant and equipment,            185,659             180,844
      net                                                  

      Intangible assets, net                     18,477              24,632

      Restricted cash                             3,445               1,930

      Interest rate cap                             135                   -

      Deferred tax asset, net                         -               2,519

      Investment in Harbor Coal joint            60,672              63,190
      venture                                              

      Other non-current assets                        -                 159

    Total assets                          $     309,752   $         304,140

    LIABILITIES AND EQUITY                                                 

    Current liabilities:                                                   

      Accounts payable                    $       2,240   $           1,115

      Short-term debt                             7,080              27,304

      Due to affiliates                               -                 333

      Accrued property taxes                        954               1,963

      Accrued expenses                            5,987               5,503

    Total current liabilities                    16,261              36,218

    Non-current liabilities:                                               

      Long-term debt                             72,970              14,134

      Deferred income tax liability,             15,261                   -
      net                                                  

      Interest rate swap                             65                   -

      Asset retirement obligations                4,462               4,239

    Total liabilities                           109,019              54,591

    Equity                                                   

    Equity attributable to equity
    owners of the Company                                                  

    Common stock: no par value,
    unlimited shares authorized;                                           

      44,706,186 issued and                     274,479             274,479
      outstanding                                          

    Contributed surplus                          37,108               3,316

    Accumulated shareholders' deficit         (110,854)           (107,748)

    Total equity attributable to equity         200,733
    owners of the Company                                           170,047

    Non-controlling interest                          -              79,502

    Total equity                                200,733             249,549

    Total liabilities and equity          $     309,752   $         304,140

 

 


                                  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,

                              2012           2011           2012           2011

    Revenue:                                                                     

      Capacity          $      9,018   $      9,018   $     18,036   $     18,036

      Energy                   3,547          4,295          8,751
      service                                                               8,059

                              12,565         13,313         26,787         26,095

    Expenses:                                                                    

      Operations and
      maintenance              4,165          4,123          8,376          6,866

      General and
      administrative           2,138          2,148          4,620          4,479

      Management
      termination fee          6,000              -          6,000              -

      Employee                   852            606          1,515
      benefits                                                              1,166

      Depreciation
      and
      amortization             5,266          6,135         10,536         13,693

      Loss on
      derecognition               46              -             46            500

    Total operating                                         31,093
    expenses                  18,467         13,012                        26,704

    Equity in
    earnings of                  517          1,093
    Harbor Coal joint
    venture                                                  1,230          2,104

    Operating (loss)                                       (3,076)
    income                   (5,385)          1,394                         1,495

    Other
    expense                                                                      

      Interest               (1,534)        (1,692)        (2,715)
      expense                                                             (3,535)

      Deferred
      finance fees
      expensed upon                                          (765)
      extinguishment
      of debt                  (765)              -                             -

      Realized and                                           (280)
      unrealized loss
      on derivative
      contracts                (280)              -                           (4)

    Loss before                                            (6,836)
    income taxes             (7,964)          (298)                       (2,044)

    Income tax                                               1,935
    benefit (expense)          2,511          (384)                         (896)

    Net loss and             (5,453)          (682)
    comprehensive       $              $
    loss                                              $    (4,901)   $    (2,940)

    Net loss and
    comprehensive
    loss attributable
    to:                                                                          

      Owners of the
      Company           $    (4,070)   $          -   $    (3,106)   $    (1,281)

      Non-controlling
      interest               (1,383)          (682)        (1,795)        (1,659)

                        $    (5,453)   $      (682)   $    (4,901)   $    (2,940)

    Net loss per
    share
    attributable to
    owners of the
    Company:                                                                     

    Weighted average
    number of shares      44,706,186     44,706,186
    outstanding -
    basic                                               44,706,186     44,706,186

    Weighted average
    number of shares      44,706,186     44,706,186
    outstanding -
    diluted                                             44,706,186     44,706,186

    Basic and diluted
    net loss per
    share
    attributable
       to owners of
    the Company         $     (0.09)   $          -   $     (0.07)   $     (0.03)

 


                                                   Primary Energy Recycling Corporation

                                             CONSOLIDATED 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          equity

    Balance -         $ 274,479   $     3,316   $ (107,784)   $ 170,011    $       82,028    $  252,039
    January 1, 2011

    Net loss and
    comprehensive
    loss for the              -             -       (1,281)     (1,281)           (1,770)       (3,051)
    six months
    ended June 30,
    2011

    Balance - June    $ 274,479   $     3,316   $ (109,065)   $ 168,730    $       80,258    $  248,988
    30, 2011

    Balance -         $ 274,479   $     3,316   $ (107,748)   $ 170,047    $       79,502    $  249,549
    January 1, 2012

    Net loss and
    comprehensive
    loss for the              -             -       (3,106)     (3,106)           (1,795)       (4,901)
    six months
    ended June 30,
    2012

    Buyout of
    non-controlling           -        33,766             -      33,766          (77,707)      (43,941)
    interest

    Stock
    compensation              -            26             -          26                 -            26
    expense

    Balance - June    $ 274,479   $    37,108   $ (110,854)   $ 200,733    $            -    $  200,733
    30, 2012

 


                             Primary Energy Recycling Corporation

                              CONSOLIDATED STATEMENTS OF CASH FLOWS

                                  (In thousands of U.S. dollars)

                      Three Months Ended June    Six Months Ended June 30,
                                30,

                           2012         2011          2012          2011

    CASH FLOWS FROM
    OPERATING
    ACTIVITIES:

    Net loss and
    comprehensive      $  (5,453)    $   (682)    $  (4,901)    $  (2,940)
    loss for the
    period 

    Adjustments
    for:

    Depreciation
    and                     5,266        6,135        10,536        13,693
    amortization

    Loss on                    46            -            46           500
    derecognition

    Unrealized loss
    on derivative             280            -           280             4
    contracts

    Deferred
    finance fees
    expensed upon             765            -           765             -
    extinguishment
    of debt

    Equity in
    earnings of             (517)      (1,093)       (1,230)       (2,104)
    Harbor Coal
    joint venture

    Distributions
    from investment         1,761        2,012         3,747         3,547
    in Harbor Coal
    joint venture

    Net cash
    settlement from         (187)            -         (187)             -
    derivative
    contracts 

    Non-cash
    interest                  658          640         1,139         1,330
    expense

    Non-cash stock
    based                      26            -            26             -
    compensation

    Income tax            (2,502)          386       (1,935)           896

                              143        7,398         8,286        14,926

    Net change in
    non-cash                (886)        (507)       (1,641)         1,672
    working capital
    balances

      Net cash
      (used in)
      provided by           (743)        6,891         6,645        16,598
      operating
      activities

    CASH FLOWS FROM
    INVESTING
    ACTIVITIES:

    Change in             (1,821)          249       (1,515)           547
    restricted cash

    Capital               (5,846)      (3,534)       (7,538)       (4,128)
    expenditures

      Net cash used
      in investing        (7,667)      (3,285)       (9,053)       (3,581)
      activities

    CASH FLOWS FROM
    FINANCING
    ACTIVITIES:

    Proceeds from
    issuance of            85,000            -        85,000             -
    debt

    Purchase of the
    non-controlling      (24,225)            -      (24,225)             -
    interest

    Payments of
    deferred              (5,195)            -       (5,263)             -
    financing costs

    Repayment of         (36,416)      (5,732)      (42,773)      (12,963)
    debt

      Net cash
      provided by
      (used in)            19,164      (5,732)        12,739      (12,963)
      financing
      activities

    Net increase
    (decrease) in          10,754      (2,126)        10,331            54
    cash

    Cash and cash
    equivalents -          20,144       24,585        20,567        22,405
    beginning of
    period

    Cash and cash
    equivalents -      $   30,898    $  22,459    $   30,898    $   22,459
    end of period

    Supplemental
    disclosure of
    cash flow
    information:

    Cash paid
    during the         $      863    $   1,053    $    1,565    $    2,213
    period for
    interest

    Cash paid
    during the         $      130    $     113    $      168    $      113
    period for
    income taxes

 

 

 

 

 

SOURCE Primary Energy Recycling Corporation


Source: PR Newswire