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Primary Energy Reports Third Quarter 2012 Results

November 7, 2012

OAK BROOK, IL, Nov. 6, 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 nine months ended
September 30, 2012.


    Financial
    Results

    (in 000's of
    US$)

                      Three Months Ended    Nine Months Ended September
                        September 30,                   30,

                       2012        2011         2012            2011

    Revenues         $ 13,660    $ 13,808    $  40,447    $      39,903

    Operations          4,422       3,159       12,798           10,025
    and
    maintenance
    expense

    Operating           1,193       3,479      (1,883)            4,974
    income
    (loss) 

    Net (loss)          (213)         428      (5,114)          (2,512)
    income and
    comprehensive
    (loss) income

    EBITDA (1)          7,498       9,738       17,022           27,444

    Adjusted            9,149      10,138       27,377           28,544
    EBITDA (2)

    Net cash            5,409       7,012       12,054           23,610
    provided by
    operating
    activities

    Free Cash           1,255       6,716          332           19,186
    Flow (3)

    Cash and cash      30,281      21,605            -                -
    equivalents

    Credit             83,156      50,626            -                -
    facility debt
    balance

 

Third Quarter Highlights

        --  Implemented a new dividend policy to pay a US$0.20 per share
            annual dividend, payable quarterly.  A quarterly dividend
            payment of US$0.05 was declared with a record date of November
            15, 2012 and a payment date of November 30, 2012;
        --  Average availability of facility operations was strong at
            99.1%;
        --  Portside's boiler turn down project is substantially complete
            and operating as expected.  The Portside condensing economizer
            is on schedule and on budget;
        --  North Lake's upgrades are substantially complete and on budget.
            Performance testing and final check out of all systems is
            expected to be completed in the fourth quarter of 2012.
        --  Contract renewal discussions with the site host for Cokenergy
            continued. The current contract expires in October of 2013;
        --  Harbor Coal volumes remain below normal due to low cost natural
            gas.

“The announcement of our new dividend policy improved the liquidity of
the Company’s shares,” said John Prunkl, President and Chief Executive
Officer of Primary Energy. “The transition to self-management has gone
smoothly, and the corporate costs are about the same as the costs
experienced under the prior third party manager arrangement.  For the
short term, the renewal of the Cokenergy contract remains our primary
focus.”


    Operational Highlights                                             

                                                      Q3 2012   Q3 2011

    Total Gross Electric Production Megawatt Hours    354,942   375,406
    (MWh) (4)

    Total Thermal Energy Delivered (MMBtu) (5)        996,276   971,103

    Harbor Coal Utilization (%) (6)                     68.4%     89.9%

 

Third Quarter 2012 Financial Results

The Company’s revenue of $13.7 million in the third quarter of 2012
decreased $0.1 million, or 1.1%, compared with revenue of $13.8 million
for the third quarter of 2011. The North Lake facility had reduced host
operations during the third quarter of 2012 compared to the third
quarter of 2011 which had a negative impact on Energy Service revenue
of $0.2 million. This decrease was partially offset by increased
revenue at the Portside facility associated with increased operating
levels at the host site.

The Company’s revenue of $40.4 million in the first nine months of 2012
increased $0.5 million, or 1.4%, compared with revenue of $39.9 million
for the first nine months of 2011.  Revenue increased at the North Lake
and Ironside facilities as a result of increased host operations in the
current year.

Operations and maintenance expense for the third quarter of 2012 was
$4.4 million compared to $3.2 million for the third quarter of 2011, an
increase of $1.2 million or 40%.  The Company incurred periodic costs
during the third quarter of 2012 comprised of $1.2 million for boiler
retubing work and $0.2 million for ductwork repairs compared to
periodic costs for the third quarter of 2011 totaling $0.4 million for
boiler retubing work. In addition, the Company incurred $0.2 million of
additional general operations and maintenance expenses during the
quarter.

Operations and maintenance expense for the first nine months of 2012 was
$12.8 million compared to $10.0 million for the first nine months of
2011, an increase of $2.8 million or 27.7%.  The Company incurred
periodic costs for the first nine months of 2012 comprised of $3.3
million for boiler retubing work and $0.6 million for ductwork repairs
compared to periodic costs for the first nine months of 2011 totaling
$1.1 million for boiler retubing work.

Equity in earnings of the Harbor Coal joint venture for the third
quarter of 2012 was $0.5 million compared to $1.0 million for the third
quarter of 2011, a decrease of $0.5 million.  Equity in earnings of the
Harbor Coal joint venture for the first nine months of 2012 was $1.8
million compared to $3.1 million for the first nine months of 2011, a
decrease of $1.3 million.  The decreases noted are the result of
reduced pulverized coal deliveries in favor of natural gas injection
due to its low cost.

Operating income for the third quarter of 2012 was $1.2 million compared
to $3.5 million for the third quarter of 2011, a decrease of $2.3
million.  Operating loss for the first nine months of 2012 was $1.9
million compared to operating income of $5.0 million for the first nine
months of 2011, a decrease of $6.9 million. The largest driver
impacting year to date results was the $6.0 million fee paid to
terminate the Management Agreement at time of the buy-out of the
non-controlling interest.

Net loss and comprehensive loss for the third quarter of 2012 was $0.2
million compared to net income and comprehensive income of $0.4 million
for the third quarter of 2011, a decrease of $0.6 million.  Net loss
and comprehensive loss for the first nine months of 2012 was $5.1
million compared to $2.5 million for the first nine months of 2011, an
increase of $2.6 million.

Conference Call and Webcast

Management will host a conference call to discuss the third quarter
results on Wednesday, November 7, 2012 at 9:00 am ET. Following
management’s presentation, there will be a question and answer session.
To participate in the conference call, please dial (888) 231-8191 or
(647) 427-7450.

A digital conference call replay will be available until midnight on
November 21, 2012 (ET) by calling (855) 859-2056 or (416) 849-0833.
Please enter the passcode 38427835 when instructed. A webcast replay
will be available for 90 days by accessing a link through the Investor
Information section at www.primaryenergyrecycling.com.

Forward-Looking Statements
When used in this news release, the words “intend”, “likely”,
“anticipate”, “expect”, “project”, “believe”, “estimate”,
“forecast”, ”outlook” and similar expressions, are intended to identify
forward-looking statements, including statements regarding maintenance
and capital expenditures Such statements are subject to certain risks,
uncertainties and assumptions pertaining, but not limited, to recovery
in the steel industry, continued strong performance from the mills we
serve consistent with historical patterns, timely renewal of contracts
at the Company’s facilities, no protracted outages (planned or
unplanned) for any of our facilities, operating and maintenance costs
and general and administrative costs being similar to recent years
except as described in this press release, regulatory parameters,
weather and economic conditions and other factors discussed in the
Company’s public filings available on SEDAR at www.sedar.com. Additional risks and uncertainties not currently known or that are
currently deemed to be immaterial may also materially and adversely
affect the Company’s business operations and outlook. Any of the
matters highlighted in the Company’s risk factor disclosure could have
a material adverse effect on the Company’s results of operations,
business prospects and outlook, financial condition or cash flow, in
which case, the market price or value of the Company’s Common Shares
could be adversely affected. These forward-looking statements are made
as of the date of this press release and the Company assumes no
obligation to update or revise them to reflect new events or
circumstances, except as required by applicable securities laws.

About Primary Energy Recycling Corporation
Primary Energy Recycling Corporation, headquartered in Oak Brook,
Illinois, owns and operates four recycled energy projects and a 50%
interest in a pulverized coal facility (collectively, the “Projects”).
The Projects have a combined electrical generating capacity of 283
megawatts and a combined steam generating capacity of 1.8M lbs/hour.
Primary Energy Recycling Corporation creates value for its customers by
capturing and recycling waste energy from industrial and electric
generation processes and converting it into reliable and economical
electricity and thermal energy for resale back to its customers. For
more information, please see www.primaryenergy.com

(1)As 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.

(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 agreement termination fee and non-cash stock based
compensation that represent recorded expenses based on specific
circumstances and are not expected to be part of the Company’s ongoing
business activity. Adjusted EBITDA is reconciled to net income (loss)
and comprehensive income (loss) in the table below. Adjusted EBITDA is
not a recognized measure under IFRS and does not have a standardized
meaning prescribed by IFRS. Therefore, Adjusted EBITDA may not be
comparable to similar measures presented by other companies.

(3)As 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.

(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
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.

(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) Income and
    Comprehensive (Loss)
    Income

      to
      Adjusted
      EBITDA

    (in 000's                  Three Months Ended       Nine Months Ended
    of US$)                      September 30,            September 30,

                                 2012        2011        2012        2011

    Net (loss) income and                 $    428   $  (5,114)   $ (2,512)
    comprehensive (loss)      $   (213)
    income 

    Adjustment to net
    (loss) income and
    comprehensive (loss)
    income:

      Depreciation                5,296      5,250       15,832      18,943
      and
      amortization

      Depreciation and
      amortization included
      in equity in 

        earnings of Harbor        1,009      1,009        3,027       3,027
      Coal joint venture

      Interest                    1,525      1,518        4,240       5,053
      expense

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

      Realized and                               -          572           4
      unrealized loss on            292
      derivative contracts

      Loss on                         -          -           46         500
      derecognition

      Income tax                  (411)      1,533      (2,346)       2,429
      (benefit)
      expense 

    EBITDA                    $   7,498   $  9,738   $   17,022   $  27,444

    Adjustments
    to EBITDA:

      Major                       1,471        400        3,957       1,100
      maintenance (1)

      Management agreement            -          -        6,000           -
      termination fee

      Professional fees                          -          293           -
      related to the buyout
      of the                        101
      non-controlling
      interest

      Non-cash stock based           79          -          105           -
      compensation

    Adjusted                  $   9,149   $ 10,138   $   27,377   $  28,544
    EBITDA

    1)  Represents nonrecurring major maintenance expenditures for such
    items as boiler retubing work and related other maintenance
    expenditures and ductwork repairs.  

    Reconcilation of Net
    Cash Provided By
    Operating Activities 

      to Free
    Cash Flow

    (in 000's                   Three Months Ended        Nine Months Ended
    of US$)                          September 30,            September 30,

                                 2012        2011        2012        2011

    Net cash provided by      $   5,409   $  7,012   $   12,054   $  23,610
    operating activities

    Less: Capital               (4,184)      (296)     (11,722)     (4,424)
    expenditures

    Free Cash                 $   1,225   $  6,716   $      332   $  19,186
    Flow

 


                             Primary Energy Recycling Corporation

                      CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

                                  (In thousands of U.S. dollars)

    ASSETS                          September 30, 2012   December 31, 2011

    Current assets:                                                   

      Cash and cash equivalents     $           30,281   $          20,567

      Accounts receivable                        8,646               8,115

      Inventory, net                             1,224                 987

      Tax receivable                               651                 565

      Prepaid expenses                           1,176                 632

      Other current assets                         414                   -

    Total current assets                        42,392              30,866

    Non-current assets:                                     

      Property, plant and                      187,568             180,844
      equipment, net 

      Intangible assets, net                    15,399              24,632

      Restricted cash                            3,445               1,930

      Deferred tax asset, net                        -               2,519

      Investment in Harbor Coal                 59,707              63,190
      joint venture

      Other non-current assets                      92                 159

    Total assets                    $          308,603   $         304,140

    LIABILITIES AND EQUITY                                  

    Current liabilities:                                    

      Accounts payable              $            1,680   $           1,115

      Short-term debt                            9,569              27,304

      Due to affiliates                              -                 333

      Accrued property taxes                     1,338               1,963

      Accrued expenses                           6,854               5,503

    Total current liabilities                   19,441              36,218

    Non-current liabilities:                                

      Long-term debt                            69,160              14,134

      Deferred income tax                       14,738                   -
      liability, net

      Interest rate swap                           184                   -

      Asset retirement                           4,451               4,239
      obligations 

    Total liabilities                          107,974              54,591

    Equity                                                  

    Equity attributable to equity
    owners of the Company

    Common stock: no par value,
    unlimited shares authorized; 

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

    Contributed surplus                         37,217               3,316

    Accumulated shareholders'                (111,067)           (107,748)
    deficit

    Total equity attributable to               200,629             170,047
    equity owners of the Company

    Non-controlling interest                         -              79,502

    Total equity                               200,629             249,549

    Total liabilities and equity    $          308,603   $         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 September     Nine Months Ended September
                                         30,                             30,

                                2012              2011            2012            2011

    Revenue:                                                                    

      Capacity             $      9,018      $      9,018    $     27,054    $     27,054

      Energy                      4,642             4,790          13,393          12,849
      service

                                 13,660            13,808          40,447          39,903

    Expenses:                                                                   

      Operations and              4,422             3,159          12,798          10,025
      maintenance

      General and                 2,082             2,438           6,702           6,917
      administrative

      Management
      agreement                       -                 -           6,000               -
      termination fee

      Employee                    1,216               510           2,731           1,676
      benefits 

      Depreciation
      and                         5,296             5,250          15,832          18,943
      amortization

      Loss on                         -                 -              46             500
      derecognition 

    Total operating              13,016            11,357          44,109          38,061
    expenses

    Equity in earnings
    of Harbor Coal                  549             1,028           1,779           3,132
    joint venture 

    Operating income              1,193             3,479         (1,883)           4,974
    (loss) 

    Other
    expense 

      Interest                  (1,525)           (1,518)         (4,240)         (5,053)
      expense

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

      Realized and
      unrealized loss
      on derivative

                                  (292)                 -           (572)             (4)
      contracts 

    (Loss) income                 (624)             1,961         (7,460)            (83)
    before income taxes

    Income tax
    benefit                         411           (1,533)           2,346         (2,429)
    (expense) 

    Net (loss) income
    and comprehensive      $      (213)      $        428    $    (5,114)    $    (2,512)
    (loss) income 

    Net (loss) income
    and comprehensive
    (loss) income
    attributable to:

      Owners of the        $      (213)      $        745    $    (3,319)    $      (536)
      Company

      Non-controlling                 -             (317)         (1,795)         (1,976)
      interest 

                           $      (213)      $        428    $    (5,114)    $    (2,512)

    Net (loss) income
    per share
    attributable 

      to owners of
      the Company:

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

    Weighted average
    number of shares         44,706,186        45,128,828      44,706,186      44,706,186
    outstanding -
    diluted 

    Basic and diluted
    net (loss) income
    per share              $     (0.00)      $       0.02    $     (0.07)    $     (0.01)
    attributable to
    owners of the
    Company

 


                                                  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 nine           -              -          (536)      (536)            (2,265)     (2,801)
    months ended
    September 30,
    2011

    Balance -        $ 274,479  $       3,316  $   (108,320)  $ 169,475  $          79,763  $  249,238
    September 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 nine           -              -        (3,319)    (3,319)            (1,795)     (5,114)
    months ended
    September 30,
    2012

    Buyout of                -         33,796              -     33,796           (77,707)    (43,911)
    non-controlling
    interest

    Stock                    -            105              -        105                  -         105
    compensation
    expense

    Balance -        $ 274,479  $      37,217  $   (111,067)  $ 200,629  $               -  $  200,629
    September 30,
    2012

 


                              Primary Energy Recycling Corporation

                            CONSOLIDATED STATEMENTS OF CASH FLOWS          

                                 (In thousands of U.S. dollars)            

                            Three Months Ended        Nine Months Ended
                               September 30,            September 30,

                             2012        2011         2012         2011    

    CASH FLOWS FROM
    OPERATING
    ACTIVITIES:

    Net (loss) income
    and comprehensive     $   (213)   $     428   $  (5,114)   $  (2,512)
    (loss) income for
    the period 

    Adjustments for:                                                       

    Depreciation and          5,296       5,250       15,832       18,943
    amortization

    Loss on                       -           -           46          500
    derecognition

    Unrealized loss on
    derivative                  273           -          366            4
    contracts

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

    Equity in earnings
    of Harbor Coal            (549)     (1,028)      (1,779)      (3,132)
    joint venture

    Distributions from
    investment in             1,515       2,014        5,262        5,561
    Harbor Coal joint
    venture

    Non-cash interest           542         552        1,681        1,882
    expense

    Non-cash stock               79           -          105            -
    based compensation

    Income tax                (493)       1,484      (2,428)        2,380  

                              6,450       8,700       14,736       23,626  

    Net change in
    non-cash working        (1,041)     (1,688)      (2,682)         (16)
    capital balances

      Net cash provided
      by operating            5,409       7,012       12,054       23,610
      activities

    CASH FLOWS FROM
    INVESTING
    ACTIVITIES:

    Change in                     -         207      (1,515)          754
    restricted cash

    Capital                 (4,184)       (296)     (11,722)      (4,424)
    expenditures

      Net cash used in
      investing             (4,184)        (89)     (13,237)      (3,670)
      activities

    CASH FLOWS FROM
    FINANCING
    ACTIVITIES:

    Proceeds from                 -           -       85,000            -
    issuance of debt

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

    Payments of
    deferred financing            2           -      (5,261)            -
    costs

    Repayment of debt       (1,844)     (7,777)     (44,617)     (20,740)  

      Net cash (used
      in) provided by       (1,842)     (7,777)       10,897     (20,740)
      financing
      activities

    Net (decrease)            (617)       (854)        9,714        (800)
    increase in cash

    Cash and cash
    equivalents -            30,898      22,459       20,567       22,405
    beginning of period

    Cash and cash
    equivalents - end     $  30,281   $  21,605   $   30,281   $   21,605
    of period

    Supplemental
    disclosure of cash
    flow information:

    Cash paid during
    the period for        $     972   $     971   $    2,537   $    3,184
    interest

    Cash paid during
    the period for        $       -   $       8   $      168   $      121
    income taxes

 

 

SOURCE Primary Energy Recycling Corporation


Source: PR Newswire