Primary Energy Reports Second Quarter 2013 Results

OAK BROOK, IL, Aug. 13, 2013 /PRNewswire/ - 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 (888) 231-8191 or (647) 427-7450.

A digital conference call replay will be available until midnight on August 28, 2013 (ET) by calling (855) 859-2056 or (416) 849-0833. 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



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