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Press release from PR Newswire

Primary Energy Reports Third Quarter 2012 Results

Tuesday, November 06, 2012

Primary Energy Reports Third Quarter 2012 Results21:55 EST Tuesday, November 06, 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 September 30,    Nine Months Ended September 30,     2012   2011   2012   2011                           Revenues    $ 13,660    $ 13,808    $ 40,447    $ 39,903 Operations and maintenance expense     4,422     3,159     12,798     10,025 Operating income (loss)      1,193     3,479     (1,883)     4,974 Net (loss) income and comprehensive (loss) income     (213)     428     (5,114)     (2,512) EBITDA (1)     7,498     9,738     17,022     27,444 Adjusted EBITDA (2)     9,149     10,138     27,377     28,544 Net cash provided by operating activities     5,409     7,012     12,054     23,610 Free Cash Flow (3)     1,255     6,716     332     19,186 Cash and cash equivalents     30,281     21,605     -     - Credit facility debt balance     83,156     50,626     -     -   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 (MWh) (4)   354,942   375,406 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 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, 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. 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 the Company's business. Reconcilation of Net (Loss) Income and Comprehensive (Loss) Income                           to Adjusted EBITDA                             (in 000's of US$)       Three Months Ended September 30,   Nine Months Ended September 30,             2012   2011   2012   2011                                   Net (loss) income and comprehensive (loss) income    $ (213)   $ 428   $ (5,114)   $ (2,512) Adjustment to net (loss) income and comprehensive (loss) income:                           Depreciation and amortization       5,296     5,250     15,832     18,943   Depreciation and amortization included in equity in                              earnings of Harbor Coal joint venture     1,009     1,009     3,027     3,027   Interest expense         1,525     1,518     4,240     5,053   Deferred finance fees expensed upon extinguishment of debt     -     -     765     -   Realized and unrealized loss on derivative contracts     292     -     572     4   Loss on derecognition       -     -     46     500   Income tax (benefit) expense        (411)     1,533     (2,346)     2,429 EBITDA         $ 7,498   $ 9,738   $ 17,022   $ 27,444                                   Adjustments to EBITDA:                               Major maintenance (1)       1,471     400     3,957     1,100   Management agreement termination fee     -     -     6,000     -   Professional fees related to the buyout of the non-controlling interest     101     -     293     -   Non-cash stock based compensation     79     -     105     - Adjusted EBITDA       $ 9,149   $ 10,138   $ 27,377   $ 28,544                                   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 of US$)       Three Months Ended September 30,   Nine Months Ended September 30,             2012   2011   2012   2011                                   Net cash provided by operating activities   $ 5,409   $ 7,012   $ 12,054   $ 23,610                                   Less: Capital expenditures       (4,184)     (296)     (11,722)     (4,424) Free Cash Flow       $ 1,225   $ 6,716   $ 332   $ 19,186   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 equipment, net      187,568     180,844   Intangible assets, net     15,399     24,632   Restricted cash     3,445     1,930   Deferred tax asset, net     -     2,519   Investment in Harbor Coal joint venture     59,707     63,190   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 liability, net     14,738     -   Interest rate swap      184     -   Asset retirement obligations      4,451     4,239 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 outstanding      274,479     274,479 Contributed surplus     37,217     3,316 Accumulated shareholders' deficit     (111,067)     (107,748) Total equity attributable to equity owners of the Company     200,629     170,047 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 30,   Nine Months Ended September 30,             2012     2011   2012   2011                                     Revenue:                                   Capacity         $ 9,018     $ 9,018   $ 27,054   $ 27,054   Energy service         4,642       4,790     13,393     12,849               13,660       13,808     40,447     39,903 Expenses:                                   Operations and maintenance       4,422       3,159     12,798     10,025   General and administrative       2,082       2,438     6,702     6,917   Management agreement termination fee     -       -     6,000     -   Employee benefits          1,216       510     2,731     1,676   Depreciation and amortization       5,296       5,250     15,832     18,943   Loss on derecognition        -       -     46     500 Total operating expenses       13,016       11,357     44,109     38,061                                     Equity in earnings of Harbor Coal joint venture      549       1,028     1,779     3,132                                     Operating income (loss)        1,193       3,479     (1,883)     4,974                                     Other expense                                  Interest expense         (1,525)       (1,518)     (4,240)     (5,053)   Deferred finance fees expensed upon extinguishment of debt      -       -     (765)     -   Realized and unrealized loss on derivative                               contracts          (292)       -     (572)     (4)                                     (Loss) income before income taxes     (624)       1,961     (7,460)     (83) Income tax benefit (expense)        411       (1,533)     2,346     (2,429) Net (loss) income and comprehensive (loss) income     $ (213)      $ 428    $ (5,114)    $ (2,512)                                     Net (loss) income and comprehensive (loss) income attributable to:                             Owners of the Company     $ (213)     $ 745   $ (3,319)   $ (536)   Non-controlling interest        -       (317)     (1,795)     (1,976)              $ (213)      $ 428    $ (5,114)    $ (2,512)                                     Net (loss) income 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       45,128,828     44,706,186     44,706,186 Basic and diluted net (loss) income per share attributable to owners of the Company    $ (0.00)      $ 0.02    $ (0.07)    $ (0.01)   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 - January 1, 2011  $ 274,479  $ 3,316  $ (107,784)  $ 170,011  $ 82,028  $ 252,039                           Net loss and comprehensive loss                            for the nine months ended September 30, 2011   -   -   (536)   (536)   (2,265)   (2,801) Balance - September 30, 2011  $ 274,479  $ 3,316  $ (108,320)  $ 169,475  $ 79,763  $ 249,238                           Balance - January 1, 2012  $ 274,479  $ 3,316  $ (107,748)  $ 170,047  $ 79,502  $ 249,549                           Net loss and comprehensive loss                           for the nine months ended September 30, 2012   -   -   (3,319)   (3,319)   (1,795)   (5,114) Buyout of non-controlling interest   -   33,796   -   33,796   (77,707)   (43,911) Stock compensation expense   -   105   -   105   -   105 Balance - September 30, 2012  $ 274,479  $ 37,217  $ (111,067)  $ 200,629  $ -  $ 200,629   Primary Energy Recycling Corporation CONSOLIDATED STATEMENTS OF CASH FLOWS   (In thousands of U.S. dollars)                                                           Three Months Ended September 30,   Nine Months Ended September 30,                   2012   2011   2012   2011                                           CASH FLOWS FROM OPERATING ACTIVITIES:                           Net (loss) income and comprehensive (loss) income for the period    $ (213)   $ 428   $ (5,114)   $ (2,512)   Adjustments for:                           Depreciation and amortization     5,296     5,250     15,832     18,943   Loss on derecognition     -     -     46     500   Unrealized loss on derivative contracts     273     -     366     4   Deferred finance fees expensed upon extinguishment of debt     -     -     765     -   Equity in earnings of Harbor Coal joint venture     (549)     (1,028)     (1,779)     (3,132)   Distributions from investment in Harbor Coal joint venture     1,515     2,014     5,262     5,561   Non-cash interest expense     542     552     1,681     1,882   Non-cash stock based compensation     79     -     105     -   Income tax        (493)     1,484     (2,428)     2,380                     6,450     8,700     14,736     23,626   Net change in non-cash working capital balances     (1,041)     (1,688)     (2,682)     (16)     Net cash provided by operating activities     5,409     7,012     12,054     23,610                                           CASH FLOWS FROM INVESTING ACTIVITIES:                           Change in restricted cash     -     207     (1,515)     754   Capital expenditures     (4,184)     (296)     (11,722)     (4,424)     Net cash used in investing activities     (4,184)     (89)     (13,237)     (3,670)                                           CASH FLOWS FROM FINANCING ACTIVITIES:                           Proceeds from issuance of debt     -     -     85,000     -   Purchase of the non-controlling interest     -     -     (24,225)     -   Payments of deferred financing costs     2     -     (5,261)     -   Repayment of debt     (1,844)     (7,777)     (44,617)     (20,740)     Net cash (used in) provided by financing activities     (1,842)     (7,777)     10,897     (20,740)   Net (decrease) increase in cash     (617)     (854)     9,714     (800)                                           Cash and cash equivalents - beginning of period     30,898     22,459     20,567     22,405   Cash and cash equivalents - end of period   $ 30,281   $ 21,605   $ 30,281   $ 21,605                                           Supplemental disclosure of cash flow information:                           Cash paid during the period for interest   $ 972   $ 971   $ 2,537   $ 3,184   Cash paid during the period for income taxes   $ -   $ 8   $ 168   $ 121       SOURCE Primary Energy Recycling CorporationFor further information: <p> </p> <p> Chief Financial Officer<br/> Mike Alverson<br/> 630.230.1314<br/> <a href="mailto:investorinfo@primaryenergy.com">investorinfo@primaryenergy.com</a> </p> <p> Media and Investor Relations<br/> Adam Peeler<br/> TMX Equicom<br/> 416.815.0700 ext. 225<br/> <a href="mailto:apeeler@tmxequicom.com">apeeler@tmxequicom.com</a><br/> <br/> </p>