Primary Energy Reports First Quarter 2014 Results
OAK BROOK, IL, April 22, 2014 /PRNewswire/ - Primary Energy Recycling Corporation (TSX: PRI), a clean energy company that generates revenue from capturing and recycling recoverable heat and by-product fuels from industrial processes, today announced its financial and operational results for the first quarter ended March 31, 2014.
| Financial Results | ||||||||||
| (in 000's of US$) | ||||||||||
| Three Months Ended March 31, | ||||||||||
| 2014 | 2013 | |||||||||
| Revenues | $ | 12,561 | $ | 14,675 | ||||||
| Operations and maintenance expense | 7,163 | 5,070 | ||||||||
| Operating (loss) income | (1,284) | 1,220 | ||||||||
| Net loss and comprehensive loss | (541) | (109) | ||||||||
| EBITDA (1) | 2,270 | 7,622 | ||||||||
| Adjusted EBITDA (2) | 7,351 | 9,897 | ||||||||
| Net cash provided by operating activities | 7,557 | 7,015 | ||||||||
| Free Cash Flow (3) | 6,898 | 3,869 | ||||||||
| Cash and cash equivalents | 23,237 | 29,326 | ||||||||
| Credit facility debt balance | 62,660 | 77,469 | ||||||||
First Quarter Highlights
- Announced the signing of a new 10-year tolling agreement between Cokenergy and its site host. The Company's next contract expiration is in 2020. Further, the Company accelerated the upgrade work at Cokenergy to position the project to take advantage of the variable nature of the economics in the new contract beginning in October 2014.
- Announced a 40% increase in its quarterly dividend rate from $0.05 to $0.07, or from $0.20 to $0.28 annually, due to confidence in the long-term stability in the Company's cash flows from operations.
- The extremely cold weather and reduced furnace operations leading up to the imminent reline impacted waste heat, by-product fuel and steam delivery to the Company's operations. These events had a negative impact estimated at $1.2 million on the Company's results for the first quarter of 2014 as compared to first quarter of 2013.
"While we strengthened our foundation in the first quarter with the new Cokenergy deal, our operations, and those of our host and partners, were challenged with the extremely cold winter weather and the imminent reline of our host's blast furnace," said John Prunkl, President and Chief Executive Officer of Primary Energy. "Despite the short-term operational challenges we faced this quarter, the completion of the Cokenergy contract provides for a stronger base business and allowed us to increase our dividend. Going forward, our near-term focus is to complete the Cokenergy retubing program and prepare for our host's major reline. Additionally, our long-term contracts provide us with flexibility to evaluate other opportunities to build greater value for shareholders."
Beginning in June 2014, the blast furnace supporting North Lake and Harbor Coal will undergo a major refurbishment or reline. The work is expected to last approximately 60 days and will idle both North Lake and Harbor Coal. The estimated impact on revenue is projected to range from $1.5 million to $2.5 million assuming a 60-day time horizon for the outage to be completed. North Lake will also be upgrading its condenser in June at an expected cost of $0.6 million.
| Operational Highlights | ||||||
| Three Months Ending March 31, | ||||||
| 2014 | 2013 | |||||
| Total Gross Electric Production Megawatt Hours (MWh) (4) | 282,729 | 384,360 | ||||
| Total Thermal Energy Delivered (MMBtu) (5) | 910,054 | 1,188,324 | ||||
| Harbor Coal Utilization (%) (6) | 53.5% | 67.4% | ||||
Matters Affecting Comparability - New Cokenergy Tolling Contract
On February 20, 2014, Cokenergy executed a new ten year contract with it site host. Under IFRIC Interpretation 4 ("IFRIC 4") Cokenergy's new tolling agreement is subject to lease accounting guidance as specified in IAS 17 Leases ("IAS 17"). As a result, a portion of the revenue received under the Cokenergy's contract will be deferred and recognized over the life of the contact. Consequently, revenue recognized under the old contract is not directly comparable to revenue recognized under the new contract. The terms of the new tolling agreement do not transfer the risks and rewards of ownership from Cokenergy to the customer and therefore the contract is classified as an operating lease. The pricing structure under the new contract for the period February 20, 2014 through September 30, 2014 ("Year 1") consists of fixed payments that are defined as minimum lease payments. Additionally, for the contract period from October 2014 through September 2023, Cokenergy will receive additional minimum lease payments based on an expected level of operation. IAS 17 requires that total minimum lease payments are recognized on a straight-line basis over the term of the contract. For the period from February 20, 2014 through March 31, 2014 the amount of fixed billings from the Cokenergy facility was $3.3 million. The amount of minimum lease revenue recognized during this period was $2.0 million. The difference of $1.3 million was recorded as deferred revenue. For the period from February 20, 2014 through September 30, 2014, the Company will bill a total of $18.4 million from the Cokenergy facility which will be in excess of the $10.9 million of minimum lease payment revenue to be recognized during that time period. The difference between the fixed billings and minimum lease revenue recognized during the period ending September 30, 2014 will be recorded as deferred revenue totaling $7.5 million. The total deferred revenue balance as of September 30, 2014 will be recognized over time as incremental revenue from October of 2014 through September 2023.
First Quarter 2014 Financial Results
The Company's revenue of $12.6 million for the first quarter of 2014 decreased $2.1 million, or 14.4%, compared with revenue of $14.7 million for the first quarter of 2013. Capacity revenue at the Cokenergy facility decreased by $1.3 million due to the lease accounting requirements for the new long term contract with its host steel mill. The Company has recorded $1.3 million of deferred revenue as of March 31, 2014. Revenue at the North Lake facility decreased by $0.8 million primarily due to reduced host operating levels which were impacted by weather and operating challenges and an unplanned outage during the first quarter of 2014.
Operations and maintenance expense for the first quarter of 2014 was $7.2 million compared to $5.1 million for the first quarter of 2013, an increase of $2.1 million or 41.3%. The Company incurred periodic costs during the first quarter of 2014 of $3.7 million for boiler retubing work. Periodic costs for the first quarter of 2013 were $1.7 million for boiler retubing work, $0.4 million for an emergency boiler repair and $0.1 million for ductwork repairs. In addition, for the first quarter of 2014 the Company had increased operations and maintenance expenses related to contracted services of $0.3 million and general maintenance of $0.3 million.
General and administrative expense for the first quarter of 2014 was $2.4 million compared to $1.9 million for the first quarter of 2013, an increase of $0.5 million or 28.0%. The Company had increased accrued property tax expense of $0.2 million. The increase, on a comparative basis, is due to a property tax accrual reduction recorded in the first quarter of 2013. In addition, the Company had increased professional fees of $0.3 million and plant and liability insurance expenses of $0.1 million. These increased expenses were offset by a reduction in IT expenses of $0.1 million.
Employee benefits expense for the first quarter of 2014 was $1.9 million compared to $1.6 million for the first quarter of 2013, an increase of $0.3 million. The increase of $0.3 million is due to stock based compensation.
Equity in earnings of the Harbor Coal joint venture for the first quarter of 2014 was $0.2 million compared to $0.5 million for the first quarter of 2013, a decrease of $0.3 million. Reduced blast furnace operations during the first quarter of 2014 negatively impacted revenue generated by the joint venture.
Operating loss for the first quarter of 2014 was $1.3 million compared to operating income of $1.2 million for the first quarter of 2013, a decrease of $2.5 million. The decrease was the result of the net effect of the items discussed above.
Net loss and comprehensive loss for the first quarter of 2014 was $0.5 million compared to $0.1 million for the first quarter of 2013, an increase of $0.4 million. The increase was the result of the net effect of the items discussed above.
Conference Call and Webcast
A telephone conference call hosted by management to discuss the financial results will be held Wednesday, April 23, 2014 at 10 am ET. The telephone numbers for the conference call are: (888) 231-8191 /or (647) 427-7450.
A digital conference call replay will be available until midnight on Wednesday May 7, 2014 (ET) by calling (855) 859-2056 or (416) 849-0833. Please enter the password 22005360 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. 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 percent 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 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 and may differ materially. |
| 2As used herein, references to Adjusted EBITDA are to EBITDA as adjusted for the change in deferred revenue and certain non-recurring adjustments for major maintenance expenses 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. The Company adjusts for these amounts as they may be non-cash, unusual in nature and are not used by management for evaluating the operating performance of the Company on a consistent basis from period to period. Adjusted EBITDA is reconciled to net loss and comprehensive 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 and may differ materially. |
| 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 and may differ materially. |
| 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.
Use of Non-IFRS Measures
Management believes that EBITDA, Adjusted EBITDA and Free Cash Flow are important measures in evaluating the underlying performance of the Company's business and allow for comparison of operating performance to historical results.
EBITDA
EBITDA is a non-IFRS metric used by many investors to compare companies on the basis of ability to generate cash from operations. EBITDA represents the Company's capacity to generate income from operations before taking into account management's financing decisions and costs of consuming tangible capital assets and intangible assets which vary according to asset type and management's estimate of useful lives. The Company also uses this calculation as a metric to evaluate cash generation as compared to the amount of dividends paid by Company. Additionally EBITDA is a key metric used in the Company's debt covenant computations and provides insight into liquidity of the business.
Adjusted EBITDA
Adjusted EBITDA is used to assess operating performance based on results from the Company's recurring business operations without the effects of (as applicable): depreciation and amortization expense, interest expense, realized and unrealized gain or loss on derivative contracts, income tax expense as well as net change in deferred revenue and other items that are viewed as non-recurring (major maintenance expense and non-cash stock based compensation expense). The Company adjusts for these factors as they may be non-cash, unusual in nature and are not factors used by management for evaluating the operating performance of the Company on a consistent basis from period to period. The Company believes that presentation of this measure enhances an investor's understanding of the Company's operating performance on a normalized basis that allows for comparison to historical periods. Additionally, management and its board use Adjusted EBITDA as a metric in making determinations about future business activity of the Company. Adjusted EBITDA is not intended to be representative of cash provided by operating activities or results of operations determined in accordance with IFRS.
Free Cash Flow
Management uses Free Cash Flow to evaluate the Company's cash flow from operations after capital expenditures in order to evaluate cash available for other purposes, such as additional capital expenditures, debt repayment, common stock distributions, or other corporate purposes.
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 March 31, | |||||||||
| 2014 | 2013 | |||||||||
| Net loss and comprehensive loss | $ | (541) | $ | (109) | ||||||
| Adjustment to net loss and comprehensive loss: | ||||||||||
| Depreciation and amortization | 2,545 | 5,393 | ||||||||
| Depreciation and amortization included in equity in | ||||||||||
| earnings of Harbor Coal joint venture | 1,009 | 1,009 | ||||||||
| Interest expense | 703 | 1,332 | ||||||||
| Realized and unrealized loss (gain) on derivative contracts | 57 | (60) | ||||||||
| Income tax (benefit) expense | (1,503) | 57 | ||||||||
| EBITDA | $ | 2,270 | $ | 7,622 | ||||||
| Adjustments to EBITDA: | ||||||||||
| Major maintenance (1) | 3,694 | 2,216 | ||||||||
| Change in deferred revenue | 1,325 | - | ||||||||
| Stock-based compensation | 62 | 59 | ||||||||
| Adjusted EBITDA | $ | 7,351 | $ | 9,897 | ||||||
| 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 March 31, | |||||||||
| 2014 | 2013 | |||||||||
| Net cash provided by operating activities | $ | 7,557 | $ | 7,015 | ||||||
| Less: Capital expenditures | (659) | (3,146) | ||||||||
| Free Cash Flow | $ | 6,898 | $ | 3,869 | ||||||
| Primary Energy Recycling Corporation | ||||||||||||
| CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | ||||||||||||
| (In thousands of U.S. dollars) | ||||||||||||
| ASSETS | March 31, 2014 | December 31, 2013 | ||||||||||
| Current assets: | ||||||||||||
| Cash and cash equivalents | $ | 23,237 | $ | 21,226 | ||||||||
| Accounts receivable | 7,080 | 8,120 | ||||||||||
| Inventory, net | 1,602 | 1,455 | ||||||||||
| Tax receivable | 112 | 118 | ||||||||||
| Prepaid expenses | 586 | 1,200 | ||||||||||
| Other current assets | 246 | - | ||||||||||
| Total current assets | 32,863 | 32,119 | ||||||||||
| Non-current assets: | ||||||||||||
| Property, plant and equipment, net | 181,001 | 183,249 | ||||||||||
| Intangible assets, net | 3,017 | 3,101 | ||||||||||
| Restricted cash | 3,175 | 3,175 | ||||||||||
| Interest rate cap | 85 | 105 | ||||||||||
| Deferred tax asset, net | 1,022 | - | ||||||||||
| Investment in Harbor Coal joint venture | 53,337 | 54,615 | ||||||||||
| Total assets | $ | 274,500 | $ | 276,364 | ||||||||
| LIABILITIES AND EQUITY | ||||||||||||
| Current liabilities: | ||||||||||||
| Accounts payable | $ | 2,226 | $ | 1,195 | ||||||||
| Short-term debt | 7,314 | 7,624 | ||||||||||
| Accrued property taxes | 2,030 | 1,522 | ||||||||||
| Accrued expenses | 7,852 | 6,892 | ||||||||||
| Total current liabilities | 19,422 | 17,233 | ||||||||||
| Non-current liabilities: | ||||||||||||
| Long-term debt | 52,237 | 54,684 | ||||||||||
| Deferred income tax liability, net | - | 979 | ||||||||||
| Interest rate swap | 66 | 76 | ||||||||||
| Deferred revenue | 1,325 | - | ||||||||||
| Asset retirement obligations | 3,212 | 2,938 | ||||||||||
| Total liabilities | 76,262 | 75,910 | ||||||||||
| Equity | ||||||||||||
| Common stock: no par value, unlimited shares authorized; | ||||||||||||
| 44,706,186 issued and outstanding | 274,479 | 274,479 | ||||||||||
| Contributed surplus | 38,283 | 37,723 | ||||||||||
| Accumulated shareholders' deficit | (114,524) | (111,748) | ||||||||||
| Total equity | 198,238 | 200,454 | ||||||||||
| Total liabilities and equity | $ | 274,500 | $ | 276,364 | ||||||||
| Primary Energy Recycling Corporation | ||||||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||
| (In thousands of U.S. dollars, except share and per share amounts) | ||||||||||
| Three Months Ended March 31, | ||||||||||
| 2014 | 2013 | |||||||||
| Revenue: | ||||||||||
| Capacity | $ | 7,979 | $ | 9,018 | ||||||
| Energy service | 4,582 | 5,657 | ||||||||
| 12,561 | 14,675 | |||||||||
| Expenses: | ||||||||||
| Operations and maintenance | 7,163 | 5,070 | ||||||||
| General and administrative | 2,382 | 1,860 | ||||||||
| Employee benefits | 1,926 | 1,613 | ||||||||
| Depreciation and amortization | 2,545 | 5,393 | ||||||||
| Total operating expenses | 14,016 | 13,936 | ||||||||
| Equity in earnings of Harbor Coal joint venture | 171 | 481 | ||||||||
| Operating (loss) income | (1,284) | 1,220 | ||||||||
| Other expense | ||||||||||
| Interest expense | (703) | (1,332) | ||||||||
| Realized and unrealized (loss) gain on derivative | ||||||||||
| contracts | (57) | 60 | ||||||||
| Loss before income taxes | (2,044) | (52) | ||||||||
| Income tax benefit (expense) | 1,503 | (57) | ||||||||
| Net loss and comprehensive loss | $ | (541) | $ | (109) | ||||||
| Net loss per share: | ||||||||||
| Weighted average number of shares outstanding - basic | 44,706,186 | 44,706,186 | ||||||||
| Weighted average number of shares outstanding - diluted | 44,706,186 | 44,706,186 | ||||||||
| Basic and diluted net loss per share | $ | (0.01) | $ | (0.00) | ||||||
| Primary Energy Recycling Corporation | ||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | ||||||||||||||
| (In thousands of U.S. dollars) | ||||||||||||||
| Common | Contributed | Accumulated | ||||||||||||
| stock | surplus | deficit | Total | |||||||||||
| Balance - January 1, 2013 | $ | 274,479 | $ | 37,466 | $ | (100,903) | $ | 211,042 | ||||||
| Net loss and comprehensive loss | ||||||||||||||
| for the three months ended March 31, 2013 | - | - | (109) | (109) | ||||||||||
| Dividends on Common Shares | - | - | (2,235) | (2,235) | ||||||||||
| Stock-based compensation | - | 228 | - | 228 | ||||||||||
| Balance - March 31, 2013 | $ | 274,479 | $ | 37,694 | $ | (103,247) | $ | 208,926 | ||||||
| Balance - January 1, 2014 | $ | 274,479 | $ | 37,723 | $ | (111,748) | $ | 200,454 | ||||||
| Net loss and comprehensive loss | ||||||||||||||
| for the three months ended March 31, 2014 | - | - | (541) | (541) | ||||||||||
| Dividends on Common Shares | - | - | (2,235) | (2,235) | ||||||||||
| Stock-based compensation, net of tax | - | 560 | - | 560 | ||||||||||
| Balance - March 31, 2014 | $ | 274,479 | $ | 38,283 | $ | (114,524) | $ | 198,238 | ||||||
| Primary Energy Recycling Corporation | ||||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
| (In thousands of U.S. dollars) | ||||||||||||
| Three Months Ended March 31, | ||||||||||||
| 2014 | 2013 | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net loss and comprehensive loss for the period | $ | (541) | $ | (109) | ||||||||
| Adjustments for: | ||||||||||||
| Depreciation and amortization | 2,545 | 5,393 | ||||||||||
| Unrealized loss (gain) on derivative contracts | 31 | (90) | ||||||||||
| Equity in earnings of Harbor Coal joint venture | (171) | (481) | ||||||||||
| Distributions from investment in Harbor Coal joint venture | 1,448 | 1,441 | ||||||||||
| Non-cash interest expense | 6 | 455 | ||||||||||
| Non-cash stock-based compensation | 62 | 59 | ||||||||||
| Income tax | (1,503) | 59 | ||||||||||
| 1,877 | 6,727 | |||||||||||
| Net change in non-cash working capital balances and | ||||||||||||
| deferred revenue | 5,680 | 288 | ||||||||||
| Net cash provided by operating activities | 7,557 | 7,015 | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
| Change in restricted cash | - | 170 | ||||||||||
| Capital expenditures | (659) | (3,146) | ||||||||||
| Net cash used in investing activities | (659) | (2,976) | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Payments of deferred financing costs | (98) | - | ||||||||||
| Repayment of debt | (2,554) | (2,579) | ||||||||||
| Dividends on Common Shares | (2,235) | (2,235) | ||||||||||
| Net cash used in financing activities | (4,887) | (4,814) | ||||||||||
| Net increase (decrease) in cash | 2,011 | (775) | ||||||||||
| Cash and cash equivalents - beginning of period | 21,226 | 30,101 | ||||||||||
| Cash and cash equivalents - end of period | $ | 23,237 | $ | 29,326 | ||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||
| Cash paid during the period for interest | $ | 757 | $ | 867 | ||||||||
| Cash paid during the period for income taxes | $ | - | $ | 12 | ||||||||
SOURCE Primary Energy Recycling Corporation
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