Primary Energy Reports Third Quarter Results
OAK BROOK, IL, Nov. 8, 2011 /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 third quarter ended September 30, 2011.
Financial Highlights
| (in 000's of US$) | Q3 2011 | Q3 2010 | Change | 9-Month 2011 | 9-Month 2010 | Change |
| Revenue | $13,808 | $12,747 | 8.3% | $39,903 | $39,248 | 1.7% |
| Operations and maintenance expense | $3,159 | $ 3,656 | (13.5)% | $10,025 | $9,010 | 11.3% |
| Operating income (loss) | $ 3,301 | $ (3,263) | - | $5,185 | $(1,006) | - |
| Net income (loss) and comprehensive income (loss) | $ 250 | $ (5,846) | - | $(2,801) | $(10,362) | - |
| 1EBITDA | $ 9,738 | $ 5,324 | - | $27,444 | $24,731 | - |
| 2Adjusted EBITDA | $10,138 | $10,186 | - | $28,544 | $30,115 | - |
| Net cash provided by operating activities | $ 7,012 | $ 8,566 | (18.1)% | $23,610 | $24,787 | (4.7)% |
| 3Free Cash Flow | $ 6,716 | $ 8,380 | (19.9)% | $19,186 | $24,111 | (20.4)% |
| Cash & cash equivalents | $21,605 | $22,614 | (4.5)% | - | - | - |
| Credit facility debt balance | $50,626 | $79,461 | (36.3)% | - | - | - |
Third Quarter, 2011 Highlights
- Increased revenue 8.3% in the third quarter of 2011 versus the third quarter of 2010;
- Net income and comprehensive income was $0.3 million for the third quarter of 2011, an improvement of $6.2 million over third quarter and 2010;
- Contract renegotiation discussions with the site hosts for the Company's Portside Energy project continued to progress meaningfully, while negotiations for Cokenergy are not expected to begin before early 2012; and
- Paid down 13.3% of the Company's outstanding secured term loan to a balance of $50.6 million.
"All plants performed well during the quarter with an average availability of 99%," said John Prunkl, President and Chief Executive Officer of Primary Energy. "Our adjusted EBITDA of $10.1 million meets our overall expectations. We have made substantial progress concerning contract renegotiations with the site host for the Company's Portside Energy project and remain optimistic that we can reach agreement on a renewed contract by year end. North Lake remains on schedule and budget. With the North Lake renewal and the future Portside and Cokenergy contract renewals we are entering into a multiyear period of long term investment in our facilities. These investments will be in the form of plant major maintenance and capital expenditures primarily related to contract renewal upgrades and environmental compliance. Also, Atlantic Power Corporation has completed its acquisition of Capital Power Income LP and as a result now controls the manager under Primary Energy's management agreement and owns a 14.3% minority interest in Primary Energy Recycling Holdings LLC ("PERH"). We intend to continue to work with Atlantic Power Corporation in our efforts to acquire the minority interest they hold in PERH and terminate the management agreement."
Operational Highlights
| Q3 2011 | Q3 2010 | Change | 9-Month 2011 | 9-Month 2010 | Change | |
| 4Total Gross Electric Production Megawatt Hours (MWh) | 375,406 | 311,417 | 20.5% | 950,838 | 860,479 | 10.5% |
| 5Total Thermal Energy Delivered (MMBtu) | 971,103 | 885,418 | 9.7% | 3,558,054 | 3,749,157 | (5.0)% |
| 6Harbor Coal Utilization (%) | 89.9% | 89.3% | 0.6% | 91.2% | 87.2% | 4.0% |
Third Quarter Financial Results
The Company's revenue of $13.8 million in the third quarter of 2011 increased $1.1 million, or 8.3%, compared with revenue of $12.7 million for the third quarter of 2010. The increase is related to the variable portion of Energy Service revenue. North Lake's revenue increased by $0.6 million during the third quarter primarily due to increased host operations resulting in higher steam delivery to the North Lake facility. The Ironside facility operated during the third quarter of 2011, but was out of service during a portion of the third quarter in 2010 which positively impacted revenue by $0.2 million. Revenue was also positively impacted by increased host operating levels at the other facilities and by renewable energy credit revenue of $0.1 million recorded by the Cokenergy facility.
The Company's revenue of $39.9 million in the first nine months of 2011 increased $0.7 million, or 1.7%, compared with revenue of $39.2 million for the first nine months of 2010. The increase is related to the variable portion of Energy Service revenue, primarily due to the operation of the Ironside facility during the first nine months of 2011 which was out of service during most of the same period in 2010 and which positively impacted revenue by $0.7 million.
Operations and maintenance expense for the third quarter of 2011 was $3.2 million compared to $3.6 million for the third quarter of 2010, a decrease of $0.4 million or 13.5%. Operations and maintenance expense for the first nine months of 2011 was $10.0 million compared to $9.0 million for the first nine months of 2010, an increase of $1.0 million or 11.3%. The increase for the nine month period was primarily due to additional expenses associated with boiler repairs, contractor labor, water chemical treatments, environmental control system repairs and general maintenance.
Interest expense for the third quarter of 2011 was $1.5 million compared to $2.4 million for the third quarter of 2010, a decrease of $0.9 million. This decrease is primarily due to the reduced level of debt outstanding under the Company's credit facility partially offset by increased amortization of deferred finance fees during the third quarter of 2011
Operating income for the third quarter of 2011 was $3.3 million compared to an operating loss of $3.3 million for the third quarter of 2010, an increase of $6.6 million. Operating income for the first nine months of 2011 was $5.2 million compared to an operating loss of $1.0 million for the first nine months of 2010, an increase of $6.2 million. The increases noted are primarily due to reductions in depreciation and amortization and stock based compensation.
Net income and comprehensive income for the third quarter of 2011 was $0.3 million compared to a net loss and comprehensive loss $5.9 million for the third quarter of 2010, an improvement of $6.2 million. Net loss and comprehensive loss for the first nine months of 2011 was $2.8 million compared to $10.4 million for the first nine months of 2010, an improvement of $7.6 million.
The Company's full financial statements and Management's Discussion and Analysis for the quarter ended September 30, 2011 are available at www.sedar.com or the Company's website at www.primaryenergyrecycling.com.
International Financial Reporting Standards ("IFRS") Impact
The three month period ended September 30, 2011 was the Company's third reporting period under IFRS. As anticipated and disclosed in the fourth quarter of 2010, the adoption of IFRS had an impact on the presentation of the Company's 2011 third quarter financial results. From an income standpoint, depreciation is impacted as a result of the componentization of the major aspects of property plant and equipment along with the capitalization of overhaul activity that previously had been expensed as part of operations and maintenance expenses.
Additionally, the reporting of the financial activity of the Company's investment in PCI Associates, through which it holds a 50% interest in the Harbor Coal facility, is impacted due to the use of the equity method for financial reporting versus the proportionate consolidation method.
Additional IFRS information can be found in Primary Energy's full financial statements and Management's Discussion and Analysis for the quarter ended September 30, 2011.
Conference Call and Webcast
Management will host a conference call to discuss the third quarter results on Wednesday, November 9, 2011 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 November 16, 2011 (ET) by calling (800) 642-1687 or (416) 849-0833. Please enter the passcode 20613689 when instructed. A webcast replay will be available for 90 days by accessing a link through the Investor Information section at www.primaryenergyrecycling.com.
Forward-Looking Statements
When used in this news release, the words "intend", "likely", "anticipate", "expect", "project", "believe", "estimate", "forecast", "outlook" and similar expressions, are intended to identify forward-looking statements, including statements regarding maintenance and capital expenditures and the 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 owns a majority interest in Primary Energy Recycling Holdings LLC ("PERH"). PERH, headquartered in Oak Brook, Illinois, indirectly owns and operates four recycled energy projects and a 50 per cent interest in a pulverized coal facility (collectively, the "Projects"). The Projects have a combined electrical generating capacity of 283 megawatts and a combined steam generating capacity of 1.8M lbs/hour. PERH creates value for its customers by recycling recoverable heat and byproduct fuels 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.primaryenergyrecycling.com.
1As used herein, EBITDA means earnings before interest, taxes and depreciation and amortization. EBITDA is reconciled to net income (loss) and comprehensive income (loss) in the table below. EBITDA is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS. Therefore, EBITDA may not be comparable to similar measures presented by other companies.
2As used herein, references to Adjusted EBITDA are to EBITDA as adjusted for certain non-recurring adjustments for major maintenance/outage work expenses 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 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 Income (Loss) and Comprehensive Income (Loss) | ||||||||||||
| to Adjusted EBITDA | ||||||||||||
| (in 000's of US$) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||
| Net income (loss) and comprehensive income (loss) | $ | 250 | $ | (5,846) | $ | (2,801) | $ | (10,362) | ||||
| Adjustment to net income (loss) and comprehensive income (loss): | ||||||||||||
| Depreciation and amortization | 5,428 | 7,578 | 19,232 | 22,710 | ||||||||
| Depreciation and amortization included in equity in earnings of Harbor Coal joint venture | 1,009 | 1,009 | 3,027 | 3,027 | ||||||||
| Interest expense | 1,518 | 2,400 | 5,053 | 7,772 | ||||||||
| Realized and unrealized loss on derivative contracts | - | 8 | 4 | 184 | ||||||||
| Loss on derecognition | - | - | 500 | - | ||||||||
| Income tax expense | 1,533 | 175 | 2,429 | 1,400 | ||||||||
| EBITDA | $ | 9,738 | $ | 5,324 | $ | 27,444 | $ | 24,731 | ||||
| Adjustments to EBITDA: | ||||||||||||
| Major maintenance | 400 | 1,600 | 1,100 | 2,122 | ||||||||
| Non-cash stock based compensation | - | 3,262 | - | 3,262 | ||||||||
| Adjusted EBITDA | $ | 10,138 | $ | 10,186 | $ | 28,544 | $ | 30,115 | ||||
| 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, | ||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||
| Net cash provided by operating activities | $ | 7,012 | $ | 8,566 | $ | 23,610 | $ | 24,787 | ||||
| Less: capital expenditures | (296) | (186) | (4,424) | (676) | ||||||||
| Free Cash Flow | $ | 6,716 | $ | 8,380 | $ | 19,186 | $ | 24,111 | ||||
| Primary Energy Recycling Corporation | |||||||
| CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | |||||||
| (In thousands of U.S. dollars) | |||||||
| (Unaudited) | |||||||
| ASSETS | September 30, 2011 | December 31, 2010 | |||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 21,605 | $ | 22,405 | |||
| Accounts receivable | 8,858 | 7,836 | |||||
| Inventory, net | 1,048 | 1,005 | |||||
| Other current assets | 679 | 1,247 | |||||
| Total current assets | 32,190 | 32,493 | |||||
| Non-current assets: | |||||||
| Property, plant and equipment, net | 180,994 | 180,503 | |||||
| Intangible assets, net | 27,393 | 40,166 | |||||
| Restricted cash | 2,237 | 2,991 | |||||
| Deferred tax asset, net | 2,562 | 4,941 | |||||
| Investment in Harbor Coal joint venture | 64,292 | 66,721 | |||||
| Total assets | $ | 309,668 | $ | 327,815 | |||
| LIABILITIES AND EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 914 | $ | 361 | |||
| Short-term debt | 31,691 | 30,343 | |||||
| Due to affiliates | 851 | 639 | |||||
| Accrued property taxes | 1,529 | 1,965 | |||||
| Accrued expenses | 4,011 | 2,068 | |||||
| Total current liabilities | 38,996 | 35,376 | |||||
| Non-current liabilities: | |||||||
| Long-term debt | 17,301 | 37,796 | |||||
| Asset retirement obligations | 4,133 | 2,604 | |||||
| Total liabilities | 60,430 | 75,776 | |||||
| Equity | |||||||
| Equity attributable to equity owners of the Company | |||||||
| Common stock: no par value, unlimited shares authorized; | |||||||
| 44,706,187 issued and outstanding at September 30, 2011 | |||||||
| and 134,118,561 outstanding at December 31, 2010 | 274,479 | 274,479 | |||||
| Contributed surplus | 3,316 | 3,316 | |||||
| Accumulated shareholders' deficit | (108,320) | (107,784) | |||||
| Total equity attributable to equity owners of the Company | 169,475 | 170,011 | |||||
| Non-controlling interest | 79,763 | 82,028 | |||||
| Total equity | 249,238 | 252,039 | |||||
| Total liabilities and equity | $ | 309,668 | $ | 327,815 | |||
| Primary Energy Recycling Corporation | |||||||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||||||
| (In thousands of U.S. dollars, except share and per share amounts) | |||||||||||
| (Unaudited) | |||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||
| Revenue: | |||||||||||
| Capacity | $ | 9,018 | $ | 9,018 | $ | 27,054 | $ | 27,054 | |||
| Energy service | 4,790 | 3,729 | 12,849 | 12,194 | |||||||
| 13,808 | 12,747 | 39,903 | 39,248 | ||||||||
| Expenses: | |||||||||||
| Operations and maintenance | 3,159 | 3,656 | 10,025 | 9,010 | |||||||
| General and administrative | 2,438 | 2,237 | 6,917 | 6,873 | |||||||
| Employee benefits | 510 | 3,767 | 1,676 | 4,690 | |||||||
| Depreciation and amortization | 5,428 | 7,578 | 19,232 | 22,710 | |||||||
| Total operating expenses | 11,535 | 17,238 | 37,850 | 43,283 | |||||||
| Equity in earnings of Harbor Coal joint venture | 1,028 | 1,228 | 3,132 | 3,029 | |||||||
| Operating income (loss) | 3,301 | (3,263) | 5,185 | (1,006) | |||||||
| Other expense | |||||||||||
| Interest expense | (1,518) | (2,400) | (5,053) | (7,772) | |||||||
| Realized and unrealized loss on derivative contracts | - | (8) | (4) | (184) | |||||||
| Loss on derecognition | - | - | (500) | - | |||||||
| Income (loss) before income taxes | 1,783 | (5,671) | (372) | (8,962) | |||||||
| Income tax expense | (1,533) | (175) | (2,429) | (1,400) | |||||||
| Net income (loss) and comprehensive income (loss) | $ | 250 | $ | (5,846) | $ | (2,801) | $ | (10,362) | |||
| Net income (loss) and comprehensive income (loss) attributable to: | |||||||||||
| Owners of the Company | $ | 745 | $ | (4,759) | $ | (536) | $ | (7,349) | |||
| Non-controlling interest | (495) | (1,087) | (2,265) | (3,013) | |||||||
| $ | 250 | $ | (5,846) | $ | (2,801) | $ | (10,362) | ||||
| Net income (loss) per share attributable to owners of the Company: | |||||||||||
| Weighted average number of shares outstanding - basic | 44,706,187 | 44,706,187 | 44,706,187 | 44,706,187 | |||||||
| Weighted average number of shares outstanding - diluted | 45,128,828 | 44,706,187 | 44,706,187 | 44,706,187 | |||||||
| Basic and diluted net loss per share attributable to owners of the Company | $ | 0.02 | $ | (0.10) | $ | (0.01) | $ | (0.16) | |||
| Primary Energy Recycling Corporation | ||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | ||||||||||||
| (In thousands of U.S. dollars) | ||||||||||||
| (Unaudited) | ||||||||||||
| Attributable to equity owners of the Company | ||||||||||||
| Common | Contributed | Accumulated | Non-controlling | Total | ||||||||
| stock | surplus | deficit | Total | interest | equity | |||||||
| Balance - January 1, 2010 | $ | 274,479 | $ | - | $ | (120,656) | $ | 153,823 | $ | 85,860 | $ | 239,683 |
| Net loss and comprehensive loss for the nine months ended September 30, 2010 | - | - | (7,349) | (7,349) | (3,013) | (10,362) | ||||||
| Stock based compensation expense | - | 3,262 | - | 3,262 | - | 3,262 | ||||||
| Balance - September 30, 2010 | $ | 274,479 | $ | 3,262 | $ | (128,005) | $ | 149,736 | $ | 82,847 | $ | 232,583 |
| 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 |
| Primary Energy Recycling Corporation | |||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| (In thousands of U.S. dollars) | |||||||||||
| (Unaudited) | |||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net income (loss) and comprehensive income (loss) for the period | $ | 250 | $ | (5,846) | $ | (2,801) | $ | (10,362) | |||
| Adjustments for: | |||||||||||
| Depreciation and amortization | 5,428 | 7,578 | 19,232 | 22,710 | |||||||
| Loss on derecognition | - | - | 500 | - | |||||||
| Realized and unrealized loss on derivative contracts | - | 8 | 4 | 184 | |||||||
| Equity in earnings of Harbor Coal joint venture | (1,028) | (1,228) | (3,132) | (3,029) | |||||||
| Non-cash interest expense | 552 | 948 | 1,882 | 3,068 | |||||||
| Non-cash stock based compensation | - | 3,262 | - | 3,262 | |||||||
| Income tax | 1,484 | 344 | 2,380 | 1,569 | |||||||
| Distributions from investment in Harbor Coal joint venture | 2,014 | 2,173 | 5,561 | 6,229 | |||||||
| 8,700 | 7,239 | 23,626 | 23,631 | ||||||||
| Net change in non-cash working capital balances | (1,688) | 1,327 | (16) | 1,156 | |||||||
| Net cash provided by operating activities | 7,012 | 8,566 | 23,610 | 24,787 | |||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Change in restricted cash | 207 | 245 | 754 | 365 | |||||||
| Capital expenditures | (296) | (186) | (4,424) | (676) | |||||||
| Net cash (used in) provided by investing activities | (89) | 59 | (3,670) | (311) | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Payments of deferred financing costs | - | - | - | (319) | |||||||
| Payments for stock issuance costs associated with the Rights Offering | - | - | - | (285) | |||||||
| Payments of fees associated with the Recapitalization | - | - | - | (9) | |||||||
| Repayment of debt | (7,777) | (8,489) | (20,740) | (25,539) | |||||||
| Net cash used in financing activities | (7,777) | (8,489) | (20,740) | (26,152) | |||||||
| Net (decrease) increase in cash | (854) | 136 | (800) | (1,676) | |||||||
| Cash and cash equivalents - beginning of period | 22,459 | 22,478 | 22,405 | 24,290 | |||||||
| Cash and cash equivalents - end of period | $ | 21,605 | $ | 22,614 | $ | 21,605 | $ | 22,614 | |||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid during the period for interest | $ | 971 | $ | 1,461 | $ | 3,184 | $ | 4,725 | |||
| Cash paid during the period for income taxes | $ | 8 | $ | - | $ | 121 | $ | - | |||
SOURCE Primary Energy Recycling Corporation
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