PRIMARY ENERGY RECYCLING CORPORATION 
By OAK BROOK, IL, March 17, 2014 /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 financial and operational results for the fourth quarter and year ended December 31, 2013.
Financial
Results
(in 000's of
US$)
Three Months Ended For the Years Ended December
December 31, 31,
2013 2012 2013 2012
Revenues $ 13,848 $ 13,852 $ 56,144 $ 54,299
Operations
and
maintenance
expense 7,278 4,709 21,880 17,507
Operating
income (loss) 1,160 976 2,268 (907)
Net (loss)
income and
comprehensive
(loss) income (174) 12,399 (1,905) 7,285
EBITDA (1) 4,716 7,206 25,030 24,228
Adjusted
EBITDA (2) 8,160 8,835 34,266 36,212
Net cash
provided by
operating
activities 4,344 7,487 23,346 19,541
Free Cash
Flow (3) 2,538 5,253 14,628 5,585
Cash and cash
equivalents 21,226 30,101 - -
Credit
facility debt
balance 65,215 80,048 - -
Fourth Quarter and 2013 Highlights
-- The Company's revenue of $56.1 million in 2013 increased $1.8
million, or 3.4%, compared with revenue of $54.3 million in
2012. The increase in revenue for the year is primarily due to
the successful operation of the condensing economizer and the
boiler turndown upgrade projects at the Company's Portside
facility. The total investment in the Portside upgrade was
$8.4 million.
-- Today, the Company is announcing 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 cash flows from operations. The expected normalized payout
ratio range with this dividend increase is 45% to 55% while the
all in cash payout ratio will remain high while the Company
executes the Cokenergy upgrade. Additionally, the Company
accelerated Cokenergy retubing within the quarter ahead of plan
and has further accelerated the retube work into 2014.
-- Subsequent to the end of the quarter, announced the signing of
a new 10-year tolling agreement between Cokenergy and its site
host. With the completion of the Cokenergy contract renewal,
the weighted average contract life of the Company's five
facilities is now 14 years and its next contract expiration is
not until 2020.
"With the Cokenergy agreement completed, we are beginning the next stage of value building for our shareholders," said John Prunkl, President and Chief Executive Officer of Primary Energy. "The financial consistency provided by our Waste Heat to Power and Combined Heat and Power assets coupled with long contract life gives us options. The first option we are executing on is the increase to our dividend. Second, we are highly focused on executing on the Cokenergy capital upgrade program and accelerating this work using operating cash flow. Third, we remain focused on disciplined capital allocation to grow shareholder value."
Operational
Highlights
Three Months Ending For the Years Ending December
December 31, 31,
2013 2012 2013 2012
Total Gross
Electric
Production
Megawatt Hours
(MWh) (4) 315,515 335,418 1,341,408 1,340,511
Total Thermal
Energy Delivered
(MMBtu) (5) 660,625 1,164,314 3,361,899 4,590,147
Harbor Coal
Utilization (%)
(6) 64.5% 63.9% 57.3% 69.3%
Fourth Quarter 2013 Financial Results
The Company's revenue totaled $13.8 million for the fourth quarter of 2013 and was flat when compared to the fourth quarter of 2012. The Company's revenue of $56.1 million in 2013 increased $1.8 million, or 3.4%, compared with revenue of $54.3 million in 2012. Revenue at the Portside facility increased by a total of $2.2 million during 2013 primarily due to $1.8 million of fuel cost savings generated from the condensing economizer and boiler turndown capability and $0.4 million related to increased host operating levels. Revenue at the North Lake facility increased by $0.4 million primarily due to being fully operational for the twelve months in 2013 compared to only eleven months of operation in 2012. Revenue at the Ironside facility was impacted by a net decrease of $0.7 million 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 fourth quarter of 2013 was $7.3 million compared to $4.7 million for the fourth quarter of 2012, an increase of $2.6 million or 54.5%. Operations and maintenance expense in 2013 was $21.9 million compared to $17.5 million in 2012, an increase of $4.4 million or 24.9%. The Company incurred periodic costs for the year ended December 31, 2013 comprised of $8.1 million for boiler retubing work, $0.6 million for an emergency boiler repair and $0.1 million for ductwork repairs compared to periodic costs for the year ended December 31, 2012 of 3.9 million for boiler retubing work and $1.5 million for ductwork repairs.
General and administrative expense for the fourth quarter of 2013 was $1.9 million compared to $2.1 million for the fourth quarter of 2012, a decrease of $0.2 million or 7.5%. General and administrative expense in 2013 was $8.0 million compared to $8.8 million in 2012, a decrease of $0.8 million or 9.3%. The Company did not incur management fees for the year ended December 31, 2013 resulting in a net cost savings totaling $1.1 million when compared to the same period in 2012.
Employee benefits expense for the fourth quarter of 2013 was $1.4 million compared to $1.3 million for the fourth quarter of 2012, an increase of $0.1 million. Employee benefits expense in 2013 was $6.4 million compared to $4.0 million in 2012, an increase of $2.4 million. The increase is due to additional compensation cost of $1.1 million primarily associated with transferred employees hired by the Company upon termination of the Management Agreement, $0.4 million related to dividends paid on stock options, $0.4 million of cost recovery provided to the Company under the Management Agreement in 2012 that did not recur in 2013 and $0.5 million of stock based compensation inclusive of a one-time board compensation award. 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 year ended December 31, 2012, management fees incurred by the Company of $1.1 million were recorded as general and administrative expenses.
On a combined basis, general and administrative expense and employee benefits expense for the fourth quarter of 2013 was $3.3 million compared to $3.4 million for the fourth quarter of 2012, a decrease of $0.1 million. The Company had reduced accrued property taxes of $0.3 million, corporate compensation expense of $0.1 million and other general and administrative expenses of $0.1 million. This reduction in expenses was offset by increased stock based compensation of $0.1 million, plant employee cost of $0.1 million, plant and liability insurance of $0.1 million and professional fees of $0.1 million.
On a combined basis, general and administrative expense and employee benefits expense in 2013 was $14.4 million compared to $12.8 million in 2012, an increase of $1.6 million. The increase in expenses is comprised of $0.5 million of stock based compensation inclusive of a one-time board compensation award, $0.4 million related to dividends paid on stock options, $0.3 million of plant employee cost, $0.3 million of plant and liability insurance, $0.2 million of IT expenses, $0.1 million of corporate compensation expense and $0.1 million of professional fees. The increase in expenses was offset by reduced accrued property taxes of $0.2 million and other general and administrative expenses of $0.1 million.
Equity in earnings of the Harbor Coal joint venture totaled $0.4 million for the fourth quarter of 2013 and was flat when compared to the fourth quarter of 2012. Equity in earnings of the Harbor Coal joint venture in 2013 was $1.1 million compared to $2.2 million in 2012, a decrease of $1.1 million. The decrease is the result of reduced revenue based on increased natural gas injection and reductions to coal through-put for the current year as well as blast furnace operation that began in the second quarter of 2013.
Operating income for the fourth quarter of 2013 was $1.2 million compared to $1.0 million for the fourth quarter of 2012, an increase of $0.2 million. Operating income in 2013 was $2.3 million compared to an operating loss of $0.9 million in 2012, an improvement of $3.2 million.
Net loss and comprehensive loss for the fourth quarter of 2013 was $0.2 million compared to net income and comprehensive income of $12.4 million for the fourth quarter of 2012, a decrease of $12.6 million. Net loss and comprehensive loss in 2013 was $1.9 million compared to net income and comprehensive income of $7.3 million in 2012, a decrease of $9.2 million. The decreases are primarily due to an income tax benefit of $12.8 million recorded in 2012 related to the cancellation of debt gain from the Company's 2009 recapitalization.
Conference Call and Webcast
Management will host a conference call to discuss the fourth quarter results on Tuesday, March 18, 2014 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 April 1, 2014 (ET) by calling (855) 859-2056 or (416) 849-0833. Please enter the password 2138234 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 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) 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) Income
and Comprehensive
(Loss) Income
to Adjusted
EBITDA
(in 000's of US$) Three Months Ended For the Years Ended
December 31, December 31,
2013 2012 2013 2012
Net (loss) income
and comprehensive
(loss) income $ (174) $ 12,399 $ (1,905) $ 7,285
Adjustment to net
(loss) income and
comprehensive
(loss) income:
Depreciation
and
amortization 2,547 5,221 18,609 21,053
Depreciation
and
amortization
included in
equity in
earnings of
Harbor Coal
joint venture 1,009 1,009 4,036 4,036
Interest
expense 1,176 1,450 4,939 5,690
Deferred
finance fees
expensed upon
extinguishment
of debt - - - 765
Realized and
unrealized loss
(gain) on
derivative
contracts 56 (18) (24) 554
Loss on
derecognition - - 117 46
Income tax
expense
(benefit) 102 (12,855) (742) (15,201)
EBITDA
$ 4,716 $ 7,206 $ 25,030 $ 24,228
Adjustments to
EBITDA:
Major
maintenance (1) 3,371 1,475 8,729 5,432
Management
Agreement
termination fee - - - 6,000
Professional
fees and other
general and
administrative
expenses
related to
the buyout
of the
non-controlling
interest and
internalization
of management - 76 - 369
Stock based
compensation
(2) 73 78 507 183
Adjusted EBITDA $ 8,160 $ 8,835 $ 34,266 $ 36,212
1) Represents nonrecurring major maintenance expenditures for such
items as boiler retubing work and other related maintenance
expenditures and ductwork repairs.
2) The year ended December 31, 2013 is inclusive of a one-time board
compensation award.
Reconcilation
of Net Cash
Provided by
Operating
Activities
to Free
Cash Flow
(in 000's of Three Months Ended For the Years Ended
US$) December 31, December 31,
2013 2012 2013 2012
Net cash
provided by
operating
activities $ 4,344 $ 7,487 $ 23,346 $ 19,541
Less: Capital
expenditures (1,806) (2,234) (8,718) (13,956)
Free Cash
Flow $ 2,538 $ 5,253 $ 14,628 $ 5,585
Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands of U.S. dollars)
ASSETS December 31, December 31, 2012
2013
Current assets:
Cash and cash equivalents $ 21,226 $ 30,101
Accounts receivable 8,120 8,266
Inventory, net 1,455 1,126
Tax receivable 118 691
Prepaid expenses 1,200 987
Other current assets - 336
Total current assets 32,119 41,507
Non-current assets:
Property, plant and 183,249 185,355
equipment, net
Intangible assets, net 3,101 12,321
Restricted cash 3,175 3,445
Interest rate cap 105 85
Investment in Harbor Coal 54,615 58,600
joint venture
Total assets $ 276,364 $ 301,313
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 1,195 $ 971
Short-term debt 7,624 11,133
Accrued property taxes 1,522 1,725
Accrued expenses 6,892 6,558
Total current liabilities 17,233 20,387
Non-current liabilities:
Long-term debt 54,684 64,913
Deferred income tax 979 1,753
liability, net
Interest rate swap 76 155
Asset retirement 2,938 3,063
obligations
Total liabilities 75,910 90,271
Equity
Common stock: no par value,
unlimited shares
authorized;
44,706,186 issued and 274,479 274,479
outstanding
Contributed surplus 37,723 37,466
Accumulated shareholders' (111,748) (100,903)
deficit
Total equity 200,454 211,042
Total liabilities and equity $ 276,364 $ 301,313
Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of U.S. dollars, except share and per share amounts)
For the Years Ended December
31,
2013 2012
Revenue:
Capacity $ 36,071 $ 36,071
Energy service 20,073 18,228
56,144 54,299
Expenses:
Operations and maintenance 21,880 17,507
General and administrative 7,961 8,778
Management Agreement termination fee - 6,000
Employee benefits 6,404 4,023
Depreciation and
amortization 18,609 21,053
Loss on derecognition 117 46
Total operating expenses 54,971 57,407
Equity in earnings of Harbor Coal joint
venture 1,095 2,201
Operating income (loss) 2,268 (907)
Other expense
Interest expense (4,939) (5,690)
Deferred finance fees expensed upon -
extinguishment of debt (765)
Realized and unrealized gain (loss)
on derivative
contracts 24 (554)
Loss before income taxes (2,647) (7,916)
Income tax benefit 742 15,201
Net (loss) income and comprehensive $
(loss) income (1,905) $ 7,285
Net (loss) income and comprehensive
(loss) income attributable to:
Owners of the Company $ (1,905) $ 9,080
Non-controlling interest - (1,795)
$ (1,905) $ 7,285
Net (loss) income per share
attributable
to owners of the Company:
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) income per
share attributable to owners of the $
Company (0.04) $ 0.20
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 income and
comprehensive
income
for the year
ended December
31, 2012 - - 9,080 9,080 (1,795) 7,285
Dividends on
Common Shares - - (2,235) (2,235) - (2,235)
Buyout of
non-controlling
interest - 33,967 - 33,967 (77,707) (43,740)
Stock-based
compensation - 183 - 183 - 183
Balance -
December 31, $ $ $ $ $ $
2012 274,479 37,466 (100,903) 211,042 - 211,042
Balance - $ $ $ $ $ $
January 1, 2013 274,479 37,466 (100,903) 211,042 - 211,042
Net loss and
comprehensive
loss
for the year
ended December
31, 2013 - - (1,905) (1,905) - (1,905)
Dividends on
Common Shares - - (8,940) (8,940) - (8,940)
Stock-based
compensation - 257 - 257 - 257
Balance -
December 31, $ $ $ $ $ $
2013 274,479 37,723 (111,748) 200,454 - 200,454
Primary Energy Recycling Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)
For the Years Ended December 31,
2013 2012
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss and comprehensive loss for $ (1,905) $
the period 7,285
Adjustments for:
Depreciation and amortization 18,609 21,053
Loss on derecognition 117 46
Unrealized loss (gain) on derivative (145)
contracts 320
Deferred finance fees expensed upon -
extinguishment of debt 765
Equity in earnings of Harbor Coal (1,095)
joint venture (2,201)
Distributions from investment in 5,080
Harbor Coal joint venture 6,790
Non-cash interest expense 1,563 2,221
Non-cash stock based compensation 257 183
Income tax (774) (15,243)
21,707 21,219
Net change in non-cash working 1,639
capital balances (1,678)
Net cash provided by operating 23,346
activities 19,541
CASH FLOWS FROM INVESTING
ACTIVITIES:
Change in restricted cash 270 (1,515)
Capital expenditures (8,718) (13,956)
Net cash used in investing (8,448)
activities (15,471)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of debt - 85,000
Purchase of non-controlling interest - (24,225)
Payments of deferred financing costs - (5,351)
Repayment of debt (14,833) (47,725)
Dividends on Common Shares (8,940) (2,235)
Net cash (used in) provided by (23,773)
financing activities 5,464
Net (decrease) increase in cash (8,875) 9,534
Cash and cash equivalents - 30,101
beginning of period 20,567
Cash and cash equivalents - end of $ 21,226 $
period 30,101
Supplemental disclosure of cash flow
information:
Cash paid during the period for $ 3,514 $
interest 3,510
Cash paid during the period for $ 12 $
income taxes 168
SOURCE Primary Energy Recycling Corporation
