Primary Energy works out delays in financial report

Primary Energy Recycling Corp. investors apparently aren't perturbed by the company's announcement a couple weeks ago that it's delaying its third-quarter earnings report and deferring for a second time its September dividend declaration.

At the close on Friday, the company's stock was trading at $5.93, off just few cents from Oct. 10, a day before the company's announcement.

"The market gets it and a lot of what is going on at Primary is beyond their control," said analyst Robert B. Winslow of Toronto-based Wellington Inc.

Primary Energy is a Canadian company and most of its stockholders are Canadian. However, its head office is located in Oak Brook.

Primary Energy owns and operates four energy recycling projects and has a 50 percent interest in Harbor Coal, located in East Chicago, Ind. The company recycles waste energy from industrial processes and converts it to electricity and thermal energy for its clients.

The company said it's uncertain about its third-quarter results because of the impact of any inventory adjustment affecting its Harbor Coal facility.

It's possible that October's dividend, payable in November, also may be late, according to a company statement.

Chief Financial Officer V. Michael Alverson said in a telephone interview the company's earnings are tied to the inventory results because of a shared savings agreement with Luxembourg-based steel producer and distributor ArcelorMittal, one of Primary Energy's largest customers.

"We provide pulverized coal to Mittal and that coal allows them to save some commodities, primarily coke, maybe natural gas or oil," Alverson said. "We make calculations on how much coke we saved them, for example. Then they go through and periodically do a survey to see how much coke they have on the ground and they compare that to the accounting records and we adjust revenue accordingly."

Therefore the customer's inventory, not yet complete, affects Primary Energy's revenue calculation and thus its earnings.

Following the company's Sept. 21 announcement that its distribution payments would be delayed, Toronto-based credit-rating agency DBRS lowered its bond rating one notch to STA-4, or high, and kept its stability rating under review with negative implications.