Date: April 30, 2007
Source: Covanta Holding Corporation
Covanta Holding Corporation (NYSE: CVA) reported financial results today for the three months ended March 31, 2007. Diluted loss per share was $0.12 in the first quarter, which included approximately $32 million of pre-tax expenses associated with the Company's previously-announced recapitalization and a pre-tax write-down of assets of approximately $18 million relating to an insured loss caused by a fire at the Company's SEMASS facility. Excluding these costs diluted earnings per share would have been $0.08 in the first quarter of 2007 which is comparable to $0.08 in the prior year comparative period.
First Quarter Results
For the three months ended March 31, 2007 total Company operating revenues grew 8 percent to $330 million, up from $305 million in the prior year comparative period.
The Company's domestic waste and energy operating revenues grew 10 percent to $288 million, driven primarily by construction revenues at the Hillsborough County facility, the inclusion of the Harrisburg facility in results of operations, and contractual service fee escalations. International revenues of $40 million grew by 3 percent primarily due to higher electricity sales at both Indian facilities offset by decreased revenues resulting from the sale of a small facility in China during the second quarter of 2006.
Adjusted EBITDA at the Company's principal subsidiary Covanta Energy Corporation ("Covanta Energy") was $103 million in the first quarter. Covanta Energy's Free Cash Flow increased by $12 million to $34 million for the three months ended March 31, 2007 compared to the comparable period of 2006.
"Our successful recapitalization and joint venture investment in China positions us to take advantage of promising growth opportunities around the world," said Anthony Orlando, President and Chief Executive Officer of Covanta. "We are also pleased that our SEMASS facility has quickly resumed operation after a fire on March 31. The character and quality of our employees is never more evident than in a situation such as this. Their preparation, commitment to safety and dedication to provide uninterrupted service for our clients is exemplary of the core values that will drive our future growth."
2007 Guidance Reaffirmed
The Company is reaffirming its full year 2007 guidance for the following key metrics:
-- Covanta Energy Adjusted EBITDA in the range of $545 million to $565 million;
-- Covanta Energy Free Cash Flow in the range of $290 million to $320 million; and
-- Covanta diluted earnings per share in the range of $0.65 to $0.75.
Conference Call Information
Covanta will host a conference call at 8:30 am (Eastern) on Tuesday, May 1, 2007 to discuss its results for the three months ended March 31, 2007. Prepared remarks will be followed by a question-and-answer session. To participate, please dial 800-289-0438 approximately 10 minutes prior to the scheduled start of the call. If you are calling from outside of the United States, please dial 913-981-5527. The conference call will also be web cast live on the Investor Relations section of the Covanta website at www.covantaholding.com.
A replay of the conference call will be available from 11:00 am (Eastern) on Tuesday, May 1, 2007 through midnight (Eastern) Tuesday, May 8, 2007. To access the replay, please dial 888-203-1112 or 719-457-0820 and use the replay pass code: 9963240. The web cast will also be archived on www.covantaholding.com.
About Covanta
Covanta is a New York Stock Exchange listed company engaging in waste disposal, energy services and specialty insurance through its subsidiaries. Covanta's subsidiary, Covanta Energy, is an internationally recognized owner and operator of energy-from-waste and power generation projects. Covanta Energy's energy-from-waste facilities convert municipal solid waste into renewable energy for numerous communities, predominantly in the United States.
Covanta Holding Corporation Exhibit 1
Condensed Consolidated Statements of Operations
Three Months Ended
March 31,
2007 2006 (A)
(Unaudited)
(In thousands, except per share amounts)
Operating revenues
Waste and service revenues $ 198,911 $ 191,369
Electricity and steam sales 113,666 109,178
Other operating revenues 17,632 4,809
Total operating revenues 330,209 305,356
Operating expenses
Plant operating expenses 202,007 186,549
Depreciation and amortization expense 48,043 46,397
Net interest expense on project debt 14,605 15,998
Write-down of assets (B) 18,266 -
Other operating expenses 16,816 2,690
General and administrative expenses 22,192 18,204
Total operating expenses 321,929 269,838
Operating income 8,280 35,518
Other income (expense)
Investment income 5,184 2,403
Interest expense (21,260) (28,483)
Loss on extinguishment of debt (C) (32,006) -
Total other expenses (48,082) (26,080)
(Loss) income before income tax
benefit (expense), minority interests
and equity in net income from
unconsolidated investments (39,802) 9,438
Income tax benefit (expense) 18,176 (4,263)
Minority interests (1,398) (600)
Equity in net income from
unconsolidated investments 5,106 6,843
Net (Loss) Income $ (17,918) $ 11,418
(Loss) Earnings Per Share:
Basic $ (0.12) $ 0.08
Weighted Average Shares 151,476 143,384
Diluted $ (0.12) $ 0.08
Weighted Average Shares 151,476 145,743
(A) Certain prior period amounts have been reclassified to conform to
current period presentation.
(B) On March 31, 2007, the SEMASS energy-from-waste facility located in
Rochester, Massachusetts experienced a fire in the front-end receiving
portion of the facility. Damage was extensive to this portion of
the facility and operations at the facility were suspended completely
for approximately 20 days. Partial operations have resumed, and
full-scale operations are expected to resume during May 2007. As a
result of this loss, Covanta Holding Corporation ("Covanta") recorded
an asset impairment of $18.3 million, pre-tax, in the first quarter
of 2007, which represents a preliminary estimate of the net book value
of the assets destroyed. Based upon additional investigation and
analysis to be conducted, Covanta may increase the impairment
recorded.
The cost of repair or replacement, and business interruption losses,
are insured under the terms of applicable insurance policies, subject
to deductibles. Covanta cannot predict the timing of when proceeds
under such policies will be received. As insurance proceeds are
received, they will be recorded as a reduction to the loss related to
the write-down of assets or a reduction to operating expenses. Covanta
expects the cost of repair or replacement and business interruption
losses not recovered, representing deductibles under such policies,
will not be material.
(C) During January and February 2007, Covanta completed public offerings
of common stock and 1.00% Senior Convertible Debentures, and Covanta
Energy Corporation ("Covanta Energy") closed on new credit facilities.
In addition, in February 2007, Covanta Energy completed tender offers
for outstanding notes previously issued by its intermediate
subsidiaries. As a result of the recapitalization plan in the first
quarter of 2007, Covanta recognized a loss on extinguishment of debt
charge of approximately $32.0 million, pre-tax, which is comprised of
the write-down of deferred financing costs, tender premiums paid for
the intermediate subsidiary debt, and a call premium paid for a credit
facility refinanced, which was in effect prior to Covanta Energy's
new credit facilities. These amounts were partially offset by the
write-down of unamortized premiums relating to the intermediate
subsidiary debt and a gain associated with the settlement of interest
rate swap agreements.
Covanta Holding Corporation Exhibit 2
Reconciliation of Net (Loss) Income to Adjusted EBITDA
Three Months Ended Full Year
March 31, Estimated
2007 2006 2007
(Unaudited, in thousands)
Net (Loss) Income -
Covanta Holding Corporation $(17,918) $ 11,418
Less: Net Income - All Other 2,698 575
Net (Loss) Income -
Covanta Energy Corporation (20,616) 10,843 $99,000 - $114,000
Depreciation and
amortization expense 48,032 46,380 193,000
Debt service:
Net interest expense
on project debt 14,605 15,998
Interest expense 20,288 28,483
Investment income (2,725) (1,918)
Subtotal debt service 32,168 42,563 114,000
Income tax expense (16,825) 3,922 61,000 - 69,000
Other Adjustments: (A)
Change in unbilled service
receivables 5,046 4,070
Non-cash compensation 1,771 831
Other non-cash
operating expenses 1,832 1,868
Subtotal other adjustments 8,649 6,769 38,000 - 35,000
Write-down of assets (B) 18,266 -
Loss on extinguishment
of debt (C) 32,006 - 32,000
Minority interests 1,716 830 8,000
Total adjustments 124,012 100,464
Adjusted EBITDA -
Covanta Energy Corporation $103,396 $111,307 $545,000 - $565,000
(A) These items represent amounts that are non-cash in nature.
(B) On March 31, 2007, the SEMASS energy-from-waste facility located in
Rochester, Massachusetts experienced a fire in the front-end receiving
portion of the facility. Damage was extensive to this portion of
the facility and operations at the facility were suspended completely
for approximately 20 days. Partial operations have resumed, and
full-scale operations are expected to resume during May 2007. As a
result of this loss, Covanta recorded an asset imparment of
$18.3 million, pre-tax, in the first quarter of 2007, which represents
a preliminary estimate of the net book value of the assets destroyed.
Based upon additional investigation and analysis to be conducted,
Covanta may increase the impairment recorded.
The cost of repair or replacement, and business interruption losses,
are insured under the terms of applicable insurance policies, subject
to deductibles. Covanta cannot predict the timing of when proceeds
under such policies will be received. As insurance proceeds are
received, they will be recorded as a reduction to the loss related to
the write-down of assets or a reduction to operating expenses. Covanta
expects the cost of repair or replacement and business interruption
losses not recovered, representing deductibles under such policies,
will not be material.
(C) During January and February 2007, Covanta completed public offerings
of common stock and 1.00% Senior Convertible Debentures, and Covanta
Energy closed on new credit facilities. In addition, in February 2007,
Covanta Energy completed tender offers for outstanding notes
previously issued by its intermediate subsidiaries. As a result of
the recapitalization plan in the first quarter of 2007, Covanta
recognized a loss on extinguishment of debt charge of approximately
$32.0 million, pre-tax, which is comprised of the write-down of
deferred financing costs, tender premiums paid for the intermediate
subsidiary debt, and a call premium paid for a credit facility
refinanced, which was in effect prior to Covanta Energy's new credit
facilities. These amounts were partially offset by the write-down of
unamortized premiums relating to the intermediate subsidiary debt and
a gain associated with the settlement of interest rate swap
agreements.
Covanta Holding Corporation Exhibit 3
Reconciliation of Cash Flow Provided by
Operating Activities to Adjusted EBITDA
Three Months Ended
March 31, Full Year
2007 2006 Estimated 2007
(Unaudited, in thousands)
Cash flow provided by
operating activities -
Covanta Energy Corporation $ 53,212 $ 40,444 $345,000 - $375,000
Debt Service 32,168 42,563 114,000
Amortization of debt premium
and deferred financing costs 3,253 5,258 14,000
Other 14,763 23,042 72,000 - 62,000
Adjusted EBITDA -
Covanta Energy Corporation $103,396 $111,307 $545,000 - $565,000
Covanta Energy Corporation Exhibit 4
Reconciliation of Cash Flow Provided by
Operating Activities to Free Cash Flow
Three Months Ended
March 31, Full Year
2007 2006 Estimated 2007
(Unaudited, in thousands)
Cash Flow Provided by
Operating Activities $ 53,212 $ 40,444 $345,000 - $375,000
Less: Purchase of Property,
Plant and Equipment (A) (18,871) (18,021) (55,000)
Free Cash Flow (B) $ 34,341 $ 22,423 $290,000 - $320,000
(A) Purchase of Property, Plant and Equipment is also referred to as
capital expenditures.
(B) Free Cash Flow is provided for Covanta Energy. The corporate debt
resides at Covanta Energy and, therefore, Covanta provides Free Cash
Flow at that level and not at the Covanta level which includes the
insurance business and the holding company.
Covanta Holding Corporation Exhibit 5
Components of Diluted (Loss) Earnings Per Share
Three Months Ended March 31,
2007 2006
(Unaudited)
Write-down of assets, net of tax (A) $(0.07) $ -
Loss on extinguishment of debt, net of tax (B) (0.13) -
All other 0.08 0.08
Diluted (Loss) Earnings Per Share $(0.12) $0.08
(A) On March 31, 2007, the SEMASS energy-from-waste facility located in
Rochester, Massachusetts experienced a fire in the front-end receiving
portion of the facility. Damage was extensive to this portion of the
facility and operations at the facility were suspended completely
for approximately 20 days. Partial operations have resumed, and
full-scale operations are expected to resume during May 2007. As a
result of this loss, Covanta recorded an asset imparment of
$18.3 million, pre-tax, in the first quarter of 2007, which represents
a preliminary estimate of the net book value of the assets destroyed.
Based upon additional investigation and analysis to be conducted,
Covanta may increase the impairment recorded.
The cost of repair or replacement, and business interruption losses,
are insured under the terms of applicable insurance policies, subject
to deductibles. Covanta cannot predict the timing of when proceeds
under such policies will be received. As insurance proceeds are
received, they will be recorded as a reduction to the loss related to
the write-down of assets or a reduction to operating expenses. Covanta
expects the cost of repair or replacement and business interruption
losses not recovered, representing deductibles under such policies,
will not be material.
(B) During January and February 2007, Covanta completed public offerings
of common stock and 1.00% Senior Convertible Debentures, and Covanta
Energy closed on new credit facilities. In addition, in February 2007,
Covanta Energy completed tender offers for outstanding notes
previously issued by its intermediate subsidiaries. As a result of
the recapitalization plan in the first quarter of 2007, Covanta
recognized a loss on extinguishment of debt charge of approximately
$32.0 million, pre-tax, which is comprised of the write-down of
deferred financing costs, tender premiums paid for the intermediate
subsidiary debt, and a call premium paid for a credit facility
refinanced, which was in effect prior to Covanta Energy's new credit
facilities. These amounts were partially offset by the write-down of
unamortized premiums relating to the intermediate subsidiary debt and
a gain associated with the settlement of interest rate swap
agreements.
For more information, visit: www.covantaholding.com.
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