Date: July 19, 2012
Source: Covanta Holding Corp.
Covanta Holding Corporation (NYSE: CVA) ("Covanta" or the "Company"), a leading global owner and operator of Energy-from-Waste ("EfW") projects, reported unaudited financial results today for the three and six months ended June 30, 2012.
Key Q2 2012 Financial Highlights:
Revenue was relatively flat at $410 million
Adjusted EBITDA of $125 million was up $2 million from the prior year
Free Cash Flow declined to $16 million, as expected, due to construction working capital timing
Adjusted EPS improved by $0.01 to $0.15 per share
Returned $50 million to shareholders, including $30 million of share repurchases
Key Q2 2012 Operational Highlights:
Achieved outstanding EfW boiler availability, waste throughput and steam production
Successfully extended waste contracts with the City of Tulsa and Stanislaus County
Installed new non-ferrous recovery system at Fairfax and metal shredder at the SEMASS facility
Honolulu expansion unit commenced start-up testing in June
Commenting on the second quarter of 2012, Anthony Orlando, Covanta's President and CEO stated, "Excellent operating performance drove another solid financial quarter and it gives us confidence to reaffirm our full year guidance, which calls for continued earnings growth despite declines in energy and recycled metal markets."
"Furthermore, we are effectively executing against our organic growth initiatives, while strengthening our base business by negotiating win-win contract renewals with our clients. The work we are doing now will pay off in the coming years," Orlando concluded.
Three Months Ended
June 30,
---------------------------------
Continuing Operations 2012 2011
---------------- ----------------
(Unaudited, $ in millions, except
per share amounts)
Revenue $ 410 $ 411
Net Income from Continuing Operations $ 19 $ 18
Adjusted EBITDA $ 125 $ 123
Free Cash Flow $ 16 $ 43
Adjusted EPS $ 0.15 $ 0.14
Second Quarter Results Operating revenues of $410 million were relatively flat compared to the prior year as higher construction revenues, service fee contract escalations, and higher special waste revenues were offset by reduced energy revenues due to lower pricing, as well as lower production at our biomass facilities.
Operating expenses of $354 million decreased by $4 million from $358 million in the prior year period. This improvement was primarily attributed to the Company's organic growth initiatives (including various operational improvements) and insurance recoveries, partially offset by normal cost escalations.
Operating income improved by $3 million to $56 million versus the prior year. This increase was primarily due to lower operating expenses.
Adjusted EBITDA of $125 million was up from $123 million in the prior year period.
As previously noted, Free Cash Flow declined to $16 million versus $43 million in the prior year. While the second quarter is typically a low seasonal quarter, the decline in Free Cash Flow was more pronounced due to the timing of construction working capital.
Adjusted EPS increased by $0.01 versus the prior year period to $0.15, as improved operating income, higher equity income and lower number of shares outstanding due to the Company's common stock buyback program more than offset higher interest expense.
Year-to-Date Results For the six months ended June 30, 2012, total operating revenues increased 2% to $802 million. Free Cash Flow was $92 million for the year-to-date period compared to $109 million for the same period last year. Adjusted EBITDA was $198 million compared to $194 million for the same period last year and Adjusted EPS was $0.06 compared to $0.03 in 2011.
Shareholder Returns During the quarter, the Company returned $50 million to shareholders, consisting of $20 million in cash dividends declared and $30 million in share repurchases (1.4% of common stock outstanding). Year-to-date, the Company has returned $101 million to shareholders in the form of $41 million in dividends declared and $60 million in shares repurchased (2.7% of common stock outstanding). Since the inception of its buyback program the Company has repurchased 15.6% of shares outstanding. As of June 30, 2012, Covanta had $115 million of share repurchase authorization remaining.
2012 Guidance The Company is reaffirming its previously announced guidance for 2012 for the following financial metrics:
Continuing Operations
--------------------------------------------------
Full Year Full Year % Change At
2012 Guidance 2011 Actual Midpoint
---------------- ---------------- --------------
(Unaudited, $ in millions, except
per share amounts)
Adjusted EBITDA $ 500 - $ 530 $ 492 5%
Free Cash Flow $ 250 - $ 280 $ 280 (5)%
Adjusted EPS $ 0.55 - $ 0.65 $ 0.52 15%
Sanjiv Khattri, Covanta's Executive Vice-President and Chief Financial Officer commented, "Our financial results were right in-line with expectations for the quarter despite weakness in the energy and recycled metals markets. Construction working capital negatively impacted our Free Cash Flow this quarter, but overall our Free Cash Flow remains strong. We see plenty of room to grow the business in both the near and long term and are investing in high-value projects to make this happen. In the meantime, we continue to meaningfully return capital to our shareholders through our quarterly cash dividend and stock repurchase program."
Conference Call Information Covanta will host a conference call at 8:30 am (Eastern) on Thursday, July 19, 2012 to discuss its second quarter results. The conference call will begin with prepared remarks, which will be followed by a question and answer session. To participate, please dial 800-860-2442 approximately 10 minutes prior to the scheduled start of the call. If calling from Canada, please dial 866-605-3852. If calling outside of the United States and Canada, please dial 412-858-4600. Please request the "Covanta Holding Corporation call" when prompted by the conference call operator. The conference call will also be webcast live from the Investor Relations section of the Company's website. A presentation will be made available during the call and will be found on the Investor Relations section of the Covanta website at www.covantaenergy.com.
A replay will be available one hour after the end of the conference call through 9:00 AM (Eastern) Thursday, July 26, 2012. To access the replay, please dial 877-344-7529, or from outside of the United States 412-317-0088 and use the replay conference ID number 10015619. The webcast will also be archived on www.covantaenergy.com.
About Covanta Covanta Holding Corporation (NYSE: CVA) is an internationally recognized owner and operator of large-scale Energy-from-Waste and renewable energy projects and a recipient of the Energy Innovator Award from the U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy. Covanta's 44 Energy-from-Waste facilities provide communities with an environmentally sound solution to their solid waste disposal needs by using that municipal solid waste to generate clean, renewable energy. Annually, Covanta's modern Energy-from-Waste facilities safely and securely convert approximately 20 million tons of waste into 9 million megawatt hours of clean renewable electricity and create more than 9 billion pounds of steam that are sold to a variety of industries. For more information, visit www.covantaenergy.com.
Cautionary Note Regarding Forward-Looking Statements Certain statements in this press release may constitute "forward-looking" statements as defined in Section 27A of the Securities Act of 1933 (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), the Private Securities Litigation Reform Act of 1995 (the "PSLRA") or in releases made by the Securities and Exchange Commission ("SEC"), all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Covanta and its subsidiaries, or general industry or broader economic performance in global markets in which Covanta operates or competes, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words "plan," "believe," "expect," "anticipate," "intend," "estimate," "project," "may," "will," "would," "could," "should," "seeks," or "scheduled to," or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the "safe harbor" provisions of such laws. Covanta cautions investors that any forward-looking statements made by Covanta are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to Covanta, include, but are not limited to, the risk that Covanta may not successfully grow its business as expected or close its announced or planned acquisitions or projects in development, and those factors, risks and uncertainties that are described in periodic securities filings by Covanta with the SEC. Although Covanta believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any forward-looking statements. Covanta's future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties. The forward-looking statements contained in this press release are made only as of the date hereof and Covanta does not have or undertake any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law.
Exhibit 1
Covanta Holding Corporation
Condensed Consolidated Statements of Income
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2012 2011 2012 2011
--------- --------- --------- ---------
(Unaudited)
(In millions, except per share amounts)
Operating revenues
Waste and service revenues $ 280 $ 276 $ 538 $ 527
Electricity and steam sales 91 98 182 192
Other operating revenues 39 37 82 69
--------- --------- --------- ---------
Total operating revenues 410 411 802 788
--------- --------- --------- ---------
Operating expenses
Plant operating expenses 243 248 510 519
Other operating expenses 30 30 69 58
General and administrative
expenses 25 25 50 50
Depreciation and amortization
expense 49 47 99 94
Net interest expense on
project debt 7 8 15 16
--------- --------- --------- ---------
Total operating expenses 354 358 743 737
--------- --------- --------- ---------
Operating income 56 53 59 51
--------- --------- --------- ---------
Other income (expense)
Interest expense (24) (17) (42) (34)
Non-cash convertible debt
related expense (7) (6) (13) (11)
Loss on extinguishment of debt
(a) - - (2) -
Other (expense) income, net - (3) 3 (3)
--------- --------- --------- ---------
Total other expenses (31) (26) (54) (48)
--------- --------- --------- ---------
Income from continuing
operations before income tax
expense and equity in net
income from unconsolidated
investments 25 27 5 3
Income tax expense (11) (11) (3) (1)
Equity in net income from
unconsolidated investments 5 2 6 2
--------- --------- --------- ---------
Income from continuing
operations 19 18 8 4
--------- --------- --------- ---------
(Loss) income from discontinued
operations, net of income tax
expense of $1, $1, $1 and $3,
respectively (2) 2 (2) 151
--------- --------- --------- ---------
Net Income 17 20 6 155
--------- --------- --------- ---------
Noncontrolling interests:
Less: Net loss (income) from
continuing operations
attributable to noncontrolling
interests in subsidiaries 1 (1) - (1)
Less: Net income from
discontinued operations
attributable to noncontrolling
interests in subsidiaries - (1) - (3)
--------- --------- --------- ---------
Total net loss (income)
attributable to
noncontrolling interests in
subsidiaries 1 (2) - (4)
--------- --------- --------- ---------
Net Income Attributable to
Covanta Holding Corporation $ 18 $ 18 $ 6 $ 151
========= ========= ========= =========
Amounts Attributable to Covanta Holding
Corporation stockholders':
Continuing operations $ 20 $ 17 $ 8 $ 3
Discontinued operations (2) 1 (2) 148
--------- --------- --------- ---------
Net Income Attributable to
Covanta Holding Corporation $ 18 $ 18 $ 6 $ 151
========= ========= ========= =========
Earnings Per Share Attributable
to Covanta Holding Corporation
stockholders':
Basic
Continuing operations $ 0.15 $ 0.12 $ 0.06 $ 0.02
Discontinued operations (0.01) 0.01 (0.01) 1.02
--------- --------- --------- ---------
Covanta Holding Corporation $ 0.14 $ 0.13 $ 0.05 $ 1.04
========= ========= ========= =========
Weighted Average Shares 133 144 133 145
========= ========= ========= =========
Diluted
Continuing operations $ 0.15 $ 0.12 $ 0.06 $ 0.02
Discontinued operations (0.01) 0.01 (0.01) 1.02
--------- --------- --------- ---------
Covanta Holding Corporation $ 0.14 $ 0.13 $ 0.05 $ 1.04
========= ========= ========= =========
Weighted Average Shares 134 145 134 146
========= ========= ========= =========
Cash Dividend Declared Per
Share: $ 0.15 $ 0.075 $ 0.30 $ 0.15
========= ========= ========= =========
Supplemental Information - Non-
GAAP
Adjusted EPS (b) $ 0.15 $ 0.14 $ 0.06 $ 0.03
(a) For additional information, see Exhibit 7A - Note (a) of this Press
Release.
(b) For additional information, see Exhibit 4 of this Press Release.
Exhibit 1A
Covanta Holding Corporation
Condensed Consolidated Statements of Comprehensive Income
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2012 2011 2012 2011
--------- --------- --------- ---------
(Unaudited, in millions)
Net income $ 17 $ 20 $ 6 $ 155
--------- --------- --------- ---------
Foreign currency translation (5) - (4) 8
Net unrealized gain on
derivative instruments, net
of tax - - 1 -
--------- --------- --------- ---------
Other comprehensive (loss)
income attributable to Covanta
Holding Corporation (5) - (3) 8
--------- --------- --------- ---------
Comprehensive income 12 20 3 163
Less: Net loss (income)
attributable to noncontrolling
interests in subsidiaries 1 (2) - (4)
--------- --------- --------- ---------
Comprehensive income
attributable to Covanta Holding
Corporation $ 13 $ 18 $ 3 $ 159
========= ========= ========= =========
Exhibit 2
Covanta Holding Corporation
Condensed Consolidated Balance Sheets
As of
--------------------------
June 30, December 31,
2012 2011
------------ ------------
(Unaudited)
(In millions, except per
share amounts)
ASSETS
Current:
Cash and cash equivalents $ 220 $ 232
Restricted funds held in trust 101 101
Receivables (less allowances of $5 and $5,
respectively) 231 260
Unbilled service receivables 16 20
Deferred income taxes 24 28
Prepaid expenses and other current assets 110 105
Assets held for sale - 18
------------ ------------
Total Current Assets 702 764
Property, plant and equipment, net 2,403 2,423
Investments in fixed maturities at market
(cost: $30 and $31, respectively) 30 31
Restricted funds held in trust 90 90
Unbilled service receivables 21 25
Waste, service and energy contracts, net 415 434
Other intangible assets, net 76 78
Goodwill 232 232
Investments in investees and joint ventures 47 43
Other assets 329 265
------------ ------------
Total Assets $ 4,345 $ 4,385
============ ============
LIABILITIES AND EQUITY
Current:
Current portion of long-term debt $ 3 $ 32
Current portion of project debt 140 147
Accounts payable 41 25
Deferred revenue 39 61
Accrued expenses and other current liabilities 213 211
Liabilities held for sale - 3
------------ ------------
Total Current Liabilities 436 479
Long-term debt 1,590 1,454
Project debt 500 533
Deferred income taxes 629 633
Waste and service contracts 70 76
Other liabilities 124 122
------------ ------------
Total Liabilities 3,349 3,297
------------ ------------
Equity:
Covanta Holding Corporation stockholders equity:
Preferred stock ($0.10 par value; authorized
10 shares; none issued and outstanding) - -
Common stock ($0.10 par value; authorized 250
shares; issued 159 and 158 shares;
outstanding 133 and 136 shares) 16 16
Additional paid-in capital 808 824
Accumulated other comprehensive (loss) income (3) 1
Accumulated earnings 173 244
Treasury stock, at par (3) (2)
------------ ------------
Total Covanta Holding Corporation
stockholders equity 991 1,083
Noncontrolling interests in subsidiaries 5 5
------------ ------------
Total Equity 996 1,088
------------ ------------
Total Liabilities and Equity $ 4,345 $ 4,385
============ ============
Exhibit 3
Covanta Holding Corporation
Condensed Consolidated Statements of Cash Flow
Six Months Ended
June 30,
--------------------------
2012 2011
------------ ------------
(Unaudited, in millions)
OPERATING ACTIVITIES:
Net income $ 6 $ 155
Less: (Loss) income from discontinued
operations, net of tax expense (2) 151
------------ ------------
Income from continuing operations 8 4
Adjustments to reconcile net income from
continuing operations to net cash provided by
operating activities from continuing
operations:
Depreciation and amortization expense 99 94
Loss on extinguishment of debt (a) 2 -
Non-cash convertible debt related expense 13 11
Stock-based compensation expense 10 9
Deferred income taxes - (2)
Other, net (12) 7
Change in restricted funds held in trust 2 (9)
Change in working capital, net of effects of
acquisitions 22 42
------------ ------------
Net cash provided by operating activities from
continuing operations 144 156
Net cash used in operating activities from
discontinued operations - (4)
------------ ------------
Net cash provided by operating activities 144 152
------------ ------------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (66) (68)
Acquisition of businesses, net of cash
acquired - (10)
Acquisition of land use rights (1) (8)
Other, net 6 (3)
------------ ------------
Net cash used in investing activities from
continuing operations (61) (89)
Net cash provided by investing activities from
discontinued operations 11 219
------------ ------------
Net cash (used in) provided by investing
activities (50) 130
------------ ------------
FINANCING ACTIVITIES:
Proceeds from borrowings on long-term debt (a) 699 -
Payment of deferred financing costs (a) (24) -
Principal payments on long-term debt (a) (620) (3)
Principal payments on project debt (39) (77)
Convertible debenture repurchases (25) (6)
Payments of borrowings on revolving credit
facility (15) -
Proceeds from borrowings on revolving credit
facility 15 -
Proceeds from borrowings on project debt - 8
Change in restricted funds held in trust (1) 24
Cash dividends paid to stockholders (31) (11)
Common stock repurchased (59) (123)
Financing of insurance premiums, net (7) -
Other financing, net 1 (5)
------------ ------------
Net cash used in financing activities from
continuing operations (106) (193)
Net cash (used in) provided by financing
activities from discontinued operations (2) 14
------------ ------------
Net cash used in financing activities (108) (179)
------------ ------------
Effect of exchange rate changes on cash and cash
equivalents - 1
------------ ------------
Net (decrease) increase in cash and cash
equivalents (14) 104
Cash and cash equivalents at beginning of period 234 141
------------ ------------
Cash and cash equivalents at end of period 220 245
Less: Cash and cash equivalents of discontinued
operations at end of period - 10
------------ ------------
Cash and cash equivalents of continuing
operations at end of period $ 220 $ 235
============ ============
(a) For additional information, see Exhibit 7A -
Note (a) of this Press Release.
Exhibit 4
Covanta Holding Corporation
Reconciliation of Diluted Income Per Share to Adjusted EPS
Three Months
Ended Six Months Ended
June 30, June 30,
---------------- ----------------
Full Year
2012 2011 2012 2011 Estimated 2012
------- ------- ------- ------- --------------
(Unaudited)
Continuing Operations -
Diluted Earnings Per
Share $ 0.15 $ 0.12 $ 0.06 $ 0.02 $0.55 - $0.65
Reconciling Items (a) - 0.02 - 0.01 -
------- ------- ------- ------- --------------
Adjusted EPS $ 0.15 $ 0.14 $ 0.06 $ 0.03 $0.55 - $0.65
======= ======= ======= ======= ==============
(a) For details related to the Reconciling Items, see Exhibit 4A of this
Press Release.
Exhibit 4A
Covanta Holding Corporation
Reconciling Items
Three Months
Ended Six Months Ended
June 30, June 30,
---------------- ----------------
2012 2011 2012 2011
------- ------- ------- -------
(Unaudited)
(In millions, except per share
amounts)
Reconciling Items
Loss on extinguishment of
debt (a) $ - $ - $ 2 $ -
Effect on income of
derivative instruments
not designated as
hedging instruments - - - (1)
Effect of foreign
exchange loss (gain) on
indebtedness(b) - 3 (3) 3
Other 1 - 1 -
------- ------- ------- -------
Total Reconciling
Items, pre-tax 1 3 - 2
Tax effect of reconciling
items (1) (2) - (1)
Grantor trust activity - 1 - -
------- ------- ------- -------
Total Reconciling
Items, net of tax $ - $ 2 $ - $ 1
======= ======= ======= =======
Diluted Income Per Share
Impact $ - $ 0.02 $ - $ 0.01
======= ======= ======= =======
Weighted Average Diluted
Shares Outstanding 134 145 134 146
======= ======= ======= =======
(a) For additional information, see Exhibit 7A - Note (a) of this Press
Release.
(b) During the six months ended June 30, 2012 and 2011, we recorded a
foreign exchange (gain) loss related to intercompany loans, respectively.
Exhibit 5
Covanta Holding Corporation
Reconciliation of Net Income to Adjusted EBITDA
Three Months
Ended Six Months Ended
June 30, June 30,
----------------- -----------------
Full Year
2012 2011 2012 2011 Estimated 2012
------- -------- -------- -------- --------------
(Unaudited, in millions)
Net Income from
Continuing Operations
Attributable to Covanta
Holding Corporation $ 20 $ 17 $ 8 $ 3 $75 - $90
Depreciation and
amortization expense 49 47 99 94 196 - 190
Debt service:
Net interest expense on
project debt 7 8 15 16
Interest expense 24 17 42 34
Non-cash convertible
debt related expense 7 6 13 11
------- -------- -------- --------
Subtotal debt service 38 31 70 61 148 - 138
Income tax expense 11 11 3 1 45 - 65
Loss on extinguishment of
debt (a) - - 2 -
Net (loss) income
attributable to
noncontrolling interests
in subsidiaries (1) 1 - 1 3 - 8
Other adjustments:
Debt service billings
in excess of revenue
recognized - 7 6 18
Non-cash compensation
expense 5 4 10 9
Other non-cash items
(b) 3 5 - 7
------- -------- -------- --------
Subtotal other
adjustments 8 16 16 34 33 - 39
------- -------- -------- --------
Total adjustments 105 106 190 191
------- -------- -------- -------- --------------
Adjusted EBITDA -
Continuing Operations $ 125 $ 123 $ 198 $ 194 $500 - $530
======= ======== ======== ======== ==============
(a) For additional information, see Exhibit 7A - Note (a) of this Press
Release.
(b) Includes certain non-cash items that are added back under the definition
of Adjusted EBITDA in Covanta Energy Corporation's credit agreement.
Exhibit 6
Covanta Holding Corporation
Reconciliation of Cash Flow Provided by Operating Activities to Free Cash
Flow
Three Months
Ended Six Months Ended
June 30, June 30, Full Year
---------------- ----------------
2012 2011 2012 2011 Estimated 2012
------- ------- ------- ------- --------------
(Unaudited, in millions)
Cash flow provided by
operating activities
from continuing
operations $ 40 $ 63 $ 144 $ 156 $330 - $370
Less: Maintenance capital
expenditures (a) (24) (20) (52) (47) (80) - (90)
------- ------- ------- ------- --------------
Continuing Operations
Free Cash Flow $ 16 $ 43 $ 92 $ 109 $250 - $280
======= ======= ======= ======= ==============
Weighted Average Diluted
Shares Outstanding 134 145 134 146
Uses of Continuing
Operations Free Cash
Flow
Investments:
Non-maintenance capital
expenditures $ (10) $ (10) $ (14) $ (21)
Acquisition of
businesses, net of
cash acquired - (10) - (10)
Acquisition of land use
rights - (8) (1) (8)
Other investing
activities, net (b) 5 (7) 6 (3)
------- ------- ------- -------
Total investments $ (5) $ (35) $ (9) $ (42)
------- ------- ------- -------
Return of capital to
stockholders:
Cash dividends paid to
stockholders $ (21) $ (11) $ (31) $ (11)
Common stock
repurchased (29) (69) (59) (123)
------- ------- ------- -------
Total return of capital
to stockholders $ (50) $ (80) $ (90) $ (134)
------- ------- ------- -------
Capital raising
activities:
Net proceeds from
issuance of corporate
debt (c) $ (1) $ - $ 675 $ -
Net proceeds from
issuance of project
debt - 6 - 8
Other financing
activities, net 2 - 1 (2)
------- ------- ------- -------
Net proceeds from capital
raising activities $ 1 $ 6 $ 676 $ 6
------- ------- ------- -------
Debt repayments:
Net cash used for
scheduled principal
payments on project
debt (d) $ (15) $ (23) $ (40) $ (53)
Net cash used for
scheduled principal
payments on long-term
debt (f) (1) (1) (24) (3)
Optional repayment of
corporate debt (e)(f) - - (621) (6)
------- ------- ------- -------
Total debt repayments $ (16) $ (24) $ (685) $ (62)
------- ------- ------- -------
Short-term borrowing
activities - Financing
of insurance premiums,
net $ (4) $ - $ (7) $ -
Distributions to partners
of noncontrolling
interests in
subsidiaries $ - $ (1) $ - $ (3)
Effect of exchange rate
changes on cash and cash
equivalents $ - $ (1) $ - $ 1
------- ------- ------- -------
Net change in cash and
cash equivalents from
continuing operations $ (58) $ (92) $ (23) $ (125)
======= ======= ======= =======
(a) Purchases of property, plant and equipment is also referred to as
capital expenditures. Capital expenditures that primarily maintain existing
facilities are classified as maintenance capital expenditures. The following
table provides the components of total purchases of property, plant and
equipment:
Maintenance capital
expenditures $ (24) $ (20) $ (52) $ (47)
Capital expenditures
associated with
construction - (6) - (9)
Capital expenditures
associated with
technology development
and organic growth
initiatives (7) (3) (11) (5)
Capital expenditures -
other (3) (1) (3) (7)
------- ------- ------- -------
Total purchases of
property, plant and
equipment $ (34) $ (30) $ (66) $ (68)
======= ======= ======= =======
(b) Other investing activities is primarily comprised of net payments from
the purchase/sale of investment securities and business development
expenses.
(c) For additional information, see Exhibit 7A - Note (a) of this Press
Release. Excludes borrowings under Revolving Credit Facility. Calculated as
follows:
Proceeds from borrowings
on long-term debt $ - $ - $ 699 $ -
Less: Financing costs
related to issuance of
long-term debt (1) - (24) -
------- ------- ------- -------
Net proceeds from
issuance of corporate
debt $ (1) $ - $ 675 $ -
======= ======= ======= =======
(d) Calculated as follows:
Total principal payments
on project debt $ (2) $ (3) $ (39) $ (77)
(Increase) decrease in
related restricted funds
held in trust (13) (20) (1) 24
------- ------- ------- -------
Net cash used for
principal payments on
project debt $ (15) $ (23) $ (40) $ (53)
======= ======= ======= =======
(e) For additional information, see Exhibit 7A - Note (a) of
this Press Release. Calculated as follows:
Redemption of Term Loan
due 2014 $ - $ - $ (619) $ -
Redemption of Convertible
Debentures (f) - - (2) (6)
------- ------- ------- -------
Total optional repayment
of corporate debt $ - $ - $ (621) $ (6)
======= ======= ======= =======
(f) As of December 31, 2011, there were $25 million
aggregate principal amount of the Debentures outstanding. On
February 1, 2012, holders of $23 million of outstanding
Debentures exercised their option for us to redeem the
Debentures at par. The Debentures were also subject to
redemption at our option at any time on or after February 1,
2012, and we subsequently redeemed the remaining $2 million
of outstanding Debentures on March 23, 2012.
Exhibit 7
Covanta Holding Corporation
Capitalization Information
As of
---------------------------
December 31,
June 30, 2012 2011
------------- -------------
Cash and Cash Equivalents: (Unaudited, in millions)
Domestic $ 12 $ 49
International 199 174
Insurance Subsidiary 9 9
------------- -------------
Total Cash and Cash Equivalents $ 220 $ 232
============= =============
Restricted Funds Held in Trust: (a)
Debt Service - Principal $ 115 $ 113
Debt Service - Interest 7 8
------------- -------------
Debt Service Funds - Total 122 121
Revenue Funds 32 16
Other Funds 37 54
------------- -------------
Total Restricted Funds Held in Trust $ 191 $ 191
============= =============
(a) Restricted funds held in trust are primarily amounts received by third-
party trustees relating to certain projects we own which may be used only
for specified purposes. We generally do not control these accounts. They
primarily include debt service reserves for payment of principal and
interest on project debt. Revenue funds are comprised of deposits of
revenues received with respect to projects prior to their disbursement.
Other funds are primarily amounts held in trust for operations,
maintenance, environmental obligations and operating lease reserves in
accordance with agreements with our clients.
Exhibit 7A
As of December 31,
As of June 30, 2012 2011
--------------------- ---------------------
Face
Value Book Value Face Value Book Value
--------- ---------- ---------- ----------
Corporate Debt: (Unaudited, in millions)
Revolving Credit Facility (a) $ - $ - $ - $ -
Term Loan due 2014 (a) - - 619 619
New Term Loan due 2019 (a) 299 298 - -
7.25% Senior Notes due 2020 400 400 400 400
6.375% Senior Notes due 2022 (a) 400 400 - -
3.25% Cash Convertible Senior
Notes due 2014 460 495 460 442
1.00% Senior Convertible
Debentures due 2027 - - 25 25
--------- ---------- ---------- ----------
Total corporate debt (including
current portion) $ 1,559 $ 1,593 $ 1,504 $ 1,486
--------- ---------- ---------- ----------
Project Debt:
Domestic project debt - service
fee facilities $ 275 $ 278 $ 291 $ 295
Domestic project debt - tip fee
facilities 335 337 355 359
International project debt 25 25 26 26
--------- ---------- ---------- ----------
Total project debt (including
current portion) $ 635 $ 640 $ 672 $ 680
--------- ---------- ---------- ----------
Total Debt Outstanding $ 2,194 $ 2,233 $ 2,176 $ 2,166
========= ========== ========== ==========
Net Debt (b) $ 1,859 $ 1,831
========= ==========
Availability for Borrowings
under the Revolving Credit
Facility (a) $ 620 $ 300
========= ==========
Refinancing Details (Unaudited,
in millions)
Offering - 6.375% Senior Notes
due 2022 (a) $ 400
New Term Loan due 2019 (a) 300
Offering Costs (26)
---------
Net Proceeds (a) 674
Redemption of Term Loan due
2014 (a) (619)
---------
Net Offering funds available
for general corporate
purposes $ 55
=========
(a) During the first quarter of 2012, we completed a refinancing of our
previously existing senior secured credit facilities, issued by our
subsidiary, Covanta Energy, which consisted of a $300 million revolving
credit facility, a $320 million funded letter of credit facility and a $619
million term loan, by entering into $1.2 billion in new senior secured
credit facilities (the "2012 Credit Facilities") issued by our subsidiary,
Covanta Energy, comprised of a $900 million revolving credit facility that
expires in 2017 (the "Revolving Credit Facility") and a $300 million term
loan due 2019 (the "Term Loan"), and by issuing $400 million aggregate
principal amount of 6.375% senior notes due 2022 (the "6.375% Notes"). The
proceeds from the Term Loan and a portion of the proceeds from the 6.375%
Notes were used to repay the previously existing term loan, as well as to
pay transaction expenses, while the Revolving Credit Facility replaced the
previously existing $300 million revolving credit facility and $320 million
funded letter of credit facility. The Revolving Credit Facility is
available both for the issuance of letters of credit ($280 million
outstanding as of June 30, 2012) and for cash borrowings for general
corporate purposes (no outstanding cash borrowings as of June 30, 2012). As
a result of the refinancing, we recognized a loss on extinguishment of debt
of approximately $2 million, pre-tax, which was comprised of the write-off
of deferred financing costs in connection with previously existing
financing arrangements. We incurred $26 million in offering costs related
to the refinancing, of which $24 million was paid as of June 30, 2012.
(b) Net Debt is calculated as total principal amount of debt outstanding
less cash and cash equivalents and debt service principal restricted funds.
Exhibit 8
Covanta Holding Corporation
Return to Stockholders
(Unaudited, in millions, except per share amounts and percentages)
During years ended December 31, 2010 and 2011, and the quarters ended March
31 and June 30, 2012, the following amounts were returned to stockholders:
% of Common
Weighted Stock
Shares Average Cost Outstanding
Amount Repurchased Per Share Repurchased
-------- ------------ ------------ -----------
Common Stock Repurchased (a)
FY 2010 $ 95 6.1 $ 15.56 3.9%
-------- ------------
FY 2011 $ 230 14.4 $ 15.99 9.6%
-------- ------------
Q1 2012 $ 30 1.8 $ 16.45 1.3%
Q2 2012(b) 30 1.9 $ 16.04 1.4%
-------- ------------
FY 2012 sub-total: $ 60 3.7 $ 16.25 2.7%
-------- ------------
Total Common Stock
Repurchased $ 385 24.2 $ 15.92 15.6%
-------- ------------
Cash Dividends Declared to
Stockholders
FY 2010 $ 233
--------
FY 2011 $ 42
--------
Q1 2012 $ 21
Q2 2012(c) 20
--------
FY 2012 sub-total: $ 41
--------
Total Cash Dividends
Declared to Stockholders $ 316
--------
--------
Total Return to Stockholders $ 701
========
(a) As of June 30, 2012, the amount remaining under our currently
authorized share repurchase program was $115 million.
(b) Approximately $1 million of common stock repurchased during the three
months ended June 30, 2012 was paid in July 2012.
(c) On June 12, 2012, the Board of Directors authorized a quarterly cash
dividend of $0.15 per share. The Q2 2012 payment was made on July 6, 2012
to stockholders of record as of the close of business on June 22, 2012.
Exhibit 9
Covanta Holding Corporation
Consolidated Reconciliation of Cash Flow Provided by Operating Activities to
Adjusted EBITDA
Three Months
Ended Six Months Ended
June 30, June 30,
---------------- ----------------
Full Year
2012 2011 2012 2011 Estimated 2012
------- ------- ------- ------- --------------
(Unaudited, in millions)
Cash flow provided by
operating activities
from continuing
operations $ 40 $ 63 $ 144 $ 156 $330 - $370
Debt service 38 31 70 61 148 - 138
Change in working capital 41 29 (22) (42)
Change in restricted
funds held in trust - (6) (2) 9
Non-cash convertible debt
related expense (7) (6) (13) (11)
Equity in net income from
unconsolidated
investments 5 2 6 2
Dividends from
unconsolidated
investments (3) - (3) (4)
Current tax provision 4 4 3 3
Other 7 6 15 20
------- ------- ------- ------- --------------
Sub-total 47 29 (16) (23) 22
------- ------- ------- ------- --------------
Adjusted EBITDA -
Continuing Operations $ 125 $ 123 $ 198 $ 194 $500 - $530
======= ======= ======= ======= ==============
Exhibit 10
Covanta Holding Corporation
Plant Operating Expenses Detail - Americas
The Americas segment quarterly plant operating expenses typically differs
substantially as a result of the timing of scheduled plant maintenance. We
typically conduct scheduled maintenance periodically each year, which
requires that individual boiler units temporarily cease operations. During
these scheduled maintenance periods, we incur material repair and
maintenance expenses and receive less revenue until the boiler and/or
turbine units resume operations. This scheduled maintenance typically
occurs during periods of off-peak electric demand and/or lower waste
volumes, which are our first, second and fourth fiscal quarters. The first
half of the year scheduled maintenance period is typically the most
extensive. The third quarter scheduled maintenance period is typically the
least extensive. Given these factors, we typically experience our lowest
operating income from our projects during the first half of each year. The
aggregate of all other components of plant operating expense is relatively
consistent each quarter of the year.
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2012 2011 2012 2011
---------- ---------- ---------- ----------
(Unaudited, in millions)
Plant Operating Expenses:
Plant maintenance (a) $ 56 $ 62 $ 137 $ 149
All other 178 179 357 356
---------- ---------- ---------- ----------
Plant operating expenses $ 234 $ 241 $ 494 $ 505
========== ========== ========== ==========
(a) Plant maintenance costs include our internal maintenance team and non-
facility employee costs for facility scheduled and unscheduled maintenance
and repair expenses.
Exhibit 11A
Covanta Holding Corporation - Americas Segment
Statistics - (Unaudited, in millions, except percentages)
Boiler Availability Last Twelve Months
as of June 30,
--------------------------
2012 2011
------------ ------------
EfW Facilities 92.3% 90.8%
Waste and Service Revenue (Excluding Recycled
Metals Revenues) Three Months Ended
June 30,
--------------------------
2012 2011
------------ ------------
Waste and service revenue unrelated to project
debt $ 250 $ 245
Revenue earned explicitly to service project
debt - principal 10 10
Revenue earned explicitly to service project
debt - interest 2 3
------------ ------------
Total $ 262 $ 258
============ ============
Energy Revenue and Megawatt hours (MWhs) At Market and Contracted by
Facility Type
Three Months Ended June 30,
----------------------------------------------------------------
2012 2011
------------------------------- -------------------------------
% of % of
Total Total
Revenue(a) Volume(a),(b) Volume Revenue(a) Volume(a),(b) Volume
---------- ------------- ------ ---------- ------------- ------
EfW
At Market $ 16 0.30 22% $ 20 0.34 25%
Contracted
& Hedged 57 0.90 68% 56 0.84 62%
Biomass
At Market 2 0.07 5% 2 0.05 3%
Contracted 8 0.07 5% 13 0.14 10%
---------- ------------- ------ ---------- ------------- ------
Total $ 83 1.34 100% $ 91 1.37 100%
========== ============= ====== ========== ============= ======
(a) Covanta share only
(b) Steam converted to MWhs
Projected Energy Megawatt hours (MWhs) At Market and Contracted by Facility
Type(a)
Full Year 2012E
As of July 1,
2012
---------------
EfW
At Market 1.3
Contracted & Hedged 3.6
Biomass (b)
At Market 0.4
Contracted 0.4
---------------
Total 5.7
===============
(a) Covanta share only
(b) Additional 0.2 million MWhs of Biomass energy is economically
dispatched, but available to run
Exhibit 11B
Covanta Holding Corporation - Americas Segment
Statistics - (Unaudited, in millions, except percentages, metal tons (in
thousands), and pricing data in Economic Drivers Section)
Recycled Metal Net Revenue by Type(a)
Last Twelve Months
as of June 30,
---------------------------
2012 2011
------------- -------------
Ferrous Metal $ 63 $ 50
Non-Ferrous Metal 14 12
------------- -------------
Total $ 77 $ 62
============= =============
(a) Covanta share only
Recycled Metal Gross Tons Recovered by Type (a),(b)
Last Twelve Months
as of June 30,
---------------------------
2012 2011
------------- -------------
Ferrous Metal 423.9 398.4
Non-Ferrous Metal 16.4 14.8
------------- -------------
Total 440.3 413.2
============= =============
(a) Gross volume: Both Covanta and client share
(b) Tons in thousands
Published Industry U.S. Economic Drivers (a)
As of
--------------------------
June 30, June 30,
2012 2011
------------ ------------
Consumer Price Index (b) 1.7% 3.6%
PJM Pricing (Electricity)(c) $ 30.75 $ 48.84
Henry Hub Pricing (Natural Gas) (d) $ 2.27 $ 4.35
#1 HMS Pricing (Ferrous Metals) (e) $ 392 $ 412
Scrap Metals - Old Sheet & Old Cast (f) $ 0.72 $ 0.81
(a) While these drivers impact our business, there is not an exact
correlation between our results and changes in these metrics.
(b) Represents the year-over-year percent change in the Headline CPI
number. The Consumer Price Index (CPI-U) data is provided by the U.S.
Department of Labor Bureau of Labor Statistics.
(c) Average price per MWh for Q2 2012 and Q2 2011. Pricing for the PJM PSEG
Zone is provided by the PJM ISO.
(d) Average price per MMBtu for Q2 2012 and Q2 2011. The Henry Hub Pricing
data is provided by the Natural Gas Weekly Update, Energy Information
Administration, Washington, DC. Nebraska Energy Office, Lincoln, NE.
(e) Average price per gross ton for Q2 2012 and Q2 2011. The #1 Heavy Melt
Steel (HMS) composite index ($/gross ton) price is published by American
Metal Market.
(f) Average price per pound for Q2 2012 and Q2 2011. Calculated using high
and low prices for Old Sheet & Old Cast Scrap Metals ($/lb) published by
American Metal Market.
Discussion of Non-GAAP Financial Measures We use a number of different financial measures, both United States generally accepted accounting principles ("GAAP") and non-GAAP, in assessing the overall performance of our business. To supplement our assessment of results prepared in accordance with GAAP, we use the measures of Adjusted EBITDA, Free Cash Flow, and Adjusted EPS, which are non-GAAP measures as defined by the Securities and Exchange Commission. The non-GAAP financial measures of Adjusted EBITDA, Free Cash Flow, and Adjusted EPS as described below, and used in the tables above, are not intended as a substitute or as an alternative to net income, cash flow provided by operating activities or diluted earnings per share as indicators of our performance or liquidity or any other measures of performance or liquidity derived in accordance with GAAP. In addition, our non-GAAP financial measures may be different from non-GAAP measures used by other companies, limiting their usefulness for comparison purposes.
The presentations of Adjusted EBITDA, Free Cash Flow and Adjusted EPS are intended to enhance the usefulness of our financial information by providing measures which management internally use to assess and evaluate the overall performance of its business and those of possible acquisition candidates, and highlight trends in the overall business.
Adjusted EBITDA We use Adjusted EBITDA to provide further information that is useful to an understanding of the financial covenants contained in the credit facilities as of June 30, 2012 of our most significant subsidiary, Covanta Energy, through which we conduct our core waste and energy services business, and as additional ways of viewing aspects of its operations that, when viewed with the GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of our core business. The calculation of Adjusted EBITDA is based on the definition in Covanta Energy's credit facilities as of June 30, 2012, which we have guaranteed. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, as adjusted for additional items subtracted from or added to net income. Because our business is substantially comprised of that of Covanta Energy, our financial performance is substantially similar to that of Covanta Energy. For this reason, and in order to avoid use of multiple financial measures which are not all from the same entity, the calculation of Adjusted EBITDA and other financial measures presented herein are ours, measured on a consolidated basis for continuing operations.
Under the credit facilities as of June 30, 2012, Covanta Energy is required to satisfy certain financial covenants, including certain ratios of which Adjusted EBITDA is an important component. Compliance with such financial covenants is expected to be the principal limiting factor which will affect our ability to engage in a broad range of activities in furtherance of our business, including making certain investments, acquiring businesses and incurring additional debt. Covanta Energy was in compliance with these covenants as of June 30, 2012. Failure to comply with such financial covenants could result in a default under these credit facilities, which default would have a material adverse affect on our financial condition and liquidity.
These financial covenants are measured on a trailing four quarter period basis and the material covenants are as follows:
maximum Covanta Energy leverage ratio of 4.00 to 1.00, which measures Covanta Energy's Consolidated Adjusted Debt (which is the principal amount of its consolidated debt less certain restricted funds dedicated to repayment of project debt principal and construction costs) to its Adjusted EBITDA (which for purposes of calculating the leverage ratio and interest coverage ratio, is adjusted on a pro forma basis for acquisitions and dispositions made during the relevant period); and
minimum Covanta Energy interest coverage ratio of 3.00 to 1.00, which measures Covanta Energy's Adjusted EBITDA to its consolidated interest expense plus certain interest expense of ours, to the extent paid by Covanta Energy.
In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EBITDA for the three and six months ended June 30, 2012 and 2011, reconciled for each such periods to net income from continuing operations and cash flow provided by operating activities from continuing operations, which are believed to be the most directly comparable measures under GAAP.
Free Cash Flow Free Cash Flow is defined as cash flow provided by operating activities from continuing operations less maintenance capital expenditures, which are capital expenditures primarily to maintain our existing facilities. We use the non-GAAP measure of Free Cash Flow as a criterion of liquidity and performance-based components of employee compensation. We use Free Cash Flow as a measure of liquidity to determine amounts we can reinvest in our core businesses, such as amounts available to make acquisitions, invest in construction of new projects, make principal payments on debt, or amounts we can return to our stockholders through dividends and/or stock repurchases.
In order to provide a meaningful basis for comparison, we are providing information with respect to our Free Cash Flow for the three and six months ended June 30, 2012 and 2011, reconciled for each such periods to cash flow provided by operating activities from continuing operations, which we believe to be the most directly comparable measure under GAAP.
Adjusted EPS Adjusted EPS excludes certain income and expense items that are not representative of our ongoing business and operations, which are included in the calculation of Diluted Earnings Per Share in accordance with GAAP. The following items are not all-inclusive, but are examples of reconciling items in prior comparative and future periods. They would include write-down of assets, the effect of derivative instruments not designated as hedging instruments, significant gains or losses from the disposition or restructuring of businesses, gains and losses on assets held for sale, transaction-related costs, income and loss on the extinguishment of debt and other significant items that would not be representative of our ongoing business.
We will use the non-GAAP measure of Adjusted EPS to enhance the usefulness of our financial information by providing a measure which management internally uses to assess and evaluate the overall performance and highlight trends in the ongoing business.
In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EPS for the three and six months ended June 30, 2012 and 2011, reconciled for each such periods to diluted earnings per share from continuing operations, which is believed to be the most directly comparable measure under GAAP.
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