Covanta Holding Corporation Reports 2012 Third Quarter Results
2012 Guidance Narrowed Several Long-Term Energy and Waste Contracts Signed
MORRISTOWN, NJ, Oct 17, 2012 (Menafn - MARKETWIRE via COMTEX) --Covanta Holding Corporation CVA ("Covanta" or the"Company"), a leading global owner and operator of Energy-from-Waste("EfW") projects, reported unaudited financial results today for thethree and nine months ended September 30, 2012.
Key Q3 2012 Financial Highlights:
--Revenue was 412 million versus 432 million in the prior year period
--Adjusted EBITDA of 150 million was down slightly from 153 million a
year ago
--Free Cash Flow of 111 million improved by 4 million compared to the
prior year
--Adjusted EPS of 0.25 was flat with the prior year period
--Returned 45 million to shareholders, including 25 million of share
repurchases
Key Q3 2012 Operational Highlights:
--Completed Honolulu expansion on schedule; third boiler in commercial
operation
--Signed agreement to convert our Essex County facility from Service Fee
to Tip Fee
--Entered long-term power purchase agreements with the Long Island Power
Authority
Commenting on the third quarter of 2012, Anthony Orlando, Covanta'sPresident and CEO stated, "Results for the quarter were in-line withour expectations. We are successfully managing the business, whichgives me confidence that we will grow the bottom line this yearnotwithstanding weakness in the pricing environment. Furthermore, weexecuted several new long-term contracts during the quarter that willsecure predictable revenue for years to come."
"Looking ahead to 2013, we expect to continue growing and we remainfocused on capital allocation and shareholder returns," Orlandoconcluded.
Three Months Ended
September 30,
--------------------------------
Continuing Operations20122011
------------------------------
(Unaudited, in millions,
except per share amounts)
Revenue412432
Net Income from Continuing Operations2751
Adjusted EBITDA150153
Free Cash Flow111107
Adjusted EPS0.250.25
Third Quarter Results Operating revenues of 412 million decreased by20 million for the three month comparative period as service feecontract escalations, higher special waste revenues and increasedelectricity revenue related to retroactive contract pricing, weremore than offset by lower construction revenues relating tocompletion of our Honolulu expansion project, a decline in metalprices, reduced debt service revenue, waste contract transitionsincluding the expiration of the Hartford operating contract and lowertip fee volume.
Operating expenses of 331 million decreased by 14 million from theprior year period. Excluding Q3 2012 events of 5 million(1),operating expenses decreased by 19 million due to lower constructionexpenses, operational improvement initiatives, and the expiration ofthe Hartford operating contract, partially offset by normal costescalations, lower alternative fuel tax credits and increased plantmaintenance activities due primarily to timing.
Excluding the Q3 2012 events referenced above, operating incomedecreased by 1 million to 86 million versus the prior year due tothe factors noted above.
Adjusted EBITDA of 150 million declined 2% from 153 million in theprior year period. The benefit of higher energy revenue related toretroactive contract pricing, improved profitability on constructionand our organic growth initiatives were more than offset by lowermetal prices, waste contract transitions, increased maintenanceexpenses due to timing, and a reduction in debt service pass throughbillings.
Free Cash Flow increased 4% to 111 million versus 107 million inthe prior year as the benefit from the timing of working capital morethan offset the decline in Adjusted EBITDA.
Adjusted EPS was flat with the prior year period at 0.25, as a lowereffective tax rate and the benefit of a lower number of sharesoutstanding due to the Company's common stock buyback program wereoffset by higher interest expense.
(1) Includes 7 million for increases in insurance company lossreserves, offset by 2 million in net write-offs. For additionalinformation, see Exhibit 4A.
Year-to-Date Results For the nine months ended September 30, 2012,total operating revenues were 1,214 million versus 1,220 million inthe prior year. Free Cash Flow was 205 million compared to 219million in the prior year period. Adjusted EBITDA was 349 millioncompared to 347 million for the same period last year. Adjusted EPSwas 0.32 versus 0.27 in 2011.
Shareholder Returns During the quarter, the Company returned 45million to shareholders, consisting of 20 million in cash dividendsdeclared and 25 million in share repurchases (1.1% of common stockoutstanding). Year-to-date, the Company has returned 146 million toshareholders in the form of 61 million in dividends declared and 85million in shares repurchased (3.8% of common stock outstanding).Since the inception of its buyback program the Company hasrepurchased 16.5% of shares outstanding. As of September 30, 2012,Covanta had 90 million of share repurchase authorization remaining.
Project Debt Refinancing Covanta intends to issue new tax-exemptbonds in the aggregate amount of approximately 300 million torefinance existing tax-exempt project bonds at its Haverhill, Niagaraand SEMASS facilities, as well as to fund certain capitalexpenditures in Massachusetts. The new bonds, with maturities of upto 2042, will be issued by Covanta Holding Corporation and guaranteedby Covanta Energy Corporation, and will not be secured by projectassets. Final terms and conditions of the new bonds, including couponand maturity, will be determined based on market conditions. Weexpect the transaction to close during the fourth quarter of 2012.
2012 Full Year Guidance The Company is narrowing its previouslyannounced guidance for the full year 2012 for the following financialmetrics:
(In millions, except per share amounts)
----------------------------------------------------------------------------
2012 Updated2012 Prior2011
MetricGuidance RangeGuidance RangeActual
----------------------------------------------------------------------------
Adjusted EBITDA500 - 515500 - 530494
----------------------------------------------------------------------------
Free Cash Flow250 - 265250 - 280282
----------------------------------------------------------------------------
Adjusted EPS0.55 - 0.600.55 - 0.650.54
----------------------------------------------------------------------------
Sanjiv Khattri, Covanta's Executive Vice-President and CFO commented,"In the third quarter, we remained focused on growing our businessand pursuing innovative ways to improve our financial position. Wenarrowed our 2012 guidance range, acknowledging the tougher macroconditions. Looking ahead, we will continue to create value byexecuting on opportunities to grow and strengthen the business, andalso by returning excess capital to shareholders."
Conference Call Information Covanta will host a conference call at8:30 am (Eastern) on Thursday, October 18, 2012 to discuss its thirdquarter results. The conference call will begin with preparedremarks, which will be followed by a question and answer session. Toparticipate, please dial 800-860-2442 approximately 10 minutes priorto the scheduled start of the call. If calling from Canada, pleasedial 866-605-3852. If calling outside of the United States andCanada, please dial 412-858-4600. Please request the "Covanta HoldingCorporation call" when prompted by the conference call operator. Theconference call will also be webcast live from the Investor Relationssection of the Company's website. A presentation will be madeavailable during the call and will be found on the Investor Relationssection of the Covanta website at www.covantaenergy.com.
A replay will be available one hour after the end of the conferencecall through 9:00 AM (Eastern) Thursday, October 25, 2012. To accessthe replay, please dial 877-344-7529, or from outside of the UnitedStates 412-317-0088 and use the replay conference ID number 10019283.The webcast will also be archived on www.covantaenergy.com.
About Covanta Covanta Holding Corporation CVA is aninternationally recognized owner and operator of large-scaleEnergy-from-Waste and renewable energy projects and a recipient ofthe Energy Innovator Award from the U.S. Department of Energy'sOffice of Energy Efficiency and Renewable Energy. Covanta's 44Energy-from-Waste facilities provide communities with anenvironmentally sound solution to their solid waste disposal needs byusing that municipal solid waste to generate clean, renewable energy.Annually, Covanta's modern Energy-from-Waste facilities safely andsecurely convert approximately 20 million tons of waste into 9million megawatt hours of clean renewable electricity andapproximately 9 billion pounds of steam that are sold to a variety ofindustries. For more information, visit www.covantaenergy.com.
Cautionary Note Regarding Forward-Looking Statements Certainstatements 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 of1934 (the "Exchange Act"), the Private Securities Litigation ReformAct of 1995 (the "PSLRA") or in releases made by the Securities andExchange 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 actualresults, performance or achievements of Covanta and its subsidiaries,or general industry or broader economic performance in global marketsin which Covanta operates or competes, to differ materially from anyfuture results, performance or achievements expressed or implied bysuch forward-looking statements. Statements that are not historicalfact are forward-looking statements. Forward-looking statements canbe identified by, among other things, the use of forward-lookinglanguage, such as the words "plan," "believe," "expect,""anticipate," "intend," "estimate," "project," "may," "will,""would," "could," "should," "seeks," or "scheduled to," or othersimilar words, or the negative of these terms or other variations ofthese terms or comparable language, or by discussion of strategy orintentions. These cautionary statements are being made pursuant tothe Securities Act, the Exchange Act and the PSLRA with the intentionof obtaining the benefits of the "safe harbor" provisions of suchlaws. Covanta cautions investors that any forward-looking statementsmade by Covanta are not guarantees or indicative of futureperformance. Important assumptions and other important factors thatcould cause actual results to differ materially from thoseforward-looking statements with respect to Covanta, include, but arenot limited to, the risk that Covanta may not successfully grow itsbusiness as expected or close its announced or planned acquisitionsor projects in development, and those factors, risks anduncertainties that are described in periodic securities filings byCovanta with the SEC. Although Covanta believes that its plans,intentions and expectations reflected in or suggested by suchforward-looking statements are reasonable, actual results coulddiffer materially from a projection or assumption in anyforward-looking statements. Covanta's future financial condition andresults of operations, as well as any forward-looking statements, aresubject to change and to inherent risks and uncertainties. Theforward-looking statements contained in this press release are madeonly as of the date hereof and Covanta does not have or undertake anyobligation to update or revise any forward-looking statements whetheras a result of new information, subsequent events or otherwise,unless otherwise required by law.
Covanta Holding CorporationExhibit 1
Condensed Consolidated Statements of Income
Three Months EndedNine Months Ended
September 30,September 30,
----------------------------------------
2012201120122011
------------------------------------
(Unaudited)
(In millions, except per share amounts)
Operating revenues
Waste and service revenues264273802800
Electricity and steam sales115109297301
Other operating revenues3350115119
------------------------------------
Total operating revenues4124321,2141,220
------------------------------------
Operating expenses
Plant operating expenses225221735740
Other operating expenses (a)3144100102
General and administrative
expenses24247474
Depreciation and amortization
expense4648145142
Net interest expense on
project debt782224
Net write-offs (b)(2)--(2)--
------------------------------------
Total operating expenses3313451,0741,082
------------------------------------
Operating income8187140138
------------------------------------
Other income (expense)
Investment income--1--1
Interest expense(25)(16)(67)(50)
Non-cash convertible debt
related expense(6)(9)(19)(20)
Loss on extinguishment of debt
(c)--(1)(2)(1)
Other (expense) income, net
(d)--(10)3(13)
------------------------------------
Total other expenses(31)(35)(85)(83)
------------------------------------
Income from continuing
operations before income tax
expense and equity in net
income from unconsolidated
investments50525555
Income tax expense (d)(27)(2)(30)(3)
Equity in net income from
unconsolidated investments41103
------------------------------------
Income from continuing
operations27513555
------------------------------------
(Loss) income from discontinued
operations, net of income tax
expense of 0, 0, 1 and 3,
respectively--(7)(2)144
------------------------------------
Net Income274433199
------------------------------------
Noncontrolling interests:
Less: Net income from continuing
operations attributable to
noncontrolling interests in
subsidiaries(1)(2)(1)(3)
Less: Net income from
discontinued operations
attributable to noncontrolling
interests in subsidiaries------(3)
------------------------------------
Total net income attributable to
noncontrolling interests in
subsidiaries(1)(2)(1)(6)
------------------------------------
Net Income Attributable to
Covanta Holding Corporation264232193
====================================
Covanta Holding Corporation
Condensed Consolidated Statements of Income (continued)
Three Months EndedNine Months Ended
September 30,September 30,
----------------------------------------
2012201120122011
------------------------------------
(Unaudited)
(In millions, except per share amounts)
Amounts Attributable to Covanta
Holding Corporation
stockholders':
Continuing operations26493452
Discontinued operations--(7)(2)141
------------------------------------
Net Income Attributable to
Covanta Holding Corporation264232193
====================================
Earnings Per Share Attributable
to Covanta Holding Corporation
stockholders':
Basic
Continuing operations0.200.350.250.37
Discontinued operations--(0.05)(0.01)0.98
------------------------------------
Covanta Holding Corporation0.200.300.241.35
====================================
Weighted Average Shares131139133143
====================================
Diluted
Continuing operations0.190.350.250.36
Discontinued operations--(0.05)(0.01)0.98
------------------------------------
Covanta Holding Corporation0.190.300.241.34
====================================
Weighted Average Shares132140134144
====================================
Cash Dividend Declared Per
Share:0.150.0750.450.225
====================================
Supplemental Information - Non-
GAAP
Adjusted EPS (e)0.250.250.320.27
(a) For additional information, see Exhibit 4A - Note (a) and Exhibit 7 -
Note (a) of this Press Release.
(b) For additional information, see Exhibit 4A - Note (b) - (d) of this
Press Release.
(c) For additional information, see Exhibit 8A - Note (a) of this Press
Release.
(d) For additional information, see Exhibit 4A - Note (g) of this Press
Release.
(e) For additional information, see Exhibit 4 of this Press Release.
Covanta Holding CorporationExhibit 1A
Condensed Consolidated Statements of Comprehensive Income
Three Months EndedNine Months Ended
September 30,September 30,
----------------------------------------
2012201120122011
------------------------------------
(Unaudited, in millions)
Net income274433199
------------------------------------
Foreign currency translation2(19)(2)(11)
Adjustment for pension plan
termination settlement, net of
tax, for insurance subsidiaries1--1--
Net unrealized loss on
derivative instruments, net of
tax(3)--(2)--
Net unrealized gain on available
for sale securities, net of tax1--1--
------------------------------------
Other comprehensive income
(loss) attributable to Covanta
Holding Corporation1(19)(2)(11)
------------------------------------
Comprehensive income282531188
------------------------------------
Less:
Net income attributable to
noncontrolling interests in
subsidiaries(1)(2)(1)(6)
Foreign currency translation
attributable to noncontrolling
interests in subsidiaries--1--1
------------------------------------
Comprehensive income
attributable to noncontrolling
interests in subsidiaries(1)(1)(1)(5)
------------------------------------
Comprehensive income
attributable to Covanta Holding
Corporation272430183
====================================
Covanta Holding CorporationExhibit 2
Condensed Consolidated Balance Sheets
As of
----------------------------------------
September 30, 2012December 31, 2011
--------------------------------------
(Unaudited)
ASSETS(In millions, except per share amounts)
Current:
Cash and cash equivalents262232
Restricted funds held in trust120101
Receivables (less allowances of
5 and 5, respectively)262260
Unbilled service receivables1820
Deferred income taxes2528
Prepaid expenses and other
current assets103105
Assets held for sale--18
--------------------------------------
Total Current Assets790764
Property, plant and equipment,
net2,3722,423
Investments in fixed maturities
at market (cost:36 and 31)(cost:respectively)3831
Restricted funds held in trust9090
Unbilled service receivables1925
Waste, service and energy
contracts, net408434
Other intangible assets, net7478
Goodwill232232
Investments in investees and
joint ventures4543
Other assets328265
--------------------------------------
Total Assets4,3964,385
======================================
LIABILITIES AND EQUITY
Current:
Current portion of long-term
debt332
Current portion of project debt140147
Accounts payable3225
Deferred revenue7661
Accrued expenses and other
current liabilities233211
Liabilities held for sale--3
--------------------------------------
Total Current Liabilities484479
Long-term debt1,6071,454
Project debt493533
Deferred income taxes651633
Waste and service contracts3876
Other liabilities140122
--------------------------------------
Total Liabilities3,4133,297
--------------------------------------
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
132 and 136 shares)1616
Additional paid-in capital803824
Accumulated other comprehensive
(loss) income(1)1
Accumulated earnings162244
Treasury stock, at par(3)(2)
--------------------------------------
Total Covanta Holding
Corporation stockholders
equity9771,083
Noncontrolling interests in
subsidiaries65
--------------------------------------
Total Equity9831,088
--------------------------------------
Total Liabilities and Equity4,3964,385
======================================
Covanta Holding CorporationExhibit 3
Condensed Consolidated Statements of Cash Flow
Nine Months Ended
September 30,
------------------------
20122011
----------------------
(Unaudited, in millions)
OPERATING ACTIVITIES:
Net income33199
Less: (Loss) income from discontinued
operations, net of tax expense(2)144
----------------------
Income from continuing operations3555
Adjustments to reconcile net income from
continuing operations to net cash provided by
operating activities from continuing operations:
Depreciation and amortization expense145142
Loss on extinguishment of debt (a)21
Non-cash convertible debt related expense1920
Stock-based compensation expense1313
Deferred income taxes2323
Other, net(11)(1)
Reversal of uncertain tax positions related to
pre-emergence tax matters (b)--(24)
Change in restricted funds-other related to
contractual liability to pre-petition creditors
(b)--5
Change in restricted funds held in trust(10)(35)
Change in working capital, net of effects of
acquisitions5277
----------------------
Net cash provided by operating activities from
continuing operations268276
Net cash used in operating activities from
discontinued operations--1
----------------------
Net cash provided by operating activities268277
----------------------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment(94)(91)
Acquisition of businesses, net of cash acquired--(10)
Acquisition of land use rights(1)(8)
Other, net(3)(6)
----------------------
Net cash used in investing activities from
continuing operations(98)(115)
Net cash provided by investing activities from
discontinued operations11227
----------------------
Net cash (used in) provided by investing
activities(87)112
----------------------
FINANCING ACTIVITIES:
Proceeds from borrowing on long-term debt (a)699--
Payment of deferred financing costs (a)(26)--
Principal payments on long-term debt (a)(621)(5)
Principal payments on project debt(46)(83)
Convertible debenture repurchases(25)(32)
Payments of borrowings on revolving credit
facility(63)--
Proceeds from borrowings on revolving credit
facility83--
Proceeds from borrowings on project debt--15
Change in restricted funds held in trust(11)7
Cash dividends paid to stockholders(51)(22)
Common stock repurchased(83)(203)
Financing of insurance premiums, net(10)--
Distributions to partners of noncontrolling
interests in subsidiaries(1)(5)
Other financing, net3(3)
----------------------
Net cash used in financing activities from
continuing operations(152)(331)
Net cash (used in) provided by financing
activities from discontinued operations(2)8
----------------------
Net cash used in financing activities(154)(323)
----------------------
Effect of exchange rate changes on cash and cash
equivalents1(4)
----------------------
Net increase in cash and cash equivalents2862
Cash and cash equivalents at beginning of period234141
----------------------
Cash and cash equivalents at end of period262203
Less: Cash and cash equivalents of discontinued
operations at end of period--8
----------------------
Cash and cash equivalents of continuing operations
at end of period262195
======================
(a) For additional information, see Exhibit 8A - Note (a) of this Press
Release.
(b) For additional information, see Exhibit 4A - Note (g) of this Press
Release.
Covanta Holding CorporationExhibit 4
Reconciliation of Diluted Earnings Per Share to Adjusted EPS
Three Months
EndedNine Months Ended
September 30,September 30,
----------------------------------
Full Year
2012201120122011Estimated 2012
-------- ---------------- ----------------------
(Unaudited)
Continuing Operations -
Diluted Earnings Per
Share0.19 0.350.25 0.360.48 - 0.53
Reconciling Items (a)0.06(0.10)0.07(0.09)0.07
-------- ---------------- ----------------------
Adjusted EPS0.25 0.250.32 0.270.55 - 0.60
======== ================ ======================
(a) For details related to the Reconciling Items, see Exhibit 4A of this
Press Release.
Covanta Holding CorporationExhibit 4A
Reconciling Items
Three Months EndedNine Months Ended
September 30,September 30,
----------------------------------------
2012201120122011
------------------------------------
(Unaudited)
(In millions, except per share amounts)
Reconciling Items
Operating loss related to
insurance subsidiaries (a)8191
Write-off of intangible
liability (b)(29)--(29)--
Write-off of renewable fuels
project (c)16--16--
Development costs (d)11--11--
Loss on extinguishment of debt
(e)--121
Effect on income of derivative
instruments not designated as
hedging instruments(1)1(1)--
Effect of foreign exchange gain
on indebtedness (f)--(5)(3)(2)
Contractual liability to pre-
petition creditors (g)--15--15
Other--(1)1(1)
------------------------------------
Total Reconciling Items, pre-
tax512614
Proforma income tax impact (h)3(3)2(4)
Grantor trust activity--1--1
Reversal of uncertain tax
positions related to pre-
emergence tax matters (g)--(24)--(24)
------------------------------------
Total Reconciling Items, net
of tax8(14) 8(13)
====================================
Diluted Earnings (Loss) Per
Share Impact0.06(0.10) 0.07(0.09)
====================================
Weighted Average Diluted Shares
Outstanding132140134144
====================================
(a) During the three months ended September 30, 2012, we transitioned our
remaining insurance business to run-off and recorded additional losses
and reserve increases of 7 million primarily relating to the adverse
loss development. See Exhibit 7 - Note (a) of this Press Release.
(b) During the three months ended September 30, 2012, our service contract
for the Essex EfW facility was amended and we recorded a non-cash write-
off of an intangible liability of 29 million related to the below-
market service contract which was recorded at fair value upon
acquisition of the facility.
(c) During the three months ended September 30, 2012, we curtailed the
construction of a facility that transformed waste materials into
renewable liquid fuels. We recorded a non-cash write-off of 16 million
representing the capitalized costs related to this project.
(d) During the three months ended September 30, 2012, we recorded a non-cash
write-off of 11 million comprised of capitalized development costs and
land related to a development project which we ceased to pursue in the
United Kingdom.
(e) For additional information, see Exhibit 8A - Note (a) of this Press
Release.
(f) During the nine months ended September 30, 2012 and 2011, we recorded a
foreign exchange (gain) loss related to intercompany loans,
respectively.
(g) For additional information, see Item 8. Financial Statements and
Supplementary Data of Covanta's Annual Report on Form 10-K for the year
ended December 31, 2011.
(i)The expiration of the statute of limitations during the three
months ended September 30, 2011, triggered a contractual liability
to pay restricted funds to third party claimants and resulted in
other non-operating expense for the three and nine months ended
September 30, 2011 of 15 million with no related income tax
benefit. These payments related to tax liabilities set up in
connection with Covanta Energy's emergence from bankruptcy.
(ii) For the three and nine months ended September 30, 2011, the income
tax provision includes a 24 million benefit due to the reversal of
uncertain tax positions, following the expiration of applicable
statutes of limitations related to pre-emergence tax matters in the
Covanta Energy bankruptcy.
(h) We are presenting this proforma calculation of the income tax effect on
all reconciling items for each period to illustrate the proforma impact
on income tax expense and net income. The proforma income tax impact
represents the tax provision amount related to the overall tax provision
calculated without the reconciling items when compared to the tax
provision reported under GAAP in the condensed consolidated statement of
income.
Covanta Holding CorporationExhibit 4B
Effective Tax Rate
Three Months EndedNine Months Ended
September 30,September 30,
------------------- -------------------
2012201120122011
--------- --------- --------- ---------
(Unaudited)
Effective Tax Rate (a)54%5%55%6%
(a) Our effective tax rate ("ETR") increased during the third quarter of
2012 as a result of the impact of a write-off of capitalized development
costs related to a project which we ceased to pursue in the United
Kingdom (see Exhibit 4A - Note (d) above). This pre-tax expense does not
result in an expected tax benefit and so this expense increases the ETR.
In 2011, the ETR included the impact of the reversal of uncertain tax
positions at September 30, 2011 (see Exhibit 4A - Note (g) above). There
is no tax benefit from the contractual liability to pre-petition
creditors and as a result, this item had an impact on the effective tax
rate in the third quarter of 2011.
Covanta Holding CorporationExhibit 5
Reconciliation of Net Income to Adjusted EBITDA
Three Months EndedNine Months Ended
September 30,September 30,
------------------------------------
Full Year
2012201120122011Estimated 2012
----------------------------------------------
(Unaudited, in millions)
Net Income from
Continuing
Operations
Attributable to
Covanta Holding
Corporation2649345263 - 70
Operating loss
related to
insurance
subsidiaries (a)81919
Depreciation and
amortization
expense4648145142196 - 192
Debt service:
Net interest
expense on
project debt782224
Interest expense25166750
Non-cash
convertible debt
related expense691920
Investment income--(1)--(1)
--------------------------------
Subtotal debt
service383210893150 - 145
Income tax expense
(adjusted in 2011
for reversal of
uncertain tax
positions related
to pre-emergence
tax matters)(b)2726302753 - 61
Reversal of
uncertain tax
positions related
to pre-emergence
tax matters(b)--(24)--(24)
Contractual
liability to pre-
petition creditors
(b)--15--15
Write-off of
intangible
liability (c)(29)--(29)--(29)
Development costs
(d)11--11--11
Write-off of
renewable fuels
project (e)16--16--16
Loss on
extinguishment of
debt (f)--1212
Net income loss
attributable to
noncontrolling
interests in
subsidiaries12131 - 3
Other adjustments:
Debt service
billings in
excess of revenue
recognized--3621
Non-cash
compensation
expense341313
Other non-cash
items (g)3(4)33
--------------------------------
Subtotal other
adjustments63223728 - 35
--------------------------------
Total adjustments124104315295
----------------------------------------------
Adjusted EBITDA150153349347500 - 515
==============================================
(a) For additional information, see Exhibit 4A - Note (a) of this Press
Release.
(b) For additional information, see Exhibit 4A - Note (g) of this Press
Release.
(c) For additional information, see Exhibit 4A - Note (b) of this Press
Release.
(d) For additional information, see Exhibit 4A - Note (d) of this Press
Release.
(e) For additional information, see Exhibit 4A - Note (c) of this Press
Release.
(f) For additional information, see Exhibit 8A - Note (a) of this Press
Release.
(g) Includes certain non-cash items that are added back under the definition
of Adjusted EBITDA in Covanta Energy Corporation's credit agreement.
Covanta Holding CorporationExhibit 6
Reconciliation of Cash Flow Provided by Operating Activities
to Free Cash Flow
Three MonthsNine Months
Ended SeptemberEnded September
30,30,
------------------------------------
Full Year
2012201120122011Estimated 2012
----------------------------------------------
(Unaudited, in millions)
Cash flow provided by
operating activities
from continuing
operations124120268276330 - 355
Plus: Cash flow used
in operating
activities from
insurance
subsidiaries2144
Less: Maintenance
capital expenditures
(a)(15)(14)(67)(61)(80) - (90)
----------------------------------------------
Free Cash Flow111107205219250 - 265
==============================================
Weighted Average
Diluted Shares
Outstanding132140134144
Uses of Free Cash
Flow
Investments:
Non-maintenance
capital
expenditures(13) (9) (27) (30)
Acquisition of
businesses, net of
cash acquired------(10)
Acquisition of land
use rights----(1)(8)
Other investing
activities, net (b)(9)(3)(3)(6)
--------------------------------
Total investments(22) (12) (31) (54)
--------------------------------
Return of capital to
stockholders:
Cash dividends paid
to stockholders(20) (11) (51) (22)
Common stock
repurchased(24)(80)(83)(203)
--------------------------------
Total return of
capital to
stockholders(44) (91) (134) (225)
--------------------------------
Capital raising
activities:
Net proceeds from
issuance of
corporate debt (c) (2) --673--
Net proceeds from
issuance of
project debt--7--15
Other financing
activities, net2(1)3(3)
--------------------------------
Net proceeds from
capital raising
activities--667612
--------------------------------
Debt repayments:
Net cash used for
scheduled
principal payments
on project debt
(d)(17) (23) (57) (76)
Net cash used for
scheduled
principal payments
on long-term debt
(f)(1)(2)(25)(5)
Optional repayment
of corporate
debt(e)(f)--(26)(621)(32)
--------------------------------
Total debt repayments (18) (51) (703) (113)
--------------------------------
Borrowing activities
- Revolving credit
facility, net20--20--
Short-term borrowing
activities -
Financing of
insurance premiums,
net(3) --(10) --
Distributions to
partners of
noncontrolling
interests in
subsidiaries(1) (2) (1) (5)
Effect of exchange
rate changes on cash
and cash equivalents 1(3) 1(2)
--------------------------------
Net change in cash
and cash equivalents
from continuing
operations44(46) 23(168)
================================
(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:
Three MonthsNine Months
Ended September 30,Ended September 30,
----------------------------------------
2012201120122011
------------------------------------
Maintenance capital expenditures (15) (14) (67) (61)
Capital expenditures associated
with construction--(6)--(15)
Capital expenditures associated
with technology development and
organic growth initiatives(7)(1)(18)(6)
Capital expenditures - other(6)(2)(9)(9)
------------------------------------
Total purchases of property,
plant and equipment(28) (23) (94) (91)
====================================
(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 8A - 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(2)--(26)--
------------------------------------
Net proceeds from issuance of
corporate debt(2) --673--
====================================
(d) Calculated as follows:
Total principal payments on
project debt(7) (6) (46) (83)
(Increase) decrease in related
restricted funds held in trust(10)(17)(11)7
------------------------------------
Net cash used for principal
payments on project debt(17) (23) (57) (76)
====================================
(e) For additional information, see Exhibit 8A - Note (a) of this Press
Release. Calculated as follows:
Redemption of Term Loan due 2014 ----(619) --
Redemption of Convertible
Debentures (f)--(26)(2)(32)
------------------------------------
Total optional repayment of
corporate debt--(26) (621) (32)
====================================
(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.
Covanta Holding CorporationExhibit 7
Calculation of Key Metrics For 2009, 2010, 2011 and The Three Months Ended
March 31, 2012 and June 30, 2012 (a)
(Unaudited) (In millions, except per share amounts)
Six
YearThree MonthsMonths
Adjusted EPSThree Months EndedEndedEndedEnded
----------------------------- -------------------- ------
MarchJuneSept.Dec.Dec.MarchJuneJune
31,30,30,31,31,31,30,30,
20112011201120112011201220122012
------------ ------------ ------------------ ------
Continuing
Operations -
Diluted (Loss)
Earnings Per
Share(0.09) 0.12 0.35 0.20 0.56(0.09) 0.15 0.06
Reconciling
Items(0.01)0.02(0.10)0.07(0.02)------
------------ ------------ ------------------ ------
Adjusted EPS(0.10) 0.14 0.25 0.27 0.54(0.09) 0.15 0.06
============ ============ ================== ======
Six
ReconcilingYearThree Months Months
ItemsThree Months EndedEndedEndedEnded
------------------------------------------------ ------
MarchJuneSept.Dec.Dec.MarchJuneJune
31,30,30,31,31,31,30,30,
20112011201120112011201220122012
------------ ------------------------ ------ ------
Operating Loss
from insurance
subsidiaries
(a)---- 1121 -- 1
Loss on
extinguishment
of debt----1--12--2
Effect on
income of
derivative
instruments
not designated
as hedging
instruments(1)--1(2)(2)------
Effect of
foreign
exchange loss
on
indebtedness--3(5)64(3)--(3)
Gain on sales
of businesses----(1)(8)(9)------
Development
costs------55------
Contractual
liability to
pre-petition
creditors----15--15------
Other------11--11
------------ ------------------------ ------ ------
Total
Reconciling
Items, pre-
tax(1)312317--11
Tax effect of
reconciling
items,
including tax
effect for
Insurance
subsidiaries
(a)1(1)(4)84--(1)(1)
Grantor trust
activity(1)11--1------
Reversal of
uncertain tax
positions
related to
pre-emergence
tax matters----(24)--(24)------
------------ ------------------------ ------ ------
Total
Reconciling
Items, net
of tax(1) 3 (15) 11(2) -- -- --
============ ======================== ====== ======
Diluted (Loss)
Income Per
Share Impact(0.01) 0.02 (0.10) 0.07(0.02) -- -- --
============ ======================== ====== ======
Weighted
Average
Diluted Shares
Outstanding147145140137142134134134
============ ======================== ====== ======
YearYearYear
Adjusted EBITDAEndedEndedThree Months EndedEnded
------ ------ ----------------------------- ------
Dec.Dec.MarchJuneSept.Dec.Dec.
31,31,31,30,30,31,31,
2009201020112011201120112011
------ ------ ------------ ------------ ------
Net Income (Loss) from
Continuing Operations
Attributable to
Covanta Holding
Corporation61 30 (14) 17 4927 79
Operating loss related
to Insurance
subsidiaries(a)46----112
Depreciation and
amortization expense19719047474851193
Debt service10512130313229122
Income tax expense
(benefit) (adjusted
for reversal of
uncertain tax
positions related to
pre-emergence tax
matters)4224(10)11262552
Reversal of uncertain
tax positions related
to pre-emergence tax
matters--------(24)--(24)
Contractual liability
to pre-petition
creditors--------15--15
Net write-offs--34----------
Net income (loss)
attributable to
noncontrolling
interests in
subsidiaries45--1225
Loss on extinguishment
of debt--15----1--1
Debt service billings
in excess of revenue
recognized20291173122
Non-cash compensation
expense1417544518
Other11525(4)69
------ ------ ------------ ------------ ------
Adjusted EBITDA458 476 71123 153147 494
====== ====== ============ ============ ======
Six
Three MonthsMonths
Adjusted EBITDAEndedEnded
--------------------
MarchJuneJune
31,30,30,
201220122012
------------------
Net Income (Loss) from
Continuing Operations
Attributable to
Covanta Holding
Corporation(12) 208
Operating loss related
to Insurance
subsidiaries(a)1--1
Depreciation and
amortization expense504999
Debt service323870
Income tax expense
(benefit) (adjusted
for reversal of
uncertain tax
positions related to
pre-emergence tax
matters)(8)113
Reversal of uncertain
tax positions related
to pre-emergence tax
matters------
Contractual liability
to pre-petition
creditors------
Net write-offs------
Net income (loss)
attributable to
noncontrolling
interests in
subsidiaries1(1)--
Loss on extinguishment
of debt2--2
Debt service billings
in excess of revenue
recognized6--6
Non-cash compensation
expense5510
Other(3)3--
------------------
Adjusted EBITDA74125199
==================
YearYearYear
Free Cash FlowEndedEndedThree Months EndedEnded
------------------------------------------------
Dec.Dec.MarchJuneSept.Dec.Dec.
31,31,31,30,30,31,31,
2009201020112011201120112011
------------------------------------------
Cash flow provided
by operating
activities from
continuing
operations352392936312084360
Plus: Cash flow
used in (provided
by) operating
activities from
Insurance
subsidiaries(a)(2)5121(2)2
Less: Maintenance
capital
expenditures(52)(74)(27)(20)(14)(19)(80)
------------------------------------------
Free Cash Flow298323674510763282
==========================================
Weighted Average
Diluted Shares
Outstanding155154147145140137142
==========================================
Six
Three MonthsMonths
Free Cash FlowEndedEnded
--------------------
MarchJuneJune
31,30,30,
201220122012
------------------
Cash flow provided
by operating
activities from
continuing
operations10440144
Plus: Cash flow
used in (provided
by) operating
activities from
Insurance
subsidiaries(a)112
Less: Maintenance
capital
expenditures(28)(24)(52)
------------------
Free Cash Flow771794
==================
Weighted Average
Diluted Shares
Outstanding134134134
==================
(a) Information is presented to reflect adjustments for the net income
(loss) from operations of our insurance subsidiaries and cash flows
(provided by) used in insurance subsidiaries which are not
representative of our ongoing core energy-from-waste businesses. All
other information related to Adjusted EPS, Adjusted EBITDA and Free Cash
Flow are unchanged from previous information presented.
Covanta Holding CorporationExhibit 8
Capitalization Information
As of
-------------------------------------
September 30, 2012December 31, 2011
------------------ ------------------
(Unaudited, in millions)
Cash and Cash Equivalents:
Domestic8 49
International235174
Insurance Subsidiary199
------------------ ------------------
Total Cash and Cash Equivalents262 232
================== ==================
Restricted Funds Held in Trust: (a)
Debt Service - Principal126 113
Debt Service - Interest68
------------------ ------------------
Debt Service Funds - Total132121
Revenue Funds4216
Other Funds3654
------------------ ------------------
Total Restricted Funds Held in Trust210 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 8A
As of September 30,As of December 31,
20122011
------------------- -------------------
FaceBookFaceBook
ValueValueValueValue
--------- --------- --------- ---------
(Unaudited, in millions)
Corporate Debt:
Revolving Credit Facility (a)20 20 -- --
Term Loan due 2014 (a)----619619
New Term Loan due 2019 (a)299297----
7.25% Senior Notes due 2020400400400400
6.375% Senior Notes due 2022 (a)400400----
3.25% Cash Convertible Senior Notes
due 2014460493460442
1.00% Senior Convertible Debentures
due 2027----2525
--------- --------- --------- ---------
Total corporate debt (including
current portion)1,579 1,610 1,504 1,486
--------- --------- --------- ---------
Project Debt:
Domestic project debt - service fee
facilities270 273 291 295
Domestic project debt - tip fee
facilities333335355359
International project debt25252626
--------- --------- --------- ---------
Total project debt (including
current portion)628 633 672 680
--------- --------- --------- ---------
Total Debt Outstanding2,207 2,243 2,176 2,166
========= ========= ========= =========
Net Debt (b)1,8191,831
==================
Availability for Borrowings under
the Revolving Credit Facility (a)597300
==================
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 purposes55
=========
(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 for both the
issuance of letters of credit (283 million outstanding as of September
30, 2012) and for cash borrowings for general corporate purposes (20
million outstanding cash borrowings as of September 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 which has been paid as of September 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.
Covanta Holding CorporationExhibit 9
Return to Stockholders
(Unaudited, in millions, except per share amounts and percentages)
During years ended December 31, 2010 and 2011, and the quarters endedMarch 31, June 30, and September 30, 2012, the following amounts werereturned to stockholders:
Weighted % of Common
AverageStock
SharesCost Per Outstanding
Amount RepurchasedShareRepurchased
------- ----------- --------- -----------
Common Stock Repurchased(a)
FY 2010956.1 15.563.9%
------- -----------
FY 201123014.4 15.999.6%
------- -----------
Q1 2012301.8 16.451.3%
Q2 2012(b)301.9 16.041.4%
Q3 2012251.5 17.221.1%
------- -----------
FY 2012 sub-total:855.2 16.573.8%
------- -----------
Total Common Stock Repurchased41025.7 15.9916.5%
------- -----------
Cash Dividends Declared to
Stockholders
FY 2010233
-------
FY 201142
-------
Q1 201221
Q2 201220
Q3 2012 (c)20
-------
FY 2012 sub-total:61
-------
Total Cash Dividends Declared to
Stockholders336
-------
-------
Total Return to Stockholders746
=======
(a) As of September 30, 2012, the amount remaining under our currently
authorized share repurchase program was 90 million.
(b) Approximately 2 million of common stock repurchased during the three
months ended September 30, 2012 was paid in October 2012.
(c) On September 19, 2012, the Board of Directors authorized a quarterly
cash dividend of 0.15 per share. The Q3 2012 payment was made on
October 17, 2012 to stockholders of record as of the close of business
on October 10, 2012.
Covanta Holding CorporationExhibit 10
Consolidated Reconciliation of Cash Flow Provided by
Operating Activities to Adjusted EBITDA
Three MonthsNine Months
EndedEnded
September 30,September 30,
--------------------------------
Full Year
2012201120122011Estimated 2012
------------------------------------------
(Unaudited, in millions)
Cash flow provided by
operating activities
from continuing
operations124120268276330 - 355
Cash flow used in
operating activities
from insurance
activities (a)(2)(1)(4)(4)
Debt service383210893150 - 145
Change in working capital(30)(35)(52)(77)
Change in restricted
funds held in trust12261035
Non-cash convertible debt
related expense(6)(9)(19)(20)
Equity in net income from
unconsolidated
investments41103
Dividends from
unconsolidated
investments(4)(1)(7)(5)
Current tax provision4(23)7(20)
Reversal of uncertain tax
positions related to
pre-emergence tax
matters (b)--24--24
Change in restricted
funds-other related to
contractual liability to
pre-petition creditors
(b)--(5)--(5)
Other10242847
------------------------------------------
Sub-total(10)2(23)(18)20 - 15
------------------------------------------
Adjusted EBITDA150153349347500 - 515
==========================================
(a) For additional information, see Exhibit 4A - Note (a) and Exhibit 7 -
Note (a) of this Press Release.
(b) For additional information, see Exhibit 4A - Note (g) of this Press
Release.
Covanta Holding CorporationExhibit 11
Plant Operating Expenses Detail - Americas
The Americas segment quarterly plant operating expenses typicallydiffers substantially as a result of the timing of scheduled plantmaintenance. We typically conduct scheduled maintenance periodicallyeach year, which requires that individual boiler units temporarilycease operations. During these scheduled maintenance periods, weincur material repair and maintenance expenses and receive lessrevenue until the boiler and/or turbine units resume operations. Thisscheduled maintenance typically occurs during periods of off-peakelectric demand and/or lower waste volumes, which are our first,second and fourth fiscal quarters. The first half of the yearscheduled maintenance period is typically the most extensive. Thethird quarter scheduled maintenance period is typically the leastextensive. Given these factors, we typically experience our lowestoperating income from our projects during the first half of eachyear. The aggregate of all other components of plant operatingexpense is relatively consistent each quarter of the year.
Three Months EndedNine Months Ended
September 30,September 30,
------------------- -------------------
2012201120122011
--------- --------- --------- ---------
(Unaudited, in millions)
Plant Operating Expenses:
Plant maintenance (a)42 38 179 187
All other176176533532
--------- --------- --------- ---------
Plant operating expenses218 214 712 719
========= ========= ========= =========
(a) Plant maintenance costs include our internal maintenance team and non-
facility employee costs for facility scheduled and unscheduled
maintenance and repair expenses.
Covanta Holding Corporation - Americas SegmentExhibit 12A
Statistics - (Unaudited, in millions, except percentages)
Boiler Availability
Last Twelve Months
as of September 30,
-------------------
20122011
--------- ---------
EfW Facilities92.2%91.2%
Waste and Service Revenue
Three Months Ended
September 30,
-------------------
20122011
--------- ---------
Waste and service revenue unrelated to project debt234 239
Revenue earned explicitly to service project debt -
principal1010
Revenue earned explicitly to service project debt -
interest23
--------- ---------
Total waste and service revenue (Excluding recycled
metals revenue)246 252
Recycled metals revenue1720
--------- ---------
Total waste and service revenue263 272
========= =========
Energy Revenue and Megawatt hours (MWhs) At Market and Contracted by
Facility Type
Three Months Ended September 30,
20122011
----------------------------------------------
% of% of
RevenueVolumeTotalRevenueVolumeTotal
(a)(a),(b) Volume(a)(a),(b) Volume
------- -------- ------------- -------- ------
EfW
At Market70.1712% 200.3423%
Contracted & Hedged751.0372%590.8760%
Biomass
At Market30.097%40.085%
Contracted240.139%200.1712%
------- -------- ------------- -------- ------
Total1091.42100% 1031.46100%
======= ======== ============= ======== ======
(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 October 1, 2012
----------------------
EfW
At Market0.9
Contracted & Hedged4.0
Biomass(b)
At Market0.4
Contracted0.3
----------------------
Total5.6
======================
(a) Covanta share only
(b) Additional 0.1 million MWhs of Biomass energy is economically
dispatched, but available to run.
Covanta Holding Corporation - Americas SegmentExhibit 12B
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 September 30,
20122011
--------- ---------
Ferrous Metal60 56
Non-Ferrous Metal1313
--------- ---------
Total73 69
========= =========
(a) Covanta share only
Recycled Metal Gross Tons Recovered by Type (a),(b)
Last Twelve Months
as of September 30,
-------------------
20122011
--------- ---------
Ferrous Metal421.1404.6
Non-Ferrous Metal16.715.0
--------- ---------
Total437.8419.6
========= =========
(a) Gross volume: Both Covanta and client share
(b) Tons in thousands
Published Industry U.S. Economic Drivers (a)
As of
--------------------------------------
September 30, 2012September 30, 2011
------------------------------------
Consumer Price Index (b)2.0%3.9%
PJM Pricing (Electricity)(c)38.1251.69
Henry Hub Pricing (Natural Gas) (d)2.874.13
#1 HMS Pricing (Ferrous Metals) (e)340418
Scrap Metals - Old Sheet & Old Cast
(f)0.690.78
(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 Q3 2012 and Q3 2011. Pricing for the PJM PSEG
Zone is provided by the PJM ISO.
(d) Average price per MMBtu for Q3 2012 and Q3 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 Q3 2012 and Q3 2011. The #1 Heavy Melt
Steel (HMS) composite index (/gross ton) price is published by American
Metal Market.
(f) Average price per pound for Q3 2012 and Q3 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 Statesgenerally accepted accounting principles ("GAAP") and non-GAAP, inassessing the overall performance of our business. To supplement ourassessment of results prepared in accordance with GAAP, we use themeasures of Adjusted EBITDA, Free Cash Flow, and Adjusted EPS, whichare non-GAAP measures as defined by the Securities and ExchangeCommission. The non-GAAP financial measures of Adjusted EBITDA, FreeCash Flow, and Adjusted EPS as described below, and used in thetables above, are not intended as a substitute or as an alternativeto net income, cash flow provided by operating activities or dilutedearnings per share as indicators of our performance or liquidity orany other measures of performance or liquidity derived in accordancewith GAAP. In addition, our non-GAAP financial measures may bedifferent from non-GAAP measures used by other companies, limitingtheir usefulness for comparison purposes.
The presentations of Adjusted EBITDA, Free Cash Flow and Adjusted EPSare intended to enhance the usefulness of our financial informationby providing measures which management internally use to assess andevaluate the overall performance of its business and those ofpossible acquisition candidates, and highlight trends in the overallbusiness.
Adjusted EBITDA
We use Adjusted EBITDA to provide further information that is usefulto an understanding of the financial covenants contained in thecredit facilities as of September 30, 2012 of our most significantsubsidiary, Covanta Energy, through which we conduct our core wasteand energy services business, and as additional ways of viewingaspects of its operations that, when viewed with the GAAP results andthe accompanying reconciliations to corresponding GAAP financialmeasures, provide a more complete understanding of our core business.The calculation of Adjusted EBITDA is based on the definition inCovanta Energy's credit facilities as of September 30, 2012, which wehave guaranteed. Adjusted EBITDA is defined as earnings beforeinterest, taxes, depreciation and amortization, as adjusted foradditional items subtracted from or added to net income. Because ourbusiness is substantially comprised of that of Covanta Energy, ourfinancial performance is substantially similar to that of CovantaEnergy. For this reason, and in order to avoid use of multiplefinancial measures which are not all from the same entity, thecalculation of Adjusted EBITDA and other financial measures presentedherein are ours, measured on a consolidated basis for continuingoperations, less the results of operations of our insurancesubsidiaries.
Under the credit facilities as of September 30, 2012, Covanta Energyis required to satisfy certain financial covenants, including certainratios of which Adjusted EBITDA is an important component. Compliancewith such financial covenants is expected to be the principallimiting factor which will affect our ability to engage in a broadrange of activities in furtherance of our business, including makingcertain investments, acquiring businesses and incurring additionaldebt. Covanta Energy was in compliance with these covenants as ofSeptember 30, 2012. Failure to comply with such financial covenantscould result in a default under these credit facilities, whichdefault would have a material adverse affect on our financialcondition and liquidity.
These financial covenants are measured on a trailing four quarterperiod 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 providinginformation with respect to our Adjusted EBITDA for the three andnine months ended September 30, 2012 and 2011, reconciled for eachsuch periods to net income from continuing operations and cash flowprovided by operating activities from continuing operations, whichare believed to be the most directly comparable measures under GAAP.
Free Cash Flow
Free Cash Flow is defined as cash flow provided by operatingactivities from continuing operations, excluding the cash flowprovided by or used in our insurance subsidiaries, less maintenancecapital expenditures, which are capital expenditures primarily tomaintain our existing facilities. We use the non-GAAP measure of FreeCash Flow as a criterion of liquidity and performance-basedcomponents of employee compensation. We use Free Cash Flow as ameasure of liquidity to determine amounts we can reinvest in our corebusinesses, such as amounts available to make acquisitions, invest inconstruction of new projects, make principal payments on debt, oramounts we can return to our stockholders through dividends and/orstock repurchases.
In order to provide a meaningful basis for comparison, we areproviding information with respect to our Free Cash Flow for thethree and nine months ended September 30, 2012 and 2011, reconciledfor each such periods to cash flow provided by operating activitiesfrom continuing operations, which we believe to be the most directlycomparable measure under GAAP.
Adjusted EPS
Adjusted EPS excludes certain income and expense items that are notrepresentative of our ongoing business and operations, which areincluded in the calculation of Diluted Earnings Per Share inaccordance with GAAP. The following items are not all-inclusive, butare examples of reconciling items in prior comparative and futureperiods. They would include the results of operations of ourinsurance subsidiaries, write-off of assets and liabilities, theeffect of derivative instruments not designated as hedginginstruments, significant gains or losses from the disposition orrestructuring of businesses, gains and losses on assets held forsale, transaction-related costs, income and loss on theextinguishment of debt and other significant items that would not berepresentative of our ongoing business.
We will use the non-GAAP measure of Adjusted EPS to enhance theusefulness of our financial information by providing a measure whichmanagement internally uses to assess and evaluate the overallperformance and highlight trends in the ongoing business.
In order to provide a meaningful basis for comparison, we areproviding information with respect to our Adjusted EPS for the threeand nine months ended September 30, 2012 and 2011, reconciled foreach such periods to diluted earnings per share from continuingoperations, which is believed to be the most directly comparablemeasure under GAAP.
SOURCE: Covanta Holding Corporation
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