Date: February 26, 2007
Source: Covanta Holding Corporation
COVANTA HOLDING CORPORATION REPORTS 2006 FOURTH QUARTER AND FULL-YEAR RESULTS REAFFIRMS 2007 GUIDANCE
2006 Diluted EPS of $0.72
2006 Adjusted EBITDA of $542 million for Covanta Energy
Covanta Energy Free Cash Flow of $260 million
Covanta Holding Corporation (NYSE:CVA) reported financial results today for the three and twelve months ended December 31, 2006. The Company is presenting comparative financial results on an as reported basis for the fourth quarter and a pro forma basis for the full year. The pro forma information was prepared as if the acquisition of Covanta ARC Holdings Inc., which occurred in June 2005, was consummated on January 1, 2005. The Company believes that such presentation will assist in assessing Covanta's performance.
Fourth Quarter Results
For the three months ended December 31, 2006 total operating revenues were $318 million versus $303 million in the prior year period. Net income was $12 million, or $0.08 per diluted share which compares with 2005 fourth quarter net income of $6 million, or $0.04 per diluted share. The fourth quarter of 2006 was impacted by a higher than expected effective tax rate.
At Covanta Energy Corporation ("Covanta Energy"), the Company's principal subsidiary, domestic waste and energy operating revenues grew 7 percent to $290 million, driven primarily by higher energy rates, contractual service fee escalation and the inclusion of a full quarter of revenue from the Warren facility in the fourth quarter of 2006. International revenues of $25 million decreased approximately $3 million versus the prior year primarily due to the sale of a small facility in China during the second quarter of 2006. Covanta Energy's adjusted EBITDA was $118 million compared to $126 million in the prior year period. The reduction was primarily due to the Company's increased spending on scheduled domestic plant maintenance during the fourth quarter of 2006.
Full Year 2006 As Reported Results versus 2005 Pro Forma Results
For the twelve months ended December 31, 2006, total operating revenues rose 5 percent to $1.3 billion while net income was $106 million, up 53 percent from the prior year period. Diluted earnings per share increased to $0.72 from $0.47 in the prior year, driven primarily by strong operating performance. Covanta Energy's adjusted EBITDA grew 8 percent to $542 million resulting from higher revenues, strong operating performance and the successful execution of cost reduction initiatives.
"We are very pleased with our strong operating results in 2006, in particular the meaningful growth we produced from our existing facilities." said Anthony Orlando, President and Chief Executive Officer of Covanta. "We are also happy with our recently completed recapitalization which positions Covanta to take advantage of promising domestic and international growth opportunities."
SELECTED FINANCIAL DATA
Given the significance of the Covanta Energy and ARC Holdings acquisitions to our business, results of operations and financial condition during the third quarter of 2005, we combined the previously separate business segments of Insurance Services and holding company operations into one reportable segment referred to as “Other Services.” Certain prior period amounts, such as holding company investment income, have been reclassified in the consolidated financial statements to conform to the current period presentation.
| For the Years Ended December 31, | |||||||||||||||||||
| 2006 | 2005(1) | 2004(2) | 2003(3) | 2002(4) | |||||||||||||||
| (In thousands of dollars, except per share amounts) | |||||||||||||||||||
| Statements of Operations Data | |||||||||||||||||||
| Operating revenues | $ | 1,268,536 | $ | 978,763 | $ | 576,196 | $ | 41,123 | $ | 531,501 | |||||||||
| Equity in net income (loss) from unconsolidated investments | 28,636 | 25,609 | 17,024 | (54,877 | ) | — | |||||||||||||
| Net income (loss) | 105,789 | 59,326 | 34,094 | (69,225 | ) | (32,955 | ) | ||||||||||||
| Income (loss) per share(5) | |||||||||||||||||||
| Basic | 0.73 | 0.49 | 0.39 | (1.05 | ) | (0.58 | ) | ||||||||||||
| Diluted | 0.72 | 0.46 | 0.37 | (1.05 | ) | (0.58 | ) | ||||||||||||
| Balance Sheet Data | |||||||||||||||||||
| Cash and cash equivalents | $ | 233,442 | $ | 128,556 | $ | 96,148 | $ | 17,952 | $ | 25,183 | |||||||||
| Restricted funds held in trust | 407,921 | 447,432 | 239,918 | — | — | ||||||||||||||
| Property, plant and equipment, net | 2,637,923 | 2,724,843 | 819,400 | 254 | 654,575 | ||||||||||||||
| Total assets | 4,437,820 | 4,702,165 | 1,939,081 | 162,648 | 1,032,945 | ||||||||||||||
| Long-term debt | 1,260,123 | 1,308,119 | 312,896 | 40,000 | 597,246 | ||||||||||||||
| Project debt | 1,435,947 | 1,598,284 | 944,737 | — | — | ||||||||||||||
| Stockholders’ equity | 739,152 | 599,241 | 134,815 | 27,791 | 77,360 | ||||||||||||||
| Book value per share of common stock(5) | 5.01 | 4.24 | 1.84 | 0.50 | 1.63 | ||||||||||||||
| Shares of common stock outstanding(5) | 147,500 | 141,166 | 73,430 | 55,105 | 47,459 | ||||||||||||||
Recapitalization Plan Successfully Implemented
The Company completed a comprehensive recapitalization utilizing a series of equity and debt financings in the first quarter of 2007, which included the following components:
- the refinancing of Covanta Energy's debt facilities with new Covanta Energy
debt facilities,
comprised of a $300 million revolving credit facility, a $320 million funded
letter of credit facility, and a $650 million term loan (collectively referred
to as the "New Credit Facilities");
- an underwritten public offering of 6.118 million shares of Covanta's common
stock, in which the Company received proceeds of $136.6 million, net of underwriting
discounts and commissions;
- an underwritten public offering of $373.75 million aggregate principal amount
of convertible debentures issued by the Company, from which Covanta received
proceeds of $364.4 million, net of underwriting discounts and commissions; and
- the repayment, by means of a tender offer, of $604.4 million in aggregate
principal amount of outstanding notes previously issued by Covanta Energy's
intermediate subsidiaries.
2007 Guidance Reaffirmed
The Company is reaffirming its full year 2007 guidance on the following key metrics:
- Covanta Energy Adjusted EBITDA in the range of $545 million to $565 million;
- Covanta Energy Free Cash Flow in the range of $290 million to $320 million;
and
- Covanta diluted earnings per share in the range of $0.65 to $0.75.
Conference Call Information
Covanta will host a conference call at 8:30 am (Eastern) on Tuesday, February 27, 2007 to discuss its results for the three and twelve months ended December 31, 2006. Prepared remarks will be followed by a question-and-answer session. To participate, please dial 800-479-9001 approximately 10 minutes prior to the scheduled start of the call. If you are calling from outside of the United States, please dial 719-457-2618. The conference call will also be web cast live on the Investor Relations section of the Covanta website at www.covantaholding.com.
A replay of the conference call will be available from 11:00 am (Eastern) on Tuesday, February 27, 2007 through midnight (Eastern) Tuesday, March 6, 2007. To access the replay, please dial 888-203-1112 or 719-457-0820 and use the replay pass code: 4581586. The web cast will also be archived on www.covantaholding.com.
Non-GAAP Measures
The information presented herein and in the exhibits attached includes the measures of adjusted EBITDA and free cash flow, which are non-GAAP measures as defined by the Securities and Exchange Commission. The calculation of Adjusted EBITDA is based on the definitions in Covanta Energy's credit facilities that were in effect as of December 31, 2006, or are now in effect for 2007, as applicable. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, as adjusted for additional items subtracted from or added to net income, in accordance with covenants included in the applicable credit facilities. Free Cash Flow is defined as cash flow provided by operating activities, less purchases or property, plant and equipment. These measures may be different from non-GAAP measures used by other companies. The presentation of such non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with United States generally accepted accounting principles ("GAAP"). These non-GAAP financial measures should be read in conjunction with Covanta's financial information reported in accordance with GAAP, and may not be comparable to those used by other companies. Covanta uses these measures to provide further information that is useful to an understanding of Covanta Energy's financial covenants and 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 factors and trends affecting Covanta's business.
Adjusted EBITDA
Under Covanta Energy's credit facilities that were in place as of December 31, 2006, Covanta Energy was required to maintain a minimum level of Adjusted EBITDA of $425 million on a trailing 12 month basis and certain ratios of Adjusted EBITDA to interest expense. Failure to maintain such levels of Adjusted EBITDA, or such ratios, would have resulted in a default under the terms of such credit facilities, which default would have had a material adverse affect on Covanta's financial condition and liquidity.
Under its New Credit Facilities, Covanta Energy must satisfy certain financial covenants, including certain ratios of which Adjusted EBITDA is an important component. Compliance with such ratios is expected to be the principal limiting factor which will affect Covanta Energy's ability to engage in a broad range of activities in furtherance of its business, including making certain investments, acquiring businesses and incurring additional debt. Failure to comply with such ratios would result in a default under such New Credit Facilities, which default would have a material adverse affect on Covanta's financial condition and liquidity.
Adjusted EBITDA is not a measurement defined under GAAP and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of Covanta's performance or any other measures of performance derived in accordance with GAAP. In addition to providing information that is useful to an understanding of the covenants discussed above, the presentation of Adjusted EBITDA is intended to enhance the usefulness of Covanta's financial information by providing a measure which management internally uses to assess and evaluate the overall performance of its business and those of possible acquisition candidates, highlight trends in the overall business, as well as a significant criterion of performance-based components of employee compensation.
In order to provide a meaningful basis for comparison, Covanta is providing information with respect to Covanta Energy's Adjusted EBITDA for 2005 and 2006, reconciled for each such period to net income and cash flow provided by operating activities, which are believed to be the most directly comparable measures under GAAP. Covanta is providing similar reconciliations with respect to its guidance for 2007 Adjusted EBITDA.
Free Cash Flow
Free Cash Flow is used by management as an alternative measure of cash flow available for the repayment of debt and for investments and strategic opportunities. Free Cash Flow is not a measurement defined under GAAP and is and should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or other performance measures in accordance with GAAP. Free Cash Flow is reconciled to cash provided by operating activities, the most directly comparable measure under GAAP.
About Covanta
Covanta is a New York Stock Exchange listed company engaging in waste disposal, energy services and specialty insurance through its subsidiaries. Covanta's subsidiary, Covanta Energy, is an internationally recognized owner and operator of energy-from-waste and power generation projects. Covanta Energy's energy-from-waste facilities convert municipal solid waste into renewable energy for numerous communities, predominantly in the United States.
For more information, contact:
Gavin Bell
Vice President, Investor Relations
Covanta Holding Corporation
973.882.7107
www.covantaholding.com.
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