Covanta Takes Small Hit in First Quarter Profits; 8% Revenue Increase

Date: April 30, 2007

Source: Covanta Holding Corporation

Covanta Holding Corporation Reports 2007 First Quarter Results; Reaffirms 2007 Guidance

Covanta Holding Corporation (NYSE: CVA) reported financial results today for the three months ended March 31, 2007. Diluted loss per share was $0.12 in the first quarter, which included approximately $32 million of pre-tax expenses associated with the Company's previously-announced recapitalization and a pre-tax write-down of assets of approximately $18 million relating to an insured loss caused by a fire at the Company's SEMASS facility. Excluding these costs diluted earnings per share would have been $0.08 in the first quarter of 2007 which is comparable to $0.08 in the prior year comparative period.

First Quarter Results

For the three months ended March 31, 2007 total Company operating revenues grew 8 percent to $330 million, up from $305 million in the prior year comparative period.

The Company's domestic waste and energy operating revenues grew 10 percent to $288 million, driven primarily by construction revenues at the Hillsborough County facility, the inclusion of the Harrisburg facility in results of operations, and contractual service fee escalations. International revenues of $40 million grew by 3 percent primarily due to higher electricity sales at both Indian facilities offset by decreased revenues resulting from the sale of a small facility in China during the second quarter of 2006.

Adjusted EBITDA at the Company's principal subsidiary Covanta Energy Corporation ("Covanta Energy") was $103 million in the first quarter. Covanta Energy's Free Cash Flow increased by $12 million to $34 million for the three months ended March 31, 2007 compared to the comparable period of 2006.

"Our successful recapitalization and joint venture investment in China positions us to take advantage of promising growth opportunities around the world," said Anthony Orlando, President and Chief Executive Officer of Covanta. "We are also pleased that our SEMASS facility has quickly resumed operation after a fire on March 31. The character and quality of our employees is never more evident than in a situation such as this. Their preparation, commitment to safety and dedication to provide uninterrupted service for our clients is exemplary of the core values that will drive our future growth."

2007 Guidance Reaffirmed

The Company is reaffirming its full year 2007 guidance for the following key metrics:

-- Covanta Energy Adjusted EBITDA in the range of $545 million to $565 million;

-- Covanta Energy Free Cash Flow in the range of $290 million to $320 million; and

-- Covanta diluted earnings per share in the range of $0.65 to $0.75.

Conference Call Information

Covanta will host a conference call at 8:30 am (Eastern) on Tuesday, May 1, 2007 to discuss its results for the three months ended March 31, 2007. Prepared remarks will be followed by a question-and-answer session. To participate, please dial 800-289-0438 approximately 10 minutes prior to the scheduled start of the call. If you are calling from outside of the United States, please dial 913-981-5527. The conference call will also be web cast live on the Investor Relations section of the Covanta website at www.covantaholding.com.

A replay of the conference call will be available from 11:00 am (Eastern) on Tuesday, May 1, 2007 through midnight (Eastern) Tuesday, May 8, 2007. To access the replay, please dial 888-203-1112 or 719-457-0820 and use the replay pass code: 9963240. The web cast will also be archived on www.covantaholding.com.

About Covanta

Covanta is a New York Stock Exchange listed company engaging in waste disposal, energy services and specialty insurance through its subsidiaries. Covanta's subsidiary, Covanta Energy, is an internationally recognized owner and operator of energy-from-waste and power generation projects. Covanta Energy's energy-from-waste facilities convert municipal solid waste into renewable energy for numerous communities, predominantly in the United States.

 

    Covanta Holding Corporation                                     Exhibit 1
    Condensed Consolidated Statements of Operations

                                                     Three Months Ended
                                                           March 31,
                                                       2007         2006 (A)
                                                         (Unaudited)
                                      (In thousands, except per share amounts)
    Operating revenues
       Waste and service revenues                  $ 198,911      $ 191,369
       Electricity and steam sales                   113,666        109,178
       Other operating revenues                       17,632          4,809
           Total operating revenues                  330,209        305,356

    Operating expenses
       Plant operating expenses                      202,007        186,549
       Depreciation and amortization expense          48,043         46,397
       Net interest expense on project debt           14,605         15,998
       Write-down of assets (B)                       18,266             -
       Other operating expenses                       16,816          2,690
       General and administrative expenses            22,192         18,204
           Total operating expenses                  321,929        269,838

    Operating income                                   8,280         35,518

    Other income (expense)
       Investment income                               5,184          2,403
       Interest expense                              (21,260)       (28,483)
       Loss on extinguishment of debt (C)            (32,006)            -
           Total other expenses                      (48,082)       (26,080)

    (Loss) income before income tax
     benefit (expense), minority interests
     and equity in net income from
     unconsolidated investments                      (39,802)         9,438
    Income tax benefit (expense)                      18,176         (4,263)
    Minority interests                                (1,398)          (600)
    Equity in net income from
     unconsolidated investments                        5,106          6,843

    Net (Loss) Income                              $ (17,918)     $  11,418

    (Loss) Earnings Per Share:
    Basic                                          $   (0.12)     $    0.08
    Weighted Average Shares                          151,476        143,384

    Diluted                                        $   (0.12)     $    0.08
    Weighted Average Shares                          151,476        145,743

    (A) Certain prior period amounts have been reclassified to conform to
        current period presentation.

    (B) On March 31, 2007, the SEMASS energy-from-waste facility located in
        Rochester, Massachusetts experienced a fire in the front-end receiving
        portion of the facility.  Damage was extensive to this portion of
        the facility and operations at the facility were suspended completely
        for approximately 20 days.  Partial operations have resumed, and
        full-scale operations are expected to resume during May 2007.  As a
        result of this loss, Covanta Holding Corporation ("Covanta") recorded
        an asset impairment of $18.3 million, pre-tax, in the first quarter
        of 2007, which represents a preliminary estimate of the net book value
        of the assets destroyed.  Based upon additional investigation and
        analysis to be conducted, Covanta may increase the impairment
        recorded.

        The cost of repair or replacement, and business interruption losses,
        are insured under the terms of applicable insurance policies, subject
        to deductibles.  Covanta cannot predict the timing of when proceeds
        under such policies will be received.  As insurance proceeds are
        received, they will be recorded as a reduction to the loss related to
        the write-down of assets or a reduction to operating expenses. Covanta
        expects the cost of repair or replacement and business interruption
        losses not recovered, representing deductibles under such policies,
        will not be material.

    (C) During January and February 2007, Covanta completed public offerings
        of common stock and 1.00% Senior Convertible Debentures, and Covanta
        Energy Corporation ("Covanta Energy") closed on new credit facilities.
        In addition, in February 2007, Covanta Energy completed tender offers
        for outstanding notes previously issued by its intermediate
        subsidiaries.  As a result of the recapitalization plan in the first
        quarter of 2007, Covanta recognized a loss on extinguishment of debt
        charge of approximately $32.0 million, pre-tax, which is comprised of
        the write-down of deferred financing costs, tender premiums paid for
        the intermediate subsidiary debt, and a call premium paid for a credit
        facility refinanced, which was in effect prior to Covanta Energy's
        new credit facilities.  These amounts were partially offset by the
        write-down of unamortized premiums relating to the intermediate
        subsidiary debt and a gain associated with the settlement of interest
        rate swap agreements.



    Covanta Holding Corporation                                     Exhibit 2
    Reconciliation of Net (Loss) Income to Adjusted EBITDA

                                      Three Months Ended      Full Year
                                           March 31,          Estimated
                                        2007      2006           2007
                                  (Unaudited, in thousands)
    Net (Loss) Income -
     Covanta Holding Corporation     $(17,918) $ 11,418

    Less:  Net Income - All Other       2,698       575

    Net (Loss) Income -
     Covanta Energy Corporation       (20,616)   10,843    $99,000 - $114,000

    Depreciation and
     amortization expense              48,032    46,380        193,000

    Debt service:
       Net interest expense
        on project debt                14,605    15,998
       Interest expense                20,288    28,483
       Investment income               (2,725)   (1,918)
    Subtotal debt service              32,168    42,563        114,000

    Income tax expense                (16,825)    3,922     61,000 - 69,000


    Other Adjustments: (A)
       Change in unbilled service
           receivables                  5,046     4,070
       Non-cash compensation            1,771       831
       Other non-cash
        operating expenses              1,832     1,868
    Subtotal other adjustments          8,649     6,769     38,000 - 35,000

    Write-down of assets (B)           18,266        -

    Loss on extinguishment
      of debt (C)                      32,006        -          32,000

    Minority interests                  1,716       830          8,000
    Total adjustments                 124,012   100,464

    Adjusted EBITDA -
     Covanta Energy Corporation      $103,396  $111,307   $545,000 - $565,000

    (A) These items represent amounts that are non-cash in nature.

    (B) On March 31, 2007, the SEMASS energy-from-waste facility located in
        Rochester, Massachusetts experienced a fire in the front-end receiving
        portion of the facility.   Damage was extensive to this portion of
        the facility and operations at the facility were suspended completely
        for approximately 20 days.  Partial operations have resumed, and
        full-scale operations are expected to resume during May 2007.  As a
        result of this loss, Covanta recorded an asset imparment of
        $18.3 million, pre-tax, in the first quarter of 2007, which represents
        a preliminary estimate of the net book value of the assets destroyed.
        Based upon additional investigation and analysis to be conducted,
        Covanta may increase the impairment recorded.

        The cost of repair or replacement, and business interruption losses,
        are insured under the terms of applicable insurance policies, subject
        to deductibles.  Covanta cannot predict the timing of when proceeds
        under such policies will be received.  As insurance proceeds are
        received, they will be recorded as a reduction to the loss related to
        the write-down of assets or a reduction to operating expenses. Covanta
        expects the cost of repair or replacement and business interruption
        losses not recovered, representing deductibles under such policies,
        will not be material.

    (C) During January and February 2007, Covanta completed public offerings
        of common stock and 1.00% Senior Convertible Debentures, and Covanta
        Energy closed on new credit facilities. In addition, in February 2007,
        Covanta Energy completed tender offers for outstanding notes
        previously issued by its intermediate subsidiaries.  As a result of
        the recapitalization plan in the first quarter of 2007, Covanta
        recognized a loss on extinguishment of debt charge of approximately
        $32.0 million, pre-tax, which is comprised of the write-down of
        deferred financing costs, tender premiums paid for the intermediate
        subsidiary debt, and a call premium paid for a credit facility
        refinanced, which was in effect prior to Covanta Energy's new credit
        facilities.  These amounts were partially offset by the write-down of
        unamortized premiums relating to the intermediate subsidiary debt and
        a gain associated with the settlement of interest rate swap
        agreements.



    Covanta Holding Corporation                                     Exhibit 3
    Reconciliation of Cash Flow Provided by
    Operating Activities to Adjusted EBITDA

                                       Three Months Ended
                                            March 31,          Full Year
                                         2007      2006      Estimated 2007
                                   (Unaudited, in thousands)
    Cash flow provided by
     operating activities -
     Covanta Energy Corporation       $ 53,212  $ 40,444   $345,000 - $375,000

    Debt Service                        32,168    42,563        114,000

    Amortization of debt premium
     and deferred financing costs        3,253     5,258         14,000

    Other                               14,763    23,042     72,000 - 62,000

    Adjusted EBITDA -
       Covanta Energy Corporation     $103,396  $111,307   $545,000 - $565,000



    Covanta Energy Corporation                                      Exhibit 4
    Reconciliation of Cash Flow Provided by
    Operating Activities to Free Cash Flow

                                       Three Months Ended
                                            March 31,          Full Year
                                         2007      2006      Estimated 2007
                                  (Unaudited, in thousands)
    Cash Flow Provided by
     Operating Activities             $ 53,212  $ 40,444   $345,000 - $375,000

    Less: Purchase of Property,
     Plant and Equipment (A)           (18,871)  (18,021)       (55,000)

    Free Cash Flow (B)                $ 34,341  $ 22,423   $290,000 - $320,000


    (A) Purchase of Property, Plant and Equipment is also referred to as
        capital expenditures.

    (B) Free Cash Flow is provided for Covanta Energy. The corporate debt
        resides at Covanta Energy and, therefore, Covanta  provides Free Cash
        Flow at that level and not at the Covanta level which includes the
        insurance business and the holding company.



    Covanta Holding Corporation                                     Exhibit 5
    Components of Diluted (Loss) Earnings Per Share

                                                  Three Months Ended March 31,
                                                      2007            2006
                                                           (Unaudited)

    Write-down of assets, net of tax (A)             $(0.07)          $  -

    Loss on extinguishment of debt, net of tax (B)    (0.13)             -

    All other                                          0.08            0.08

    Diluted (Loss) Earnings Per Share                $(0.12)          $0.08

    (A) On March 31, 2007, the SEMASS energy-from-waste facility located in
        Rochester, Massachusetts experienced a fire in the front-end receiving
        portion of the facility.  Damage was extensive to this portion of the
        facility and operations at the facility were suspended completely
        for approximately 20 days.  Partial operations have resumed, and
        full-scale operations are expected to resume during May 2007.  As a
        result of this loss, Covanta recorded an asset imparment of
        $18.3 million, pre-tax, in the first quarter of 2007, which represents
        a preliminary estimate of the net book value of the assets destroyed.
        Based upon additional investigation and analysis to be conducted,
        Covanta may increase the impairment recorded.

        The cost of repair or replacement, and business interruption losses,
        are insured under the terms of applicable insurance policies, subject
        to deductibles.  Covanta cannot predict the timing of when proceeds
        under such policies will be received.  As insurance proceeds are
        received, they will be recorded as a reduction to the loss related to
        the write-down of assets or a reduction to operating expenses. Covanta
        expects the cost of repair or replacement and business interruption
        losses not recovered, representing deductibles under such policies,
        will not be material.

    (B) During January and February 2007, Covanta completed public offerings
        of common stock and 1.00% Senior Convertible Debentures, and Covanta
        Energy closed on new credit facilities. In addition, in February 2007,
        Covanta Energy completed tender offers for outstanding notes
        previously issued by its intermediate subsidiaries.  As a result of
        the recapitalization plan in the first quarter of 2007, Covanta
        recognized a loss on extinguishment of debt charge of approximately
        $32.0 million, pre-tax, which is comprised of the write-down of
        deferred financing costs, tender premiums paid for the intermediate
        subsidiary debt, and a call premium paid for a credit facility
        refinanced, which was in effect prior to Covanta Energy's new credit
        facilities.  These amounts were partially offset by the write-down of
        unamortized premiums relating to the intermediate subsidiary debt and
        a gain associated with the settlement of interest rate swap
        agreements.

 

For more information, visit: www.covantaholding.com.

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