Date: July 22, 2009
Source: Covanta Holding Corporation
Covanta Holding Corporation (NYSE: CVA) ("Covanta" or the "Company") reported financial results today for the three months ended June 30, 2009. Diluted earnings per share were $0.21 in the second quarter of 2009 compared to $0.27 in the second quarter of 2008.
Second Quarter Results
"We are pleased with our second quarter performance. As expected the slow economy caused lower prices for scrap metal, exposed energy sales and merchant waste, but we were able to offset a significant portion of that decline with lower operating expense and increased waste throughput," said Anthony Orlando, President and CEO of Covanta. He continued "We are reaffirming our full year guidance on all key metrics, while noting that we expect to be on the low end of the ranges in light of the current economic conditions and depressed natural gas prices."
For the three months ended June 30, 2009, operating revenues were $376 million, an 11% decline from $423 million in the prior year comparable period.
Domestic revenues declined by $21 million due to lower recycled metal revenue of $13 million and a $7 million decline in other revenue primarily related to timing of construction activity. The remaining domestic business revenue was essentially flat with new business revenue of $6 million offsetting a $4 million decline in revenue earned explicitly to service project debt. Domestic operating expenses were reduced by $8 million during the quarter, reflecting $20 million in expense reductions at existing businesses and from reduced construction activity this year, offset by $13 million in added expense from new businesses and the effects of insurance recoveries during 2008.
International segment revenue decreased $28 million in the quarter while plant operating expenses declined by $27 million. These declines relate primarily to the Company's Indian facilities, where falling fuel prices reduced the pass through component of our revenues and also lowered our expenses.
Adjusted EBITDA was $140 million, down $22 million from last year's second quarter. 2008 results included $5 million of insurance recovery benefits at our Semass facility. The remaining $17 million was due to lower recycled metal revenue and higher G&A spending to pursue growth. Strong operating performance and cost reductions entirely offset lower energy prices and merchant tip fees as well as the decline in debt service pass through revenue.
Cash Flow provided by Operating Activities ("Operating Cash Flow") was $86 million in the second quarter, down $26 million from last year's second quarter. This decline was attributable to the same factors that affected adjusted EBITDA plus working capital offset by lower interest expense. We expect the difficult year over year comparison to continue through the third quarter of this year.
Our balance sheet was significantly strengthened by the $460 million convertible note financing completed during the quarter. We added approximately $389 million to our unrestricted cash, after giving effect to underwriting discounts, offering expenses, proceeds from the issuance of warrants and the purchase of the convertible note hedge. The entire $300 million of our revolving credit facility continues to be available. In the quarter, we paid down $72 million of debt, bringing our net debt (total debt less cash and restricted funds set aside explicitly for project debt principal repayment) to $1.7 billion.
"The strength of our base business during this difficult economic environment enables us to capitalize on opportunities and position the company for the eventual recovery. In the last couple of months we've made excellent progress in that direction, first by issuing convertible notes to strengthen our balance sheet and then by signing a definitive agreement to acquire most of Veolia's North American Energy-from-Waste business. Those assets fall squarely within Covanta's sweet spot, both in terms of our operational expertise and our geographic presence. We look forward to closing this acquisition," stated Mr. Orlando. He added, "We're also quite optimistic about our overall growth prospects which are progressing nicely and could be significantly boosted if legislation is passed in Washington D.C. requiring minimum renewable electricity production; and that seems more likely now than ever before."
Year-to-Date Results
For the six months ended June 30, 2009, total Company operating revenues were down 10% to $735 million. Operating Cash Flow was $137 million for the year-to-date period. Adjusted EBITDA was $222 million.
2009 Guidance
The Company is reaffirming its guidance for 2009 for the following key metrics:
Operating Cash Flow in the range of $325 million to $375 million;
Adjusted EBITDA of $500 million to $540 million; and
Diluted earnings per share of $0.65 to $0.80.
Conference Call Information
Covanta will host a conference call at 8:30 am (Eastern) on Thursday, July 23, 2009 to discuss its results for the three months ended June 30, 2009. To participate, please dial 866-314-5232 approximately 10 minutes prior to the scheduled start of the call. If you are calling from outside of the United States, please dial 617-213-8052. Please utilize pass code 95901282 when prompted by the conference call operator. 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 11:30 am (Eastern) Thursday, July 23, 2009 through midnight (Eastern) Thursday, July 30, 2009. To access the replay, please dial 888-286-8010, or from outside of the United States 617-801-6888 and use the replay pass code: 30728009. The webcast will also be archived on www.covantaholding.com and can be played or downloaded as an MP3 file.
About Covanta
Covanta Holding Corporation (NYSE: CVA), is an internationally recognized owner and operator of large-scale Energy-from-Waste and renewable energy projects and a recipient of the Energy Innovator Award from the U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy. Covanta's 38 Energy-from-Waste facilities provide communities with an environmentally sound solution to their solid waste disposal needs by using that municipal solid waste to generate clean, renewable energy. Annually, Covanta's modern Energy-from-Waste facilities safely and securely convert approximately 17 million tons of waste into more than 8 million megawatt hours of clean renewable electricity and create 10 billion pounds of steam that are sold to a variety of industries. For more information, visit www.covantaholding.com.
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this press release may constitute "forward-looking" statements as defined in Section 27A of the Securities Act of 1933 (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), the Private Securities Litigation Reform Act of 1995 (the "PSLRA") or in releases made by the Securities and Exchange Commission ("SEC"), all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Covanta and its subsidiaries, or general industry or broader economic performance in domestic and international markets in which Covanta operates or competes, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words "plan," "believe," "expect," "anticipate," "intend," "estimate," "project," "may," "will," "would," "could," "should," "seeks," or "scheduled to," or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the "safe harbor" provisions of such laws. Covanta cautions investors that any forward-looking statements made by Covanta are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to Covanta, include, but are not limited to, the risk that Covanta may not successfully close its announced or planned acquisitions or projects in development and those factors, risks and uncertainties that are described in periodic securities filings by Covanta with the SEC. Although Covanta believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any forward-looking statements. Covanta's future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking statements contained in this press release are made only as of the date hereof and Covanta does not have or undertake any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law.
Covanta Holding Corporation Exhibit 1
Condensed Consolidated Statements of Income
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2009 2008(A) 2009 2008(A)
-------- -------- -------- --------
(As Adjusted) (As Adjusted)
(Unaudited)
(In thousands, except per share amounts)
Operating revenues
Waste and service revenues $227,842 $242,689 $434,111 $460,312
Electricity and
steam sales 136,540 163,832 278,409 316,897
Other operating revenues 11,404 16,475 22,026 34,553
-------- -------- -------- --------
Total operating revenues 375,786 422,996 734,546 811,762
-------- -------- -------- --------
Operating expenses
Plant operating expenses 214,556 238,608 470,598 497,619
Depreciation and
amortization expense 51,162 51,590 102,660 100,164
Net interest expense on
project debt 12,108 13,776 24,877 27,537
General and administrative
expenses 26,906 23,135 52,421 47,289
Other operating expenses 9,722 19,358 19,466 31,859
-------- -------- -------- --------
Total operating expenses 314,454 346,467 670,022 704,468
-------- -------- -------- --------
Operating income 61,332 76,529 64,524 107,294
-------- -------- -------- --------
Other income (expense)
Investment income 1,156 1,052 2,184 2,692
Interest expense (8,532) (11,563) (16,448) (25,283)
Non-cash convertible debt
related expense (6,395) (4,453) (11,097) (8,827)
-------- -------- -------- --------
Total other expenses (13,771) (14,964) (25,361) (31,418)
-------- -------- -------- --------
Income before income tax
expense, equity in net
income from unconsolidated
investments, and
noncontrolling interests
in subsidiaries 47,561 61,565 39,163 75,876
Income tax expense (17,901) (24,361) (14,583) (30,032)
Equity in net income from
unconsolidated investments 5,671 7,320 11,480 12,812
-------- -------- -------- --------
Net Income 35,331 44,524 36,060 58,656
-------- -------- -------- --------
Less: Net income attributable
to noncontrolling interests
in subsidiaries (2,164) (2,225) (3,544) (4,094)
-------- -------- -------- --------
Net Income Attributable to
Covanta Holding Corporation $33,167 $42,299 $32,516 $54,562
======== ======== ======== ========
Earnings Per Share:
Basic $0.22 $0.28 $0.21 $0.36
======== ======== ======== ========
Weighted Average Shares 153,731 153,387 153,600 153,276
======== ======== ======== ========
Diluted $0.21 $0.27 $0.21 $0.35
======== ======== ======== ========
Weighted Average Shares 154,953 154,848 154,846 154,710
======== ======== ======== ========
(A) See Note 1 - Organization and Basis of Presentation of the Notes to
the Condensed Consolidated Financial Statements included in our
Quarterly Report on Form 10-Q for the second quarter ended June 30,
2009 for a discussion of the retrospective accounting changes
resulting from the adoption of FASB Staff Position No. APB 14-1 and
Statement of Financial Accounting Standards No. 160 which were
effective January 1, 2009.
Covanta Holding Corporation Exhibit 2
Reconciliation of Net Income to Adjusted EBITDA
Three Months Ended Six Months Ended
June 30, June 30, Full Year
------------------ ---------------- Estimated
2009 2008(A) 2009 2008(A) 2009
---- ------- ---- ------- ----------
(As Adjusted) (As Adjusted)
(Unaudited, in thousands)
Net Income
Attributable to
Covanta Holding $101,000 -
Corporation $33,167 $42,299 $32,516 $54,562 $124,000
Depreciation and
amortization 190,000 -
expense 51,162 51,590 102,660 100,164 195,000
Debt service:
Net interest
expense on
project debt 12,108 13,776 24,877 27,537
Interest expense 8,532 11,563 16,448 25,283
Non-cash
convertible
debt related
expense 6,395 4,453 11,097 8,827
Investment income (1,156) (1,052) (2,184) (2,692)
-------- -------- -------- --------
Subtotal debt 111,000 -
service 25,879 28,740 50,238 58,955 114,000
Income tax 49,000 -
expense 17,901 24,361 14,583 30,032 53,000
Other adjustments:(B)
Change in
unbilled
service
receivables 4,827 2,233 9,527 4,285
Non-cash
compensation
expense 3,762 4,410 7,669 8,061
Other 1,106 6,008 1,651 8,048
-------- -------- -------- --------
Subtotal other 41,000 -
adjustments 9,695 12,651 18,847 20,394 44,000
Net income
attributable to
noncontrolling
interests in 8,000 -
subsidiaries 2,164 2,225 3,544 4,094 10,000
-------- -------- -------- --------
Total adjustments 106,801 119,567 189,872 213,639
-------- -------- -------- -------- -----------
Adjusted $500,000 -
EBITDA(C) $139,968 $161,866 $222,388 $268,201 $540,000
======== ======== ======== ======== ===========
(A) See Note 1 - Organization and Basis of Presentation of the Notes to
the Condensed Consolidated Financial Statements included in our
Quarterly Report on Form 10-Q for the second quarter ended June 30,
2009 for a discussion of the retrospective accounting change
resulting from the adoption of FASB Staff Position No. APB 14-1 which
was effective January 1, 2009.
(B) These items represent amounts that are non-cash in nature.
(C) The components of Adjusted EBITDA are as follows:
Three Months Ended Six Months Ended
June 30, June 30,
-------------- ---------------
2009 2008 2009 2008
---- ---- ---- ----
(As Adjusted) (As Adjusted)
(Unaudited, in thousands)
Impact of SEMASS
fire (1) $- $5,162 $- $5,137
All other 139,968 156,704 222,388 263,064
-------- -------- -------- --------
Adjusted EBITDA $139,968 $161,866 $222,388 $268,201
======== ======== ======== ========
(1) This amount primarily includes insurance recoveries for business
interruption losses related to the SEMASS energy-from-waste
facility fire on March 31, 2007.
Covanta Holding Corporation Exhibit 3
Reconciliation of Cash Flow Provided by Operating Activities to
Adjusted EBITDA
Three Months Ended Six Months Ended
June 30, June 30, Full Year
------------------ ---------------- Estimated
2009 2008(A) 2009 2008(A) 2009
---- ------- ---- ------- ---------
(As Adjusted) (As Adjusted)
(Unaudited, in thousands)
Cash flow provided
by operating $325,000 -
activities $85,927 $111,645 $137,322 $161,351 $375,000
111,000 -
Debt service 25,879 28,740 50,238 58,955 114,000
Amortization of
debt premium and
deferred financing
costs 1,130 1,852 2,308 3,691 3,000
61,000 -
Other 27,032 19,629 32,520 44,204 48,000
-------- -------- -------- -------- -----------
$500,000 -
Adjusted EBITDA $139,968 $161,866 $222,388 $268,201 $540,000
======== ======== ======== ======== ===========
(A) See Note 1 - Organization and Basis of Presentation of the Notes to
the Condensed Consolidated Financial Statements included in our
Quarterly Report on Form 10-Q for the second quarter ended June 30,
2009 for a discussion of the retrospective accounting change resulting
from the adoption of FASB Staff Position No. APB 14-1 which was
effective January 1, 2009.
Covanta Holding Corporation Exhibit 4
Statements of Cash Flows Selected Data
Three Months Ended Six Months Ended
June 30, June 30, Full Year
------------------ ----------------- Estimated
2009 2008(A) 2009 2008(A) 2009
---- ------- ---- ------- ----------
(As Adjusted) (As Adjusted)
(Unaudited, in thousands)
Cash flow provided
by operating $325,000 -
activities $85,927 $111,645 $137,322 $161,351 $375,000
Uses of cash flow
provided by
operating
activities
Purchase of
property,
plant and
equipment(B)
Capital
expenditures
associated with
SEMASS fire(C) $(163) $(911) $(414) $(2,101)
Capital
expenditures
associated
with certain
acquisitions(D) - (2,642) (358) (10,635)
Capital
expenditures
associated with
technology
development(E) (1,152) - (1,401) -
Pre-construction
development
projects(F) (1,860) - (3,815) -
All other capital
expenditures
(G) (12,090) (11,221) (36,110) (41,028) $(60,000)
-------- -------- -------- --------
Total purchases
of property,
plant and
equipment $(15,265) $(14,774) $(42,098) $(53,764)
Acquisition of
businesses,
net of cash
acquired $(17,517) $(20,128) $(17,517) $(20,128)
Purchase of
equity interests $(7,855) $(18,503) $(8,938) $(18,503)
Principal payments
on long-term debt $(1,670) $(1,670) $(3,345) $(3,361) $(7,000)
Principal
payments on
project debt $(70,190) $(10,045)$(115,458) $(65,164) $(169,000)
(A) See Note 1 - Organization and Basis of Presentation of the Notes to
the Condensed Consolidated Financial Statements included in our
Quarterly Report on Form 10-Q for the second quarter ended June 30,
2009 for a discussion of the retrospective accounting change resulting
from the adoption of FASB Staff Position No. APB 14-1 which was
effective January 1, 2009.
(B) Purchase of property, plant and equipment is also referred to as
Capital Expenditures.
(C) Capital Expenditures were incurred that related to the repair and
replacement of assets at the SEMASS energy-from-waste facility that
were damaged by a fire on March 31, 2007. The cost of repair or
replacement was insured under the terms of the applicable insurance
policy, subject to deductibles. Settlement of the property damage
insurance claim occurred in December 2008.
(D) Capital Expenditures were incurred in 2008 at three facilities that
Covanta acquired in 2008 and 2007 primarily to improve the
productivity or environmental performance of those facilities.
Although, in accordance with GAAP, this spending will be recorded as
a component of purchase of property, plant and equipment on Covanta's
statement of cash flows, management considers this spending as a
component of the cost to acquire these businesses since these major
capital improvements are required to achieve desired facility
performance.
(E) Capital Expenditures related to internal development efforts and/or
agreements with multiple partners for the development, testing or
licensing of new technologies related to the transformation of waste
materials into renewable fuels, the generation of alternative energy
methods, and nitrogen oxide (NOx) emission controls.
(F) Covanta has entered into definitive agreements for the development of
a 1,700 metric ton per day energy-from-waste project serving the City
of Dublin, Ireland and surrounding communities. Construction is
expected to commence in the second half of 2009. Covanta incurred
capital expenditures related to pre-construction activities, such as
site preparation costs, for this project.
(G) Capital Expenditures primarily to maintain existing facilities.
Covanta Holding Corporation Exhibit 5
Components of Diluted Earnings Per Share
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2009 2008(A) 2009 2008(A)
---- ------- ---- -------
(As Adjusted) (As Adjusted)
(Unaudited)
Impact of SEMASS fire,
net of tax (B) $- $0.02 $- $0.02
All other 0.21 0.25 0.21 0.33
----- ----- ----- -----
Diluted Earnings Per Share $0.21 $0.27 $0.21 $0.35
===== ===== ===== =====
(A) See Note 1 - Organization and Basis of Presentation of the Notes to
the Condensed Consolidated Financial Statements included in our
Quarterly Report on Form 10-Q for the second quarter ended June 30,
2009 for a discussion of the retrospective accounting change resulting
from the adoption of FASB Staff Position No. APB 14-1 which was
effective January 1, 2009.
(B) This amount primarily includes insurance recoveries for business
interruption losses related to the SEMASS energy-from-waste facility
fire on March 31, 2007.
Discussion of Non-GAAP Financial Measures
To supplement our results prepared in accordance with United States generally accepted accounting principles ("GAAP"), we use the measure of Adjusted EBITDA, which is a non-GAAP measure as defined by the Securities and Exchange Commission. The non-GAAP financial measure of Adjusted EBITDA described below, and used in the tables above, is not intended as a substitute and should not be considered in isolation from measures of financial performance or liquidity prepared in accordance with GAAP. In addition, our non-GAAP financial measure may be different from non-GAAP measures used by other companies, limiting their usefulness for comparison purposes.
We use a number of different financial measures, both GAAP and non-GAAP, in assessing the overall performance of our business. We use Adjusted EBITDA to provide further information that is useful to an understanding of the financial covenants contained in the credit facilities of our most significant subsidiary, Covanta Energy Corporation, and as additional ways of viewing aspects of its operations that, when viewed with the GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of our business. The presentation of Adjusted EBITDA is intended to enhance the usefulness of our 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, and highlight trends in the overall business. We also use this non-GAAP financial measure as a significant criterion of performance-based components of employee compensation.
Adjusted EBITDA should not be considered as an alternative to net income or an alternative to cash flow provided by operating activities as indicators of our performance or liquidity or any other measures of performance or liquidity derived in accordance with GAAP.
Adjusted EBITDA
The calculation of Adjusted EBITDA is based on the definition in Covanta Energy's credit facilities, which we have guaranteed. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, as adjusted for additional items subtracted from or added to net income. Because our business is substantially comprised of that of Covanta Energy, our financial performance is substantially similar to that of Covanta Energy. For this reason, and in order to avoid use of multiple financial measures which are not all from the same entity, the calculation of Adjusted EBITDA and other financial measures presented herein are ours, measured on a consolidated basis.
Under these credit facilities, Covanta Energy is required to satisfy certain financial covenants, including certain ratios of which Adjusted EBITDA is an important component. Compliance with such financial covenants is expected to be the principal limiting factor which will affect our ability to engage in a broad range of activities in furtherance of our business, including making certain investments, acquiring businesses and incurring additional debt. Covanta Energy was in compliance with these covenants as of June 30, 2009. Failure to comply with such financial covenants could result in a default under these credit facilities, which default would have a material adverse affect on our financial condition and liquidity.
These financial covenants are measured on a trailing four quarter period basis and the material covenants are as follows:
maximum Covanta Energy leverage ratio of 4.00 to 1.00 (which declines for quarterly periods after September 30, 2009), 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; and
minimum Covanta Energy interest coverage ratio of 3.00 to 1.00, which measures Covanta Energy's Adjusted EBITDA to its consolidated interest expense plus certain interest expense of ours, to the extent paid by Covanta Energy.
In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EBITDA for the three and six months ended June 30, 2009 and 2008, reconciled for each such periods to net income and cash flow provided by operating activities, which are believed to be the most directly comparable measures under GAAP.
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