Date: October 22, 2009
Source: Covanta Holding Corp.
Covanta Holding Corporation (NYSE: CVA) ("Covanta") reported financial results today for the three months ended September 30, 2009. Diluted earnings per share were $0.26 in the third quarter of 2009. Excluding the transaction expense related to the acquisition of Veolia Energy-from-Waste facilities (the "Veolia acquisition"), diluted earnings per share were $0.28. This performance compares to $0.30 in the third quarter of 2008.
Third Quarter Results
"The base business continued to perform well in spite of the economic headwinds. A portion of the revenue decline was offset by lower costs. We were also pleased to have completed the acquisition of six of the seven Energy-from-Waste plants from Veolia in late August. Our new employees are very talented and we see clear efficiencies in the expanded operating platform. Taking into account our solid third quarter and the positive impact of the acquisition, we expect to report financial results near the midpoint of our guidance range for 2009," said Anthony Orlando, President and CEO of Covanta.
For the three months ended September 30, 2009, operating revenues were $409 million, a 7% decline from $439 million in the prior year comparable period.
Domestic segment revenue declined $9 million or 3% to $346 million. New business revenue was $23 million related primarily to the Veolia acquisition. Existing business revenues declined by $32 million, of which $20 million was largely due to the impact of the slow economy which caused lower recycled metal, energy and waste prices. In addition, lower debt service revenue, a decline in construction activity and contract changes at our Detroit, Kent and Indianapolis facilities contributed approximately $11 million to the decline.
Domestic operating expenses during the quarter increased by $6 million. New business plant operating expenses were $20 million and we also incurred acquisition-related transaction costs of $6 million, both of which were primarily associated with the Veolia acquisition. Expense reductions in the existing business provided a significant offset to the new business related expenses, resulting in only a modest net increase in our total domestic operating expenses. Reductions in existing business expenses are primarily attributable to a $4 million decline in energy related expenses and greater internalization of waste disposal, a $7 million decline in depreciation expense and $2 million in general and administrative cost savings. In addition, lower levels of construction activity and the contract changes at the Detroit, Kent and Indianapolis facilities contributed $10 million to the expense reduction.
International segment revenue decreased $22 million in the quarter while operating expenses declined by $23 million, resulting in operating income that was essentially flat with the prior year comparable period. The decreases in revenues and operating expenses resulted primarily from lower fuel costs at our Indian facilities.
Adjusted EBITDA was $153 million, down $15 million from last year's third quarter. This was primarily driven by the $20 million revenue reduction related largely to the slow economy offset by reduced expenses and new business.
Cash Flow provided by Operating Activities before the acquisition related costs ("Operating Cash Flow") was $111 million in the third quarter, up $2 million from last year's third quarter. The $15 million Adjusted EBITDA decline was offset by working capital changes as well as an $11 million tax refund.
Our balance sheet remains very strong, with $373 million of unrestricted cash and an undrawn $300 million revolving credit facility. In the quarter, we paid down $14 million of debt, bringing our net debt (total debt less cash and restricted funds set aside explicitly for project debt principal repayment) to $1.9 billion.
Year-to-Date Results
For the nine months ended September 30, 2009, total operating revenues were down 9% to $1.14 billion. Operating Cash Flow was $248 million for the year-to-date period compared to $271 million for the same period last year. Adjusted EBITDA was $375 million compared to $436 million for the same period last year.
2009 Guidance
Covanta is reaffirming its guidance for 2009 for the following key metrics:
Conference Call Information
Covanta will host a conference call at 8:30 am (Eastern) on Thursday, October 22, 2009 to discuss its results for the three months ended September 30, 2009. To participate, please dial 866-318-8614 approximately 10 minutes prior to the scheduled start of the call. If you are calling from outside of the United States, please dial 617-399-5133. Please utilize pass code 56760074 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, October 22, 2009 through midnight (Eastern) Thursday, October 29, 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 64332101. 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 44 Energy-from-Waste facilities provide communities with an environmentally sound solution to their solid waste disposal needs by using that municipal solid waste to generate clean, renewable energy. Annually, Covanta's modern Energy-from-Waste facilities safely and securely convert approximately 20 million tons of waste into more than 9 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, amongother 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 Nine Months Ended
September 30, September 30,
--------------------- -----------------------
2009 2008(A) 2009 2008(A)
--------- --------- --------- ---------
(As Adjusted) (As Adjusted)
(Unaudited)
(In thousands, except per share amounts)
Operating revenues
Waste and service
revenues $233,187 $238,304 $667,298 $698,616
Electricity and
steam sales 161,342 183,821 439,751 500,718
Other operating
revenues 14,180 16,546 36,206 51,099
--------- --------- --------- ---------
Total operating
revenues 408,709 438,671 1,143,255 1,250,433
--------- --------- --------- ---------
Operating expenses
Plant operating
expenses 233,290 245,966 703,888 743,585
Depreciation and
amortization expense 48,057 51,980 150,717 152,144
Net interest expense
on project debt 12,634 13,745 37,511 41,282
General and
administrative
expenses 28,945 23,282 81,366 70,571
Other operating
expenses 14,804 15,615 34,270 47,474
--------- --------- --------- ---------
Total operating
expenses 337,730 350,588 1,007,752 1,055,056
--------- --------- --------- ---------
Operating income 70,979 88,083 135,503 195,377
--------- --------- --------- ---------
Other income (expense)
Investment income 952 1,520 3,136 4,212
Interest expense (10,843) (10,593) (27,291) (35,876)
Non-cash convertible
debt related expense (3,465) (4,535) (14,562) (13,362)
--------- --------- --------- ---------
Total other
expenses (13,356) (13,608) (38,717) (45,026)
--------- --------- --------- ---------
Income before income
tax expense, equity
in net income from
unconsolidated
investments, and
noncontrolling
interests in
subsidiaries 57,623 74,475 96,786 150,351
Income tax expense (19,614) (29,753) (34,197) (59,785)
Equity in net
income from
unconsolidated
investments 5,611 5,543 17,091 18,355
--------- -------- --------- ---------
Net Income 43,620 50,265 79,680 108,921
--------- -------- --------- ---------
Less: Net income
attributable to
noncontrolling
interests in
subsidiaries (2,768) (3,166) (6,312) (7,260)
--------- -------- -------- ---------
Net Income
Attributable to
Covanta Holding
Corporation $40,852 $47,099 $73,368 $101,661
========= ========= ========= =========
Earnings Per Share:
Basic $0.27 $0.31 $0.48 $0.66
========= ========= ========= =========
Weighted Average
Shares 153,779 153,411 153,660 153,321
========= ========= ========= =========
Diluted $0.26 $0.30 $0.47 $0.66
========= ========= ========= =========
Weighted Average
Shares 155,110 154,833 154,935 154,751
========= ========= ========= =========
(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 third quarter ended September
30, 2009 for a discussion of the retrospective accounting changes
resulting from the adoption of recent accounting pronouncements which
were effective January 1, 2009.
Covanta Holding Corporation Exhibit 2
Reconciliation of Net Income to Adjusted EBITDA
Three Months Nine Months
Ended Ended
September 30, September 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 $40,852 $47,099 $73,368 $101,661 $124,000
Depreciation
and amortization 190,000-
expense 48,057 51,980 150,717 152,144 195,000
Debt service:
Net interest
expense on
project debt 12,634 13,745 37,511 41,282
Interest expense 10,843 10,593 27,291 35,876
Non-cash
convertible
debt related
expense 3,465 4,535 14,562 13,362
Investment income (952) (1,520) (3,136) (4,212)
--------- --------- --------- ---------
Subtotal 111,000-
debt service 25,990 27,353 76,228 86,308 114,000
Income tax 49,000-
expense 19,614 29,753 34,197 59,785 53,000
Acquisition-
related costs(B) 5,952 - 5,952 - -
Other adjustments:(C)
Change in unbilled
service
receivables 4,129 2,416 13,656 6,701
Non-cash
compensation
expense 3,055 3,325 10,724 11,386
Other 2,304 2,428 3,955 10,476
--------- --------- --------- ---------
Subtotal other 41,000-
adjustments 9,488 8,169 28,335 28,563 44,000
Net income
attributable to
noncontrolling
interests in 8,000-
subsidiaries 2,768 3,166 6,312 7,260 10,000
----- ----- ----- -----
Total
adjustments 111,869 120,421 301,741 334,060
--------- --------- --------- --------- -------
Adjusted $500,000-
EBITDA(D) $152,721 $167,520 $375,109 $435,721 $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 third quarter ended
September 30, 2009 for a discussion of the retrospective accounting
change resulting from the adoption of a recent accounting
pronouncement which was effective January 1, 2009.
(B) This amount relates primarily to acquisition-related costs associated
with the Veolia EfW acquisition in the third quarter 2009.
Acquisition related costs are no longer included in the measurement of
the business acquired. Instead, these costs are expensed as they are
incurred as a result of a recent accounting pronouncement which was
effective January 1, 2009.
(C) These items represent amounts that are non-cash in nature.
(D) The components of Adjusted EBITDA are as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ --------------------
2009 2008 2009 2008
-------- -------- -------- --------
(As Adjusted) (As Adjusted)
(Unaudited, in thousands)
Impact of SEMASS fire (1) $ - $ (25) $ - $ 5,112
All other 152,721 167,545 375,109 430,609
-------- -------- -------- --------
Adjusted EBITDA $152,721 $167,520 $375,109 $435,721
======== ======== ======== ========
(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 Nine Months
Ended Ended
September 30, September 30, Full Year
------------------ -------------------- Estimated
2009 2008(A) 2009 2008(A) 2009
-------- --------- --------- --------- ---------
(As Adjusted) (As Adjusted)
(Unaudited, in thousands)
Cash flow
provided by
operating
activities (B) $110,411 $109,351 $247,733 $270,702
Acquisition-related
costs 689 - 689 -
-------- --------- --------- ---------
Cash flow
provided by
operating
activities
before
acquisition- $325,000-
related costs $111,100 $109,351 $248,422 $270,702 $375,000
111,000-
Debt service 25,990 27,353 76,228 86,308 114,000
Amortization of
debt premium
and deferred
financing costs 483 1,814 2,791 5,505 3,000
61,000-
Other 15,148 29,002 47,668 73,206 48,000
-------- --------- --------- --------- ---------
$500,000-
Adjusted EBITDA $152,721 $167,520 $375,109 $435,721 $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 third quarter ended September
30, 2009 for a discussion of the retrospective accounting change
resulting from the adoption of a recent accounting pronouncement which
was effective January 1, 2009.
(B) Cash flow provided by operating activities was negatively affected by
payments for acquisition-related costs related to acquisitions made in
the third quarter of 2009.
Covanta Holding Corporation Exhibit 4
Statements of Cash Flows Selected Data
Three Months Nine Months
Ended Ended
September 30, September 30, Full Year
------------- ------------- Estimated
2009 2008(A) 2009 2008(A) 2009
------- ------- ------- ------- -------
(As Adjusted) (As Adjusted)
(Unaudited, in thousands)
Cash flow provided
by operating
activities
before
acquisition- $325,000-
related costs $111,100 $109,351 $248,422 $270,702 $375,000
Uses of cash flow
provided by
operating
activities
Purchase of
property, plant
and equipment (B)
Capital
expenditures
associated with
SEMASS fire (C) $(407) $(536) $(821) $(2,637)
Capital
expenditures
associated with
certain
acquisitions (D) (722) (3,640) (1,080) (14,275)
Capital
expenditures
associated with
technology
development (E) (1,650) (2,274) (3,051) (3,846)
Pre-construction
development
projects (F) (5,683) - (9,794) -
All other capital
expenditures (G) (8,549) (7,086) (44,363) (46,542) $(60,000)
------- ------- ------- -------
Total purchases
of property,
plant and
equipment $(17,011) $(13,536) $(59,109) $(67,300)
Acquisition of
businesses, net
of cash acquired $(234,217) $ - $(251,734) $(20,128)
Purchase of equity
interests $ - $ - $(8,938) $(18,503)
Principal
payments on long-
term debt $(1,664) $(1,685) $(5,009) $(5,046) $(7,000)
Principal
payments on
project debt (H) $(12,576) $(9,167) $(120,089) $(74,331) $(185,000)
(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 third quarter ended September
30, 2009 for a discussion of the retrospective accounting change
resulting from the adoption of a recent accounting pronouncement 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 at four 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 fourth quarter 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.
(H) Principal payments on project debt excludes project debt refinancing
transactions related to a domestic energy-from-waste facility during
the third quarter 2009 and excludes principal repayments for working
capital project debt relating to the operations of our Indian
facilities.
Covanta Holding Corporation Exhibit 5
Components of Diluted Earnings Per Share
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2009 2008(A) 2009 2008(A)
------- -------- ------- --------
(As Adjusted) (As Adjusted)
(Unaudited)
Impact of SEMASS fire, net
of tax (B) $ - $ - $ - $0.02
Veolia EfW acquisition-related
costs, net of tax (0.02) - (0.02) -
All other 0.28 0.30 0.49 0.64
------- ------- ------- --------
Diluted Earnings Per Share $0.26 $0.30 $0.47 $0.66
======= ======= ======= =======
(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 third quarter ended September
30, 2009 for a discussion of the retrospective accounting change
resulting from the adoption of a recent accounting pronouncement 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 September 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:
In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EBITDA for the three and nine months ended September 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.
For more information, contact:
Marisa F. Jacobs, Esq., Vice President, Investor Relations and Corporate Communications,
+1-973-882-4196, or Vera Carley, Director, Media Relations and Corporate Communications,
+1-973-882-2439, both of Covanta Holding Corporation
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