Date: July 22, 2010
Source: Covanta Holding Corporation
Covanta Holding Corporation (NYSE: CVA) ("Covanta" or the "Company") reported financial results today for the second quarter of 2010.
Anthony Orlando, President and CEO of Covanta noted that, "Our second quarter performance was right in line with our expectations and we have once again reaffirmed our guidance for 2010. Our development pipeline continues to advance and we've now successfully completed the majority of our scheduled maintenance for the year, which positions us for a strong second half. And, given our strong cash generation, we were pleased to issue a special dividend to shareholders earlier this week."
For the three months ended June 30, 2010, consolidated operating revenues increased $59 million or 16% to $435 million, up from $376 million in the prior year comparative period.
Revenues from the Americas segment increased $53 million or 16% to $383 million with $49 million of that related to the acquisition of new businesses. The existing business benefitted primarily from higher recycled metal prices and increased construction revenue related to the Honolulu expansion project. Those gains were largely offset by lower revenue relating to contract transitions. Americas plant operating expenses increased by $43 million or 24% with $29 million of that increase attributable to the acquisition of new businesses. Cost escalation and increased maintenance activities that reflect timing shifts within the year were the primary drivers of the increase in existing business plant operating expenses during the second quarter of 2010.
International segment revenue increased $6 million or 15% to $48 million in the second quarter, while plant operating expenses rose by $9 million or 29%. The increase in both revenues and plant operating expenses resulted primarily from increased fuel costs at our Indian facilities. The remaining increase in plant operating expenses resulted primarily from higher fuel costs at our coal facility in China.
Adjusted EBITDA was $137 million or $3 million lower than the prior year comparative period. The Veolia acquisition yielded a $20 million improvement and increased recycled metal prices added $8 million to the existing business. However, these gains were offset by a $13 million decline related to contract transitions at our Hempstead, Union and Detroit facilities. Adjusted EBITDA was also reduced by increased scheduled maintenance activities which were largely due to timing.
Free Cash Flow was $74 million in the second quarter, comparable to the prior year comparative period.
Covanta reported earnings per diluted share of $0.17 for the second quarter of 2010, compared to $0.21 per diluted share for the second quarter of 2009. Virtually all of the reduction related to non-cash items, including expenses related to the special dividend, interest expense and a higher book tax rate due to the sunset of production tax credits.
2010 Guidance
The Company reaffirmed its guidance for the following key metrics:
Conference Call Information
Covanta will host a conference call at 8:30 am (Eastern) on Friday, July 23, 2010 to discuss its results for the three months ended June 30, 2010. To participate, please dial 877-806-3982 approximately 10 minutes prior to the scheduled start of the call. If you are calling from outside of the United States, please dial 702-928-7062. Please utilize conference ID number 84494781 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) Friday, July 23, 2010 through midnight (Eastern) Friday, July 30, 2010. To access the replay, please dial 800-642-1687, or from outside of the United States 706-645-9291 and use the replay conference ID number 84494781. The webcast will also be archived on www.covantaholding.com.
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 45 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
Covanta Holding Corporation Exhibit 1
Condensed Consolidated Statements of Income
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2010 2009 2010 2009
---- ---- ---- ----
(Unaudited)
(In thousands, except per share
amounts)
Operating
revenues
Waste and
service
revenues $268,555 $227,842 $510,555 $434,111
Electricity
and steam
sales 140,708 136,540 289,954 278,409
Other
operating
revenues 25,948 11,404 51,497 22,026
Total
operating
revenues 435,211 375,786 852,006 734,546
------- ------- ------- -------
Operating
expenses
Plant
operating
expenses 266,791 214,556 571,017 470,598
Depreciation
and
amortization
expense 47,983 51,162 97,905 102,660
Net interest
expense on
project debt 10,409 12,108 21,386 24,877
General and
administrative
expenses 28,198 26,906 54,387 52,421
Other
operating
expenses 25,351 9,722 48,861 19,466
Total
operating
expenses 378,732 314,454 793,556 670,022
------- ------- ------- -------
Operating
income 56,479 61,332 58,450 64,524
------ ------ ------ ------
Other income
(expense)
Investment
income 509 1,156 1,095 2,184
Interest
expense (10,692) (8,532) (21,280) (16,448)
Non-cash
convertible
debt related
expense (11,734) (6,395) (19,981) (11,097)
Total other
expenses (21,917) (13,771) (40,166) (25,361)
------- ------- ------- -------
Income before
income tax
expense and
equity in net
income from
unconsolidated
investments 34,562 47,561 18,284 39,163
Income tax
expense (14,809) (17,901) (6,934) (14,583)
Equity in net
income from
unconsolidated
investments 7,521 5,671 11,191 11,480
----- ----- ------ ------
Net Income 27,274 35,331 22,541 36,060
------ ------ ------ ------
Less: Net
income
attributable
to
noncontrolling
interests
in
subsidiaries (1,485) (2,164) (3,985) (3,544)
------ ------ ------ ------
Net Income
Attributable
to Covanta
Holding
Corporation $25,789 $33,167 $18,556 $32,516
======= ======= ======= =======
Earnings Per
Share:
Basic $0.17 $0.22 $0.12 $0.21
===== ===== ===== =====
Weighted
Average
Shares 154,377 153,731 154,139 153,600
======= ======= ======= =======
Diluted $0.17 $0.21 $0.12 $0.21
===== ===== ===== =====
Weighted
Average
Shares 155,026 154,953 154,802 154,846
======= ======= ======= =======
Cash Dividend
Declared Per
Share: $1.50 $- $1.50 $-
===== === ===== ===
Covanta Holding Corporation Exhibit 2
Reconciliation of Net Income to Adjusted EBITDA
Three Months Ended
June 30,
--------
2010 2009
---- ----
(Unaudited, in
thousands)
Net Income Attributable to Covanta
Holding Corporation $25,789 $33,167
Depreciation and amortization
expense 47,983 51,162
Debt service:
Net interest expense on project debt 10,409 12,108
Interest expense 10,692 8,532
Non-cash convertible debt related
expense 11,734 6,395
Investment income (509) (1,156)
---- ------
Subtotal debt service 32,326 25,879
Income tax expense 14,809 17,901
Other adjustments:
Change in unbilled service
receivables 5,601 4,827
Non-cash compensation expense 5,921 3,762
Other 3,258 1,106
----- -----
Subtotal other adjustments 14,780 9,695
Net income attributable to
noncontrolling interests in
subsidiaries 1,485 2,164
----- -----
Total adjustments 111,383 106,801
------- -------
Adjusted EBITDA $137,172 $139,968
======== ========
Six Months Ended
June 30, Full Year
--------
2010 2009 Estimated 2010
---- ---- --------------
(Unaudited, in
thousands)
Net Income
Attributable to
Covanta Holding
Corporation $18,556 $32,516 $85,000 - $117,000
Depreciation and 192,000 -
amortization expense 97,905 102,660 198,000
Debt service:
Net interest expense
on project debt 21,386 24,877
Interest expense 21,280 16,448
Non-cash convertible
debt related expense 19,981 11,097
Investment income (1,095) (2,184)
------ ------
127,000 -
Subtotal debt service 61,552 50,238 121,000
61,000 -
Income tax expense 6,934 14,583 71,000
Other adjustments:
Change in unbilled
service receivables 16,404 9,527
Non-cash
compensation expense 9,421 7,669
Other 4,530 1,651
----- -----
Subtotal other 49,000 -
adjustments 30,355 18,847 43,000
Net income
attributable to
noncontrolling
interests in
subsidiaries 3,985 3,544 6,000 - 10,000
----- -----
Total adjustments 200,731 189,872
------- -------
Adjusted EBITDA $219,287 $222,388 $520,000 - $560,000
======== ======== ===================
Covanta Holding Corporation Exhibit 3
Reconciliation of Cash Flow Provided by Operating Activities to
Adjusted EBITDA
Three Months Ended
June 30,
--------
2010 2009
---- ----
(Unaudited, in
thousands)
Cash flow provided by operating activities $89,904 $85,927
Debt service 32,326 25,879
Amortization of debt premium and deferred
financing costs 191 1,130
Other (A) 14,751 27,032
------ ------
Adjusted EBITDA $137,172 $139,968
======== ========
Six Months Ended
June 30, Full Year
--------
2010 2009 Estimated 2010
---- ---- --------------
(Unaudited, in
thousands)
Cash flow provided by
operating activities $208,931 $137,322 $370,000 - $420,000
127,000 -
Debt service 61,552 50,238 121,000
Amortization of debt
premium and deferred
financing costs 360 2,308 7,000
16,000 -
Other (A) (51,556) 32,520 12,000
------- ------ --------
Adjusted EBITDA $219,287 $222,388 $520,000 - $560,000
======== ======== ===================
(A) This amount relates primarily to changes in working capital.
Covanta Holding Corporation Exhibit 4
Reconciliation of Cash Flow Provided by Operating Activities to Free
Cash Flow
Three Months
Ended
June 30,
--------
2010 2009
---- ----
(Unaudited, in
thousands)
Cash flow provided by operating
activities $89,904 $85,927
Less: Maintenance capital
expenditures (A) (16,033) (12,608)
------- -------
Free Cash Flow $73,871 $73,319
======= =======
Selected Uses of Free Cash Flow:
--------------------------------
Principal payments on long-term
debt $(1,411) $(1,670)
Principal payments on project debt,
net of restricted funds used (B) $(83,149) $(29,165)
Distributions to partners of
noncontrolling interests in
subsidiaries $(2,619) $(2,369)
Acquisition of businesses, net of
cash acquired $- $(17,517)
Acquisition of land use rights $(15,098) $-
Acquisition of noncontrolling
interests in subsidiary $- $-
Purchase of equity interests $- $(7,855)
Other investment activities, net $(478) $(1,368)
Purchases of property, plant and
equipment:
--------------------------------
Maintenance capital expenditures
(A) $(16,033) $(12,608)
Capital expenditures associated
with development projects (7,102) (1,997)
Capital expenditures associated
with technology development (1,587) (497)
Capital expenditures - other (1,835) (163)
Total purchases of property, plant
and equipment $(26,557) $(15,265)
======== ========
Six Months Ended
June 30, Full Year
--------
2010 2009 Estimated 2010
---- ---- --------------
(Unaudited, in
thousands)
Cash flow provided
by operating
activities $208,931 $137,322 $370,000 - $420,000
Less: Maintenance
capital (80,000)
expenditures (A) (48,637) (36,272) (70,000) -
------- -------
Free Cash Flow $160,294 $101,050 $300,000 - $340,000
======== ======== ===================
Selected Uses of
Free Cash Flow:
----------------
Principal payments
on long-term
debt $(3,268) $(3,345)
Principal payments
on project debt,
net of restricted
funds used (B) $(114,344) $(67,658)
Distributions to
partners of
noncontrolling
interests in
subsidiaries $(5,673) $(6,085)
Acquisition of
businesses, net
of cash acquired $(128,254) $(17,517)
Acquisition of
land use rights $(15,098) $-
Acquisition of
noncontrolling
interests in
subsidiary $(2,000) $-
Purchase of equity
interests $- $(8,938)
Other investment
activities, net $(16,501) $(8,172)
Purchases of
property, plant
and equipment:
----------------
Maintenance
capital
expenditures (A) $(48,637) $(36,272)
Capital
expenditures
associated with
development
projects (9,964) (4,111)
Capital
expenditures
associated with
technology
development (3,307) (943)
Capital
expenditures -
other (2,631) (772)
Total purchases of
property, plant
and equipment $(64,539) $(42,098)
======== ========
(A) Capital Expenditures primarily to maintain existing facilities.
Purchase of property, plant and equipment is also referred to as
Capital Expenditures.
(B) Principal payments on project debt are net of changes in
restricted funds held in trust used to pay debt principal of $(27.3)
million and $35.6 million for the three months ended June 30, 2010
and 2009, respectively and $(11.8) million and $39.9 million for the six
months ended June 30, 2010 and 2009, respectively. Principal
payments on project debt excludes principal repayments on working
capital borrowings relating to the operations of our Indian
facilities of $6.5 million and $5.5 million for the three months
ended June 30, 2010 and 2009, respectively and $7.2 million and $8.0
million for the six months ended June 30, 2010 and 2009,
respectively.
Discussion of Non-GAAP Financial Measures
To supplement our results prepared in accordance with United States generally accepted accounting principles ("GAAP"), we use the measures of Adjusted EBITDA and Free Cash Flow, which are non-GAAP measures as defined by the Securities and Exchange Commission. The non-GAAP financial measures of Adjusted EBITDA and Free Cash Flow as described below, and used in the tables above, are 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 measures 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 presentations of Adjusted EBITDA and Free Cash Flow are intended to enhance the usefulness of our financial information by providing measures which management internally use to assess and evaluate the overall performance of its business and those of possible acquisition candidates, and highlight trends in the overall business.
Adjusted EBITDA and Free Cash Flow 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, 2010. 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 six months ended June 30, 2010 and 2009, 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.
Free Cash Flow
Free Cash Flow is defined as cash flow provided by operating activities less maintenance capital expenditures, which are capital expenditures primarily to maintain our existing facilities. We use the non-GAAP measure of Free Cash Flow as a criterion of liquidity and performance-based components of employee compensation. We use Free Cash Flow as a measure of liquidity to determine amounts we can reinvest in our businesses, such as amounts available to make acquisitions, invest in construction of new projects or make principal payments on debt.
In order to provide a meaningful basis for comparison, we are providing information with respect to our Free Cash Flow for the three and six months ended June 30, 2010 and 2009, reconciled for each such periods to cash flow provided by operating activities, which we believe to be the most directly comparable measure under GAAP.
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