Waste Business Journal

Covanta Third Quarter Hurt by Lower Metals Prices

Date: October 17, 2012

Source: Covanta Holding Corp.

Covanta Holding Corporation Reports 2012 Third Quarter Results

Covanta Holding Corporation (NYSE: CVA) ("Covanta" or the "Company"), a leading global owner and operator of Energy-from-Waste ("EfW") projects, reported unaudited financial results today for the three and nine months ended September 30, 2012.

Key Q3 2012 Financial Highlights:

• Revenue was $412 million versus $432 million in the prior year period

• Adjusted EBITDA of $150 million was down slightly from $153 million a year ago

• Free Cash Flow of $111 million improved by $4 million compared to the prior year

• Adjusted EPS of $0.25 was flat with the prior year period

• Returned $45 million to shareholders, including $25 million of share repurchases

Key Q3 2012 Operational Highlights:

• Completed Honolulu expansion on schedule; third boiler in commercial operation

• Signed agreement to convert our Essex County facility from Service Fee to Tip Fee

• Entered long-term power purchase agreements with the Long Island Power Authority

Commenting on the third quarter of 2012, Anthony Orlando, Covanta's President and CEO stated, "Results for the quarter were in-line with our expectations. We are successfully managing the business, which gives me confidence that we will grow the bottom line this year notwithstanding weakness in the pricing environment. Furthermore, we executed several new long-term contracts during the quarter that will secure predictable revenue for years to come."

"Looking ahead to 2013, we expect to continue growing and we remain focused on capital allocation and shareholder returns," Orlando concluded.

		Three Months Ended September 30,
Continuing Operations		2012			2011
		(Unaudited, $ in millions, except per share amounts)
Revenue		$	412		$	432
Net Income from Continuing Operations		$	27		$	51
Adjusted EBITDA		$	150		$	153
Free Cash Flow		$	111		$	107
Adjusted EPS		$	0.25		$	0.25

Third Quarter Results

Operating revenues of $412 million decreased by $20 million for the three month comparative period as service fee contract escalations, higher special waste revenues and increased electricity revenue related to retroactive contract pricing, were more than offset by lower construction revenues relating to completion of our Honolulu expansion project, a decline in metal prices, reduced debt service revenue, waste contract transitions including the expiration of the Hartford operating contract and lower tip fee volume.

Operating expenses of $331 million decreased by $14 million from the prior year period. Excluding Q3 2012 events of $5 million¹, operating expenses decreased by $19 million due to lower construction expenses, operational improvement initiatives, and the expiration of the Hartford operating contract, partially offset by normal cost escalations, lower alternative fuel tax credits and increased plant maintenance activities due primarily to timing.

Excluding the Q3 2012 events referenced above, operating income decreased by $1 million to $86 million versus the prior year due to the factors noted above.

Adjusted EBITDA of $150 million declined 2% from $153 million in the prior year period. The benefit of higher energy revenue related to retroactive contract pricing, improved profitability on construction and our organic growth initiatives were more than offset by lower metal prices, waste contract transitions, increased maintenance expenses due to timing, and a reduction in debt service pass through billings.

Free Cash Flow increased 4% to $111 million versus $107 million in the prior year as the benefit from the timing of working capital more than offset the decline in Adjusted EBITDA.

Adjusted EPS was flat with the prior year period at $0.25, as a lower effective tax rate and the benefit of a lower number of shares outstanding due to the Company's common stock buyback program were offset by higher interest expense.

¹ Includes $7 million for increases in insurance company loss reserves, offset by $2 million in net write-offs. For additional information, see Exhibit 4A.

Year-to-Date Results

For the nine months ended September 30, 2012, total operating revenues were $1,214 million versus $1,220 million in the prior year. Free Cash Flow was $205 million compared to $219 million in the prior year period. Adjusted EBITDA was $349 million compared to $347 million for the same period last year. Adjusted EPS was $0.32 versus $0.27 in 2011.

Shareholder Returns

During the quarter, the Company returned $45 million to shareholders, consisting of $20 million in cash dividends declared and $25 million in share repurchases (1.1% of common stock outstanding). Year-to-date, the Company has returned $146 million to shareholders in the form of $61 million in dividends declared and $85 million in shares repurchased (3.8% of common stock outstanding). Since the inception of its buyback program the Company has repurchased 16.5% of shares outstanding. As of September 30, 2012, Covanta had $90 million of share repurchase authorization remaining.

Project Debt Refinancing

Covanta intends to issue new tax-exempt bonds in the aggregate amount of approximately $300 million to refinance existing tax-exempt project bonds at its Haverhill, Niagara and SEMASS facilities, as well as to fund certain capital expenditures in Massachusetts. The new bonds, with maturities of up to 2042, will be issued by Covanta Holding Corporation and guaranteed by Covanta Energy Corporation, and will not be secured by project assets. Final terms and conditions of the new bonds, including coupon and maturity, will be determined based on market conditions. We expect the transaction to close during the fourth quarter of 2012.

2012 Full Year Guidance

The Company is narrowing its previously announced guidance for the full year 2012 for the following financial metrics:

(In millions, except per share amounts)

Metric		2012 Updated Guidance Range		2012 Prior Guidance Range		2011 Actual
Adjusted EBITDA		$    500 - $  515		$    500 - $  530		$    494
Free Cash Flow		$    250 - $  265		$    250 - $  280		$    282
Adjusted EPS		$   0.55 - $ 0.60		$   0.55 - $ 0.65		$    0.54

Sanjiv Khattri, Covanta's Executive Vice-President and CFO commented, "In the third quarter, we remained focused on growing our business and pursuing innovative ways to improve our financial position. We narrowed our 2012 guidance range, acknowledging the tougher macro conditions. Looking ahead, we will continue to create value by executing on opportunities to grow and strengthen the business, and also by returning excess capital to shareholders."

Conference Call Information

Covanta will host a conference call at 8:30 am (Eastern) on Thursday, October 18, 2012 to discuss its third quarter results. The conference call will begin with prepared remarks, which will be followed by a question and answer session. To participate, please dial 800-860-2442 approximately 10 minutes prior to the scheduled start of the call. If calling from Canada, please dial 866-605-3852. If calling outside of the United States and Canada, please dial 412-858-4600. Please request the "Covanta Holding Corporation call" when prompted by the conference call operator. The conference call will also be webcast live from the Investor Relations section of the Company's website. A presentation will be made available during the call and will be found on the Investor Relations section of the Covanta website at www.covantaenergy.com.

A replay will be available one hour after the end of the conference call through 9:00 AM (Eastern) Thursday, October 25, 2012. To access the replay, please dial 877-344-7529, or from outside of the United States 412-317-0088 and use the replay conference ID number 10019283. The webcast will also be archived on www.covantaenergy.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 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 9 million megawatt hours of clean renewable electricity and approximately 9 billion pounds of steam that are sold to a variety of industries. For more information, visit www.covantaenergy.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 global 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 grow its business as expected or 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 to 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 September 30,								Nine Months Ended September 30,
				2012				2011				2012				2011
				(Unaudited) (In millions, except per share amounts)
Operating revenues
	Waste and service revenues			$	264			$	273			$	802			$	800
	Electricity and steam sales				115				109				297				301
	Other operating revenues				33				50				115				119
		Total operating revenues			412				432				1,214				1,220
Operating expenses
	Plant operating expenses				225				221				735				740
	Other operating expenses (a)				31				44				100				102
	General and administrative expenses				24				24				74				74
	Depreciation and amortization expense				46				48				145				142
	Net interest expense on project debt				7				8				22				24
	Net write-offs (b)				(2	)			--				(2	)			--
		Total operating expenses			331				345				1,074				1,082
Operating income					81				87				140				138
Other income (expense)
	Investment income				--				1				--				1
	Interest expense				(25	)			(16	)			(67	)			(50	)
	Non-cash convertible debt related expense				(6	)			(9	)			(19	)			(20	)
	Loss on extinguishment of debt (c)				--				(1	)			(2	)			(1	)
	Other (expense) income, net (d)				--				(10	)			3				(13	)
		Total other expenses			(31	)			(35	)			(85	)			(83	)
Income from continuing operations before income tax expense and equity in net income from unconsolidated investments					50				52				55				55
Income tax expense (d)					(27	)			(2	)			(30	)			(3	)
Equity in net income from unconsolidated investments					4				1				10				3
Income from continuing operations					27				51				35				55
(Loss) income from discontinued operations, net of income tax expense of $0, $0, $1 and $3, respectively					--				(7	)			(2	)			144
Net Income					27				44				33				199
Noncontrolling interests:
Less: Net income from continuing operations attributable to noncontrolling interests in subsidiaries					(1	)			(2	)			(1	)			(3	)
Less: Net income from discontinued operations attributable to noncontrolling interests in subsidiaries					--				--				--				(3	)
Total net income attributable to noncontrolling interests in subsidiaries					(1	)			(2	)			(1	)			(6	)
Net Income Attributable to Covanta Holding Corporation				$	26			$	42			$	32			$	193
Covanta Holding Corporation
Condensed Consolidated Statements of Income (continued)
					Three Months Ended September 30,								Nine Months Ended September 30,
					2012				2011				2012				2011
					(Unaudited) (In millions, except per share amounts)
Amounts Attributable to Covanta Holding Corporation stockholders':
	Continuing operations			$	26			$	49			$	34			$	52
	Discontinued operations				--				(7	)			(2	)			141
Net Income Attributable to Covanta Holding Corporation				$	26			$	42			$	32			$	193
Earnings Per Share Attributable to Covanta Holding Corporation stockholders':
Basic
	Continuing operations			$	0.20			$	0.35			$	0.25			$	0.37
	Discontinued operations				--				(0.05	)			(0.01	)			0.98
	Covanta Holding Corporation			$	0.20			$	0.30			$	0.24			$	1.35
Weighted Average Shares					131				139				133				143
Diluted
	Continuing operations			$	0.19			$	0.35			$	0.25			$	0.36
	Discontinued operations				--				(0.05	)			(0.01	)			0.98
	Covanta Holding Corporation			$	0.19			$	0.30			$	0.24			$	1.34
Weighted Average Shares					132				140				134				144
Cash Dividend Declared Per Share:				$	0.15			$	0.075			$	0.45			$	0.225
Supplemental Information - Non-GAAP
	Adjusted EPS (e)			$	0.25			$	0.25			$	0.32			$	0.27

(a)	For additional information, see Exhibit 4A - Note (a) and Exhibit 7 - Note (a) of this Press Release.
(b)	For additional information, see Exhibit 4A - Note (b) - (d) of this Press Release.
(c)	For additional information, see Exhibit 8A - Note (a) of this Press Release.
(d)	For additional information, see Exhibit 4A - Note (g) of this Press Release.
(e)	For additional information, see Exhibit 4 of this Press Release.

 

Covanta Holding Corporation										Exhibit 1A
Condensed Consolidated Statements of Comprehensive Income
		Three Months Ended September 30,								Nine Months Ended September 30,
		2012				2011				2012				2011
		(Unaudited, in millions)
Net income		$	27			$	44			$	33			$	199
Foreign currency translation			2				(19	)			(2	)			(11	)
Adjustment for pension plan termination settlement, net of tax, for insurance subsidiaries			1				--				1				--
Net unrealized loss on derivative instruments, net of tax			(3	)			--				(2	)			--
Net unrealized gain on available for sale securities, net of tax			1				--				1				--
Other comprehensive income (loss) attributable to Covanta Holding Corporation			1				(19	)			(2	)			(11	)
Comprehensive income			28				25				31				188
Less:
Net income attributable to noncontrolling interests in subsidiaries			(1	)			(2	)			(1	)			(6	)
Foreign currency translation attributable to noncontrolling interests in subsidiaries			--				1				--				1
Comprehensive income attributable to noncontrolling interests in subsidiaries			(1	)			(1	)			(1	)			(5	)
Comprehensive income attributable to Covanta Holding Corporation		$	27			$	24			$	30			$	183

 

Covanta Holding Corporation				Exhibit 2
Condensed Consolidated Balance Sheets
				As of
				September 30, 2012				December 31, 2011
				(Unaudited)
ASSETS				(In millions, except per share amounts)
Current:
	Cash and cash equivalents			$	262			$	232
	Restricted funds held in trust				120				101
	Receivables (less allowances of $5 and $5, respectively)				262				260
	Unbilled service receivables				18				20
	Deferred income taxes				25				28
	Prepaid expenses and other current assets				103				105
	Assets held for sale				--				18
Total Current Assets					790				764
	Property, plant and equipment, net				2,372				2,423
	Investments in fixed maturities at market (cost: $36 and $31, respectively)				38				31
	Restricted funds held in trust				90				90
	Unbilled service receivables				19				25
	Waste, service and energy contracts, net				408				434
	Other intangible assets, net				74				78
	Goodwill				232				232
	Investments in investees and joint ventures				45				43
	Other assets				328				265
Total Assets				$	4,396			$	4,385
LIABILITIES AND EQUITY
Current:
	Current portion of long-term debt			$	3			$	32
	Current portion of project debt				140				147
	Accounts payable				32				25
	Deferred revenue				76				61
	Accrued expenses and other current liabilities				233				211
	Liabilities held for sale				--				3
Total Current Liabilities					484				479
	Long-term debt				1,607				1,454
	Project debt				493				533
	Deferred income taxes				651				633
	Waste and service contracts				38				76
	Other liabilities				140				122
Total Liabilities					3,413				3,297
Equity:
Covanta Holding Corporation stockholders equity:
	Preferred stock ($0.10 par value; authorized 10 shares; none issued and outstanding)				--				--
	Common stock ($0.10 par value; authorized 250 shares; issued 159 and 158 shares; outstanding 132 and 136 shares)				16				16
	Additional paid-in capital				803				824
	Accumulated other comprehensive (loss) income				(1	)			1
	Accumulated earnings				162				244
	Treasury stock, at par				(3	)			(2	)
		Total Covanta Holding Corporation stockholders equity			977				1,083
	Noncontrolling interests in subsidiaries				6				5
Total Equity					983				1,088
Total Liabilities and Equity				$	4,396			$	4,385

 

Covanta Holding Corporation			Exhibit 3
Condensed Consolidated Statements of Cash Flow
			Nine Months Ended September 30,
			2012				2011
			(Unaudited, in millions)
OPERATING ACTIVITIES:
Net income			$	33			$	199
	Less: (Loss) income from discontinued operations, net of tax expense			(2	)			144
Income from continuing operations				35				55
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities from continuing operations:
	Depreciation and amortization expense			145				142
	Loss on extinguishment of debt (a)			2				1
	Non-cash convertible debt related expense			19				20
	Stock-based compensation expense			13				13
	Deferred income taxes			23				23
	Other, net			(11	)			(1	)
	Reversal of uncertain tax positions related to pre-emergence tax matters (b)			--				(24	)
	Change in restricted funds-other related to contractual liability to pre-petition creditors (b)			--				5
	Change in restricted funds held in trust			(10	)			(35	)
	Change in working capital, net of effects of acquisitions			52				77
	Net cash provided by operating activities from continuing operations			268				276
	Net cash used in operating activities from discontinued operations			--				1
Net cash provided by operating activities				268				277
INVESTING ACTIVITIES:
	Purchase of property, plant and equipment			(94	)			(91	)
	Acquisition of businesses, net of cash acquired			--				(10	)
	Acquisition of land use rights			(1	)			(8	)
	Other, net			(3	)			(6	)
Net cash used in investing activities from continuing operations				(98	)			(115	)
Net cash provided by investing activities from discontinued operations				11				227
Net cash (used in) provided by investing activities				(87	)			112
FINANCING ACTIVITIES:
	Proceeds from borrowing on long-term debt (a)			699				--
	Payment of deferred financing costs (a)			(26	)			--
	Principal payments on long-term debt (a)			(621	)			(5	)
	Principal payments on project debt			(46	)			(83	)
	Convertible debenture repurchases			(25	)			(32	)
	Payments of borrowings on revolving credit facility			(63	)			--
	Proceeds from borrowings on revolving credit facility			83				--
	Proceeds from borrowings on project debt			--				15
	Change in restricted funds held in trust			(11	)			7
	Cash dividends paid to stockholders			(51	)			(22	)
	Common stock repurchased			(83	)			(203	)
	Financing of insurance premiums, net			(10	)			--
	Distributions to partners of noncontrolling interests in subsidiaries			(1	)			(5	)
	Other financing, net			3				(3	)
Net cash used in financing activities from continuing operations				(152	)			(331	)
Net cash (used in) provided by financing activities from discontinued operations				(2	)			8

 

Net cash used in financing activities			(154	)			(323	)
Effect of exchange rate changes on cash and cash equivalents			1				(4	)
Net increase in cash and cash equivalents			28				62
Cash and cash equivalents at beginning of period			234				141
Cash and cash equivalents at end of period			262				203
Less: Cash and cash equivalents of discontinued operations at end of period			--				8
Cash and cash equivalents of continuing operations at end of period		$	262			$	195

(a)	For additional information, see Exhibit 8A - Note (a) of this Press Release.
(b)	For additional information, see Exhibit 4A - Note (g) of this Press Release.

 

Covanta Holding Corporation																Exhibit 4
Reconciliation of Diluted Earnings Per Share to Adjusted EPS
		Three Months Ended  September 30,							Nine Months Ended September 30,
		2012			2011				2012			2011				Full Year Estimated 2012
		(Unaudited)
Continuing Operations - Diluted Earnings Per Share		$	0.19		$	0.35			$	0.25		$	0.36				$0.48 - $0.53
Reconciling Items (a)			0.06			(0.10	)			0.07			(0.09	)			0.07
Adjusted EPS		$	0.25		$	0.25			$	0.32		$	0.27				$0.55 - $0.60

(a)	For details related to the Reconciling Items, see Exhibit 4A of this Press Release.

 

Covanta Holding Corporation											Exhibit 4A
Reconciling Items
			Three Months Ended September 30,								Nine Months Ended  September 30,
			2012				2011				2012				2011
			(Unaudited) (In millions, except per share amounts)
Reconciling Items
Operating loss related to insurance subsidiaries (a)			$	8			$	1			$	9			$	1
Write-off of intangible liability (b)				(29	)			--				(29	)			--
Write-off of renewable fuels project (c)				16				--				16				--
Development costs (d)				11				--				11				--
Loss on extinguishment of debt (e)				--				1				2				1
Effect on income of derivative instruments not designated as hedging instruments				(1	)			1				(1	)			--
Effect of foreign exchange gain on indebtedness (f)				--				(5	)			(3	)			(2	)
Contractual liability to pre-petition creditors (g)				--				15				--				15
Other				--				(1	)			1				(1	)
	Total Reconciling Items, pre-tax			5				12				6				14
Proforma income tax impact (h)				3				(3	)			2				(4	)
Grantor trust activity				--				1				--				1
Reversal of uncertain tax positions related to pre-emergence tax matters (g)				--				(24	)			--				(24	)
	Total Reconciling Items, net of tax		$	8			$	(14	)		$	8			$	(13	)
Diluted Earnings (Loss) Per Share Impact			$	0.06			$	(0.10	)		$	0.07			$	(0.09	)
Weighted Average Diluted Shares Outstanding				132				140				134				144

(a)	During the three months ended September 30, 2012, we transitioned our remaining insurance business to run-off and recorded additional losses and reserve increases of $7 million primarily relating to the adverse loss development. See Exhibit 7 - Note (a) of this Press Release.
(b)	During the three months ended September 30, 2012, our service contract for the Essex EfW facility was amended and we recorded a non-cash write-off of an intangible liability of $29 million related to the below-market service contract which was recorded at fair value upon acquisition of the facility.
(c)	During the three months ended September 30, 2012, we curtailed the construction of a facility that transformed waste materials into renewable liquid fuels. We recorded a non-cash write-off of $16 million representing the capitalized costs related to this project.
(d)	During the three months ended September 30, 2012, we recorded a non-cash write-off of $11 million comprised of capitalized development costs and land related to a development project which we ceased to pursue in the United Kingdom.
(e)	For additional information, see Exhibit 8A - Note (a) of this Press Release.
(f)	During the nine months ended September 30, 2012 and 2011, we recorded a foreign exchange (gain) loss related to intercompany loans, respectively.
(g)	For additional information, see Item 8. Financial Statements and Supplementary Data of Covanta's Annual Report on Form 10-K for the year ended December 31, 2011.
	(i)	The expiration of the statute of limitations during the three months ended September 30, 2011, triggered a contractual liability to pay restricted funds to third party claimants and resulted in other non-operating expense for the three and nine months ended September 30, 2011 of $15 million with no related income tax benefit. These payments related to tax liabilities set up in connection with Covanta Energy's emergence from bankruptcy.
	(ii)	For the three and nine months ended September 30, 2011, the income tax provision includes a $24 million benefit due to the reversal of uncertain tax positions, following the expiration of applicable statutes of limitations related to pre-emergence tax matters in the Covanta Energy bankruptcy.
(h)	We are presenting this proforma calculation of the income tax effect on all reconciling items for each period to illustrate the proforma impact on income tax expense and net income. The proforma income tax impact represents the tax provision amount related to the overall tax provision calculated without the reconciling items when compared to the tax provision reported under GAAP in the condensed consolidated statement of income.

 

Covanta Holding Corporation						Exhibit 4B
Effective Tax Rate
		Three Months Ended September 30,				Nine Months Ended September 30,
		2012		2011		2012		2011
		(Unaudited)
Effective Tax Rate (a)		54%		5%		55%		6%

(a)

Our effective tax rate ("ETR") increased during the third quarter of 2012 as a result of the impact of a write-off of capitalized development costs related to a project which we ceased to pursue in the United Kingdom (see Exhibit 4A - Note (d) above). This pre-tax expense does not result in an expected tax benefit and so this expense increases the ETR. In 2011, the ETR included the impact of the reversal of uncertain tax positions at September 30, 2011 (see Exhibit 4A - Note (g) above). There is no tax benefit from the contractual liability to pre-petition creditors and as a result, this item had an impact on the effective tax rate in the third quarter of 2011.

 

Covanta Holding Corporation																			Exhibit 5
Reconciliation of Net Income to Adjusted EBITDA
			Three Months Ended September 30,								Nine Months Ended September 30,
			2012				2011				2012				2011				Full Year Estimated 2012
			(Unaudited, in millions)
Net Income from Continuing Operations Attributable to Covanta Holding Corporation			$	26			$	49			$	34			$	52				$63 - $70
Operating loss related to insurance subsidiaries (a)				8				1				9				1				9
Depreciation and amortization expense				46				48				145				142				196 - 192
Debt service:
	Net interest expense on project debt			7				8				22				24
	Interest expense			25				16				67				50
	Non-cash convertible debt related expense			6				9				19				20
	Investment income			--				(1	)			--				(1	)
Subtotal debt service				38				32				108				93				150 - 145
Income tax expense (adjusted in 2011 for reversal of uncertain tax positions related to pre-emergence tax matters)(b)				27				26				30				27				53 - 61
Reversal of uncertain tax positions related to pre-emergence tax matters(b)				--				(24	)			--				(24	)
Contractual liability to pre-petition creditors (b)				--				15				--				15
Write-off of intangible liability (c)				(29	)			--				(29	)			--				(29)
Development costs (d)				11				--				11				--				11
Write-off of renewable fuels project (e)				16				--				16				--				16
Loss on extinguishment of debt (f)				--				1				2				1				2
Net income loss attributable to noncontrolling interests in subsidiaries				1				2				1				3				1 - 3
Other adjustments:
	Debt service billings in excess of revenue recognized			--				3				6				21
	Non-cash compensation expense			3				4				13				13
	Other non-cash items (g)			3				(4	)			3				3
Subtotal other adjustments				6				3				22				37				28 - 35
Total adjustments				124				104				315				295
Adjusted EBITDA			$	150			$	153			$	349			$	347				$500 - $515

(a)	For additional information, see Exhibit 4A - Note (a) of this Press Release.
(b)	For additional information, see Exhibit 4A - Note (g) of this Press Release.
(c)	For additional information, see Exhibit 4A - Note (b) of this Press Release.
(d)	For additional information, see Exhibit 4A - Note (d) of this Press Release.
(e)	For additional information, see Exhibit 4A - Note (c) of this Press Release.
(f)	For additional information, see Exhibit 8A - Note (a) of this Press Release.
(g)	Includes certain non-cash items that are added back under the definition of Adjusted EBITDA in Covanta Energy Corporation's credit agreement.

 

Covanta Holding Corporation																			Exhibit 6
Reconciliation of Cash Flow Provided by Operating Activities to Free Cash Flow
			Three Months Ended September 30,								Nine Months Ended September 30,
			2012				2011				2012				2011				Full Year Estimated 2012
			(Unaudited, in millions)
Cash flow provided by operating activities from continuing operations			$	124			$	120			$	268			$	276			$330 - $355
Plus: Cash flow used in operating activities from insurance subsidiaries				2				1				4				4
Less: Maintenance capital expenditures (a)				(15	)			(14	)			(67	)			(61	)		(80) - (90)
Free Cash Flow			$	111			$	107			$	205			$	219			$250 - $265
Weighted Average Diluted Shares Outstanding				132				140				134				144
Uses of Free Cash Flow
Investments:
	Non-maintenance capital expenditures		$	(13	)		$	(9	)		$	(27	)		$	(30	)
	Acquisition of businesses, net of cash acquired			--				--				--				(10	)
	Acquisition of land use rights			--				--				(1	)			(8	)
Other investing activities, net (b)				(9	)			(3	)			(3	)			(6	)
Total investments			$	(22	)		$	(12	)		$	(31	)		$	(54	)
Return of capital to stockholders:
	Cash dividends paid to stockholders		$	(20	)		$	(11	)		$	(51	)		$	(22	)
	Common stock repurchased			(24	)			(80	)			(83	)			(203	)
Total return of capital to stockholders			$	(44	)		$	(91	)		$	(134	)		$	(225	)
Capital raising activities:
	Net proceeds from issuance of corporate debt (c)		$	(2	)		$	--			$	673			$	--
	Net proceeds from issuance of project debt			--				7				--				15
	Other financing activities, net			2				(1	)			3				(3	)
Net proceeds from capital raising activities			$	--			$	6			$	676			$	12
Debt repayments:
	Net cash used for scheduled principal payments on project debt (d)		$	(17	)		$	(23	)		$	(57	)		$	(76	)
	Net cash used for scheduled principal payments on long-term debt (f)			(1	)			(2	)			(25	)			(5	)
	Optional repayment of corporate debt(e)(f)			--				(26	)			(621	)			(32	)
Total debt repayments			$	(18	)		$	(51	)		$	(703	)		$	(113	)
Borrowing activities - Revolving credit facility, net			$	20			$	--			$	20			$	--
Short-term borrowing activities - Financing of insurance premiums, net			$	(3	)		$	--			$	(10	)		$	--
Distributions to partners of noncontrolling interests in subsidiaries			$	(1	)		$	(2	)		$	(1	)		$	(5	)
Effect of exchange rate changes on cash and cash equivalents			$	1			$	(3	)		$	1			$	(2	)
Net change in cash and cash equivalents from continuing operations			$	44			$	(46	)		$	23			$	(168	)

(a)

Purchases of property, plant and equipment is also referred to as capital expenditures. Capital expenditures that primarily maintain existing facilities are classified as maintenance capital expenditures. The following table provides the components of total purchases of property, plant and equipment:

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2012				2011				2012				2011
Maintenance capital expenditures		$	(15	)		$	(14	)		$	(67	)		$	(61	)
Capital expenditures associated with construction			--				(6	)			--				(15	)
Capital expenditures associated with technology development and organic growth initiatives			(7	)			(1	)			(18	)			(6	)
Capital expenditures - other			(6	)			(2	)			(9	)			(9	)
Total purchases of property, plant and equipment		$	(28	)		$	(23	)		$	(94	)		$	(91	)

(b)	Other investing activities is primarily comprised of net payments from the purchase/sale of investment securities and business development expenses.
(c)	For additional information, see Exhibit 8A - Note (a) of this Press Release. Excludes borrowings under Revolving Credit Facility. Calculated as follows:

 

Proceeds from borrowings on long-term debt		$	--			$	--			$	699			$	--
Less: Financing costs related to issuance of long-term debt			(2	)			--				(26	)			--
Net proceeds from issuance of corporate debt		$	(2	)		$	--			$	673			$	--
(d) Calculated as follows:
Total principal payments on project debt		$	(7	)		$	(6	)		$	(46	)		$	(83	)
(Increase) decrease in related restricted funds held in trust			(10	)			(17	)			(11	)			7
Net cash used for principal payments on project debt		$	(17	)		$	(23	)		$	(57	)		$	(76	)
(e) For additional information, see Exhibit 8A - Note (a) of this Press Release. Calculated as follows:
Redemption of Term Loan due 2014		$	--			$	--			$	(619	)		$	--
Redemption of Convertible Debentures (f)			--				(26	)			(2	)			(32	)
Total optional repayment of corporate debt		$	--			$	(26	)		$	(621	)		$	(32	)

(f)

As of December 31, 2011, there were $25 million aggregate principal amount of the Debentures outstanding. On February 1, 2012, holders of $23 million of outstanding Debentures exercised their option for us to redeem the Debentures at par. The Debentures were also subject to redemption at our option at any time on or after February 1, 2012, and we subsequently redeemed the remaining $2 million of outstanding Debentures on March 23, 2012.

 

Covanta Holding Corporation																				Exhibit 7
Calculation of Key Metrics For 2009, 2010, 2011 and The Three Months Ended March 31, 2012 and June 30, 2012 (a)
(Unaudited) (In millions, except per share amounts)
Adjusted EPS		Three Months Ended														Year Ended				Three Months Ended							Six Months Ended
		March 31, 2011				June 30, 2011			Sept. 30, 2011				Dec. 31, 2011			Dec. 31, 2011				March 31, 2012				June 30, 2012			June 30, 2012
Continuing Operations - Diluted (Loss) Earnings Per Share		$	(0.09	)		$	0.12		$	0.35			$	0.20		$	0.56			$	(0.09	)		$	0.15		$	0.06
Reconciling Items			(0.01	)			0.02			(0.10	)			0.07			(0.02	)			--				--			--
Adjusted EPS		$	(0.10	)		$	0.14		$	0.25			$	0.27		$	0.54			$	(0.09	)		$	0.15		$	0.06

 

Reconciling Items			Three Months Ended															Year Ended				Three Months Ended						Six Months Ended
			March 31, 2011				June 30, 2011			Sept. 30, 2011				Dec. 31, 2011				Dec. 31, 2011				March 31, 2012			June 30, 2012			June 30, 2012
Operating Loss from insurance subsidiaries (a)			$	--			$	--		$	1			$	1			$	2			$	1		$	--		$	1
Loss on extinguishment of debt				--				--			1				--				1				2			--			2
Effect on income of derivative instruments not designated as hedging instruments				(1	)			--			1				(2	)			(2	)			--			--			--
Effect of foreign exchange loss on indebtedness				--				3			(5	)			6				4				(3	)		--			(3	)
Gain on sales of businesses				--				--			(1	)			(8	)			(9	)			--			--			--
Development costs				--				--			--				5				5				--			--			--
Contractual liability to pre-petition creditors				--				--			15				--				15				--			--			--
Other				--				--			--				1				1				--			1			1
	Total Reconciling Items, pre-tax			(1	)			3			12				3				17				--			1			1
Tax effect of reconciling items, including tax effect for Insurance subsidiaries (a)				1				(1	)		(4	)			8				4				--			(1	)		(1	)
Grantor trust activity				(1	)			1			1				--				1				--			--			--
Reversal of uncertain tax positions related to pre-emergence tax matters				--				--			(24	)			--				(24	)			--			--			--
	Total Reconciling Items, net of tax		$	(1	)		$	3		$	(15	)		$	11			$	(2	)		$	--		$	--		$	--
Diluted (Loss) Income Per Share Impact			$	(0.01	)		$	0.02		$	(0.10	)		$	0.07			$	(0.02	)		$	--		$	--		$	--
Weighted Average Diluted Shares Outstanding				147				145			140				137				142				134			134			134

 

Adjusted EBITDA		Year Ended			Year Ended			Three Months Ended														Year Ended				Three Months Ended								Six Months Ended
		Dec. 31, 2009			Dec. 31, 2010			March 31, 2011				June 30, 2011			Sept. 30, 2011				Dec. 31, 2011			Dec. 31, 2011				March 31, 2012				June 30, 2012				June 30, 2012
Net Income (Loss) from Continuing Operations Attributable to Covanta Holding Corporation		$	61		$	30		$	(14	)		$	17		$	49			$	27		$	79			$	(12	)		$	20			$	8
Operating loss related to Insurance subsidiaries(a)			4			6			--				--			1				1			2				1				--				1
Depreciation and amortization expense			197			190			47				47			48				51			193				50				49				99
Debt service			105			121			30				31			32				29			122				32				38				70
Income tax expense (benefit) (adjusted for reversal of uncertain tax positions related to pre-emergence tax matters)			42			24			(10	)			11			26				25			52				(8	)			11				3
Reversal of uncertain tax positions related to pre-emergence tax matters			--			--			--				--			(24	)			--			(24	)			--				--				--
Contractual liability to pre-petition creditors			--			--			--				--			15				--			15				--				--				--
Net write-offs			--			34			--				--			--				--			--				--				--				--
Net income (loss) attributable to noncontrolling interests in subsidiaries			4			5			--				1			2				2			5				1				(1	)			--
Loss on extinguishment of debt			--			15			--				--			1				--			1				2				--				2
Debt service billings in excess of revenue recognized			20			29			11				7			3				1			22				6				--				6
Non-cash compensation expense			14			17			5				4			4				5			18				5				5				10
Other			11			5			2				5			(4	)			6			9				(3	)			3				--
Adjusted EBITDA		$	458		$	476		$	71			$	123		$	153			$	147		$	494			$	74			$	125			$	199

Free Cash Flow		Year Ended				Year Ended				Three Months Ended																Year Ended				Three Months Ended								Six Months Ended
		Dec. 31, 2009				Dec. 31, 2010				March 31, 2011				June 30, 2011				Sept. 30, 2011				Dec. 31, 2011				Dec. 31, 2011				March 31, 2012				June 30, 2012				June 30, 2012
Cash flow provided by operating activities from continuing operations		$	352			$	392			$	93			$	63			$	120			$	84			$	360			$	104			$	40			$	144
Plus: Cash flow used in (provided by) operating activities from Insurance subsidiaries(a)			(2	)			5				1				2				1				(2	)			2				1				1				2
Less: Maintenance capital expenditures			(52	)			(74	)			(27	)			(20	)			(14	)			(19	)			(80	)			(28	)			(24	)			(52	)
Free Cash Flow		$	298			$	323			$	67			$	45			$	107			$	63			$	282			$	77			$	17			$	94
Weighted Average Diluted Shares Outstanding			155				154				147				145				140				137				142				134				134				134

(a)

Information is presented to reflect adjustments for the net income (loss) from operations of our insurance subsidiaries and cash flows (provided by) used in insurance subsidiaries which are not representative of our ongoing core energy-from-waste businesses. All other information related to Adjusted EPS, Adjusted EBITDA and Free Cash Flow are unchanged from previous information presented.

 

Covanta Holding Corporation						Exhibit 8
Capitalization Information
			As of
			September 30, 2012			December 31, 2011
			(Unaudited, in millions)
Cash and Cash Equivalents:
Domestic			$	8		$	49
International				235			174
Insurance Subsidiary				19			9
Total Cash and Cash Equivalents			$	262		$	232
Restricted Funds Held in Trust: (a)
	Debt Service - Principal		$	126		$	113
	Debt Service - Interest			6			8
Debt Service Funds - Total				132			121
Revenue Funds				42			16
Other Funds				36			54
Total Restricted Funds Held in Trust			$	210		$	191

(a)

Restricted funds held in trust are primarily amounts received by third-party trustees relating to certain projects we own which may be used only for specified purposes. We generally do not control these accounts. They primarily include debt service reserves for payment of principal and interest on project debt. Revenue funds are comprised of deposits of revenues received with respect to projects prior to their disbursement. Other funds are primarily amounts held in trust for operations, maintenance, environmental obligations and operating lease reserves in accordance with agreements with our clients

 

								Exhibit 8A
		As of September 30, 2012						As of December 31, 2011
		Face Value			Book Value			Face Value			Book Value
		(Unaudited, in millions)
Corporate Debt:
Revolving Credit Facility (a)		$	20		$	20		$	--		$	--
Term Loan due 2014 (a)			--			--			619			619
New Term Loan due 2019 (a)			299			297			--			--
7.25% Senior Notes due 2020			400			400			400			400
6.375% Senior Notes due 2022 (a)			400			400			--			--
3.25% Cash Convertible Senior Notes due 2014			460			493			460			442
1.00% Senior Convertible Debentures due 2027			--			--			25			25
Total corporate debt (including current portion)		$	1,579		$	1,610		$	1,504		$	1,486
Project Debt:
Domestic project debt - service fee facilities		$	270		$	273		$	291		$	295
Domestic project debt - tip fee facilities			333			335			355			359
International project debt			25			25			26			26
Total project debt (including current portion)		$	628		$	633		$	672		$	680
Total Debt Outstanding		$	2,207		$	2,243		$	2,176		$	2,166
Net Debt (b)		$	1,819					$	1,831
Availability for Borrowings under the Revolving Credit Facility (a)		$	597					$	300
Refinancing Details (Unaudited, in millions)
Offering - 6.375% Senior Notes due 2022 (a)		$	400
New Term Loan due 2019 (a)			300
Offering Costs			(26	)
Net Proceeds (a)			674
Redemption of Term Loan due 2014 (a)			(619	)
Net Offering funds available for general corporate purposes		$	55

(a)	During the first quarter of 2012, we completed a refinancing of our previously existing senior secured credit facilities, issued by our subsidiary, Covanta Energy, which consisted of a $300 million revolving credit facility, a $320 million funded letter of credit facility and a $619 million term loan, by entering into $1.2 billion in new senior secured credit facilities (the "2012 Credit Facilities") issued by our subsidiary, Covanta Energy, comprised of a $900 million revolving credit facility that expires in 2017 (the "Revolving Credit Facility") and a $300 million term loan due 2019 (the "Term Loan"), and by issuing $400 million aggregate principal amount of 6.375% senior notes due 2022 (the "6.375% Notes"). The proceeds from the Term Loan and a portion of the proceeds from the 6.375% Notes were used to repay the previously existing term loan, as well as to pay transaction expenses, while the Revolving Credit Facility replaced the previously existing $300 million revolving credit facility and $320 million funded letter of credit facility. The Revolving Credit Facility is available for both the issuance of letters of credit ($283 million outstanding as of September 30, 2012) and for cash borrowings for general corporate purposes ($20 million outstanding cash borrowings as of September 30, 2012). As a result of the refinancing, we recognized a loss on extinguishment of debt of approximately $2 million, pre-tax, which was comprised of the write-off of deferred financing costs in connection with previously existing financing arrangements. We incurred $26 million in offering costs related to the refinancing which has been paid as of September 30, 2012.
(b)	Net Debt is calculated as total principal amount of debt outstanding less cash and cash equivalents and debt service principal restricted funds.

 

Covanta Holding Corporation	Exhibit 9
Return to Stockholders
(Unaudited, in millions, except per share amounts and percentages)

During years ended December 31, 2010 and 2011, and the quarters ended March 31, June 30, and September 30, 2012, the following amounts were returned to stockholders:

		Amount			Shares Repurchased		Weighted Average Cost Per Share			% of Common Stock Outstanding Repurchased
Common Stock Repurchased(a)
FY 2010		$	95		6.1		$	15.56		3.9%
FY 2011		$	230		14.4		$	15.99		9.6%
Q1 2012		$	30		1.8		$	16.45		1.3%
Q2 2012(b)			30		1.9		$	16.04		1.4%
Q3 2012			25		1.5		$	17.22		1.1%
FY 2012 sub-total:		$	85		5.2		$	16.57		3.8%
Total Common Stock Repurchased		$	410		25.7		$	15.99		16.5%
Cash Dividends Declared to Stockholders
FY 2010		$	233
FY 2011		$	42
Q1 2012		$	21
Q2 2012			20
Q3 2012 (c)			20
FY 2012 sub-total:		$	61
Total Cash Dividends Declared to Stockholders		$	336
Total Return to Stockholders		$	746

(a)	As of September 30, 2012, the amount remaining under our currently authorized share repurchase program was $90 million.
(b)	Approximately $2 million of common stock repurchased during the three months ended September 30, 2012 was paid in October 2012.
(c)	On September 19, 2012, the Board of Directors authorized a quarterly cash dividend of $0.15 per share. The Q3 2012 payment was made on October 17, 2012 to stockholders of record as of the close of business on October 10, 2012.

 

Covanta Holding Corporation																			Exhibit 10
Consolidated Reconciliation of Cash Flow Provided by Operating Activities to Adjusted EBITDA
			Three Months Ended September 30,								Nine Months Ended September 30,
			2012				2011				2012				2011				Full Year Estimated 2012
			(Unaudited, in millions)
Cash flow provided by operating activities from continuing operations			$	124			$	120			$	268			$	276				$330 - $355
Cash flow used in operating activities from insurance activities (a)				(2	)			(1	)			(4	)			(4	)
Debt service				38				32				108				93				150 - 145
Change in working capital				(30	)			(35	)			(52	)			(77	)
Change in restricted funds held in trust				12				26				10				35
Non-cash convertible debt related expense				(6	)			(9	)			(19	)			(20	)
Equity in net income from unconsolidated investments				4				1				10				3
Dividends from unconsolidated investments				(4	)			(1	)			(7	)			(5	)
Current tax provision				4				(23	)			7				(20	)
Reversal of uncertain tax positions related to pre-emergence tax matters (b)				--				24				--				24
Change in restricted funds-other related to contractual liability to pre-petition creditors (b)				--				(5	)			--				(5	)
Other				10				24				28				47
	Sub-total			(10	)			2				(23	)			(18	)			20 - 15
Adjusted EBITDA			$	150			$	153			$	349			$	347				$500 - $515

(a)	For additional information, see Exhibit 4A - Note (a) and Exhibit 7 - Note (a) of this Press Release.
(b)	For additional information, see Exhibit 4A - Note (g) of this Press Release.

 

Covanta Holding Corporation	Exhibit 11
Plant Operating Expenses Detail - Americas

The Americas segment quarterly plant operating expenses typically differs substantially as a result of the timing of scheduled plant maintenance. We typically conduct scheduled maintenance periodically each year, which requires that individual boiler units temporarily cease operations. During these scheduled maintenance periods, we incur material repair and maintenance expenses and receive less revenue until the boiler and/or turbine units resume operations. This scheduled maintenance typically occurs during periods of off-peak electric demand and/or lower waste volumes, which are our first, second and fourth fiscal quarters. The first half of the year scheduled maintenance period is typically the most extensive. The third quarter scheduled maintenance period is typically the least extensive. Given these factors, we typically experience our lowest operating income from our projects during the first half of each year. The aggregate of all other components of plant operating expense is relatively consistent each quarter of the year.

 

		Three Months Ended September 30,						Nine Months Ended September 30,
		2012			2011			2012			2011
		(Unaudited, in millions)
Plant Operating Expenses:
Plant maintenance (a)		$	42		$	38		$	179		$	187
All other			176			176			533			532
Plant operating expenses		$	218		$	214		$	712		$	719

(a)	Plant maintenance costs include our internal maintenance team and non-facility employee costs for facility scheduled and unscheduled maintenance and repair expenses.

 

Covanta Holding Corporation - Americas Segment	Exhibit 12A
Statistics - (Unaudited, in millions, except percentages)

Boiler Availability
		Last Twelve Months as of September 30,
		2012		2011
EfW Facilities		92.2%		91.2%

 

Waste and Service Revenue
		Three Months Ended September 30,
		2012			2011
Waste and service revenue unrelated to project debt		$	234		$	239
Revenue earned explicitly to service project debt - principal			10			10
Revenue earned explicitly to service project debt - interest			2			3
Total waste and service revenue (Excluding recycled metals revenue)		$	246		$	252
Recycled metals revenue			17			20
Total waste and service revenue		$	263		$	272

 

Energy Revenue and Megawatt hours (MWhs) At Market and Contracted by Facility Type
			Three Months Ended September 30,
			2012								2011
			Revenue (a)			Volume (a),(b)		% of Total Volume			Revenue (a)			Volume (a),(b)		% of Total Volume
EfW
	At Market		$	7		0.17		12	%		$	20		0.34		23	%
	Contracted & Hedged			75		1.03		72	%			59		0.87		60	%
Biomass
	At Market			3		0.09		7	%			4		0.08		5	%
	Contracted			24		0.13		9	%			20		0.17		12	%
Total			$	109		1.42		100	%		$	103		1.46		100	%
(a) Covanta share only
(b) Steam converted to MWhs

 

Projected Energy Megawatt hours (MWhs) At Market and Contracted by Facility Type (a)
		Full Year 2012E As of October 1, 2012
EfW
	At Market	0.9
	Contracted & Hedged	4.0
Biomass(b)
	At Market	0.4
	Contracted	0.3
Total		5.6

(a)	Covanta share only
(b)	Additional 0.1 million MWhs of Biomass energy is economically dispatched, but available to run.

 

Covanta Holding Corporation - Americas Segment	Exhibit 12B
Statistics - (Unaudited, in millions, except percentages, metal tons (in thousands), and pricing data in Economic Drivers Section)

 

Recycled Metal Net Revenue by Type (a)
		Last Twelve Months as of September 30,
		2012			2011
Ferrous Metal		$	60		$	56
Non-Ferrous Metal			13			13
Total		$	73		$	69

(a) Covanta share only

 

Recycled Metal Gross Tons Recovered by Type (a),(b)
		Last Twelve Months as of September 30,
		2012		2011
Ferrous Metal		421.1		404.6
Non-Ferrous Metal		16.7		15.0
Total		437.8		419.6

(a) Gross volume: Both Covanta and client share

(b) Tons in thousands

 

Published Industry U.S. Economic Drivers (a)
		As of
		September 30, 2012			September 30, 2011
Consumer Price Index (b)			2.0	%		3.9	%
PJM Pricing (Electricity)(c)		$	38.12		$	51.69
Henry Hub Pricing (Natural Gas) (d)		$	2.87		$	4.13
#1 HMS Pricing (Ferrous Metals) (e)		$	340		$	418
Scrap Metals - Old Sheet & Old Cast (f)		$	0.69		$	0.78

(a)		While these drivers impact our business, there is not an exact correlation between our results and changes in these metrics.
(b)		Represents the year-over-year percent change in the Headline CPI number. The Consumer Price Index (CPI-U) data is provided by the U.S. Department of Labor Bureau of Labor Statistics.
(c)		Average price per MWh for Q3 2012 and Q3 2011. Pricing for the PJM PSEG Zone is provided by the PJM ISO.
(d)		Average price per MMBtu for Q3 2012 and Q3 2011. The Henry Hub Pricing data is provided by the Natural Gas Weekly Update, Energy Information Administration, Washington, DC. Nebraska Energy Office, Lincoln, NE.
(e)		Average price per gross ton for Q3 2012 and Q3 2011. The #1 Heavy Melt Steel (HMS) composite index ($/gross ton) price is published by American Metal Market.
(f)		Average price per pound for Q3 2012 and Q3 2011. Calculated using high and low prices for Old Sheet & Old Cast Scrap Metals ($/lb) published by American Metal Market.

Discussion of Non-GAAP Financial Measures

We use a number of different financial measures, both United States generally accepted accounting principles ("GAAP") and non-GAAP, in assessing the overall performance of our business. To supplement our assessment of results prepared in accordance with GAAP, we use the measures of Adjusted EBITDA, Free Cash Flow, and Adjusted EPS, which are non-GAAP measures as defined by the Securities and Exchange Commission. The non-GAAP financial measures of Adjusted EBITDA, Free Cash Flow, and Adjusted EPS as described below, and used in the tables above, are not intended as a substitute or as an alternative to net income, cash flow provided by operating activities or diluted earnings per share as indicators of our performance or liquidity or any other measures of performance or liquidity derived 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.

The presentations of Adjusted EBITDA, Free Cash Flow and Adjusted EPS 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

We use Adjusted EBITDA to provide further information that is useful to an understanding of the financial covenants contained in the credit facilities as of September 30, 2012 of our most significant subsidiary, Covanta Energy, through which we conduct our core waste and energy services business, 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 core business. The calculation of Adjusted EBITDA is based on the definition in Covanta Energy's credit facilities as of September 30, 2012, 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 for continuing operations, less the results of operations of our insurance subsidiaries.

Under the credit facilities as of September 30, 2012, 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, 2012. 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 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 (which for purposes of calculating the leverage ratio and interest coverage ratio, is adjusted on a pro forma basis for acquisitions and dispositions made during the relevant period); 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 nine months ended September 30, 2012 and 2011, reconciled for each such periods to net income from continuing operations and cash flow provided by operating activities from continuing operations, 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 from continuing operations, excluding the cash flow provided by or used in our insurance subsidiaries, 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 core businesses, such as amounts available to make acquisitions, invest in construction of new projects, make principal payments on debt, or amounts we can return to our stockholders through dividends and/or stock repurchases.

In order to provide a meaningful basis for comparison, we are providing information with respect to our Free Cash Flow for the three and nine months ended September 30, 2012 and 2011, reconciled for each such periods to cash flow provided by operating activities from continuing operations, which we believe to be the most directly comparable measure under GAAP.

Adjusted EPS

Adjusted EPS excludes certain income and expense items that are not representative of our ongoing business and operations, which are included in the calculation of Diluted Earnings Per Share in accordance with GAAP. The following items are not all-inclusive, but are examples of reconciling items in prior comparative and future periods. They would include the results of operations of our insurance subsidiaries, write-off of assets and liabilities, the effect of derivative instruments not designated as hedging instruments, significant gains or losses from the disposition or restructuring of businesses, gains and losses on assets held for sale, transaction-related costs, income and loss on the extinguishment of debt and other significant items that would not be representative of our ongoing business.

We will use the non-GAAP measure of Adjusted EPS to enhance the usefulness of our financial information by providing a measure which management internally uses to assess and evaluate the overall performance and highlight trends in the ongoing business.

In order to provide a meaningful basis for comparison, we are providing information with respect to our Adjusted EPS for the three and nine months ended September 30, 2012 and 2011, reconciled for each such periods to diluted earnings per share from continuing operations, which is believed to be the most directly comparable measure under GAAP.