COVANTA HOLDING CORPORATION MORRISTOWN, N.J., July 22, 2015 /PRNewswire/ -- Covanta Holding Corporation (NYSE: CVA) ("Covanta" or the "Company"), a leading global owner and operator of Energy-from-Waste ("EfW") infrastructure, reported financial results today for the three and six months ended June 30, 2015.
Three Months Ended
June 30,
--------
2015 2014
---- ----
(Unaudited, $ in
millions, except per
share amounts)
Revenues $408 $432
Net (Loss) Income $(6) $5
Adjusted EBITDA $83 $121
Free Cash Flow $(40) $15
Adjusted EPS $(0.06) $0.08
Q2 2015 Summary
-- Strong operating performance in core business, with all production
metrics in line with expectations; successfully executed majority of
annual maintenance plan
-- Achieved record quarterly special waste revenue
-- Completed acquisition of Advanced Waste Services (AWS) treatment,
storage and disposal (TSD) business, expanding environmental services
capabilities
-- Previously announced China equity swap/sale to monetize assets at an
attractive value and re-positions the Company for pursuing new
opportunities
-- Revising 2015 guidance primarily due to delay in Durham-York facility
commissioning
"We executed on a number of initiatives this quarter, including the purchase of the AWS business, which will continue to help drive special waste volumes into our facilities and expand our environmental services capabilities," stated Stephen J. Jones, Covanta's President and CEO. "We also had a great operational quarter and closed out our heaviest maintenance cycle in very good shape. Our efficiency initiatives are on track and will continue to add value throughout the year. As a result, we are trending towards the lower end of our expected maintenance spend for the year, which will help to offset some of this year's market pricing pressures and the continued challenges that we have faced in the start-up of our Durham-York facility."
Second Quarter Results
For the three months ended June 30, 2015, total revenues decreased by $24 million to $408 million from $432 million in the same period of 2014, primarily as a result of lower market pricing for metals and energy.
Same store North America EfW revenue decreased by $16 million as follows:
-- waste and service revenues were flat, driven by a $2 million decline
related to waste volumes, which was offset by $2 million from higher
pricing;
-- energy revenues decreased by $8 million, driven by an $8 million decline
related to lower energy market prices, which was partially offset by $1
million due to higher energy production; and
-- recycled metals revenues decreased by $9 million, driven by a $10
million decline from lower recycled metals pricing, partially offset by
$1 million from higher volume of recovered metals.
Also within North America EfW revenue, transactions and contract transitions, including lower debt service revenues, resulted in a decrease of $5 million.
Non-EfW waste and service revenue increased by $18 million, primarily due to the ramp-up of the New York City MTS contract and contribution from newly acquired TSD operations. Non-EfW energy revenue decreased by $7 million, driven by a $5 million decrease in revenue from our biomass operations and by $2 million in lower steam revenue from a facility in China.
Other operating revenue decreased by $14 million, primarily due to lower construction revenue.
Excluding write-offs ((1)), operating expenses increased by $26 million to $404 million. The net year-over-year increase consisted of the following:
-- North America EfW plant operating expenses increased by $25 million,
driven by a $6 million increase in scheduled plant maintenance expense
due primarily to the timing of outage activity, $14 million of
additional expense related to the adoption of a new accounting standard,
and an additional $4 million related to contract transitions and
transactions;
-- a $7 million increase in non-EfW plant operating expenses, primarily
related to the start-up of the New York City MTS contract and new TSD
operations, partially offset by economically dispatching a biomass
facility;
-- a $3 million increase in net interest expense on project debt;
-- a $3 million decrease in general and administrative expenses, primarily
due to costs incurred in 2014 to implement cost savings initiatives;
-- a $3 million decrease in other operating expenses, primarily related to
lower construction expense; and
-- a $3 million decrease in depreciation and amortization due to the
adoption of a new accounting standard.
((1) )Q2 2015 and Q2 2014 include net write-offs of $24 million and $7 million, respectively. For additional information, see Exhibit 4A-Note (a) of this press release.
Excluding write-offs ((1)), operating income decreased by $50 million to $4 million in the second quarter due to the revenue and cost items described above.
Adjusted EBITDA declined by $38 million on a year-over-year basis to $83 million, driven by lower energy and metal pricing, higher scheduled maintenance expense, and the impact of contract transitions.
Free Cash Flow declined by $55 million to $(40) million, primarily as a result of lower Adjusted EBITDA and higher maintenance capital expenditures.
Adjusted EPS declined by $0.14 to $(0.06) driven by lower operating income, which was partially offset by lower interest expense.
Shareholder Returns
During the quarter, the Company declared a regular cash dividend of $0.25 per share, totaling $34 million.
2015 Guidance
The Company has revised guidance for 2015 for the following key metrics:
(In millions)
Metric 2014 2015 2015
Actual Initial Revised
Guidance Range Guidance Range
--- -------------- --------------
Adjusted EBITDA $474 $ 450 - $ 490 $ 420 - $460
--------------- ---- --------------- -------------
Free Cash Flow $240 $ 200 - $ 240 $ 130 - $170
-------------- ---- --------------- -------------
Adjusted EBITDA guidance was lowered as a result of further delay in the start of commercial operations at the Durham-York facility, which is now targeted for Q1 2016. The combined one-time impact of increased costs incurred in connection with the commissioning of the facility and the deferral of commercial operating revenue are expected to negatively impact results by approximately $20 million as compared to initial guidance. In addition, continued weakness in recycled metal prices is now expected to reduce Adjusted EBITDA by approximately $10 million as compared to initial guidance. Free Cash Flow guidance was lowered due to revised outlook for Adjusted EBITDA, as well as a negative impact from working capital of approximately $40 million as compared to initial guidance. This includes the expected delay of milestone payments for the Durham-York construction project and the impact from other working capital timing, which is expected to reverse in 2016.
"Our core business continues to operate very well; however, given the magnitude of the combined impact of the Durham-York start-up delay and weaker scrap metal prices, we felt that it was appropriate to lower our 2015 guidance," stated Brad Helgeson, Covanta's Chief Financial Officer. "Looking ahead to 2016, we expect to benefit from the Durham-York facility achieving commercial operations, as well as from the reversal of the negative working capital movements impacting us this year. Our confidence in the base business and our long-term outlook, which we use to base our capital allocation decisions, are not at all impacted by these issues in 2015. We look forward to showing meaningful growth in both of our guidance metrics in 2016."
Conference Call Information
Covanta will host a conference call at 8:30 AM (Eastern) on Thursday, July 23, 2015 to discuss its second quarter results. The conference call will begin with prepared remarks, which will be followed by a question and answer session. To participate, please dial 1-800-860-2442 approximately 10 minutes prior to the scheduled start of the call. If calling from Canada, please dial 1-866-605-3852. If calling outside of the United States and Canada, please dial 1-412-858-4600. 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.covanta.com.
A replay will be available one hour after the end of the conference call through 9:00 AM (Eastern) July 30, 2015. To access the replay, please dial 1-877-344-7529, or from outside of the United States 1-412-317-0088 and use the replay conference ID number 10068669. The webcast will also be archived on www.covanta.com.
About Covanta
Covanta is a world leader in providing sustainable waste and energy solutions. The Company's 45 Energy-from-Waste facilities provide communities and businesses around the world with environmentally sound solid waste disposal by using 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 clean, renewable electricity to power approximately one million homes and recycle approximately 500,000 tons of metal. Energy-from-Waste facilities reduce greenhouse gases, complement recycling and are a critical component to sustainable solid waste management. For more information, visit www.covanta.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 Holding Corporation and its subsidiaries ("Covanta") or industry results, 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. For additional information see the Cautionary Note Regarding Forward-Looking Statements at the end of the Exhibits.
Covanta Holding Corporation Exhibit 1
Condensed Consolidated Statements of Operations
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2015 2014 2015 2014
---- ---- ---- ----
(Unaudited)
(In millions, except per share amounts)
Operating revenues
Waste and service revenues $276 $267 $522 $508
Recycled metals revenues 17 25 33 46
Energy revenues 99 110 211 230
Other operating revenues 16 30 25 49
--- --- --- ---
Total operating revenues 408 432 791 833
--- --- --- ---
Operating expenses
Plant operating expenses 300 268 589 550
Other operating expenses 26 29 37 47
General and administrative
expenses 23 26 51 47
Depreciation and amortization
expense 50 53 98 106
Net interest expense on
project debt 5 2 7 5
Net write-offs(a) 24 7 24 16
--- --- --- ---
Total operating expenses 428 385 806 771
--- --- --- ---
Operating income (20) 47 (15) 62
--- --- --- ---
Other expenses
Interest expense (28) (33) (61) (62)
Non-cash convertible debt
related expense - (5) - (13)
Loss on extinguishment of
debt (2) - (2) (2)
Other expense, net 1 - (1) -
--- --- --- ---
Total other expenses (29) (38) (64) (77)
--- --- --- ---
(Loss) income before income
tax benefit (expense) and (49) 9 (79) (15)
equity in net income from unconsolidated
investments
Income tax benefit (expense) 40 (6) 30 8
Equity in net income from
unconsolidated investments 3 2 6 3
--- --- --- ---
Net (Loss) Income
Attributable to Covanta
Holding Corporation $(6) $5 $(43) $(4)
=== === ==== ===
Weighted Average Common Shares Outstanding:
Basic 132 130 132 129
=== === === ===
Diluted 132 131 132 129
=== === === ===
(Loss) Earnings Per Share:
Basic $(0.05) $0.04 $(0.33) $(0.03)
====== ===== ====== ======
Diluted $(0.05) $0.04 $(0.33) $(0.03)
====== ===== ====== ======
Cash Dividend Declared Per
Share: $0.25 $0.18 $0.50 $0.36
===== ===== ===== =====
(a) For additional information, see Exhibit 4A - Note (a) of this Press Release.
Covanta Holding Corporation Exhibit 2
Condensed Consolidated Balance
Sheets
As of
-----
June 30, 2015 December 31, 2014
------------- -----------------
(Unaudited)
ASSETS (In millions, except per share
amounts)
Current:
Cash and cash equivalents $66 $84
Restricted funds held in trust 101 105
Receivables (less allowances of $7
and $6, respectively) 327 299
Deferred income taxes 53 29
Prepaid expenses and other current
assets 100 102
Assets held for sale 99 96
--- ---
Total Current Assets 746 715
Property, plant and equipment, net 2,591 2,606
Restricted funds held in trust 99 91
Waste, service and energy contract
intangibles, net 299 314
Other intangible assets, net 35 17
Goodwill 293 274
Investments in investees and joint
ventures 12 13
Other assets 182 176
--- ---
Total Assets $4,257 $4,206
====== ======
LIABILITIES AND EQUITY
Current:
Current portion of long-term debt $5 $5
Current portion of project debt 35 35
Accounts payable 63 33
Accrued expenses and other current
liabilities 249 306
Liabilities held for sale 25 26
--- ---
Total Current Liabilities 377 405
Long-term debt 2,189 1,968
Project debt 192 190
Deferred income taxes 720 743
Waste, service and other contract
intangibles, net 16 19
Other liabilities 133 97
--- ---
Total Liabilities 3,627 3,422
----- -----
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 136
and 136 shares, 14 14
respectively; outstanding 133 and
133 shares, respectively)
Additional paid-in capital 808 805
Accumulated other comprehensive
loss (25) (22)
Accumulated deficit (169) (15)
---- ---
Total Covanta Holding Corporation
stockholders equity 628 782
Noncontrolling interests in
subsidiaries 2 2
--- ---
Total Equity 630 784
Total Liabilities and Equity $4,257 $4,206
====== ======
Covanta Holding
Corporation Exhibit 3
Condensed Consolidated Statements of Cash Flow
Six Months Ended June 30,
-------------------------
2015 2014
---- ----
(Unaudited, in millions)
OPERATING ACTIVITIES:
Net loss $(43) $(4)
Adjustments to reconcile net loss
to net cash provided by
operating activities from
continuing operations:
Depreciation and
amortization
expense 98 106
Net write-offs (a) 24 16
Loss on
extinguishment of
debt 2 2
Non-cash
convertible debt
related expense - 13
Stock-based
compensation
expense 11 8
Deferred income
taxes (22) (3)
Other, net (2) 12
Change in restricted
funds held in trust (1) 1
Change in working
capital, net of
effects of
acquisitions (36) (8)
--- ---
Net cash provided by
operating
activities from
continuing
operations 31 143
Net cash provided by
operating
activities from
discontinued
operations - -
--- ---
Net cash provided by
operating
activities 31 143
--- ---
INVESTING ACTIVITIES:
Purchase of
property, plant and
equipment (195) (115)
Change in restricted
funds held in trust (11) -
Acquisition of
business, net of
cash acquired (48) -
Other, net - 1
--- ---
Net cash used in
investing
activities from
continuing
operations (254) (114)
Net cash provided by
investing
activities from
discontinued
operations - -
--- ---
Net cash used in
investing
activities (254) (114)
---- ----
FINANCING ACTIVITIES:
Proceeds from
borrowings on long-
term debt 165 400
Proceeds from
borrowings on
revolving credit
facility 492 391
Proceeds from
equipment financing
capital lease 15 -
Proceeds from
borrowings on
project debt 59 -
Proceeds from Dublin
Convertible
Preferred 45 -
Proceeds from
settlement of Note
Hedge - 83
Payments related to
Cash Conversion
Option - (83)
Principal payments
on long-term debt (163) (556)
Payments of
borrowings on
revolving credit
facility (286) (221)
Payment of equipment
financing capital
lease (2) -
Principal payments
on project debt (57) (18)
Payment of deferred
financing costs (6) (10)
Cash dividends paid
to stockholders (66) (45)
Change in restricted
funds held in trust 5 1
Other, net 5 5
--- ---
Net cash provided by
(used in) financing
activities from
continuing
operations 206 (53)
Net cash used in
financing
activities from
discontinued
operations - (2)
--- ---
Net cash provided by
(used in) financing
activities 206 (55)
--- ---
Effect of exchange
rate changes on
cash and cash
equivalents (3) (1)
--- ---
Net decrease in cash
and cash
equivalents (20) (27)
Cash and cash
equivalents at
beginning of period 91 200
--- ---
Cash and cash
equivalents at end
of period 71 173
Less: Cash and cash
equivalents of
assets held for
sale at end of
period 5 12
Cash and cash
equivalents of
continuing
operations at end
of period $66 $161
=== ====
(a) For additional information, see Exhibit 4A - Note (a) of this Press Release.
Covanta Holding Corporation Exhibit 4
Reconciliation of Diluted (Loss) Earnings Per Share to Adjusted EPS
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2015 2014 2015 2014
---- ---- ---- ----
(Unaudited)
Diluted
(Loss)
Earnings Per
Share $(0.05) $0.04 $(0.33) $(0.03)
Reconciling
Items (a) (0.01) 0.04 0.14 0.09
----- ---- ---- ----
Adjusted EPS $(0.06) $0.08 $(0.19) $0.06
====== ===== ====== =====
(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 Six Months Ended
June 30, June 30,
-------- --------
2015 2014 2015 2014
---- ---- ---- ----
(Unaudited)
(In millions, except per share amounts)
Reconciling Items
-----------------
Operating loss
related to insurance
subsidiaries $ - $ - $ - $1
Net write-offs (a) 24 7 24 16
Severance and
reorganization costs
(b) - 2 6 3
Loss on
extinguishment of
debt 2 - 2 2
Effect of foreign
exchange loss (gain)
on indebtedness (1) 1 1 -
--- --- --- ---
Total Reconciling
Items, pre-tax 25 10 33 22
Pro forma income tax
impact (11) (5) (14) (11)
Legal entity
restructuring charge (15) - - -
--- --- --- ---
Total Reconciling
Items, net of tax $(1) $5 $19 $11
=== === === ===
Diluted Earnings Per
Share Impact $(0.01) $0.04 $0.14 $0.09
====== ===== ===== =====
Weighted Average
Diluted Shares
Outstanding 132 131 132 129
=== === === ===
(a) During the three months ended June 30, 2015, we recorded a $24 million non-cash impairment of our biomass assets.
During the three months ended June 30, 2014, we recorded a $7 million non-cash write-off of the intangible asset for the Abington transfer station. During the six months ended June 30, 2014, we recorded a $9 million non-
cash write-off of the intangible asset for Hudson Valley EfW facility. These intangible assets were related to contracts we assumed upon acquisition of these entities in 2009.
(b) The six months ended June 30, 2015, includes $6 million of costs incurred in connection with separation agreements related to the departure of two executive officers of which $4 million relates to non-cash compensation.
Covanta Holding Corporation Exhibit 5
Reconciliation of Net Income (Loss) to Adjusted EBITDA
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2015 2014 2015 2014
---- ---- ---- ----
(Unaudited, in millions)
Net (Loss) Income Attributable
to Covanta Holding
Corporation $(6) $5 $(43) $(4)
Operating loss related to
insurance subsidiaries - - - 1
Depreciation and amortization
expense 50 53 98 106
Debt service:
Net interest expense on
project debt 5 2 7 5
Interest expense 28 33 61 62
Non-cash convertible debt
related expense - 5 - 13
--- --- --- ---
Subtotal debt service 33 40 68 80
Income tax (benefit) expense (40) 6 (30) (8)
Net write-offs (a) 24 7 24 16
Loss on extinguishment of debt 2 - 2 2
Other adjustments:
Debt service billings in
excess of revenue recognized - 2 1 2
Severance and reorganization
costs (b) - 2 2 3
Non-cash compensation expense
(c) 3 4 11 8
Capital type expenditures at
service fee operated
facilities(d) 14 - 22 -
Other (e) 3 2 7 2
--- --- --- ---
Subtotal other adjustments 20 10 43 15
--- --- --- ---
Total adjustments 89 116 205 212
--- --- --- ---
Adjusted EBITDA $83 $121 $162 $208
=== ==== ==== ====
(a) For additional information,
see Exhibit 4A -Note (a) of this
Press Release.
(b) The six months ended June 30,
2015, includes $2 million of
costs incurred in connection with
separation agreements related to
the departure of two executive
officers.
(c) The six months ended June 30,
2015, includes $4 million of
costs incurred in connection with
separation agreements related to
the departure of two executive
officers.
(d) Adjustment for impact of
adoption of FASB ASC 853 -
Service Concession Arrangements in
order to provide comparability to
prior period results. These type
of expenditures at our service fee
operated facilities were
historically capitalized prior to
adoption of this new accounting
standard effective January 1,
2015.
(e) Includes certain other items
that are added back under the
definition of Adjusted EBITDA in
Covanta Energy LLC's credit
agreement.
Covanta Holding Corporation Exhibit 6
Consolidated Reconciliation of Cash Flow Provided by Operating Activities to Adjusted EBITDA
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
2015 2014 2015 2014
---- ---- ---- ----
(Unaudited, in millions)
Cash flow (used in)
provided by operating
activities from
continuing operations $(11) $41 $31 $143
Cash flow provided by
operating activities
from insurance
subsidiaries - (1) - -
Debt service 33 40 68 80
Change in working
capital 52 51 36 8
Change in restricted
funds held in trust 2 (1) 1 (1)
Non-cash convertible
debt related expense - (5) - (13)
Equity in net income
from unconsolidated
investments 3 2 6 3
Dividends from
unconsolidated
investments - (10) (1) (10)
Current tax provision (8) 1 (8) (5)
Capital type
expenditures at
service fee operated
facilities (a) 14 - 22 -
Other (2) 3 7 3
--- --- --- ---
Sub-total 61 41 63 (15)
--- --- --- ---
Adjusted EBITDA $83 $121 $162 $208
=== ==== ==== ====
(a) For additional information, see Exhibit 5 - Note (d) of this Press Release.
Covanta Holding Corporation Exhibit 7
Reconciliation of Cash Flow Provided by Operating Activities to Free Cash Flow
Three Months Ended Six Months Ended Full year
June 30, June 30,
-------- --------
2015 2014 2015 2014 Estimated 2015
---- ---- ---- ----
(Unaudited, in millions)
Cash flow (used in)
provided by
operating activities
from continuing
operations $(11) $41 $31 $143 $210 - $260
Less: Cash flow
provided by
operating activities
from insurance
subsidiaries - (1) - -
Less: Maintenance
capital expenditures
(a) (29) (25) (55) (61) (80) - (90)
--- --- --- --- ----------
Free Cash Flow $(40) $15 $(24) $82 $130 - $170
==== === ==== === ===========
Weighted Average
Diluted Shares
Outstanding 132 131 132 129
Uses of Free Cash Flow
----------------------
Investments:
Growth investments
(b) (128) (18) (188) (54)
Change in restricted
funds held in trust
for project
development (11) - (11) -
Other investing
activities, net (c) (3) 2 - 1
--- --- --- ---
Total investments $(142) $(16) $(199) $(53)
----- ---- ----- ----
Return of capital to stockholders:
Cash dividends paid
to stockholders $(33) $(23) $(66) $(45)
---- ---- ---- ----
Capital raising activities:
Net proceeds from
issuance of
corporate debt (d) $2 $ - $2 $393
Net proceeds from
issuance of project
debt (e) 15 - 15 -
Net proceeds from
Dublin Convertible
Preferred 45 - 45 -
Proceeds from
equipment financing
capital leases(f) 6 - 15 -
Other financing
activities, net (1) (2) 5 5
--- --- --- ---
Net proceeds from
capital raising
activities $67 $(2) $82 $398
--- --- --- ----
Debt repayments:
Net cash used for
scheduled principal
payments on
corporate debt $(1) $(461) $(1) $(461)
Payments related to
Cash Conversion
Option (g) - (83) - (83)
Proceeds from the
settlement of Note
Hedge (g) - 83 - 83
Net cash used for
scheduled principal
payments on project
debt (h) (3) (10) (10) (17)
Voluntary prepayment
of corporate debt - - - (95)
Payment of equipment
financing capital
lease (f) (1) - (2) -
Deferred financing costs - (3) (3)
-
---
Total debt repayments $(5) $(471) $(16) $(576)
--- ----- ---- -----
Borrowing activities
-Revolving credit
facility, net $157 $280 $206 $170
---- ---- ---- ----
Effect of exchange
rate changes on cash
and cash equivalents $ - $ - $(3) $(1)
--- --- --- --- --- ---
Net change in cash
and cash equivalents $4 $(217) $(20) $(25)
=== ===== ==== ====
(a) Purchases of property, plant and equipment are 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 Six Months Ended
June 30, June 30,
-------- --------
2015 2014 2015 2014
---- ---- ---- ----
Maintenance capital
expenditures $(29) $(25) $(55) $(61)
---- ---- ---- ----
Capital expenditures
associated with
organic growth
initiatives (10) (4) (18) (10)
Capital expenditures
associated with the
New York City
contract (6) (10) (19) (38)
Capital expenditures
associated with
Essex County EfW
emissions control
system (5) (4) (13) (6)
Capital expenditures
associated with
construction of
Dublin EfW facility (59) - (90) -
--- --- --- ---
Total capital
expenditures
associated with
growth investments (80) (18) (140) (54)
--- --- ---- ---
Total purchases of
property, plant and
equipment $(109) $(43) $(195) $(115)
===== ==== ===== =====
(b) Growth investments include investments in growth opportunities, including organic growth initiatives, technology, business development, and other similar expenditures.
Capital expenditures
associated with
organic growth
initiatives $(10) $(4) $(18) $(10)
Capital expenditures
associated with the
New York City
contract (6) (10) (19) (38)
Capital expenditures
associated with
Essex County EfW
emissions control
system (5) (4) (13) (6)
Investments in
connection with the
Dublin EfW facility (59) - (90) -
Acquisition of
business, net of
cash acquired (48) - (48) -
--- --- --- ---
Total growth
investments $(128) $(18) $(188) $(54)
===== ==== ===== ====
(c) Other investing activities include changes in restricted funds held in trust for project development and net payments from the purchase/sale of investment securities.
(d) Excludes borrowings under Revolving Credit Facility. Calculated as follows:
Proceeds from
borrowings on long-
term debt $165 $ - $165 $400
Refinanced long-term debt (162) (162)
Less: Financing costs
related to issuance
of long-term debt (1) - (1) (7)
--- --- --- ---
Net proceeds from
issuance of
corporate debt $2 $ - $2 $393
=== === === === ====
(e) Calculated as follows:
Proceeds from
borrowings on
project debt $59 $59
- -
Refinanced project debt (42) - (42) -
Less: Financing costs related to
the issuance of project debt (2) (2)
--- ---
Net proceeds from
issuance of project
debt $15 $15
- -
(f) During the six months ended June 30, 2015, we financed $15 million for equipment related to our New York City contract.
(g) The $460 million of 3.25% Cash Convertible Senior Notes matured on June 1, 2014. Upon maturity, we were required to pay $83 million to satisfy the obligation under the Cash Conversion Option in
addition to the principal amount of the 3.25% Notes. We cash-settled the Note Hedge for $83 million effectively offsetting our liability under the Cash Conversion Option.
(h) Calculated as follows:
Total scheduled
principal payments
on project debt $(5) $(9) $(15) $(18)
Decrease in related
restricted funds
held in trust 2 (1) 5 1
--- --- --- ---
Net cash used for
principal payments
on project debt $(3) $(10) $(10) $(17)
=== ==== ==== ====
Covanta Holding Corporation Exhibit 8A
Supplemental Information on Operations (a)
(Unaudited, $ in millions)
Three Months Ended June 30, 2015
--------------------------------
North America
-------------
EfW Other Total Other Consolidated
--- ----- ----- ----- ------------
Revenue:
Waste and service:
Waste processing & handling $231 $28 $259 $ - $259
Debt service 4 - 4 - 4
Other revenues 3 9 12 1 13
--- --- --- ---
Total waste and service 238 37 275 1 276
Recycled metals:
Ferrous 9 2 11 - 11
Non-ferrous 6 - 6 - 6
--- --- --- --- ---
Total recycled metals 15 2 17 - 17
Energy:
Energy sales 73 7 80 9 89
Capacity 9 1 10 - 10
--- --- ---
Total energy revenue 82 8 90 9 99
Other revenue - 17 17 (1) 16
--- --- --- --- ---
Total revenue $335 $64 $399 $9 $408
Operating expenses:
Plant operating expenses:
Plant maintenance $81 $4 $85 $ - $85
Other plant operating expenses 155 52 207 8 215
--- --- --- --- ---
Total plant operating expenses 236 56 292 8 300
Other operating expenses - 27 27 (1) 26
General and administrative - 20 20 3 23
Depreciation and amortization 40 8 48 2 50
Net interest expense on project debt 2 2 3 5
-
Net write-off 24 24 24
- -
Total operating expenses $278 $135 $413 $15 $428
---- ---- ---- --- ----
Operating Income (Loss) $57 $(71) $(14) $(6) $(20)
=== ==== ==== === ====
Plus: Net write-off - 24 24 - 24
--- --- --- --- ---
Operating Income (Loss) excluding Net
write-off: $57 $(47) $10 $(6) $4
=== ==== === === ===
(a) Supplemental information provided
in order to present the financial
performance of our North America EfW
operations. "Other" within our North
America segment includes all non-
EfW operations, including transfer
stations, landfills, e-waste,
biomass facilities, construction and
corporate overhead. This information
is provided as supplemental detail
only and is not intended to replace
our North America reporting segment.
Note: Certain amounts may not total
due to rounding
Covanta Holding Corporation Exhibit 8B
Supplemental Information on Operations (a)
(Unaudited, $ in millions)
Three Months Ended June 30, 2014
--------------------------------
North America
-------------
EfW Other Total Other Consolidated
--- ----- ----- ----- ------------
Revenue:
Waste and service:
Waste processing & handling $238 $17 $255 $ - $255
Debt service 6 - 6 - 6
Other revenues 3 3 6 - 6
--- --- --- ---
Total waste and service 247 20 267 - 267
Recycled metals:
Ferrous 17 1 18 - 18
Non-ferrous 7 - 7 - 7
--- --- --- --- ---
Total recycled metals 24 1 25 - 25
Energy:
Energy sales 79 10 89 11 100
Capacity 7 3 10 - 10
--- --- --- --- ---
Total energy revenue 86 13 99 11 110
Other revenue - 29 29 1 30
--- --- --- --- ---
Total revenue $357 $63 $420 $12 $432
Operating expenses:
Plant operating expenses:
Plant maintenance $59 $3 $62 $ - $62
Other plant operating expenses 152 45 197 9 206
--- --- --- --- ---
Total plant operating expenses 211 48 259 9 268
Other operating expenses - 28 28 1 29
General and administrative - 25 25 1 26
Depreciation and amortization 46 6 52 1 53
Net interest expense on project debt 2 - 2 - 2
Net write-off - 7 7 - 7
--- --- --- ---
Total operating expenses $259 $114 $373 $12 $385
---- ---- ---- --- ----
Operating Income (Loss) $98 $(51) $47 $ - $47
=== ==== === === === ===
Plus: Net write-off - 7 7 - 7
Operating Income (Loss) excluding Net
write-off: $98 $(44) $54 $ - $54
=== ==== === === === ===
(a) Supplemental information
provided in order to present
the financial performance of
our North America EfW
operations. "Other" within our
North America segment includes
all non-EfW operations,
including transfer stations,
landfills, e-waste, biomass
facilities, construction and
corporate overhead. This
information is provided as
supplemental detail only and is
not intended to replace our
North America reporting
segment.
Note: Certain amounts may not
total due to rounding
North America EfW Exhibit 9
Revenue and Operating Income Changes - Q2 2014 to Q2 2015
(Unaudited, $ in millions)
Same Store (a) Contract Transitions(b)
------------- ----------------------
Q2 Price % Volume % Total % Waste PPA Transactions(c) Total Q2
2014 Changes 2015
---- ------- ----
Waste and service:
Waste processing $238 $2 1.0% $(2) -0.7% $1 0.3% $(6) $ - $(1) $(7) $231
Debt service 6 - (2) - - (2) 4
Other revenues 3 (1) 1 - - - 3
--- --- --- --- --- --- ---
Total waste and service 247 - - % (8) - (1) (9) 238
Recycled metals:
Ferrous 17 (8) -49.8% 1 5.0% (7) -44.9% - - - (8) 9
Non-ferrous 7 (2) -23.6% - 4.7% (1) -18.9% - - - (1) 6
--- --- --- --- --- --- --- --- ---
Total recycled metals 24 (10) -41.9% 1 4.9% (9) -37.0% - - - (9) 15
Energy:
Energy sales 79 (8) -9.9% 1 0.8% (7) -9.2% 3 (1) - (6) 73
Capacity 7 - -1.2% 1 - 1 2 9
--- --- --- --- --- --- ---
Total energy revenue 86 (8) -8.7% 4 (1) 1 (4) 82
--- --- --- --- --- --- ---
Total revenues $357 $(16) -4.5% $(4) $(1) $ - $(22) $335
Operating expenses:
Plant operating expenses:
Plant maintenance $59 $20 34.3% $ - $ - $2 $22 $81
Other plant operating expenses 152 1 0.9% 3 - (1) 3 155
--- --- --- --- --- --- ---
Total plant operating expenses 211 22 10.2% 3 - 1 25 236
Other operating expenses - - - - - - -
General and administrative - - - - - - -
Depreciation and amortization 46 (5) - - - (6) 40
Net interest expense on project debt 2 - - - - - 2
--- --- --- --- --- --- ---
Total operating expenses $259 $16 $3 $ - $1 $19 $278
---- --- --- --- --- --- --- ----
Operating Income (Loss) $98 $(32) $(7) $(1) $(1) $(41) $57
=== ==== === === === ==== ===
(a) Reflects the performance at each facility on a comparable period-over-period basis, excluding the
impacts of transitions and transactions.
(b) Includes the impact of the expiration of: (1) long-term major waste and service contracts, most typically
representing the transition to a new contract structure, and (2) long-term energy contracts.
(c) Includes the impacts of acquisitions, divestitures and the addition or loss of operating contracts.
Note: Excludes Net write-
off
Note: Certain amounts may not total due to rounding
North America Exhibit 10
Operating Metrics
(Unaudited)
Three Months Ended June 30,
---------------------------
2015 2014
---- ----
EfW Waste
---------
Tons: (in millions)
Contracted 4.4 3.6
Uncontracted 0.5 0.8
--- ---
Total Tons 4.9 4.4
Revenue per Ton:
Contracted $44.72 $48.39
Uncontracted $70.10 $59.17
Average Revenue per Ton $47.29 $49.89
EfW Energy
----------
Energy Sales: (MWh in
millions)
Contracted 0.8 0.8
Hedged 0.3 0.3
Market 0.4 0.2
--- ---
Total Energy Sales 1.4 1.4
Market Sales by
Geography:
PJM East 0.1 0.1
NEPOOL 0.1 0.1
NYISO - -
Other 0.1 0.1
Revenue per MWh (excludes
capacity):
Contracted $63.69 $68.07
Hedged $42.07 $43.20
Market $31.43 $43.29
Average Revenue per MWh $50.81 $57.77
Metals
------
Tons Sold: (in thousands)
Ferrous 85 85
Non-Ferrous 8 8
Revenue per Ton:
Ferrous $127 $204
Non-Ferrous $741 $963
EfW Plant Operating
Expenses ($ in millions)
-------------------------
Plant Operating Expenses
-Gross $248 $229
Less: Client Pass-
Through Costs (11) (15)
Less: REC Sales -Contra
Expense (1) (3)
--- ---
Plant Operating Expenses
-Reported $236 $211
Client Pass-Throughs as
% of Gross Costs 4.4% 6.5%
Note: Waste volume includes solid
tons only. Metals and energy
volume are presented net of
client revenue sharing. Steam
sales are converted to MWh
equivalent at an assumed average
rate of 11 klbs of steam /MWh.
Uncontracted energy sales
include sales under PPAs that
are based on market prices.
Note: Certain amounts may not
total due to rounding
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 income 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 June 30, 2015 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 June 30, 2015, 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, less the results of operations of our insurance subsidiaries.
Under the credit facilities as of June 30, 2015, 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, 2015. 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 six months ended June 30, 2015 and 2014, reconciled for each such period to net income and cash flow provided by operating activities from continuing operations, which are believed to be the most directly comparable measures under GAAP.
Our projected full year 2015 Adjusted EBITDA is not based on GAAP net income/loss from continuing operations and is anticipated to be adjusted to exclude the effects of events or circumstances in 2015 that are not representative or indicative of our results of operations. Projected GAAP net income/loss from continuing operations for the full year would require inclusion of the projected impact of future excluded items, including items that are not currently determinable, but may be significant, such as asset impairments and one-time items, charges, gains or losses from divestitures, or other items. Due to the uncertainty of the likelihood, amount and timing of any such items, we do not have information available to provide a quantitative reconciliation of full year 2015 projected net income/loss from continuing operations to an Adjusted EBITDA projection.
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 six months ended June 30, 2015 and 2014, reconciled for each such period 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 six months ended June 30, 2015 and 2014, reconciled for each such period to diluted income per share, which is believed to be the most directly comparable measure under GAAP.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this press release 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 Holding Corporation and its subsidiaries ("Covanta") or industry results, 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 us are not guarantees or indicative of future performance. Important factors, risks and uncertainties that could cause actual results to differ materially from those forward-looking statements include, but are not limited to:
-- seasonal or long-term fluctuations in the prices of energy, waste
disposal, scrap metal and commodities, and our ability to renew or
replace expiring contracts at comparable pricing;
-- adoption of new laws and regulations in the United States and abroad,
including energy laws, environmental laws, labor laws and healthcare
laws;
-- our ability to avoid adverse publicity relating to our business
expansion efforts;
-- advances in technology;
-- difficulties in the operation of our facilities, including fuel supply
and energy delivery interruptions, failure to obtain regulatory
approvals, equipment failures, labor disputes and work stoppages, and
weather interference and catastrophic events;
-- failure to maintain historical performance levels at our facilities and
our ability to retain the rights to operate facilities we do not own;
-- difficulties in the financing, development and construction of new
projects and expansions, including increased construction costs and
delays;
-- our ability to realize the benefits of long-term business development
and bear the costs of business development over time;
-- our ability to utilize net operating loss carryforwards;
-- limits of insurance coverage;
-- our ability to avoid defaults under our long-term contracts;
-- performance of third parties under our contracts and such third parties'
observance of laws and regulations;
-- concentration of suppliers and customers;
-- geographic concentration of facilities;
-- increased competitiveness in the energy and waste industries;
-- changes in foreign currency exchange rates;
-- limitations imposed by our existing indebtedness and our ability to
perform our financial obligations and guarantees and to refinance our
existing indebtedness;
-- exposure to counterparty credit risk and instability of financial
institutions in connection with financing transactions;
-- the scalability of our business;
-- restrictions in our certificate of incorporation and debt documents
regarding strategic alternatives;
-- failures of disclosure controls and procedures and internal controls
over financial reporting;
-- our ability to attract and retain talented people;
-- general economic conditions in the United States and abroad, including
the availability of credit and debt financing; and
-- other risks and uncertainties affecting our businesses described in Item
1A. Risk Factors of Covanta's Annual Report on Form 10-K for the year
ended December 31, 2014 and in other filings by Covanta with the SEC.
Although we believe that our 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 of our forward-looking statements. Our 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 we do 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.
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SOURCE Covanta Holding Corporation
