COVANTA HOLDING CORPORATION MORRISTOWN, N.J., Oct. 27, 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 nine months ended September 30, 2015.
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Three Months Ended
September 30,
-------------
2015 2014
---- ----
(Unaudited, $ in
millions, except
per share amounts)
Revenue $422 $414
Net Income $34 $7
Adjusted EBITDA $139 $135
Free Cash Flow $107 $104
Adjusted EPS $0.22 $0.26
Q3 2015 Summary
-- EfW operations and production metrics in line with expectations
-- Completed two additional environmental services acquisitions
-- Achieved another record quarter of profiled waste revenue
-- Commenced operations of ferrous metals processing facility in Fairless,
PA
-- Currently undergoing performance testing at Durham-York EfW facility;
expect commencement of profitable commercial operations in Q1 2016
-- Established Continuous Improvement working group and launched initial
projects
"We had another strong operational quarter, maximizing plant production and continuing to execute on our strategic initiatives," stated Stephen J. Jones, Covanta's President and CEO. "I'm very pleased with the team's engagement as we focus on the fundamentals of our business. In terms of growth, the acquisitions in the Environmental Solutions group allow us to further expand our suite of service offerings to our clients and increase the value of the waste we bring into our facilities. In addition, our new regional metal processing facility will help us to produce a higher value product while giving us new options for marketing and transporting material in response to very difficult market conditions."
Third Quarter Results
For the three months ended September 30, 2015, total revenue increased by $8 million to $422 million from $414 million in the same period of 2014, primarily as a result of the New York City Marine Transfer Station (MTS) contract and environmental service acquisitions.
Same store North America EfW revenue decreased by $10 million, with factors including:
-- waste and service revenue increased $6 million, primarily driven by a $6
million increase related to higher pricing and $2 million of other
revenues, which was offset by $2 million of lower volume due to
maintenance;
-- energy revenue decreased by $5 million driven by a $4 million decline
due to lower energy market prices and a $1 million decline related to
volume; and
-- recycled metals revenue decreased by $11 million, driven by lower
recycled metals pricing.
Also within North America EfW waste and service revenue, contract transitions, including lower debt service revenue, declined by $5 million, which was offset by a $2 million increase related to transactions.
North America Non-EfW waste and service revenue increased by $27 million, primarily due to the ramp-up of the New York City MTS contract and contribution from newly acquired environmental service operations. Non-EfW energy revenue decreased by $9 million, driven primarily by economically dispatching a biomass facility.
Excluding write-offs in 2014 ((1)), operating expenses increased by $4 million to $351 million. The net year-over-year increase consisted of the following:
-- North America EfW plant operating expenses increased by $6 million,
driven by a $2 million increase in scheduled plant maintenance expense
due primarily to the new operating contract at the Pinellas County EfW
facility and $3 million of additional expense related to the adoption of
a new accounting standard;
-- a $6 million increase in non-EfW plant operating expenses, primarily
related to the start-up of the New York City MTS contract and the
environmental service acquisitions, partially offset by economically
dispatching a biomass facility;
-- a $6 million decrease in general and administrative expenses, primarily
due to one-time costs incurred in 2014 to implement cost savings
initiatives; and
-- a $1 million decrease in other operating expenses, primarily related to
lower construction expense.
Excluding write-offs in 2014 ((1)), operating income increased by $4 million to $71 million in the third quarter due to the revenue and cost items described above.
Adjusted EBITDA increased by $4 million on a year-over-year basis to $139 million. Adjusted EBITDA was benefited by a reduction in the accrual for employee incentive compensation in 2015, as well as higher waste pricing and the New York City MTS contract, which were partially offset by lower energy and metals market prices and the impact of contract transitions.
Free Cash Flow increased by $3 million to $107 million, primarily as a result of higher Adjusted EBITDA as discussed above and lower maintenance capital expenditures.
Adjusted EPS decreased by $0.04 to $0.22 driven primarily by a higher effective tax rate, partially offset by higher equity income.
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 affirmed its guidance for 2015 for the following key metrics:
(In millions)
Metric 2014 2015
Actual Guidance Range
--- ------ --------------
Adjusted EBITDA $474 $ 420 - $ 460
--------------- ---- -------------
Free Cash Flow $240 $ 130 - $ 170
-------------- ---- -------------
((1) )Q3 2014 includes net write-offs of $48 million. For additional information, see Exhibit 4-Note (a) of this press release.
Conference Call Information
Covanta will host a conference call at 8:30 AM (Eastern) on Wednesday, October 28, 2015 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 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) November 4, 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 10073716. 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 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 Nine Months Ended
September 30, September 30,
------------- -------------
2015 2014 2015 2014
---- ---- ---- ----
(Unaudited)
(In millions, except per share amounts)
Operating revenue
Waste and service revenue $283 $252 $805 $760
Recycled metals revenue 16 26 49 72
Energy revenue 108 120 319 350
Other operating revenue 15 16 40 65
--- --- --- ---
Total operating revenue 422 414 1,213 1,247
--- --- ----- -----
Operating expense
Plant operating expense 260 248 849 798
Other operating expense 18 19 55 66
General and administrative
expense 20 26 71 73
Depreciation and amortization
expense 50 51 148 157
Net interest expense on
project debt 3 3 10 8
Net write-offs(a) - 48 24 64
--- --- --- ---
Total operating expense 351 395 1,157 1,166
--- --- ----- -----
Operating income 71 19 56 81
--- --- --- ---
Other expense
Interest expense (31) (30) (92) (92)
Non-cash convertible debt
related expense - - - (13)
Loss on extinguishment of debt - - (2) (2)
Other expense, net - - (1) -
--- --- --- ---
Total other expense (31) (30) (95) (107)
--- --- --- ----
Income (loss) before income
tax (expense) benefit and
equity in net income from
unconsolidated investments 40 (11) (39) (26)
Income tax (expense) benefit (11) 16 19 24
Equity in net income from
unconsolidated investments 5 2 11 5
--- --- --- ---
Net Income (Loss) Attributable
to Covanta Holding
Corporation $34 $7 $(9) $3
=== === === ===
Weighted Average Common Shares Outstanding:
Basic 132 130 132 130
=== === === ===
Diluted 134 131 132 131
=== === === ===
Earnings (Loss) Per Share:
Basic $0.26 $0.05 $(0.07) $0.02
===== ===== ====== =====
Diluted $0.25 $0.05 $(0.07) $0.02
===== ===== ====== =====
Cash Dividend Declared Per
Share: $0.25 $0.25 $0.75 $0.61
===== ===== ===== =====
(a) For additional information, see Exhibit 4A - Note (a) of this Press Release.
Covanta Holding Corporation Exhibit 2
Condensed Consolidated Balance
Sheets
As of
-----
September 30,
2015 December 31, 2014
-------------- -----------------
(Unaudited)
ASSETS (In millions, except per share
amounts)
Current:
Cash and cash equivalents $69 $84
Restricted funds held in trust 108 105
Receivables (less allowances of $7
and $6, respectively) 300 299
Deferred income taxes 45 29
Prepaid expense and other current
assets 105 102
Assets held for sale 101 94
--- ---
Total Current Assets 728 713
Property, plant and equipment, net 2,632 2,608
Restricted funds held in trust 133 91
Waste, service and energy contract
intangibles, net 291 314
Other intangible assets, net 39 17
Goodwill 301 274
Investments in investees and joint
ventures 11 13
Other assets 181 176
--- ---
Total Assets $4,316 $4,206
====== ======
LIABILITIES AND EQUITY
Current:
Current portion of long-term debt $5 $5
Current portion of project debt 35 35
Accounts payable 55 33
Accrued expense and other current
liabilities 249 306
Liabilities held for sale 23 26
--- ---
Total Current Liabilities 367 405
Long-term debt 2,223 1,968
Project debt 187 190
Deferred income taxes 719 743
Waste, service and other contract
intangibles, net 15 19
Other liabilities 177 97
--- ---
Total Liabilities 3,688 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, respectively;
outstanding 133 and 133 shares,
respectively) 14 14
Additional paid-in capital 811 805
Accumulated other comprehensive
loss (30) (22)
Accumulated deficit (169) (15)
---- ---
Total Covanta Holding Corporation
stockholders equity 626 782
Noncontrolling interests in
subsidiaries 2 2
--- ---
Total Equity 628 784
Total Liabilities and Equity $4,316 $4,206
====== ======
Covanta Holding
Corporation Exhibit 3
Condensed Consolidated Statements of Cash Flow
Nine Months Ended September 30,
-------------------------------
2015 2014
---- ----
(Unaudited, in millions)
OPERATING ACTIVITIES:
Net (loss) income $(9) $3
Adjustments to reconcile net
(loss) income to net cash
provided by operating activities
from continuing operations:
Depreciation and
amortization
expense 148 157
Net write-offs (a) 24 64
Loss on
extinguishment of
debt 2 2
Non-cash
convertible debt
related expense - 13
Stock-based
compensation
expense 15 15
Deferred income
taxes (22) (17)
Other, net (2) 12
Change in
restricted funds
held in trust 14 14
Change in working
capital, net of
effects of
acquisitions (16) 1
--- ---
Net cash provided
by operating
activities from
continuing
operations 154 264
Net cash provided
by operating
activities from
discontinued
operations - 1
--- ---
Net cash provided
by operating
activities 154 265
--- ---
INVESTING ACTIVITIES:
Purchase of
property, plant
and equipment (267) (152)
Change in
restricted funds
held in trust (64) (20)
Acquisition of
business, net of
cash acquired (70) (13)
Acquisition of
noncontrolling
interest in
subsidiary - (12)
Other, net - (4)
--- ---
Net cash used in
investing
activities from
continuing
operations (401) (201)
Net cash provided
by investing
activities from
discontinued
operations - -
--- ---
Net cash used in
investing
activities (401) (201)
---- ----
FINANCING ACTIVITIES:
Proceeds from
borrowings on
long-term debt 294 412
Proceeds from
borrowings on
revolving credit
facility 655 431
Proceeds from
equipment
financing capital
lease 15 47
Proceeds from
borrowings on
project debt 59 63
Proceeds from
Dublin Convertible
Preferred 85 -
Proceeds from
settlement of Note
Hedge - 83
Payments related to
Cash Conversion
Option - (83)
Principal payments
on long-term debt (196) (557)
Payments of
borrowings on
revolving credit
facility (509) (361)
Payment of
equipment
financing capital
lease (3) -
Principal payments
on project debt (63) (33)
Payment of deferred
financing costs (8) (36)
Cash dividends paid
to stockholders (100) (69)
Change in
restricted funds
held in trust 2 (57)
Other, net - (7)
--- ---
Net cash provided
by (used in)
financing
activities from
continuing
operations 231 (167)
Net cash used in
financing
activities from
discontinued
operations - (2)
--- ---
Net cash provided
by (used in)
financing
activities 231 (169)
--- ----
Effect of exchange
rate changes on
cash and cash
equivalents (4) (3)
--- ---
Net decrease in
cash and cash
equivalents (20) (108)
Cash and cash
equivalents at
beginning of
period 91 200
--- ---
Cash and cash
equivalents at end
of period 71 92
Less: Cash and cash
equivalents of
assets held for
sale at end of
period 2 12
Cash and cash
equivalents of
continuing
operations at end
of period $69 $80
=== ===
(a) For additional information, see Exhibit 4 - Note (a) of this Press Release.
Covanta Holding Corporation Exhibit 4
Reconciliation of Net Income (Loss) to Adjusted EBITDA
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2015 2014 2015 2014
---- ---- ---- ----
(Unaudited, in millions)
Net Income (Loss) Attributable to Covanta Holding Corporation $34 $7 $(9) $3
Operating loss related to insurance subsidiaries - - - 1
Depreciation and amortization expense 50 51 148 157
Debt service:
Net interest expense on project debt 3 3 10 8
Interest expense 31 30 92 92
Non-cash convertible debt related expense - - - 13
--- --- --- ---
Subtotal debt service 34 33 102 113
Income tax expense (benefit) 11 (16) (19) (24)
Net write-offs (a) - 48 24 64
Loss on extinguishment of debt - - 2 2
Other adjustments:
Debt service billings in excess of revenue recognized - (1) 1 1
Severance and reorganization costs (b) 1 3 3 6
Non-cash compensation expense (c) 4 7 15 15
Capital type expenditures at service fee operated 3 - 25 -
facilities(d)
Other (e) 2 3 9 5
--- --- --- ---
Subtotal other adjustments 10 12 53 27
--- --- --- ---
Total adjustments 105 128 310 340
--- --- --- ---
Adjusted EBITDA $139 $135 $301 $343
==== ==== ==== ====
(a) During the nine months ended September 30, 2015, we recorded a $24 million non-cash impairment of our biomass facility assets.
During the three and nine months ended September 30, 2014 recorded a non-cash write-down of $14 million related to the sale of our insurance business and a $34 million non-cash impairment of our California biomass facility assets.
During the nine months ended September 30, 2014, we recorded a $9 million and a $7 million non-cash write-off of intangible assets related to the Hudson Valley EfW facility and the Abington transfer station, respectively. These intangible assets were related to
contracts we assumed upon acquisition of these entities in 2009.
(b) The nine months ended September 30, 2015 includes $2 million of costs incurred in connection with separation agreements related to the departure of two executive officers.
(c) The nine months ended September 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 5
Consolidated Reconciliation of Cash Flow Provided by Operating Activities to Adjusted EBITDA
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2015 2014 2015 2014
---- ---- ---- ----
(Unaudited, in millions)
Cash flow provided by
operating activities
from continuing
operations $123 $121 $154 $264
Debt service 34 33 102 113
Change in working
capital (20) (9) 16 (1)
Change in restricted
funds held in trust (15) (13) (14) (14)
Non-cash convertible
debt related expense - - - (13)
Equity in net income
from unconsolidated
investments 5 2 11 5
Dividends from
unconsolidated
investments (2) - (3) (10)
Current tax provision 11 (2) 3 (7)
Capital type
expenditures at
service fee operated
facilities (a) 3 - 25 -
Other 3 7 6
-
---
Sub-total (18) (19) 45 (34)
--- --- --- ---
Adjusted EBITDA $139 $135 $301 $343
==== ==== ==== ====
(a) For additional information, see Exhibit 4 - Note (d) of this Press Release.
Covanta Holding Corporation Exhibit 6
Reconciliation of Cash Flow Provided by Operating Activities to Free Cash Flow
Three Months Ended Nine Months Ended Full Year
September 30, September 30, Estimated 2015
------------- ------------- --------------
2015 2014 2015 2014
---- ---- ---- ----
(Unaudited, in millions)
Cash flow provided by operating activities from continuing operations $123 $121 $154 $264 $215 - $265
Less: Maintenance capital expenditures (a) (16) (17) (71) (78) (85) - (95)
--- --- --- --- ----------
Free Cash Flow $107 $104 $83 $186 $130 - $170
==== ==== === ==== ===========
Weighted Average Diluted Shares Outstanding 134 131 132 131
Uses of Free Cash Flow
----------------------
Investments:
Growth investments (b) $(78) $(50) $(266) $(104)
Change in restricted funds held in trust for project development (53) (20) (64) (20)
Other investing activities, net (c) - - - 1
--- --- --- ---
Total investments $(131) $(70) $(330) $(123)
----- ---- ----- -----
Return of capital to stockholders:
Cash dividends paid to stockholders $(34) $(24) $(100) $(69)
---- ---- ----- ----
Capital raising activities:
Net proceeds from issuance of corporate debt (d) $96 $12 $98 $405
Net proceeds from issuance of project debt (e) - - 15 -
Net proceeds from Dublin Convertible Preferred 40 - 85 -
Proceeds from equipment financing capital leases(f) - 47 15 47
Other financing activities, net (5) (12) - (7)
--- --- --- ---
Net proceeds from capital raising activities $131 $47 $213 $445
---- --- ---- ----
Debt repayments:
Net cash used for scheduled principal payments on corporate debt $ - $(1) $(1) $(462)
Payments related to Cash Conversion Option (g) - - - (83)
Proceeds from the settlement of Note Hedge (g) - - - 83
Net cash used for scheduled principal payments on project debt (h) (9) (10) (19) (27)
Voluntary prepayment of corporate debt - - - (95)
Payment of equipment financing capital lease (f) - - (3) -
Deferred financing costs (3) (26) (5) (29)
--- --- --- ---
Total debt repayments $(12) $(37) $(28) $(613)
---- ---- ---- -----
Borrowing activities - Revolving credit facility, net $(60) $(100) $146 $70
---- ----- ---- ---
Effect of exchange rate changes on cash and cash equivalents $(1) $(2) $(4) $(3)
--- --- --- ---
Net change in cash and cash equivalents $ - $(82) $(20) $(107)
=== === ==== ==== =====
(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 Nine Months Ended
September 30, September 30,
------------- -------------
2015 2014 2015 2014
---- ---- ---- ----
Maintenance capital expenditures $(16) $(17) $(71) $(78)
---- ---- ---- ----
Capital expenditures associated with organic growth initiatives (9) (7) (27) (17)
Capital expenditures associated with the New York City contract (9) (7) (28) (45)
Capital expenditures associated with Essex County EfW emissions control system (5) (6) (18) (12)
Capital expenditures associated with construction of Dublin EfW facility (33) - (123) -
--- --- ---- ---
Total capital expenditures associated with growth investments (56) (20) (196) (74)
--- --- ---- ---
Total purchases of property, plant and equipment $(72) $(37) $(267) $(152)
==== ==== ===== =====
(b) Growth investments include investments in growth opportunities, including organic growth initiatives, technology, business development, and other similar expenditures.
Capital expenditures associated with growth investments $(56) $(20) $(196) $(74)
Other organic growth investments - (1) - (1)
Investments in connection with the Dublin EfW facility, net of capital expenditures - (16) - (16)
Acquisition of business, net of cash acquired (22) (13) (70) (13)
--- --- --- ---
Total growth investments $(78) $(50) $(266) $(104)
==== ==== ===== =====
(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 $129 $12 $294 $412
Refinanced long-term debt (33) - (195) -
Less: Financing costs related to issuance of long-term debt - - (1) (7)
--- --- --- ---
Net proceeds from issuance of corporate debt $96 $12 $98 $405
=== === === ====
(e) Calculated as follows:
Proceeds from borrowings on project debt $ - $63 $59 $63
Refinanced project debt - - (42) -
Less: Funding into escrow $ - $(63) - $(63)
Less: Financing costs related to the issuance of project debt - - (2) -
--- --- --- ---
Net proceeds from issuance of project debt $ - $ - $15 $ -
=== === === === === === ===
(f) During the nine months ended September 30, 2015 and 2014, we financed $15 million and $47 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 $(6) $(15) $(21) $(33)
Decrease in related restricted funds held in trust (3) 5 2 6
--- --- --- ---
Net cash used for principal payments on project debt $(9) $(10) $(19) $(27)
=== ==== ==== ====
Covanta Holding Corporation Exhibit 7
Reconciliation of Diluted Earnings (Loss) Per Share to Adjusted EPS
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
2015 2014 2015 2014
---- ---- ---- ----
(Unaudited)
Diluted
Earnings
(Loss) Per
Share $0.25 $0.05 $(0.07) $0.02
Reconciling
Items (a) (0.03) 0.21 0.11 0.31
----- ---- ---- ----
Adjusted EPS $0.22 $0.26 $0.04 $0.33
===== ===== ===== =====
(a) For details related to the Reconciling Items, see Exhibit 7A of this Press Release.
Covanta Holding Corporation Exhibit 7A
Reconciling Items
Three Months Ended Nine Months Ended
September 30, September 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) - 48 24 64
Severance and
reorganization costs
(b) 1 3 7 6
Loss on extinguishment
of debt - - 2 2
Effect on income of
derivative
instruments not
designated as hedging
instruments (3) - (3) -
Effect of foreign
exchange loss on
indebtedness 1 - 2 -
Other - 1 - 1
--- --- --- ---
Total Reconciling
Items, pre-tax (1) 52 32 74
Pro forma income tax
impact (4) (23) (18) (34)
Grantor trust activity 1 - 1 -
--- --- --- ---
Total Reconciling
Items, net of tax $(4) $29 $15 $40
=== === === ===
Diluted Earnings Per
Share Impact $(0.03) $0.21 $0.11 $0.31
====== ===== ===== =====
Weighted Average
Diluted Shares
Outstanding 134 131 132 131
=== === === ===
(a) For additional information, see Exhibit 4 - Note (a) of this Press Release.
(b) The nine months ended September 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 8A
Supplemental Information on Operations (a)
(Unaudited, $ in millions)
Three Months Ended September 30, 2015
-------------------------------------
North America
-------------
EfW Other Total Other Consolidated
--- ----- ----- ----- ------------
Revenue:
Waste and service:
Waste processing & handling $230 $30 $260 $1 $261
Debt service 4 - 4 - 4
Other revenue 2 16 18 - 18
--- --- --- ---
Total waste and service 236 46 282 1 283
Recycled metals:
Ferrous 8 2 10 - 10
Non-ferrous 6 - 6 - 6
--- --- --- --- ---
Total recycled metals 14 2 16 - 16
Energy:
Energy sales 76 7 83 10 93
Capacity 10 5 15 - 15
--- --- ---
Total energy revenue 86 12 98 10 108
Other revenue - 15 15 - 15
--- --- --- --- ---
Total revenue $336 $75 $411 $11 $422
Operating expense:
Plant operating expense:
Plant maintenance $43 $3 $46 $ - $46
Other plant operating expense 151 54 205 9 214
--- --- --- --- ---
Total plant operating expense 194 57 251 260
9
Other operating expense 1 17 18 18
-
General and administrative - 19 19 20
1
Depreciation and amortization 43 9 52 (2) 50
Net interest expense on project debt 2 - 2 1 3
Total operating expense $240 $102 $342 $9 $351
---- ---- ---- --- ----
Operating Income (Loss) $96 $(27) $69 $2 $71
=== ==== === === ===
(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 September 30, 2014
-------------------------------------
North America
-------------
EfW Other Total Other Consolidated
--- ----- ----- ----- ------------
Revenue:
Waste and service:
Waste processing & handling $228 $15 $243 $ - $243
Debt service 5 - 5 - 5
Other revenue - 4 4 - 4
--- --- --- ---
Total waste and service 233 19 252 - 252
Recycled metals:
Ferrous 18 - 18 - 18
Non-ferrous 8 - 8 - 8
--- --- --- --- ---
Total recycled metals 26 - 26 - 26
Energy:
Energy sales 80 15 95 10 105
Capacity 9 6 15 - 15
--- --- --- --- ---
Total energy revenue 89 21 110 10 120
Other revenue - 15 15 1 16
--- --- --- --- ---
Total revenue $348 $55 $403 $11 $414
Operating expense:
Plant operating expense:
Plant maintenance $41 $5 $46 $ - $46
Other plant operating expense 147 47 194 8 202
--- --- --- --- ---
Total plant operating expense 188 52 240 8 248
Other operating expense - 18 18 1 19
General and administrative - 24 24 2 26
Depreciation and amortization 45 6 51 - 51
Net interest expense on project debt 2 - 2 1 3
Net write-offs - 34 34 14 48
--- --- --- ---
Total operating expense $235 $134 $369 $26 $395
---- ---- ---- --- ----
Operating Income (Loss) $113 $(79) $34 $(15) $19
==== ==== === ==== ===
Plus: Net write-offs - 34 34 14 48
Operating Income (Loss) excluding Net write-offs: $113 $(45) $68 $(1) $67
==== ==== === === ===
(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 - Q3 2014 to Q3 2015
(Unaudited, $ in millions)
Same Store (a) Contract Transitions(b)
------------- ----------------------
Q3 2014 Price % Volume % Total % Waste PPA Transactions(c) Total Changes Q3 2015
------- ----- --- ------ --- ----- --- ----- --- -------------- ------------- -------
Waste and service:
Waste processing $228 $6 2.7% $(2) -0.9% $4 1.7% $(4) $ - $2 $2 $230
Debt service 5 - (2) - - (1) 4
Other revenue - 2 - - - 2 2
--- --- --- --- --- --- ---
Total waste and service 233 6 2.7% (5) - 2 3 236
Recycled metals:
Ferrous 18 (10) -55.1% - 0.1% (10) -55.0% - - - (10) 8
Non-ferrous 8 (2) -27.5% - 5.6% (2) -21.9% - - - (2) 6
--- --- --- --- --- --- --- --- ---
Total recycled metals 26 (12) -46.8% - 1.7% (11) -45.1% - - - (12) 14
Energy:
Energy sales 80 (4) -5.2% (1) -0.7% (5) -6.0% 2 (1) - (4) 76
Capacity 9 - -3.6% - - 1 1 10
--- --- --- --- --- --- ---
Total energy revenue 89 (5) -5.7% 2 - 1 (3) 86
--- --- --- --- --- --- ---
Total revenues $348 $(10) -2.9% $(3) $ - $3 $(12) $336
Operating expense:
Plant operating expense:
Plant maintenance $41 $1 1.6% $ - $ - $1 $2 $43
Other plant operating expense 147 3 2.0% 1 - - 4 151
--- --- --- --- --- --- ---
Total plant operating expense 188 4 1.9% 1 - 1 6 194
Other operating expense - 1 - - - 1 1
General and administrative - - - - - - -
Depreciation and amortization 45 (3) - - - (2) 43
Net interest expense on project debt 2 - - - - - 2
--- --- --- --- --- --- ---
Total operating expense $235 $2 $1 $ - $1 $5 $240
---- --- --- --- --- --- --- ----
Operating Income (Loss) $113 $(12) $(4) $ - $2 $(17) $96
==== ==== === === === === ==== ===
(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-offs
Note: Certain amounts may not total due to rounding
North America Exhibit 10
Operating Metrics
(Unaudited)
Three Months Ended
September 30,
-------------
2015 2014
---- ----
EfW Waste
---------
Tons: (in millions)
Contracted 4.4 4.2
Uncontracted 0.5 0.6
--- ---
Total Tons 4.9 4.8
Revenue per Ton:
Contracted $44.57 $45.84
Uncontracted $69.21 $59.52
Average Revenue per Ton $47.01 $47.61
EfW Energy
----------
Energy Sales: (MWh in
millions)
Contracted 0.8 0.8
Hedged 0.3 0.3
Market 0.4 0.3
--- ---
Total Energy Sales 1.5 1.5
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 $64.94
Hedged $44.05 $42.49
Market $30.86 $40.33
Average Revenue per MWh $50.78 $54.54
Metals
------
Tons Sold: (in thousands)
Ferrous 90 92
Non-Ferrous 9 8
Revenue per Ton:
Ferrous $113 $204
Non-Ferrous $716 $984
EfW Plant Operating Expense
($ in millions)
---------------------------
Plant Operating Expense -
Gross $211 $204
Less: Client Pass-Through
Costs (14) (12)
Less: REC Sales -Contra
Expense (3) (3)
--- ---
Plant Operating Expense -
Reported $194 $188
Client Pass-Throughs as %
of Gross Costs 6.5% 6.0%
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 September 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 September 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 September 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 nine months ended September 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 nine months ended September 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 nine months ended September 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
