SOURCE: Covanta Holding Corporation

Covanta Holding Corporation

April 18, 2012 16:01 ET

Covanta Holding Corporation Reports 2012 First Quarter Results

Year-Over-Year Improvement in All Key Metrics

2012 Guidance Reaffirmed

MORRISTOWN, NJ--(Marketwire - Apr 18, 2012) - Covanta Holding Corporation (NYSE: CVA) ("Covanta" or the "Company"), a leading global owner and operator of Energy-from-Waste ("EfW") projects, reported unaudited financial results today for the three months ended March 31, 2012.

Key Q1 2012 Financial Highlights:

  • Revenue increased by 4% to $392 million
  • Adjusted EBITDA increased by $2 million to $73 million
  • Free Cash Flow increased by $10 million to $76 million
  • Completed $1.6 billion of financing transactions at attractive terms
  • Doubled the quarterly cash dividend to $0.15 per share ($0.60 per share annually)
  • Completed $30 million of share repurchases

Key Q1 2012 Operational Highlights:

  • Realigned senior management structure with a strategic focus on organic growth, new technology and business development initiatives
  • Successfully extended several important contracts
  • Early evidence of executing on organic growth plan

Commenting on the first quarter of 2012, Anthony Orlando, Covanta's President and CEO stated, "Our operational and financial performance continues to be predictably strong and our clients continue to demonstrate their confidence in Covanta by extending important contracts. In addition, I am very pleased with the progress we are making on our organic growth and other initiatives which continue to gain traction."

Orlando further commented, "We are on track for the year. While the significant drop in natural gas markets continues to garner headlines, the impact to our business this year should be relatively modest because we remain highly contracted on energy, and are effectively executing our organic growth initiatives."

Three Months Ended
March 31,
Continuing Operations 2012 2011
(Unaudited, $ in millions, except per share amounts)
Revenue $ 392 $ 377
Net Loss from Continuing Operations $ (11 ) $ (14 )
Adjusted EBITDA $ 73 $ 71
Free Cash Flow $ 76 $ 66
Adjusted EPS $ (0.09 ) $ (0.10 )

First Quarter Results
Operating revenues grew $15 million, or 4%, to $392 million, compared to the prior year. The increase was primarily attributed to higher construction revenues, increased revenue from service fee contract escalations and increased recycled metal revenues due to organic growth initiatives which increased volume as well as higher pricing from improved quality. These increases more than offset lower debt service revenue and lower market energy pricing at our EfW facilities.

Operating expenses of $389 million increased by 3% from $379 million in the prior year period. The increase was primarily attributed to higher construction expenses, normal cost escalations and lower alternative fuel tax credits. The Company was able to partially offset these factors through various operational improvements, as well as the timing of plant maintenance activities.

Operating income was up $5 million to $3 million versus a loss of $2 million in the prior year. This increase was driven by our organic growth initiatives for recycled metals and various operational improvements, as well as increased energy production at our EfW facilities and timing of plant maintenance activities. These drivers more than offset lower energy pricing, reduction in alternative fuel tax credits, lower debt service pass through revenue and the impact of the biomass plants.

Adjusted EBITDA of $73 million was up $2 million compared to the prior year.

Free Cash Flow was $76 million, up 15% from $66 million in the prior year. The increase was primarily due to timing of working capital.

Adjusted EPS of $(0.09) improved by $0.01 versus the prior year period, primarily due to higher operating income.

Shareholder Returns
In March 2012, Covanta announced that the Board of Directors authorized a 100% increase in the quarterly cash dividend to $0.15 per share, which represents a $0.60 per share cash dividend on an annualized basis. In addition, the Board of Directors also increased the share repurchase authorization by $100 million, further demonstrating the Company's commitment to return capital to shareholders.

During the quarter, the Company returned $51 million to shareholders, by means of $21 million in dividends declared and $30 million in share repurchases (1.3% of common stock outstanding). As of March 31, 2012, Covanta had $145 million of share repurchase authorization remaining.

Refinancing
During the first quarter, the Company issued $400 million of new 6.375% Senior Notes Due 2022 and also redeemed all outstanding amounts of its 1.00% Senior Convertible Debentures due 2027 ($25 million outstanding as of December 31, 2011). In addition, the Company entered into new senior secured credit facilities at its subsidiary, Covanta Energy Corporation ("Covanta Energy"), totaling $1.2 billion, which was comprised of a new $900 million Revolving Credit Facility due 2017 and a new $300 million Term Loan due 2019.

The proceeds from these offerings were used to pay the amounts outstanding on Covanta Energy's previously existing term loan due 2014 ($619 million outstanding as of December 31, 2011), leaving approximately $55 million in excess proceeds after transaction expenses. The new $900 million Revolving Credit Facility replaces the previous $300 million revolving credit facility and $320 million funded letter of credit facility, resulting in over $600 million of undrawn and available liquidity at closing.

"I'm incredibly pleased with the outcome of our refinancing activities during the quarter. We were able to close the deal quickly, allowing us to take advantage of market conditions and increase our liquidity at very attractive rates. We now have over $600 million of undrawn capacity to support our long-term growth objectives," said Sanjiv Khattri, Covanta's Chief Financial Officer. "As evidenced by our actions during the quarter, we remain committed to returning excess capital to shareholders and believe that our $0.60 per share annualized cash dividend and our share repurchase program will reward investors, while we continue to grow our business."

Sale of Asia IPP Assets
In April, the Company completed the sale of its interests in the Haripur facility in Bangladesh, the fourth and final of the Asia IPP assets designated as assets held for sale. With this sale, Covanta has realized total gross proceeds of $281 million from all four asset sales, within the range of $270 to $290 million gross proceeds announced at the onset of the asset sales. In 2011, $137 million of the net proceeds was repatriated tax efficiently to the US and was part of the pool of funds used to repurchase over $230 million of common stock, with the remaining proceeds held overseas for potential international growth investment.

2012 Guidance
The Company is reaffirming its previously announced guidance for 2012 for the following financial metrics:

Continuing Operations
Full Year
2012 Guidance
Full Year
2011 Actual
% Change At Midpoint
(Unaudited, $ in millions, except per share amounts)
Adjusted EBITDA $ 500 - $ 530 $ 492 5%
Free Cash Flow $ 250 - $ 280 $ 280 (5)%
Adjusted EPS $ 0.55 - $ 0.65 $ 0.52 15%

Conference Call Information
Covanta will host a conference call at 8:30 am (Eastern) on Thursday, April 19, 2012 to discuss its first quarter results. The conference call will begin with prepared remarks, which will be followed by a question and answer session. To participate, please dial 877-806-3982 approximately 10 minutes prior to the scheduled start of the call. If calling from outside of the United States, please dial 702-928-7062. Please utilize conference ID number 68607350 when prompted by the conference call operator. The conference call will also be webcast live from the Investor Relations section of the Company's website. A presentation will be made available during the call and will be found on the Investor Relations section of the Covanta website at www.covantaenergy.com.

A replay of the conference call will be available from 11:30 AM (Eastern) Thursday, April 19, 2012. To access the replay, please dial 855-859-2056 or 800-585-8367, or from outside of the United States 404-537-3406 and use the replay conference ID number 68607350. The webcast will also be archived on www.covantaenergy.com.

About Covanta
Covanta Holding Corporation (NYSE: CVA) is an internationally recognized owner and operator of large-scale Energy-from-Waste and renewable energy projects and a recipient of the Energy Innovator Award from the U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy. Covanta's 46 Energy-from-Waste facilities provide communities with an environmentally sound solution to their solid waste disposal needs by using that municipal solid waste to generate clean, renewable energy. Annually, Covanta's modern Energy-from-Waste facilities safely and securely convert approximately 20 million tons of waste into 9 million megawatt hours of clean renewable electricity and create more than 9 billion pounds of steam that are sold to a variety of industries. For more information, visit www.covantaenergy.com.

Cautionary Note Regarding Forward-Looking Statements
Certain statements in this press release may constitute "forward-looking" statements as defined in Section 27A of the Securities Act of 1933 (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), the Private Securities Litigation Reform Act of 1995 (the "PSLRA") or in releases made by the Securities and Exchange Commission ("SEC"), all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Covanta and its subsidiaries, or general industry or broader economic performance in global markets in which Covanta operates or competes, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words "plan," "believe," "expect," "anticipate," "intend," "estimate," "project," "may," "will," "would," "could," "should," "seeks," or "scheduled to," or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the "safe harbor" provisions of such laws. Covanta cautions investors that any forward-looking statements made by Covanta are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to Covanta, include, but are not limited to, the risk that Covanta may not successfully grow its business as expected or close its announced or planned acquisitions or projects in development, and those factors, risks and uncertainties that are described in periodic securities filings by Covanta with the SEC. Although Covanta believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any forward-looking statements. Covanta's future financial condition and results of operations, as well as any forward-looking statements, are subject to change and to inherent risks and uncertainties. The forward-looking statements contained in this press release are made only as of the date hereof and Covanta does not have or undertake any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law.

Covanta Holding Corporation Exhibit 1
Condensed Consolidated Statements of Operations
Three Months Ended
March 31,
2012 2011
(Unaudited)
(In millions, except per share amounts)
Operating revenues
Waste and service revenues $ 258 $ 251
Electricity and steam sales 91 94
Other operating revenues 43 32
Total operating revenues 392 377
Operating expenses
Plant operating expenses 267 271
Other operating expenses 39 28
General and administrative expenses 25 25
Depreciation and amortization expense 50 47
Net interest expense on project debt 8 8
Total operating expenses 389 379
Operating income (loss) 3 (2 )
Other income (expense)
Interest expense (18 ) (17 )
Non-cash convertible debt related expense (6 ) (5 )
Loss on extinguishment of debt (a) (2 ) -
Other income, net 3 -
Total other expenses (23 ) (22 )
Loss from continuing operations before income tax benefit and equity in net income from unconsolidated investments (20 ) (24 )
Income tax benefit 8 10
Equity in net income from unconsolidated investments 1 -
Loss from continuing operations (11 ) (14 )
Income from discontinued operations, net of income tax expense of $0 and $2, respectively - 149
Net (Loss) Income (11 ) 135
Noncontrolling interests:
Less: Net income from continuing operations attributable to noncontrolling interests in subsidiaries (1 ) -
Less: Net income from discontinued operations attributable to noncontrolling interests in subsidiaries - (2 )
Total net income attributable to noncontrolling interests in subsidiaries (1 ) (2 )
Net (Loss) Income Attributable to Covanta Holding Corporation $ (12 ) $ 133
Amounts Attributable to Covanta Holding Corporation stockholders':
Continuing operations $ (12 ) $ (14 )
Discontinued operations - 147
Net (Loss) Income Attributable to Covanta Holding Corporation $ (12 ) $ 133
(Loss) Earnings Per Share Attributable to Covanta Holding Corporation stockholders':
Basic
Continuing operations $ (0.09 ) $ (0.09 )
Discontinued operations - 1.00
Covanta Holding Corporation $ (0.09 ) $ 0.91
Weighted Average Shares 134 147
Diluted
Continuing operations $ (0.09 ) $ (0.09 )
Discontinued operations - 1.00
Covanta Holding Corporation $ (0.09 ) $ 0.91
Weighted Average Shares 134 147
Cash Dividend Declared Per Share: $ 0.15 $ 0.075
Supplemental Information - Non-GAAP
Adjusted EPS (b) $ (0.09 ) $ (0.10 )
(a) For additional information, see Exhibit 7A - Note (a) of this Press Release.
(b) For additional information, see Exhibit 4 of this Press Release.
Covanta Holding Corporation Exhibit 1A
Condensed Consolidated Statements of Comprehensive Income
Three Months Ended
March 31,
2012 2011
(Unaudited, in millions)
Net (loss) income $ (11 ) $ 135
Foreign currency translation 1 8
Net unrealized gain on available for sale securities, net of tax 1 -
Other comprehensive income attributable to Covanta Holding Corporation 2 8
Comprehensive (loss) income (9 ) 143
Less: Net income attributable to noncontrolling interests in subsidiaries (1 ) (2 )
Comprehensive (loss) income attributable to Covanta Holding Corporation $ (10 ) $ 141
Covanta Holding Corporation Exhibit 2
Condensed Consolidated Balance Sheets
As of
March 31, 2012 December 31, 2011
(Unaudited)
(In millions, except per share amounts)
ASSETS
Current:
Cash and cash equivalents $ 267 $ 232
Restricted funds held in trust 87 101
Receivables (less allowances of $5 and $5, respectively) 226 260
Unbilled service receivables 15 20
Deferred income taxes 40 28
Prepaid expenses and other current assets 112 105
Assets held for sale 18 18
Total Current Assets 765 764
Property, plant and equipment, net 2,411 2,423
Investments in fixed maturities at market (cost: $30 and $31, respectively) 31 31
Restricted funds held in trust 90 90
Unbilled service receivables 23 25
Waste, service and energy contracts, net 425 434
Other intangible assets, net 77 78
Goodwill 232 232
Investments in investees and joint ventures 44 43
Other assets 316 265
Total Assets $ 4,414 $ 4,385
LIABILITIES AND EQUITY
Current:
Current portion of long-term debt $ 3 $ 32
Current portion of project debt 136 147
Accounts payable 39 25
Deferred revenue 74 61
Accrued expenses and other current liabilities 218 211
Liabilities held for sale 3 3
Total Current Liabilities 473 479
Long-term debt 1,570 1,454
Project debt 507 533
Deferred income taxes 638 633
Waste and service contracts 73 76
Other liabilities 123 122
Total Liabilities 3,384 3,297
Equity:
Covanta Holding Corporation stockholders' equity:
Preferred stock ($0.10 par value; authorized 10 shares; none issued and outstanding) - -
Common stock ($0.10 par value; authorized 250 shares; issued 159 and 158 shares; outstanding 135 and 136 shares) 16 16
Additional paid-in capital 815 824
Accumulated other comprehensive income 3 1
Accumulated earnings 192 244
Treasury stock, at par (2 ) (2 )
Total Covanta Holding Corporation stockholders' equity 1,024 1,083
Noncontrolling interests in subsidiaries 6 5
Total Equity 1,030 1,088
Total Liabilities and Equity $ 4,414 $ 4,385
Covanta Holding Corporation Exhibit 3
Condensed Consolidated Statements of Cash Flow
Three Months Ended
March 31,
2012 2011
(Unaudited, in millions)
OPERATING ACTIVITIES:
Net (loss) income $ (11 ) $ 135
Less: Income from discontinued operations, net of tax expense - 149
Loss from continuing operations (11 ) (14 )
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities from continuing operations:
Depreciation and amortization expense 50 47
Loss on extinguishment of debt (a) 2 -
Non-cash convertible debt related expense 6 5
Stock-based compensation expense 5 5
Deferred income taxes (7 ) (9 )
Other, net (6 ) 3
Change in restricted funds held in trust 2 (15 )
Change in working capital, net of effects of acquisitions 63 71
Net cash provided by operating activities from continuing operations 104 93
Net cash used in operating activities from discontinued operations - (10 )
Net cash provided by operating activities 104 83
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (32 ) (38 )
Acquisition of land use rights (1 ) -
Other, net 1 4
Net cash used in investing activities from continuing operations (32 ) (34 )
Net cash provided by investing activities from discontinued operations - 220
Net cash (used in) provided by investing activities (32 ) 186
FINANCING ACTIVITIES:
Proceeds from borrowings on long-term debt (a) 699 -
Payment of deferred financing costs (a) (23 ) -
Principal payments on long-term debt (a) (619 ) (2 )
Principal payments on project debt (37 ) (74 )
Convertible debenture repurchases (25 ) (6 )
Proceeds from borrowings on project debt - 2
Change in restricted funds held in trust 12 44
Cash dividends paid to stockholders (10 ) -
Common stock repurchased (30 ) (54 )
Financing of insurance premiums, net (3 ) -
Other financing, net (1 ) (4 )
Net cash used in financing activities from continuing operations (37 ) (94 )
Net cash provided by financing activities from discontinued operations - 10
Net cash used in financing activities (37 ) (84 )
Effect of exchange rate changes on cash and cash equivalents - 2
Net increase in cash and cash equivalents 35 187
Cash and cash equivalents at beginning of period 234 141
Cash and cash equivalents at end of period 269 328
Less: Cash and cash equivalents of discontinued operations at end of period 2 1
Cash and cash equivalents of continuing operations at end of period $ 267 $ 327
(a) For additional information, see Exhibit 7A - Note (a) of this Press Release.
Covanta Holding Corporation Exhibit 4
Reconciliation of Diluted Loss Per Share to Adjusted EPS
Three Months Ended
March 31, Full Year
2012 2011 Estimated 2012
(Unaudited)
Continuing Operations - Diluted Loss Per Share $ (0.09 ) $ (0.09 ) $0.55 - $0.65
Reconciling Items (a) - (0.01 ) -
Adjusted EPS $ (0.09 ) $ (0.10 ) $0.55 - $0.65
(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
March 31,
2012 2011
(Unaudited)
(In millions, except per share amounts)
Reconciling Items
Loss on extinguishment of debt (a) $ 2 $ -
Effect on income of derivative instruments not designated as hedging instruments - (1 )
Effect of foreign exchange gain on indebtedness (b) (3 ) -
Total Reconciling Items, pre-tax (1 ) (1 )
Tax effect of reconciling items 1 1
Grantor trust activity - (1 )
Total Reconciling Items, net of tax $ - $ (1 )
Diluted Loss Per Share Impact $ - $ (0.01 )
Weighted Average Diluted Shares Outstanding 134 147
(a) For additional information, see Exhibit 7A - Note (a) of this Press Release.
(b) During the three months ended March 31, 2012, we recorded a foreign exchange gain related to intercompany loans.
Covanta Holding Corporation Exhibit 5
Reconciliation of Net Loss to Adjusted EBITDA