SOURCE: Covanta Holding Corporation

Covanta Holding Corporation

October 17, 2012 16:01 ET

Covanta Holding Corporation Reports 2012 Third Quarter Results

2012 Guidance Narrowed

Several Long-Term Energy and Waste Contracts Signed

MORRISTOWN, NJ--(Marketwire - Oct 17, 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 and nine months ended September 30, 2012.

Key Q3 2012 Financial Highlights:

  • Revenue was $412 million versus $432 million in the prior year period 
  • Adjusted EBITDA of $150 million was down slightly from $153 million a year ago
  • Free Cash Flow of $111 million improved by $4 million compared to the prior year
  • Adjusted EPS of $0.25 was flat with the prior year period
  • Returned $45 million to shareholders, including $25 million of share repurchases

Key Q3 2012 Operational Highlights:

  • Completed Honolulu expansion on schedule; third boiler in commercial operation
  • Signed agreement to convert our Essex County facility from Service Fee to Tip Fee
  • Entered long-term power purchase agreements with the Long Island Power Authority

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(In millions, except per share amounts)

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

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

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

A replay will be available one hour after the end of the conference call through 9:00 AM (Eastern) Thursday, October 25, 2012. To access the replay, please dial 877-344-7529, or from outside of the United States 412-317-0088 and use the replay conference ID number 10019283. The webcast will also be archived on www.covantaenergy.com.

About Covanta
Covanta Holding Corporation (NYSE: CVA) is an internationally recognized owner and operator of large-scale Energy-from-Waste and renewable energy projects and a recipient of the Energy Innovator Award from the U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy. Covanta's 44 Energy-from-Waste facilities provide communities with an environmentally sound solution to their solid waste disposal needs by using that municipal solid waste to generate clean, renewable energy. Annually, Covanta's modern Energy-from-Waste facilities safely and securely convert approximately 20 million tons of waste into 9 million megawatt hours of clean renewable electricity and approximately 9 billion pounds of steam that are sold to a variety of industries. For more information, visit www.covantaenergy.com.

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

             
Covanta Holding Corporation         Exhibit 1  
Condensed Consolidated Statements of Income       
             
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2012     2011     2012     2011  
    (Unaudited)
(In millions, except per share amounts)
 
Operating revenues                                
  Waste and service revenues   $ 264     $ 273     $ 802     $ 800  
  Electricity and steam sales     115       109       297       301  
  Other operating revenues     33       50       115       119  
    Total operating revenues     412       432       1,214       1,220  
Operating expenses                                
  Plant operating expenses     225       221       735       740  
  Other operating expenses (a)     31       44       100       102  
  General and administrative expenses     24       24       74       74  
  Depreciation and amortization expense     46       48       145       142  
  Net interest expense on project debt     7       8       22       24  
  Net write-offs (b)     (2 )     --       (2 )     --  
    Total operating expenses     331       345       1,074       1,082  
Operating income     81       87       140       138  
Other income (expense)                                
  Investment income     --       1       --       1  
  Interest expense     (25 )     (16 )     (67 )     (50 )
  Non-cash convertible debt related expense     (6 )     (9 )     (19 )     (20 )
  Loss on extinguishment of debt (c)     --       (1 )     (2 )     (1 )
  Other (expense) income, net (d)     --       (10 )     3       (13 )
    Total other expenses     (31 )     (35 )     (85 )     (83 )
Income from continuing operations before income tax expense and equity in net income from unconsolidated investments     50       52       55       55  
Income tax expense (d)     (27 )     (2 )     (30 )     (3 )
Equity in net income from unconsolidated investments     4       1       10       3  
Income from continuing operations     27       51       35       55  
(Loss) income from discontinued operations, net of income tax expense of $0, $0, $1 and $3, respectively     --       (7 )     (2 )     144  
Net Income     27       44       33       199  
Noncontrolling interests:                                
Less: Net income from continuing operations attributable to noncontrolling interests in subsidiaries     (1 )     (2 )     (1 )     (3 )
Less: Net income from discontinued operations attributable to noncontrolling interests in subsidiaries     --       --       --       (3 )
Total net income attributable to noncontrolling interests in subsidiaries     (1 )     (2 )     (1 )     (6 )
Net Income Attributable to Covanta Holding Corporation   $ 26     $ 42     $ 32     $ 193  
                                 
                                 
Covanta Holding Corporation                 
Condensed Consolidated Statements of Income (continued)              
                                 
      Three Months Ended
September 30,
      Nine Months Ended
September 30,
 
      2012       2011       2012       2011  
      (Unaudited)
(In millions, except per share amounts)
 
Amounts Attributable to Covanta Holding Corporation stockholders':                                
  Continuing operations   $ 26     $ 49     $ 34     $ 52  
  Discontinued operations     --       (7 )     (2 )     141  
Net Income Attributable to Covanta Holding Corporation   $ 26     $ 42     $ 32     $ 193  
                                 
Earnings Per Share Attributable to Covanta Holding Corporation stockholders':                                
Basic                                
  Continuing operations   $ 0.20     $ 0.35     $ 0.25     $ 0.37  
  Discontinued operations     --       (0.05 )     (0.01 )     0.98  
  Covanta Holding Corporation   $ 0.20     $ 0.30     $ 0.24     $ 1.35  
Weighted Average Shares     131       139       133       143  
                                 
Diluted                                
  Continuing operations   $ 0.19     $ 0.35     $ 0.25     $ 0.36  
  Discontinued operations     --       (0.05 )     (0.01 )     0.98  
  Covanta Holding Corporation   $ 0.19     $ 0.30     $ 0.24     $ 1.34  
Weighted Average Shares     132       140       134       144  
                                 
Cash Dividend Declared Per Share:   $ 0.15     $ 0.075     $ 0.45     $ 0.225  
                                 
Supplemental Information - Non-GAAP                                
  Adjusted EPS (e)   $ 0.25     $ 0.25     $ 0.32     $ 0.27  
                                 
   
(a) For additional information, see Exhibit 4A - Note (a) and Exhibit 7 - Note (a) of this Press Release.
(b) For additional information, see Exhibit 4A - Note (b) - (d) of this Press Release.
(c) For additional information, see Exhibit 8A - Note (a) of this Press Release.
(d) For additional information, see Exhibit 4A - Note (g) of this Press Release.
(e) For additional information, see Exhibit 4 of this Press Release.
   
             
             
Covanta Holding Corporation       Exhibit 1A  
Condensed Consolidated Statements of Comprehensive Income     
             
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2012     2011     2012     2011  
    (Unaudited, in millions)  
       
Net income   $ 27     $ 44     $ 33     $ 199  
Foreign currency translation     2       (19 )     (2 )     (11 )
Adjustment for pension plan termination settlement, net of tax, for insurance subsidiaries     1       --       1       --  
Net unrealized loss on derivative instruments, net of tax     (3 )     --       (2 )     --  
Net unrealized gain on available for sale securities, net of tax     1       --       1       --  
Other comprehensive income (loss) attributable to Covanta Holding Corporation     1       (19 )     (2 )     (11 )
Comprehensive income     28       25       31       188  
Less:                                
Net income attributable to noncontrolling interests in subsidiaries     (1 )     (2 )     (1 )     (6 )
Foreign currency translation attributable to noncontrolling interests in subsidiaries     --       1       --       1  
Comprehensive income attributable to noncontrolling interests in subsidiaries     (1 )     (1 )     (1 )     (5 )
Comprehensive income attributable to Covanta Holding Corporation   $ 27     $ 24     $ 30     $ 183  
                                 
       
       
Covanta Holding Corporation   Exhibit 2  
Condensed Consolidated Balance Sheets    
       
    As of  
    September 30, 2012     December 31, 2011  
    (Unaudited)        
ASSETS   (In millions, except per share amounts)  
Current:                
  Cash and cash equivalents   $ 262     $ 232  
  Restricted funds held in trust     120       101  
  Receivables (less allowances of $5 and $5, respectively)     262       260  
  Unbilled service receivables     18       20  
  Deferred income taxes     25       28  
  Prepaid expenses and other current assets     103       105  
  Assets held for sale     --       18  
Total Current Assets     790       764  
  Property, plant and equipment, net     2,372       2,423  
  Investments in fixed maturities at market (cost: $36 and $31, respectively)     38       31  
  Restricted funds held in trust     90       90  
  Unbilled service receivables     19       25  
  Waste, service and energy contracts, net     408       434  
  Other intangible assets, net     74       78  
  Goodwill     232       232  
  Investments in investees and joint ventures     45       43  
  Other assets     328       265  
Total Assets   $ 4,396     $ 4,385  
LIABILITIES AND EQUITY                
Current:                
  Current portion of long-term debt   $ 3     $ 32  
  Current portion of project debt     140       147  
  Accounts payable     32       25  
  Deferred revenue     76       61  
  Accrued expenses and other current liabilities     233       211  
  Liabilities held for sale     --       3  
Total Current Liabilities     484       479  
  Long-term debt     1,607       1,454  
  Project debt     493       533  
  Deferred income taxes     651       633  
  Waste and service contracts     38       76  
  Other liabilities     140       122  
Total Liabilities     3,413       3,297  
Equity:                
Covanta Holding Corporation stockholders equity:                
  Preferred stock ($0.10 par value; authorized 10 shares; none issued and outstanding)     --       --  
  Common stock ($0.10 par value; authorized 250 shares; issued 159 and 158 shares; outstanding 132 and 136 shares)     16       16  
  Additional paid-in capital     803       824  
  Accumulated other comprehensive (loss) income     (1 )     1  
  Accumulated earnings     162       244  
  Treasury stock, at par     (3 )     (2 )
    Total Covanta Holding Corporation stockholders equity     977       1,083  
  Noncontrolling interests in subsidiaries     6       5  
Total Equity     983       1,088  
Total Liabilities and Equity   $ 4,396     $ 4,385  
       
       
Covanta Holding Corporation   Exhibit 3  
Condensed Consolidated Statements of Cash Flow      
       
    Nine Months Ended
September 30,
 
    2012     2011  
    (Unaudited, in millions)  
OPERATING ACTIVITIES:                
Net income   $ 33     $ 199  
  Less: (Loss) income from discontinued operations, net of tax expense     (2 )     144  
Income from continuing operations     35       55  
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities from continuing operations:                
  Depreciation and amortization expense     145       142  
  Loss on extinguishment of debt (a)     2       1  
  Non-cash convertible debt related expense     19       20  
  Stock-based compensation expense     13       13  
  Deferred income taxes     23       23  
  Other, net     (11 )     (1 )
  Reversal of uncertain tax positions related to pre-emergence tax matters (b)     --       (24 )
  Change in restricted funds-other related to contractual liability to pre-petition creditors (b)     --       5  
  Change in restricted funds held in trust     (10 )     (35 )
  Change in working capital, net of effects of acquisitions     52       77  
  Net cash provided by operating activities from continuing operations     268       276  
  Net cash used in operating activities from discontinued operations     --       1  
Net cash provided by operating activities     268       277  
INVESTING ACTIVITIES:                
  Purchase of property, plant and equipment     (94 )     (91 )
  Acquisition of businesses, net of cash acquired     --       (10 )
  Acquisition of land use rights     (1 )     (8 )
  Other, net     (3 )     (6 )
Net cash used in investing activities from continuing operations     (98 )     (115 )
Net cash provided by investing activities from discontinued operations     11       227  
Net cash (used in) provided by investing activities     (87 )     112  
FINANCING ACTIVITIES:                
  Proceeds from borrowing on long-term debt (a)     699       --  
  Payment of deferred financing costs (a)     (26 )     --  
  Principal payments on long-term debt (a)     (621 )     (5 )
  Principal payments on project debt     (46 )     (83 )
  Convertible debenture repurchases     (25 )     (32 )
  Payments of borrowings on revolving credit facility     (63 )     --  
  Proceeds from borrowings on revolving credit facility     83       --  
  Proceeds from borrowings on project debt     --       15  
  Change in restricted funds held in trust     (11 )     7  
  Cash dividends paid to stockholders     (51 )     (22 )
  Common stock repurchased     (83 )     (203 )
  Financing of insurance premiums, net     (10 )     --  
  Distributions to partners of noncontrolling interests in subsidiaries     (1 )     (5 )
  Other financing, net     3       (3 )
Net cash used in financing activities from continuing operations     (152 )     (331 )
Net cash (used in) provided by financing activities from discontinued operations     (2 )     8  
Net cash used in financing activities     (154 )     (323 )
Effect of exchange rate changes on cash and cash equivalents     1       (4 )
Net increase in cash and cash equivalents     28       62  
Cash and cash equivalents at beginning of period     234       141  
Cash and cash equivalents at end of period     262       203  
Less: Cash and cash equivalents of discontinued operations at end of period     --       8  
Cash and cash equivalents of continuing operations at end of period   $ 262     $ 195  
                 
   
(a) For additional information, see Exhibit 8A - Note (a) of this Press Release.
(b) For additional information, see Exhibit 4A - Note (g) of this Press Release.
   
       
       
Covanta Holding Corporation     Exhibit 4
Reconciliation of Diluted Earnings Per Share to Adjusted EPS      
       
    Three Months Ended
 September 30,
    Nine Months Ended
September 30,
     
    2012   2011     2012   2011     Full Year
Estimated 2012
    (Unaudited)      
Continuing Operations - Diluted Earnings Per Share   $ 0.19   $ 0.35     $ 0.25   $ 0.36       $0.48 - $0.53
Reconciling Items (a)     0.06     (0.10 )     0.07     (0.09 )     0.07
Adjusted EPS   $ 0.25   $ 0.25     $ 0.32   $ 0.27       $0.55 - $0.60
                                   
(a) For details related to the Reconciling Items, see Exhibit 4A of this Press Release.
   
             
             
Covanta Holding Corporation         Exhibit 4A  
Reconciling Items            
             
    Three Months Ended
September 30,
    Nine Months Ended
 September 30,
 
    2012     2011     2012     2011  
    (Unaudited)
(In millions, except per share amounts)
 
Reconciling Items                                
Operating loss related to insurance subsidiaries (a)   $ 8     $ 1     $ 9     $ 1  
Write-off of intangible liability (b)     (29 )     --       (29 )     --  
Write-off of renewable fuels project (c)     16       --       16       --  
Development costs (d)     11       --       11       --  
Loss on extinguishment of debt (e)     --       1       2       1  
Effect on income of derivative instruments not designated as hedging instruments     (1 )     1       (1 )     --  
Effect of foreign exchange gain on indebtedness (f)     --       (5 )     (3 )     (2 )
Contractual liability to pre-petition creditors (g)     --       15       --       15  
Other     --       (1 )     1       (1 )
  Total Reconciling Items, pre-tax     5       12       6       14  
Proforma income tax impact (h)     3       (3 )     2       (4 )
Grantor trust activity     --       1       --       1  
Reversal of uncertain tax positions related to pre-emergence tax matters (g)     --       (24 )     --       (24 )
  Total Reconciling Items, net of tax   $ 8     $ (14 )   $ 8     $ (13 )
                                 
Diluted Earnings (Loss) Per Share Impact   $ 0.06     $ (0.10 )   $ 0.07     $ (0.09 )
Weighted Average Diluted Shares Outstanding     132       140       134       144  
     
(a) During the three months ended September 30, 2012, we transitioned our remaining insurance business to run-off and recorded additional losses and reserve increases of $7 million primarily relating to the adverse loss development. See Exhibit 7 - Note (a) of this Press Release.
(b) During the three months ended September 30, 2012, our service contract for the Essex EfW facility was amended and we recorded a non-cash write-off of an intangible liability of $29 million related to the below-market service contract which was recorded at fair value upon acquisition of the facility.
(c) During the three months ended September 30, 2012, we curtailed the construction of a facility that transformed waste materials into renewable liquid fuels. We recorded a non-cash write-off of $16 million representing the capitalized costs related to this project.
(d) During the three months ended September 30, 2012, we recorded a non-cash write-off of $11 million comprised of capitalized development costs and land related to a development project which we ceased to pursue in the United Kingdom.
(e) For additional information, see Exhibit 8A - Note (a) of this Press Release.
(f) During the nine months ended September 30, 2012 and 2011, we recorded a foreign exchange (gain) loss related to intercompany loans, respectively.
(g) For additional information, see Item 8. Financial Statements and Supplementary Data of Covanta's Annual Report on Form 10-K for the year ended December 31, 2011.
  (i) The expiration of the statute of limitations during the three months ended September 30, 2011, triggered a contractual liability to pay restricted funds to third party claimants and resulted in other non-operating expense for the three and nine months ended September 30, 2011 of $15 million with no related income tax benefit. These payments related to tax liabilities set up in connection with Covanta Energy's emergence from bankruptcy.
  (ii) For the three and nine months ended September 30, 2011, the income tax provision includes a $24 million benefit due to the reversal of uncertain tax positions, following the expiration of applicable statutes of limitations related to pre-emergence tax matters in the Covanta Energy bankruptcy.
(h) We are presenting this proforma calculation of the income tax effect on all reconciling items for each period to illustrate the proforma impact on income tax expense and net income. The proforma income tax impact represents the tax provision amount related to the overall tax provision calculated without the reconciling items when compared to the tax provision reported under GAAP in the condensed consolidated statement of income.
   
         
         
Covanta Holding Corporation       Exhibit 4B
Effective Tax Rate        
         
    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2012   2011   2012   2011
    (Unaudited)
     
Effective Tax Rate (a)   54%   5%   55%   6%
                 
(a) Our effective tax rate ("ETR") increased during the third quarter of 2012 as a result of the impact of a write-off of capitalized development costs related to a project which we ceased to pursue in the United Kingdom (see Exhibit 4A - Note (d) above). This pre-tax expense does not result in an expected tax benefit and so this expense increases the ETR. In 2011, the ETR included the impact of the reversal of uncertain tax positions at September 30, 2011 (see Exhibit 4A - Note (g) above). There is no tax benefit from the contractual liability to pre-petition creditors and as a result, this item had an impact on the effective tax rate in the third quarter of 2011.
   
                   
                   
Covanta Holding Corporation          Exhibit 5  
Reconciliation of Net Income to Adjusted EBITDA             
                   
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
       
    2012     2011     2012     2011     Full Year
Estimated 2012
    (Unaudited, in millions)        
Net Income from Continuing Operations Attributable to Covanta Holding Corporation   $ 26     $ 49     $ 34     $ 52       $63 - $70  
                                         
Operating loss related to insurance subsidiaries (a)     8       1       9       1       9  
                                         
Depreciation and amortization expense     46       48       145       142       196 - 192  
                                         
Debt service:                                        
  Net interest expense on project debt     7       8       22       24          
  Interest expense     25       16       67       50          
  Non-cash convertible debt related expense     6       9       19       20          
  Investment income     --       (1 )     --       (1 )        
Subtotal debt service     38       32       108       93       150 - 145  
                                         
Income tax expense (adjusted in 2011 for reversal of uncertain tax positions related to pre-emergence tax matters)(b)     27       26       30       27       53 - 61  
                                         
Reversal of uncertain tax positions related to pre-emergence tax matters(b)     --       (24 )     --       (24 )        
                                         
Contractual liability to pre-petition creditors (b)     --       15       --       15          
                                         
Write-off of intangible liability (c)     (29 )     --       (29 )     --       (29)  
                                         
Development costs (d)     11       --       11       --       11  
                                         
Write-off of renewable fuels project (e)     16       --       16       --       16  
                                         
Loss on extinguishment of debt (f)     --       1       2       1       2  
                                         
Net income loss attributable to noncontrolling interests in subsidiaries     1       2       1       3       1 - 3  
                                         
Other adjustments:                                        
  Debt service billings in excess of revenue recognized     --       3       6       21          
  Non-cash compensation expense     3       4       13       13          
  Other non-cash items (g)     3       (4 )     3       3          
Subtotal other adjustments     6       3       22       37       28 - 35  
                                         
Total adjustments     124       104       315       295          
Adjusted EBITDA   $ 150     $ 153     $ 349     $ 347       $500 - $515  
                                         
   
(a) For additional information, see Exhibit 4A - Note (a) of this Press Release.
(b) For additional information, see Exhibit 4A - Note (g) of this Press Release.
(c) For additional information, see Exhibit 4A - Note (b) of this Press Release.
(d) For additional information, see Exhibit 4A - Note (d) of this Press Release.
(e) For additional information, see Exhibit 4A - Note (c) of this Press Release.
(f) For additional information, see Exhibit 8A - Note (a) of this Press Release.
(g) Includes certain non-cash items that are added back under the definition of Adjusted EBITDA in Covanta Energy Corporation's credit agreement.
                 
                 
Covanta Holding Corporation     Exhibit 6
Reconciliation of Cash Flow Provided by Operating Activities to Free Cash Flow      
                 
    Three Months
Ended September 30,
    Nine Months
Ended September 30,
     
    2012     2011     2012     2011     Full Year
Estimated 2012
    (Unaudited, in millions)      
Cash flow provided by operating activities from continuing operations   $ 124     $ 120     $ 268     $ 276     $330 - $355
Plus: Cash flow used in operating activities from insurance subsidiaries     2       1       4       4      
Less: Maintenance capital expenditures (a)     (15 )     (14 )     (67 )     (61 )   (80) - (90)
Free Cash Flow   $ 111     $ 107     $ 205     $ 219     $250 - $265
                                     
Weighted Average Diluted Shares Outstanding     132       140       134       144      
                                     
Uses of Free Cash Flow                                    
Investments:                                    
  Non-maintenance capital expenditures   $ (13 )   $ (9 )   $ (27 )   $ (30 )    
  Acquisition of businesses, net of cash acquired     --       --       --       (10 )    
  Acquisition of land use rights     --       --       (1 )     (8 )    
Other investing activities, net (b)     (9 )     (3 )     (3 )     (6 )    
Total investments   $ (22 )   $ (12 )   $ (31 )   $ (54 )    
                                     
Return of capital to stockholders:                                    
  Cash dividends paid to stockholders   $ (20 )   $ (11 )   $ (51 )   $ (22 )    
  Common stock repurchased     (24 )     (80 )     (83 )     (203 )    
Total return of capital to stockholders   $ (44 )   $ (91 )   $ (134 )   $ (225 )    
                                     
Capital raising activities:                                    
  Net proceeds from issuance of corporate debt (c)   $ (2 )   $ --     $ 673     $ --      
  Net proceeds from issuance of project debt     --       7       --       15      
  Other financing activities, net     2       (1 )     3       (3 )    
Net proceeds from capital raising activities   $ --     $ 6     $ 676     $ 12      
                                     
Debt repayments:                                    
  Net cash used for scheduled principal payments on project debt (d)   $ (17 )   $ (23 )   $ (57 )   $ (76 )    
  Net cash used for scheduled principal payments on long-term debt (f)     (1 )     (2 )     (25 )     (5 )    
  Optional repayment of corporate debt(e)(f)     --       (26 )     (621 )     (32 )    
Total debt repayments   $ (18 )   $ (51 )   $ (703 )   $ (113 )    
                                     
Borrowing activities - Revolving credit facility, net   $ 20     $ --     $ 20     $ --      
                                     
Short-term borrowing activities - Financing of insurance premiums, net   $ (3 )   $ --     $ (10 )   $ --      
                                     
Distributions to partners of noncontrolling interests in subsidiaries   $ (1 )   $ (2 )   $ (1 )   $ (5 )    
                                     
Effect of exchange rate changes on cash and cash equivalents   $ 1     $ (3 )   $ 1     $ (2 )    
                                     
Net change in cash and cash equivalents from continuing operations   $ 44     $ (46 )   $ 23     $ (168 )    
                                     
(a) Purchases of property, plant and equipment is also referred to as capital expenditures. Capital expenditures that primarily maintain existing facilities are classified as maintenance capital expenditures. The following table provides the components of total purchases of property, plant and equipment:
                         
                         
    Three Months
Ended September 30,
    Nine Months
Ended September 30,
 
    2012     2011     2012     2011  
Maintenance capital expenditures   $ (15 )   $ (14 )   $ (67 )   $ (61 )
Capital expenditures associated with construction     --       (6 )     --       (15 )
Capital expenditures associated with technology development and organic growth initiatives     (7 )     (1 )     (18 )     (6 )
Capital expenditures - other     (6 )     (2 )     (9 )     (9 )
Total purchases of property, plant and equipment   $ (28 )   $ (23 )   $ (94 )   $ (91 )
   
(b) Other investing activities is primarily comprised of net payments from the purchase/sale of investment securities and business development expenses.
 
(c) For additional information, see Exhibit 8A - Note (a) of this Press Release. Excludes borrowings under Revolving Credit Facility. Calculated as follows:
                                 
Proceeds from borrowings on long-term debt   $ --     $ --     $ 699     $ --  
Less: Financing costs related to issuance of long-term debt     (2 )     --       (26 )     --  
Net proceeds from issuance of corporate debt   $ (2 )   $ --     $ 673     $ --  
                                 
(d) Calculated as follows:                                
                                 
Total principal payments on project debt   $ (7 )   $ (6 )   $ (46 )   $ (83 )
(Increase) decrease in related restricted funds held in trust     (10 )     (17 )     (11 )     7  
Net cash used for principal payments on project debt   $ (17 )   $ (23 )   $ (57 )   $ (76 )
                                 
(e) For additional information, see Exhibit 8A - Note (a) of this Press Release. Calculated as follows:  
                                 
Redemption of Term Loan due 2014   $ --     $ --     $ (619 )   $ --  
Redemption of Convertible Debentures (f)     --       (26 )     (2 )     (32 )
Total optional repayment of corporate debt   $ --     $ (26 )   $ (621 )   $ (32 )
                                 
(f) As of December 31, 2011, there were $25 million aggregate principal amount of the Debentures outstanding. On February 1, 2012, holders of $23 million of outstanding Debentures exercised their option for us to redeem the Debentures at par. The Debentures were also subject to redemption at our option at any time on or after February 1, 2012, and we subsequently redeemed the remaining $2 million of outstanding Debentures on March 23, 2012.
                   
                   
Covanta Holding Corporation     Exhibit 7
Calculation of Key Metrics For 2009, 2010, 2011 and The Three Months Ended March 31, 2012 and June 30, 2012 (a)   
(Unaudited) (In millions, except per share amounts)     
                   
Adjusted EPS   Three Months Ended   Year Ended     Three Months Ended   Six
Months
Ended
    March 31, 2011     June 30, 2011   Sept. 30, 2011     Dec. 31, 2011   Dec. 31, 2011     March 31, 2012     June 30, 2012   June 30, 2012
Continuing Operations - Diluted (Loss) Earnings Per Share   $ (0.09 )   $ 0.12   $ 0.35     $ 0.20   $ 0.56     $ (0.09 )   $ 0.15   $ 0.06
Reconciling Items     (0.01 )     0.02     (0.10 )     0.07     (0.02 )     --       --     --
Adjusted EPS   $ (0.10 )   $ 0.14   $ 0.25     $ 0.27   $ 0.54     $ (0.09 )   $ 0.15   $ 0.06
                                           
                                           
Reconciling Items   Three Months Ended     Year Ended     Three Months Ended   Six
Months
Ended
 
    March 31, 2011     June 30, 2011   Sept. 30, 2011     Dec. 31, 2011     Dec. 31, 2011     March 31, 2012   June 30, 2012   June 30, 2012  
Operating Loss from insurance subsidiaries (a)   $ --     $ --   $ 1     $ 1     $ 2     $ 1   $ --   $ 1  
Loss on extinguishment of debt     --       --     1       --       1       2     --     2  
Effect on income of derivative instruments not designated as hedging instruments     (1 )     --     1       (2 )     (2 )     --     --     --  
Effect of foreign exchange loss on indebtedness     --       3     (5 )     6       4       (3 )   --     (3 )
Gain on sales of businesses     --       --     (1 )     (8 )     (9 )     --     --     --  
Development costs     --       --     --       5       5       --     --     --  
Contractual liability to pre-petition creditors     --       --     15       --       15       --     --     --  
Other     --       --     --       1       1       --     1     1  
  Total Reconciling Items, pre-tax     (1 )     3     12       3       17       --     1     1  
Tax effect of reconciling items, including tax effect for Insurance subsidiaries (a)     1       (1 )   (4 )     8       4       --     (1 )   (1 )
Grantor trust activity     (1 )     1     1       --       1       --     --     --  
Reversal of uncertain tax positions related to pre-emergence tax matters     --       --     (24 )     --       (24 )     --     --     --  
  Total Reconciling Items, net of tax   $ (1 )   $ 3   $ (15 )   $ 11     $ (2 )   $ --   $ --   $ --  
                                                           
Diluted (Loss) Income Per Share Impact   $ (0.01 )   $ 0.02   $ (0.10 )   $ 0.07     $ (0.02 )   $ --   $ --   $ --  
Weighted Average Diluted Shares Outstanding     147       145     140       137       142       134     134     134  
                                                           
                                       
Adjusted EBITDA   Year Ended   Year Ended   Three Months Ended   Year Ended     Three Months Ended     Six Months Ended
    Dec.
31,
2009
  Dec.
31,
2010
  March 31, 2011     June 30,
2011
  Sept. 30,
2011
    Dec.
31,
2011
  Dec.
31,
2011
    March
31,
2012
    June 30,
2012
    June 30,
2012
Net Income (Loss) from Continuing Operations Attributable to Covanta Holding Corporation   $ 61   $ 30   $ (14 )   $ 17   $ 49     $ 27   $ 79     $ (12 )   $ 20     $ 8
                                                                       
Operating loss related to Insurance subsidiaries(a)     4     6     --       --     1       1     2       1       --       1
Depreciation and amortization expense     197     190     47       47     48       51     193       50       49       99
Debt service     105     121     30       31     32       29     122       32       38       70
Income tax expense (benefit) (adjusted for reversal of uncertain tax positions related to pre-emergence tax matters)     42     24     (10 )     11     26       25     52       (8 )     11       3
Reversal of uncertain tax positions related to pre-emergence tax matters     --     --     --       --     (24 )     --     (24 )     --       --       --
Contractual liability to pre-petition creditors     --     --     --       --     15       --     15       --       --       --
Net write-offs     --     34     --       --     --       --     --       --       --       --
Net income (loss) attributable to noncontrolling interests in subsidiaries     4     5     --       1     2       2     5       1       (1 )     --
Loss on extinguishment of debt     --     15     --       --     1       --     1       2       --       2
Debt service billings in excess of revenue recognized     20     29     11       7     3       1     22       6       --       6
Non-cash compensation expense     14     17     5       4     4       5     18       5       5       10
Other     11     5     2       5     (4 )     6     9       (3 )     3       --
Adjusted EBITDA   $ 458   $ 476   $ 71     $ 123   $ 153     $ 147   $ 494     $ 74     $ 125     $ 199
                                                                       
                                     
                                     
Free Cash Flow   Year Ended     Year Ended     Three Months Ended     Year Ended     Three Months Ended     Six Months Ended  
    Dec.
31,
2009
    Dec.
31,
2010
    March
31,
2011
    June 30,
2011
    Sept. 30,
2011
    Dec.
31,
2011
    Dec.
31,
2011
    March
31,
2012
    June 30,
2012
    June 30,
2012
 
Cash flow provided by operating activities from continuing operations   $ 352     $ 392     $ 93     $ 63     $ 120     $ 84     $ 360     $ 104     $ 40     $ 144  
Plus: Cash flow used in (provided by) operating activities from Insurance subsidiaries(a)     (2 )     5       1       2       1       (2 )     2       1       1       2  
Less: Maintenance capital expenditures     (52 )     (74 )     (27 )     (20 )     (14 )     (19 )     (80 )     (28 )     (24 )     (52 )
Free Cash Flow   $ 298     $ 323     $ 67     $ 45     $ 107     $ 63     $ 282     $ 77     $ 17     $ 94  
                                                                                 
Weighted Average Diluted Shares Outstanding     155       154       147       145       140       137       142       134       134       134  
                                                                                 
(a) Information is presented to reflect adjustments for the net income (loss) from operations of our insurance subsidiaries and cash flows (provided by) used in insurance subsidiaries which are not representative of our ongoing core energy-from-waste businesses. All other information related to Adjusted EPS, Adjusted EBITDA and Free Cash Flow are unchanged from previous information presented.
     
     
Covanta Holding Corporation   Exhibit 8
Capitalization Information    
    As of
    September 30, 2012   December 31, 2011
    (Unaudited, in millions)
Cash and Cash Equivalents:    
Domestic   $ 8   $ 49
International     235     174
Insurance Subsidiary     19     9
Total Cash and Cash Equivalents   $ 262   $ 232
             
Restricted Funds Held in Trust: (a)            
  Debt Service - Principal   $ 126   $ 113
  Debt Service - Interest     6     8
Debt Service Funds - Total     132     121
Revenue Funds     42     16
Other Funds     36     54
Total Restricted Funds Held in Trust   $ 210   $ 191
             
(a) Restricted funds held in trust are primarily amounts received by third-party trustees relating to certain projects we own which may be used only for specified purposes. We generally do not control these accounts. They primarily include debt service reserves for payment of principal and interest on project debt. Revenue funds are comprised of deposits of revenues received with respect to projects prior to their disbursement. Other funds are primarily amounts held in trust for operations, maintenance, environmental obligations and operating lease reserves in accordance with agreements with our clients
         
         
        Exhibit 8A
         
    As of September 30, 2012   As of December 31, 2011
    Face
Value
  Book
Value
  Face
Value
  Book
Value
    (Unaudited, in millions)
Corporate Debt:    
Revolving Credit Facility (a)   $ 20   $ 20   $ --   $ --
Term Loan due 2014 (a)     --     --     619     619
New Term Loan due 2019 (a)     299     297     --     --
7.25% Senior Notes due 2020     400     400     400     400
6.375% Senior Notes due 2022 (a)     400     400     --     --
3.25% Cash Convertible Senior Notes due 2014     460     493     460     442
1.00% Senior Convertible Debentures due 2027     --     --     25     25
Total corporate debt (including current portion)   $ 1,579   $ 1,610   $ 1,504   $ 1,486
                         
Project Debt:                        
Domestic project debt - service fee facilities   $ 270   $ 273   $ 291   $ 295
Domestic project debt - tip fee facilities     333     335     355     359
International project debt     25     25     26     26
Total project debt (including current portion)   $ 628   $ 633   $ 672   $ 680
                         
Total Debt Outstanding   $ 2,207   $ 2,243   $ 2,176   $ 2,166
                         
Net Debt (b)   $ 1,819         $ 1,831      
                         
Availability for Borrowings under the Revolving Credit Facility (a)   $ 597         $ 300      
                         
Refinancing Details (Unaudited, in millions)                        
                         
Offering - 6.375% Senior Notes due 2022 (a)   $ 400                  
New Term Loan due 2019 (a)     300                  
Offering Costs     (26 )                
Net Proceeds (a)     674                  
Redemption of Term Loan due 2014 (a)     (619 )                
Net Offering funds available for general corporate purposes   $ 55                  
   
(a) During the first quarter of 2012, we completed a refinancing of our previously existing senior secured credit facilities, issued by our subsidiary, Covanta Energy, which consisted of a $300 million revolving credit facility, a $320 million funded letter of credit facility and a $619 million term loan, by entering into $1.2 billion in new senior secured credit facilities (the "2012 Credit Facilities") issued by our subsidiary, Covanta Energy, comprised of a $900 million revolving credit facility that expires in 2017 (the "Revolving Credit Facility") and a $300 million term loan due 2019 (the "Term Loan"), and by issuing $400 million aggregate principal amount of 6.375% senior notes due 2022 (the "6.375% Notes"). The proceeds from the Term Loan and a portion of the proceeds from the 6.375% Notes were used to repay the previously existing term loan, as well as to pay transaction expenses, while the Revolving Credit Facility replaced the previously existing $300 million revolving credit facility and $320 million funded letter of credit facility. The Revolving Credit Facility is available for both the issuance of letters of credit ($283 million outstanding as of September 30, 2012) and for cash borrowings for general corporate purposes ($20 million outstanding cash borrowings as of September 30, 2012). As a result of the refinancing, we recognized a loss on extinguishment of debt of approximately $2 million, pre-tax, which was comprised of the write-off of deferred financing costs in connection with previously existing financing arrangements. We incurred $26 million in offering costs related to the refinancing which has been paid as of September 30, 2012.
(b) Net Debt is calculated as total principal amount of debt outstanding less cash and cash equivalents and debt service principal restricted funds.
   
   
Covanta Holding Corporation Exhibit 9
Return to Stockholders  
(Unaudited, in millions, except per share amounts and percentages)  
   

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

                 
    Amount   Shares
Repurchased
  Weighted Average
Cost Per Share
  % of Common
Stock
Outstanding
Repurchased
Common Stock Repurchased(a)                    
FY 2010   $ 95   6.1   $ 15.56   3.9%
FY 2011   $ 230   14.4   $ 15.99   9.6%
Q1 2012   $ 30   1.8   $ 16.45   1.3%
Q2 2012(b)     30   1.9   $ 16.04   1.4%
Q3 2012     25   1.5   $ 17.22   1.1%
FY 2012 sub-total:   $ 85   5.2   $ 16.57   3.8%
Total Common Stock Repurchased   $ 410   25.7   $ 15.99   16.5%
                     
Cash Dividends Declared to Stockholders                    
FY 2010   $ 233              
FY 2011   $ 42              
Q1 2012   $ 21              
Q2 2012     20              
Q3 2012 (c)     20              
FY 2012 sub-total:   $ 61              
Total Cash Dividends Declared to Stockholders   $ 336              
                     
Total Return to Stockholders   $ 746              
                     
   
(a) As of September 30, 2012, the amount remaining under our currently authorized share repurchase program was $90 million.
   
(b) Approximately $2 million of common stock repurchased during the three months ended September 30, 2012 was paid in October 2012.
   
(c) On September 19, 2012, the Board of Directors authorized a quarterly cash dividend of $0.15 per share. The Q3 2012 payment was made on October 17, 2012 to stockholders of record as of the close of business on October 10, 2012.
   
                 
                 
Covanta Holding Corporation     Exhibit 10
Consolidated Reconciliation of Cash Flow Provided by Operating Activities to Adjusted EBITDA      
                 
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
     
    2012     2011     2012     2011     Full Year
Estimated 2012
    (Unaudited, in millions)      
Cash flow provided by operating activities from continuing operations   $ 124     $ 120     $ 268     $ 276       $330 - $355
                                       
Cash flow used in operating activities from insurance activities (a)     (2 )     (1 )     (4 )     (4 )      
                                       
Debt service     38       32       108       93       150 - 145
                                       
Change in working capital     (30 )     (35 )     (52 )     (77 )      
Change in restricted funds held in trust     12       26       10       35        
Non-cash convertible debt related expense     (6 )     (9 )     (19 )     (20 )      
Equity in net income from unconsolidated investments     4       1       10       3        
Dividends from unconsolidated investments     (4 )     (1 )     (7 )     (5 )      
Current tax provision     4       (23 )     7       (20 )      
Reversal of uncertain tax positions related to pre-emergence tax matters (b)     --       24       --       24        
Change in restricted funds-other related to contractual liability to pre-petition creditors (b)     --       (5 )     --       (5 )      
Other     10       24       28       47        
  Sub-total     (10 )     2       (23 )     (18 )     20 - 15
Adjusted EBITDA   $ 150     $ 153     $ 349     $ 347       $500 - $515
                                       
(a) For additional information, see Exhibit 4A - Note (a) and Exhibit 7 - Note (a) of this Press Release.
(b) For additional information, see Exhibit 4A - Note (g) of this Press Release.
   
   
   
Covanta Holding Corporation Exhibit 11
Plant Operating Expenses Detail - Americas  
   

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

         
    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2012   2011   2012   2011
    (Unaudited, in millions)
Plant Operating Expenses:                        
Plant maintenance (a)   $ 42   $ 38   $ 179   $ 187
All other     176     176     533     532
Plant operating expenses   $ 218   $ 214   $ 712   $ 719
                         
                         
(a) Plant maintenance costs include our internal maintenance team and non-facility employee costs for facility scheduled and unscheduled maintenance and repair expenses.
   
Covanta Holding Corporation - Americas Segment Exhibit 12A
Statistics - (Unaudited, in millions, except percentages)  
 
Boiler Availability
    Last Twelve Months
as of September 30,
    2012   2011
EfW Facilities   92.2%   91.2%
         
Waste and Service Revenue
 
    Three Months Ended
September 30,
    2012   2011
Waste and service revenue unrelated to project debt   $ 234   $ 239
Revenue earned explicitly to service project debt - principal     10     10
Revenue earned explicitly to service project debt - interest     2     3
Total waste and service revenue (Excluding recycled metals revenue)   $ 246   $ 252
Recycled metals revenue      17     20
Total waste and service revenue    $ 263   $ 272
             
Energy Revenue and Megawatt hours (MWhs) At Market and Contracted by Facility Type  
   
    Three Months Ended September 30,  
    2012     2011  
    Revenue (a)   Volume
(a),(b)
  % of Total Volume     Revenue (a)   Volume
(a),(b)
  % of Total Volume  
EfW                                
  At Market   $ 7   0.17   12 %   $ 20   0.34   23 %
  Contracted & Hedged     75   1.03   72 %     59   0.87   60 %
Biomass                                
  At Market     3   0.09   7 %     4   0.08   5 %
  Contracted     24   0.13   9 %     20   0.17   12 %
Total   $ 109   1.42   100 %   $ 103   1.46   100 %
                                 
(a) Covanta share only  
(b) Steam converted to MWhs  
   
Projected Energy Megawatt hours (MWhs) At Market and Contracted by Facility Type (a)
   
  Full Year 2012E
As of October 1, 2012
EfW  
  At Market 0.9
  Contracted & Hedged 4.0
Biomass(b)  
  At Market 0.4
  Contracted 0.3
Total 5.6
   
(a) Covanta share only
(b) Additional 0.1 million MWhs of Biomass energy is economically dispatched, but available to run.
   
Covanta Holding Corporation - Americas Segment   Exhibit 12B
Statistics - (Unaudited, in millions, except percentages, metal tons (in thousands), and pricing data in Economic Drivers Section)
 
Recycled Metal Net Revenue by Type (a)
 
    Last Twelve Months
as of September 30,
    2012   2011
Ferrous Metal   $ 60   $ 56
Non-Ferrous Metal     13     13
Total   $ 73   $ 69
             
(a) Covanta share only
 
Recycled Metal Gross Tons Recovered by Type (a),(b)
 
    Last Twelve Months
as of September 30,
    2012   2011
Ferrous Metal   421.1   404.6
Non-Ferrous Metal   16.7   15.0
Total   437.8   419.6
         
(a) Gross volume: Both Covanta and client share
(b) Tons in thousands
   
Published Industry U.S. Economic Drivers (a)  
   
    As of  
    September 30, 2012   September 30, 2011  
Consumer Price Index (b)     2.0   3.9 %
PJM Pricing (Electricity)(c)   $ 38.12   $ 51.69  
Henry Hub Pricing (Natural Gas) (d)   $ 2.87   $ 4.13  
#1 HMS Pricing (Ferrous Metals) (e)   $ 340   $ 418  
Scrap Metals - Old Sheet & Old Cast (f)   $ 0.69   $ 0.78  
               
(a)   While these drivers impact our business, there is not an exact correlation between our results and changes in these metrics.
     
(b)   Represents the year-over-year percent change in the Headline CPI number. The Consumer Price Index (CPI-U) data is provided by the U.S. Department of Labor Bureau of Labor Statistics.
     
(c)   Average price per MWh for Q3 2012 and Q3 2011. Pricing for the PJM PSEG Zone is provided by the PJM ISO.
     
(d)   Average price per MMBtu for Q3 2012 and Q3 2011. The Henry Hub Pricing data is provided by the Natural Gas Weekly Update, Energy Information Administration, Washington, DC. Nebraska Energy Office, Lincoln, NE.
     
(e)   Average price per gross ton for Q3 2012 and Q3 2011. The #1 Heavy Melt Steel (HMS) composite index ($/gross ton) price is published by American Metal Market.
     
(f)   Average price per pound for Q3 2012 and Q3 2011. Calculated using high and low prices for Old Sheet & Old Cast Scrap Metals ($/lb) published by American Metal Market.
     

Discussion of Non-GAAP Financial Measures

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

The presentations of Adjusted EBITDA, Free Cash Flow and Adjusted EPS are intended to enhance the usefulness of our financial information by providing measures which management internally use to assess and evaluate the overall performance of its business and those of possible acquisition candidates, and highlight trends in the overall business.

Adjusted EBITDA

We use Adjusted EBITDA to provide further information that is useful to an understanding of the financial covenants contained in the credit facilities as of September 30, 2012 of our most significant subsidiary, Covanta Energy, through which we conduct our core waste and energy services business, and as additional ways of viewing aspects of its operations that, when viewed with the GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, provide a more complete understanding of our core business. The calculation of Adjusted EBITDA is based on the definition in Covanta Energy's credit facilities as of September 30, 2012, which we have guaranteed. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, as adjusted for additional items subtracted from or added to net income. Because our business is substantially comprised of that of Covanta Energy, our financial performance is substantially similar to that of Covanta Energy. For this reason, and in order to avoid use of multiple financial measures which are not all from the same entity, the calculation of Adjusted EBITDA and other financial measures presented herein are ours, measured on a consolidated basis for continuing operations, less the results of operations of our insurance subsidiaries.

Under the credit facilities as of September 30, 2012, Covanta Energy is required to satisfy certain financial covenants, including certain ratios of which Adjusted EBITDA is an important component. Compliance with such financial covenants is expected to be the principal limiting factor which will affect our ability to engage in a broad range of activities in furtherance of our business, including making certain investments, acquiring businesses and incurring additional debt. Covanta Energy was in compliance with these covenants as of September 30, 2012. Failure to comply with such financial covenants could result in a default under these credit facilities, which default would have a material adverse affect on our financial condition and liquidity.

These financial covenants are measured on a trailing four quarter period basis and the material covenants are as follows:

  • maximum Covanta Energy leverage ratio of 4.00 to 1.00, which measures Covanta Energy's Consolidated Adjusted Debt (which is the principal amount of its consolidated debt less certain restricted funds dedicated to repayment of project debt principal and construction costs) to its Adjusted EBITDA (which for purposes of calculating the leverage ratio and interest coverage ratio, is adjusted on a pro forma basis for acquisitions and dispositions made during the relevant period); and
  • minimum Covanta Energy interest coverage ratio of 3.00 to 1.00, which measures Covanta Energy's Adjusted EBITDA to its consolidated interest expense plus certain interest expense of ours, to the extent paid by Covanta Energy.

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

Free Cash Flow

Free Cash Flow is defined as cash flow provided by operating activities from continuing operations, excluding the cash flow provided by or used in our insurance subsidiaries, less maintenance capital expenditures, which are capital expenditures primarily to maintain our existing facilities. We use the non-GAAP measure of Free Cash Flow as a criterion of liquidity and performance-based components of employee compensation. We use Free Cash Flow as a measure of liquidity to determine amounts we can reinvest in our core businesses, such as amounts available to make acquisitions, invest in construction of new projects, make principal payments on debt, or amounts we can return to our stockholders through dividends and/or stock repurchases.

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

Adjusted EPS

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

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

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