Covanta Holding Corporation Reports 2018 Second Quarter Results And Reaffirms 2018 Guidance

Three Months
Ended June 30,

2018

2017

(Unaudited, $ in millions, except
per share amounts)

Revenue

$454

$424

Net loss

$(31)

$(37)

Adjusted EBITDA

$103

$93

Net cash provided by operating activities

$60

$18

Free Cash Flow Before Working Capital

$3

$4

Free Cash Flow

$26

$(21)

Diluted EPS

$(0.24)

$(0.28)

Adjusted EPS

$(0.01)

$(0.22)

Reconciliations of non-GAAP measures can be found in the exhibits to this press release.

2018
Guidance Range ⁽¹⁾

2017
Actual

Adjusted EBITDA

$425 - $455

$408

Free Cash Flow Before Working Capital

$100 - $130

$88

Free Cash Flow

$70 - $100

$132

Covanta Holding Corporation                                                                                                                                                       

Exhibit 1

Consolidated Statements of Operations

Three Months Ended
June 30,

Six Months Ended
June 30,

2018

2017

2018

2017

(Unaudited)
(In millions, except per share amounts)

OPERATING REVENUE:

Waste and service revenue

$

333

$

310

$

645

$

596

Energy revenue

76

75

176

161

Recycled metals revenue

25

15

49

31

Other operating revenue

20

24

42

40

Total operating revenue

454

424

912

828

OPERATING EXPENSE:

Plant operating expense

334

319

679

651

Other operating expense, net

19

2

27

17

General and administrative expense

27

30

58

58

Depreciation and amortization expense

55

52

109

104

Impairment charges

37

1

37

1

Total operating expense

472

404

910

831

Operating (loss) income

(18)

20

2

(3)

OTHER INCOME (EXPENSE):

Interest expense

(36)

(35)

(74)

(71)

(Loss) gain on sale of assets ^(a)

—

(2)

210

(6)

Loss on extinguishment of debt

—

(13)

—

(13)

Other (expense) income, net

(1)

—

(1)

—

Total (expense) income

(37)

(50)

135

(90)

(Loss) income before income tax benefit (expense)

(55)

(30)

137

(93)

Income tax benefit (expense)

22

(8)

31

3

Equity in net income from unconsolidated investments

2

1

2

1

Net (loss) income

$

(31)

$

(37)

$

170

$

(89)

Weighted Average Common Shares Outstanding:

Basic

130

130

130

129

Diluted

130

130

132

129

(Loss) Earnings Per Share:

Basic

$

(0.24)

$

(0.28)

$

1.31

$

(0.69)

Diluted

$

(0.24)

$

(0.28)

$

1.29

$

(0.69)

Cash Dividend Declared Per Share

$

0.25

$

0.25

$

0.50

$

0.50

(a) For additional information, see Exhibit 4 of this Press Release.

Covanta Holding Corporation

Exhibit 2

Consolidated Balance Sheets

As of

June 30, 2018

December 31, 2017

(Unaudited)

ASSETS

(In millions, except per
share amounts)

Current:

Cash and cash equivalents

$

39

$

46

Restricted funds held in trust

37

43

Receivables (less allowances of $9 million and $14 million, respectively)

324

341

Prepaid expenses and other current assets

62

73

Assets held for sale ^(a)

3

653

Total Current Assets

465

1,156

Property, plant and equipment, net

2,556

2,606

Restricted funds held in trust

24

28

Intangible assets, net

276

287

Goodwill

312

313

Other assets

211

51

Total Assets

$

3,844

$

4,441

LIABILITIES AND EQUITY

Current:

Current portion of long-term debt

$

10

$

10

Current portion of project debt

24

23

Accounts payable

64

151

Accrued expenses and other current liabilities

290

313

Liabilities held for sale ^(a)

—

540

Total Current Liabilities

388

1,037

Long-term debt

2,295

2,339

Project debt

137

151

Deferred income taxes

385

412

Other liabilities

68

75

Total Liabilities

3,273

4,014

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 shares, 
     outstanding 131 shares)

14

14

Additional paid-in capital

833

822

Accumulated other comprehensive loss

(26)

(55)

Accumulated deficit

(249)

(353)

Treasury stock, at par

(1)

(1)

Total Stockholders' Equity

571

427

Total Liabilities and Equity

$

3,844

$

4,441

(a)  During the fourth quarter of 2017, our EfW facility in Dublin, Ireland met the criteria to be classified as held for sale

Covanta Holding Corporation

Exhibit 3

Consolidated Statements of Cash Flow

Six Months Ended June 30,

2018

2017 ^(a)

(Unaudited, in millions)

OPERATING ACTIVITIES:

Net income (loss)

$

170

$

(89)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization expense

109

104

Amortization of deferred debt financing costs

3

3

(Gain) loss on asset sales ^(b)

(210)

6

Impairment charges

37

1

Loss on extinguishment of debt

—

13

Stock-based compensation expense

14

11

Provision for doubtful accounts

—

3

Equity in net income from unconsolidated investments

(2)

(1)

Deferred income taxes

(28)

(6)

Dividends from unconsolidated investments

1

—

Other, net

(8)

(3)

Change in working capital, net of effects of acquisitions and dispositions

(21)

(20)

Changes in noncurrent assets and liabilities, net

(2)

5

Net cash provided by operating activities

63

27

INVESTING ACTIVITIES:

Purchase of property, plant and equipment

(130)

(152)

Acquisition of businesses, net of cash acquired

(4)

(16)

Proceeds from the sale of assets, net of restricted cash

112

—

Property insurance proceeds

7

5

Payment of indemnification claim from sale of asset

(7)

—

Other, net

(1)

(3)

Net cash used in investing activities

(23)

(166)

FINANCING ACTIVITIES:

Proceeds from borrowings on long-term debt

30

400

Proceeds from borrowings on revolving credit facility

317

633

Proceeds from borrowing on Dublin project financing

—

60

Payments on long-term debt

(3)

(412)

Payment on revolving credit facility

(387)

(501)

Payments on equipment financing capital leases

(3)

(2)

Principal payments on project debt

(13)

(12)

Payment of deferred financing costs

—

(9)

Cash dividends paid to stockholders

(66)

(65)

Financing of insurance premiums, net

(13)

—

Other, net

2

3

Net cash (used in) provided by financing activities

(136)

95

Effect of exchange rate changes on cash and cash equivalents

2

3

Net decrease in cash, cash equivalents and restricted cash

(94)

(41)

Cash, cash equivalents and restricted cash at beginning of period ^(c)

194

194

Cash and cash equivalents of continuing operations at end of period

$

100

$

153

(a)  As adjusted to reflect the adoption of ASU 2016-18 effective January 1, 2018. As a result of adoption, the statement of cash flows explains 
       the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash 
       equivalents.

(b)  For additional information, see Exhibit 4 of this Press Release.

(c)  For the six months ended June 30, 2018, includes $77 million of restricted cash classified as held for sale as of December 31, 2017.

Covanta Holding Corporation

Exhibit 4

Consolidated Reconciliation of Net (Loss) Income and Net Cash Provided by Operating Activities 
     to Adjusted EBITDA

Three Months Ended June 30,

Six Months Ended June 30,

2018

2017

2018

2017

(Unaudited, in millions)

Net (loss) income

$

(31)

$

(37)

$

170

$

(89)

Depreciation and amortization expense

55

52

109

104

Interest expense

36

35

74

71

Income tax (benefit) expense

(22)

8

(31)

(3)

Impairment charges ^(a)

37

1

37

1

Loss (gain) on sale of assets ^(b)

—

2

(210)

6

Loss on extinguishment of debt

—

13

—

13

Property insurance recoveries, net

—

(3)

(7)

(3)

Capital type expenditures at client owned facilities ^(c)

11

12

23

26

Debt service billings in excess of revenue recognized

—

1

1

2

Business development and transaction costs

1

1

3

1

Severance and reorganization costs

2

1

4

1

Stock-based compensation expense

5

6

14

11

Adjustments to reflect Adjusted EBITDA from unconsolidated 
     investments

7

—

11

—

Other ^(d)

2

1

5

3

Adjusted EBITDA

$

103

$

93

$

203

$

144

Capital type expenditures at client owned facilities ^(c)

(11)

(12)

(23)

(26)

Cash paid for interest, net of capitalized interest

(40)

(41)

(73)

(67)

Cash paid for taxes, net

(2)

(2)

(2)

(1)

Equity in net income from unconsolidated investments

(2)

(1)

(2)

(1)

Adjustments to reflect Adjusted EBITDA from unconsolidated 
investments

(7)

—

(11)

—

Dividends from unconsolidated investments

1

—

1

—

Adjustment for working capital and other

18

(19)

(30)

(22)

Net cash provided by operating activities

$

60

$

18

$

63

$

27

(a)    During the six months ended June 30, 2018, we identified indicators of impairment associated with certain of our facilities and recorded a 
         non-cash impairment charge of $37 million to reduce the carrying value of the facilities to their estimated fair value.

(b)    During the six months ended June 30, 2018, we recorded a $204 million gain on the sale of 50% of our Dublin project to our joint venture 
         with GIG and $6 million gain on the sale of our remaining interests in China.

         During the three and six months ended June 30, 2017, we recorded a $2 million and $6 million charge, respectively, for indemnification 
         claims related to the sale of our interests in China, which was completed in 2016.

(c)    Adjustment for impact of adoption of FASB ASC 853 - Service Concession Arrangements.  These types of capital equipment related 
        expenditures at our service fee operated facilities were historically capitalized prior to adoption of this new accounting standard effective 
        January 1, 2015 and are capitalized at facilities that we own.

(d)    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

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow and Free Cash Flow 
     Before Working Capital

Three Months Ended
June 30,

Six Months Ended
June 30,

Full Year Estimated 2018

2018

2017

2018

2017

(Unaudited, in millions)

Net cash provided by operating activities

$

60

$

18

$

63

$

27

$195 - $225

Add: Changes in restricted funds - operating ^(a)

(1)

(2)

(11)

(1)

10

Less: Maintenance capital expenditures ^(b)

(33)

(37)

(78)

(64)

(140 - 130)

Free Cash Flow

$

26

$

(21)

$

(26)

$

(38)

$70 - $100

Less: Changes in working capital

(23)

25

21

20

20 - 40

Free Cash Flow Before Working Capital

$

3

$

4

$

(5)

$

(18)

(a)    Adjustment for the impact of the adoption of ASU 2016-18 effective January 1, 2018. As a result of adoption, 
        the statement of cash flows explains the change during the period in the total of cash, cash equivalents, and 
        amounts generally described as restricted cash or restricted cash equivalents. Therefore, changes in restricted 
        funds are eliminated in arriving at net cash, cash equivalents and restricted funds provided by operating 
        activities

(b)    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
June 30,

Six Months Ended
June 30,

2018

2017

2018

2017

Maintenance capital expenditures

$

(33)

$

(37)

$

(78)

$

(64)

Maintenance capital expenditures paid but incurred in 
     prior periods

(5)

—

(12)

—

Capital expenditures associated with construction of 
     Dublin EfW facility

(4)

(36)

(21)

(56)

Capital expenditures associated with organic growth 
     initiatives

(7)

(9)

(15)

(23)

Total capital expenditures associated with growth 
     investments

(11)

(45)

(36)

(79)

Capital expenditures associated with property insurance 
     events

—

(8)

(4)

(9)

Total purchases of property, plant and equipment

$

(49)

$

(90)

$

(130)

$

(152)

Covanta Holding Corporation

Exhibit 6

Reconciliation of Diluted Earnings (Loss) Per Share to Adjusted EPS

Three Months Ended
June 30,

Six Months Ended
June 30,

2018

2017

2018

2017

(Unaudited)

Diluted (Loss) Earnings Per Share:

$

(0.24)

$

(0.28)

$

1.29

$

(0.69)

Reconciling Items ^(a)

0.23

0.06

(1.39)

0.10

Adjusted EPS

$

(0.01)

$

(0.22)

$

(0.10)

$

(0.59)

(a) For details related to the Reconciling Items, see Exhibit 6A of this Press Release

Covanta Holding Corporation

Exhibit 6A

Reconciling Items

Three Months Ended
June 30,

Six Months Ended
June 30,

2018

2017

2018

2017

(Unaudited)
(In millions, except per share amounts)

Reconciling Items

Impairment charges ^(a)

$

37

$

1

$

37

$

1

Loss (gain) on sale of assets

—

2

(210)

6

Property insurance recoveries, net

—

(3)

(7)

(3)

Severance and reorganization costs

2

1

4

1

Loss on extinguishment of debt ^(a)

—

13

—

13

Effect of foreign exchange loss on indebtedness

—

(1)

1

(1)

Other

—

—

(1)

—

Total Reconciling Items, pre-tax

39

13

(176)

17

Pro forma income tax impact ^(b)

(10)

(5)

(8)

(5)

Grantor trust activity

—

—

—

1

Total Reconciling Items, net of tax

$

29

$

8

$

(184)

$

13

Diluted Per Share Impact

$

0.23

$

0.06

$

(1.39)

$

0.10

Weighted Average Diluted Shares Outstanding

130

130

132

129

(a) For additional information, see Exhibit 4 of this Press Release

(b) We calculate the federal and state tax impact of each item using the statutory federal tax rate of 21% for 2018 and 35% for 2017 and applicable state rates

Covanta Holding Corporation

Exhibit 7

Supplemental Information

(Unaudited, $ in millions)

Three Months Ended
June 30,

2018

2017

REVENUE

Waste and service revenue:

EfW tip fees

$

156

$

143

EfW service fees

100

97

Environmental services ^(a)

37

32

Municipal services ^(b)

54

52

Other ^(c)

12

10

Intercompany ^(d)

(27)

(25)

Total waste and service

333

310

Energy Revenue:

Energy sales

64

64

Capacity

13

11

Total energy revenue

76

75

Recycled metals revenue:

Ferrous

15

10

Non-ferrous

10

4

Total recycled metals

25

15

Other revenue ^(e)

20

24

Total revenue

$

454

$

424

OPERATING EXPENSE

Plant operating expense:

Plant maintenance

$

79

$

79

Other plant operating expense

255

240

Total plant operating expense

334

319

Other operating expense

19

2

General and administrative

27

30

Depreciation and amortization

55

52

Impairment charges

37

1

Total operating expense

$

472

$

404

Operating (loss) income

$

(18)

$

20

Plus: Impairment charges

37

1

Operating income excluding impairment charges

$

19

$

21

(a) Includes the operation of material processing facilities and related services provided by our CES business.

(b) Consists of transfer stations and transportation component of NYC MTS contract.

(c) Includes waste brokerage, debt service and other revenue not directly related to EfW waste processing activities.

(d) Consists of elimination of intercompany transactions primarily relating to transfer stations.

(e) Consists primarily of construction revenue.

Note: Certain amounts may not total due to rounding.

Covanta Holding Corporation

Exhibit 8

Revenue and Operating Income Changes - Q2 2017 to Q2 2018

(Unaudited, $ in millions)

Contract Transitions ^(b)

Q2 2017

Organic
Growth ^(a)

%

Waste

PPA

Trans-
actions ^(c)

Total
Changes

Q2 2018

REVENUE

Waste and service:

EfW tip fees

$

143

$

12

8.6

%

$

1

$

—

$

—

$

13

$

156

EfW service fees

97

(2)

(1.8)

%

(4)

—

8

3

100

Environmental services

32

4

12.8

%

—

—

—

5

37

Municipal services

52

2

3.2

%

—

—

—

2

54

Other revenue

10

2

23.5

%

—

—

—

2

12

Intercompany

(25)

(2)

—

—

—

(2)

(27)

Total waste and service

310

17

5.3

%

(3)

—

9

23

333

Energy:

Energy Sales

64

4

5.8

%

—

(4)

—

—

64

Capacity

11

1

13.4

%

(1)

2

—

2

13

Total energy revenue

75

5

6.7

%

(1)

(3)

—

2

76

Recycled metals:

Ferrous

10

4

42.8

%

—

—

—

4

15

Non-ferrous

4

6

141.6

%

—

—

—

6

10

Total recycled metals

15

10

71.1

%

—

—

—

10

25

Other revenue

24

(2)

(7.8)

%

(2)

—

—

(4)

20

Total revenue

$

424

$

30

7.1

%

$

(5)

$

(3)

$

9

$

31

$

454

OPERATING EXPENSE

Plant operating expense:

Plant maintenance

$

79

$

1

1.0

%

$

(1)

$

—

$

—

$

—

$

79

Other plant operating expense

240

10

4.0

%

(2)

—

7

14

255

Total plant operating expense

319

10

3.2

%

(3)

—

7

14

334

Other operating expense (income)

2

20

(2)

—

—

18

19

General and administrative

30

(3)

—

—

—

(3)

27

Depreciation and amortization

52

3

—

—

—

3

55

Total operating expense (income)

$

403

$

30

$

(5)

$

—

$

8

$

33

$

435

Operating Income excluding 
     Impairment Charges

$

21

$

—

$

(1)

$

(3)