Covanta Reports Solid 2011 Third Quarter Results
MORRISTOWN, N.J., Oct. 19, 2011 /PRNewswire/ -- Covanta Holding Corporation (NYSE: CVA) ("Covanta" or the "Company"), a leading global owner and operator of Energy-from-Waste ("EfW") projects, reported financial results today for the three and nine months ended September 30, 2011.
Key Q3 2011 Financial Highlights:
- Revenue increased 7% to $432 million
- Adjusted EBITDA increased $2 million to $152 million
- Free Cash Flow increased $11 million to $106 million
- Adjusted EPS was flat at $0.24
- Returned $91 million to shareholders during the quarter
Key Q3 2011 Operational Highlights:
- Boiler availability over 90% for the twelve months ended September 30, 2011
- Broke ground on Durham-York EfW project, first large scale EfW project in North America in over 15 years
- H-Power expansion is ~70% complete and on track to start up in mid-2012
- Chengdu EfW project began converting waste to energy
Commenting on the third quarter of 2011, Anthony Orlando, Covanta's President and CEO stated, "We completed another solid quarter in-line with our expectations. I was particularly pleased with our team's effort to successfully manage through Hurricane Irene, drive improved waste disposal revenue and break ground on our Durham-York construction project."
"Looking forward to 2012, we plan to continue growing the business, with a couple of new EfW projects coming online and several organic growth initiatives," Orlando concluded.
Three months ended September 30, | ||||
Continuing Operations | 2011 | 2010 | ||
(Unaudited) ($ in millions, except per share amounts) | ||||
Revenues | $432 | $403 | ||
Net Income From Continuing Operations | $49 | $10 | ||
Adjusted EBITDA | $152 | $150 | ||
Free Cash Flow | $106 | $95 | ||
Adjusted EPS | $0.24 | $0.24 | ||
Third Quarter Results From Continuing Operations
For the three months ended September 30, 2011, operating revenues increased to $432 million, up $29 million or 7%, from $403 million in the prior year comparative period. Two thirds of this increase is attributable to higher construction revenue related to the Honolulu expansion project. The remainder of the increase was driven by strong recycled metals pricing, contract escalations and higher tip fee pricing and volume. These increases were partially offset by lower debt service pass through revenues, lower energy revenues from our biomass plants and lower energy pricing.
Operating expenses of $345 million declined 3% from $357 million in the prior year comparative period as higher construction costs in the current quarter partially offset $32 million of asset write-downs in the third quarter of last year.
Adjusted EBITDA of $152 million was up $2 million compared with last year's third quarter of $150 million as increases in recycled metals revenues and waste revenues were offset by lower debt service revenue and lower contribution from our biomass facilities.
Free Cash Flow was $106 million in the third quarter, an increase of $11 million compared to $95 million in the prior year comparative period, primarily attributable to an improvement in working capital, which was partially offset by a year over year increase in maintenance capital expenditures.
Adjusted EPS for the quarter was $0.24, which was flat with last year's third quarter, as the lower number of shares outstanding due to the Company's common stock buyback program and improved operating income, were offset by higher interest expense and a higher effective tax rate.
Year-to-Date Results From Continuing Operations
For the nine months ended September 30, 2011, total operating revenues increased 5% to $1,220 million. Free Cash Flow was $215 million for the year-to-date period compared to $236 million for the same period last year. Adjusted EBITDA was $346 million compared to $341 million for the same period last year and Adjusted EPS was $0.26 compared to $0.24 Adjusted EPS in 2010.
Updated 2011 Guidance for Continuing Operations
The Company is narrowing its 2011 guidance for the following key metrics (in millions, except per share amounts):
Metric | 2011 Updated Guidance Range | 2011 Prior Guidance Range | 2010 Actual | |
Adjusted EBITDA | $485 - $505 | $480 - $520 | $470 | |
Free Cash Flow | $260 – $290 | $250 - $300 | $318 | |
Adjusted EPS | $0.45 - $0.55 | $0.40 - $0.55 | $0.42 | |
Sanjiv Khattri, Covanta's Chief Financial Officer, in commenting on the narrower guidance, noted, "We remain on track for a solid year-over-year increase in Adjusted EBITDA and Adjusted EPS and we continue to generate very strong Free Cash Flow."
Shareholder Return Activities
During the quarter, Covanta repurchased $81 million in common stock, or 5.2 million shares (3.6% of the Company's outstanding shares), at a weighted average cost of $15.58 per share. Aggregate repurchases since June 2010 total $300 million, or 18.7 million shares, representing 12.1% of our outstanding shares. The Company also paid a quarterly dividend on July 6, 2011 and declared another quarterly dividend which was paid on October 14, 2011, both for $0.075 per share. During the quarter, Covanta also increased its share repurchase authorization by $100 million, bringing the total authorized amount to $400 million. Covanta has now returned $565 million to shareholders since the inception of its shareholder return program in the third quarter of last year.
"We continue to benefit from our strong cash generation and predictable business model by proactively returning capital to shareholders. Our commitment to this initiative was echoed during the quarter as our Board increased our repurchase authorization," Khattri concluded.
Sale of Asia IPP Assets
In October, the Company completed the sale of its interests in the Madurai facility in India, the third of the four Asia IPP assets designated as assets held for sale. With this sale, Covanta has realized total net proceeds of approximately $256 million, net of transaction costs, from its asset sales so far this year.
Conference Call Information
Covanta will host a conference call at 8:30 am (Eastern) on Thursday, October 20, 2011 to discuss its results for the three and nine months ended September 30, 2011. 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 you are calling from outside of the United States, please dial 702-928-7062. Please utilize conference ID number 11520954 when prompted by the conference call operator. The conference call will also be webcast live from the Investor Information section of the Covanta Energy website. A presentation, which will be referenced during the call, can 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, October 20, 2011. 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 11520954. The webcast will also be archived on www.covantaenergy.com.
10-Q Filing Update
The Company's Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2011 is expected to be filed during the week of October 24, 2011 and will include additional XBRL information required at this time.
About Covanta
Covanta Energy 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 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 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 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 | Nine Months Ended | |||||||
September 30, | September 30, | |||||||
2011 | 2010 (A) | 2011 | 2010 (A) | |||||
(Unaudited) | ||||||||
(In millions, except per share amounts) | ||||||||
Operating revenues | ||||||||
Waste and service revenues | $ 273 | $ 257 | $ 800 | $ 766 | ||||
Electricity and steam sales | 109 | 115 | 301 | 316 | ||||
Other operating revenues | 50 | 31 | 119 | 82 | ||||
Total operating revenues | 432 | 403 | 1,220 | 1,164 | ||||
Operating expenses | ||||||||
Plant operating expenses | 221 | 218 | 740 | 715 | ||||
Other operating expenses | 44 | 28 | 102 | 77 | ||||
General and administrative expenses | 24 | 22 | 74 | 76 | ||||
Depreciation and amortization expense | 48 | 47 | 142 | 142 | ||||
Net interest expense on project debt | 8 | 10 | 24 | 30 | ||||
Write-down of assets (B) | - | 32 | - | 32 | ||||
Total operating expenses | 345 | 357 | 1,082 | 1,072 | ||||
Operating income | 87 | 46 | 138 | 92 | ||||
Other income (expense) | ||||||||
Investment income | 1 | 1 | 1 | 1 | ||||
Interest expense | (16) | (11) | (50) | (32) | ||||
Non-cash convertible debt related expense | (9) | (10) | (20) | (30) | ||||
Other expenses, net | (11) | - | (14) | - | ||||
Total other expenses | (35) | (20) | (83) | (61) | ||||
Income from continuing operations before income tax expense | ||||||||
and equity in net income from unconsolidated investments | 52 | 26 | 55 | 31 | ||||
Income tax expense | (2) | (15) | (3) | (18) | ||||
Equity in net income from unconsolidated investments | 1 | 1 | 3 | 1 | ||||
Income from continuing operations | 51 | 12 | 55 | 14 | ||||
Income from discontinued operations, net of income tax expense of $0, $1, | ||||||||
$3 and $5, respectively (A) (C) | (7) | 11 | 144 | 32 | ||||
Net Income | 44 | 23 | 199 | 46 | ||||
Noncontrolling interests: | ||||||||
Less: Net income from continuing operations attributable to noncontrolling | ||||||||
interests in subsidiaries | (2) | (2) | (3) | (4) | ||||
Less: Net income from discontinued operations attributable to noncontrolling | ||||||||
interests in subsidiaries (A) | - | (1) | (3) | (3) | ||||
Total net income attributable to noncontrolling interests in subsidiaries | (2) | (3) | (6) | (7) | ||||
Net Income Attributable to Covanta Holding Corporation | $ 42 | $ 20 | $ 193 | $ 39 | ||||
Amounts Attributable to Covanta Holding Corporation stockholders': | ||||||||
Continuing operations | $ 49 | $ 10 | $ 52 | $ 10 | ||||
Discontinued operations (A) | (7) | 10 | 141 | 29 | ||||
Net Income Attributable to Covanta Holding Corporation | $ 42 | $ 20 | $ 193 | $ 39 | ||||
Earnings Per Share Attributable to Covanta Holding Corporation | ||||||||
stockholders': | ||||||||
Basic | ||||||||
Continuing operations | $ 0.35 | $ 0.07 | $ 0.37 | $ 0.07 | ||||
Discontinued operations (A) | (0.05) | 0.06 | 0.98 | 0.18 | ||||
Covanta Holding Corporation | $ 0.30 | $ 0.13 | $ 1.35 | $ 0.25 | ||||
Weighted Average Shares | 139 | 153 | 143 | 154 | ||||
Diluted | ||||||||
Continuing operations | $ 0.35 | $ 0.07 | $ 0.36 | $ 0.07 | ||||
Discontinued operations (A) | (0.05) | 0.06 | 0.98 | 0.18 | ||||
Covanta Holding Corporation | $ 0.30 | $ 0.13 | $ 1.34 | $ 0.25 | ||||
Weighted Average Shares | 140 | 154 | 144 | 155 | ||||
Cash Dividend Declared Per Share: | $ 0.075 | $ - | $ 0.225 | $ 1.50 | ||||
Supplemental Information - Non-GAAP | ||||||||
Adjusted EPS (D) | $ 0.24 | $ 0.24 | $ 0.26 | $ 0.24 | ||||
(A) In 2010, we adopted a plan to sell our interests in our non-core legacy fossil fuel independent power production facilities located in the Philippines, India, and Bangladesh. During the fourth quarter of 2010, these assets were classified as Assets Held for Sale as a result of our ongoing effort to sell them. Consequently, all corresponding prior year periods presented in our condensed consolidated financial statements have been reclassified to reflect these assets as discontinued operations. | ||||||||
(B) For additional information, see Exhibit 7 - Note C of this Press Release. | ||||||||
(C) During the first quarter of 2011, we completed the sale of our majority equity interests in a 106 MW (gross) heavy fuel-oil fired electric power generation facilities in Tamil Nadu, India ("Samalpatti") and we completed the sale of our interests in a 510 MW (gross) coal-fired electric power generation facility in the Philippines ("Quezon"). The Quezon assets sold consisted of our entire interest in Covanta Philippines Operating, Inc., which provided operation and maintenance services to the facility, as well as our 26% ownership interest in the project company, Quezon Power, Inc. We received a combined total of cash proceeds of approximately $225 million, net of transaction costs. During the three and nine months ended September 30, 2011, we recorded a net after-tax (loss) gain on assets held for sale of $(11) million and $121 million, respectively. | ||||||||
(D) For additional information, see Exhibit 4 of this Press Release. | ||||||||
Covanta Holding Corporation | Exhibit 2 | ||||
Condensed Consolidated Balance Sheets | |||||
As of | |||||
September 30, | December 31, | ||||
2011 | 2010 | ||||
(Unaudited) | |||||
(In millions, except per share amounts) | |||||
ASSETS | |||||
Current: | |||||
Cash and cash equivalents | $ 195 | $ 126 | |||
Restricted funds held in trust | 154 | 126 | |||
Receivables (less allowances of $4 and $3, respectively) | 240 | 272 | |||
Unbilled service receivables | 20 | 23 | |||
Deferred income taxes | 36 | 27 | |||
Prepaid expenses and other current assets | 123 | 110 | |||
Assets held for sale (A) | 60 | 191 | |||
Total Current Assets | 828 | 875 | |||
Property, plant and equipment, net | 2,444 | 2,478 | |||
Investments in fixed maturities at market (cost: $27 and $29, respectively) | 28 | 29 | |||
Restricted funds held in trust | 107 | 107 | |||
Unbilled service receivables | 26 | 32 | |||
Waste, service and energy contracts, net | 442 | 472 | |||
Other intangible assets, net | 80 | 79 | |||
Goodwill | 232 | 230 | |||
Investments in investees and joint ventures | 45 | 46 | |||
Other assets | 292 | 328 | |||
Total Assets | $ 4,524 | $ 4,676 | |||
LIABILITIES AND EQUITY | |||||
Current: | |||||
Current portion of long-term debt | $ 31 | $ 7 | |||
Current portion of project debt | 99 | 141 | |||
Accounts payable | 25 | 23 | |||
Deferred revenue | 82 | 72 | |||
Accrued expenses and other current liabilities | 233 | 186 | |||
Liabilities held for sale (A) | 19 | 34 | |||
Total Current Liabilities | 489 | 463 | |||
Long-term debt | 1,474 | 1,558 | |||
Project debt | 635 | 662 | |||
Deferred income taxes | 637 | 605 | |||
Waste and service contracts | 79 | 89 | |||
Other liabilities | 113 | 140 | |||
Total Liabilities | 3,427 | 3,517 | |||
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 | |||||
158 and 157 shares; outstanding 138 and 150 shares) | 16 | 16 | |||
Additional paid-in capital | 830 | 893 | |||
Accumulated other comprehensive income | (5) | 5 | |||
Accumulated earnings | 243 | 213 | |||
Treasury stock, at par | (2) | (1) | |||
Total Covanta Holding Corporation stockholders' equity | 1,082 | 1,126 | |||
Noncontrolling interests in subsidiaries | 15 | 33 | |||
Total Equity | 1,097 | 1,159 | |||
Total Liabilities and Equity | $ 4,524 | $ 4,676 | |||
(A) See Exhibit 1 - Note A of this Press Release. | |||||
Covanta Holding Corporation | Exhibit 3 | ||||
Condensed Consolidated Statements of Cash Flow | |||||
Nine Months Ended | |||||
September 30, | |||||
2011 | 2010(A) | ||||
(Unaudited, in millions) | |||||
OPERATING ACTIVITIES: | |||||
Net income | $ 199 | $ 46 | |||
Less: Income from discontinued operations, net of tax expense (A) | 144 | 32 | |||
Income from continuing operations | 55 | 14 | |||
Adjustments to reconcile net income from continuing operations to net | |||||
cash provided by operating activities from continuing operations: | |||||
Depreciation and amortization expense | 142 | 142 | |||
Write-down of assets | - | 32 | |||
Loss on extinguishment of debt | 1 | - | |||
Non-cash convertible debt related expense | 20 | 30 | |||
Stock-based compensation expense | 13 | 13 | |||
Deferred income taxes | 23 | 21 | |||
Decrease in restricted funds held in trust | (35) | (21) | |||
Other, net | (1) | 9 | |||
Reversal of uncertain tax positions related to pre-emergence tax matters | (24) | - | |||
Change in restricted funds-other related to contractual liability to pre-petition creditors | 5 | - | |||
Change in working capital, net of effects of acquisitions | 77 | 53 | |||
Net cash provided by operating activities from continuing operations | 276 | 293 | |||
Net cash provided by operating activities from discontinued operations (A) | 1 | 35 | |||
Net cash provided by operating activities | 277 | 328 | |||
INVESTING ACTIVITIES: | |||||
Purchase of property, plant and equipment | (91) | (83) | |||
Acquisition of noncontrolling interests in subsidiaries | - | (2) | |||
Acquisition of businesses, net of cash acquired | (10) | (128) | |||
Acquisition of land use rights | (8) | (19) | |||
Other, net | (6) | (16) | |||
Net cash used in investing activities from continuing operations | (115) | (248) | |||
Net cash provided by investing activities from discontinued operations (A) | 227 | - | |||
Net cash provided by (used in) investing activities | 112 | (248) | |||
FINANCING ACTIVITIES: | |||||
Principal payments on long-term debt | (37) | (5) | |||
Principal payments on project debt | (83) | (102) | |||
Payments of borrowings on revolving credit facility | - | (56) | |||
Proceeds from borrowings on project debt | 15 | 5 | |||
Proceeds from borrowings on revolving credit facility | - | 56 | |||
Change in restricted funds held in trust | 7 | (41) | |||
Cash dividends paid to stockholders | (22) | (233) | |||
Common stock repurchased | (203) | (37) | |||
Financings of insurance premiums, net | - | (10) | |||
Other financing, net | (8) | 13 | |||
Net cash used in financing activities from continuing operations | (331) | (410) | |||
Net cash provided by (used in) financing activities from discontinued operations (A) | 8 | (28) | |||
Net cash used in financing activities | (323) | (438) | |||
Effect of exchange rate changes on cash and cash equivalents | (4) | - | |||
Net increase (decrease) in cash and cash equivalents | 62 | (358) | |||
Cash and cash equivalents at beginning of period | 141 | 434 | |||
Cash and cash equivalents at end of period | 203 | 76 | |||
Less: Cash and cash equivalents of discontinued operations at end of period (A) | 8 | 22 | |||
Cash and cash equivalents of continuing operations at end of period | $ 195 | $ 54 | |||
(A) See Exhibit 1 - Note A of this Press Release. | |||||
Covanta Holding Corporation | Exhibit 4 | |||||||||
Reconciliation of Diluted Income Per Share to Adjusted EPS | ||||||||||
Three Months Ended | Nine Months Ended | |||||||||
September 30, | September 30, | Full Year | ||||||||
2011 | 2010 (A) | 2011 | 2010 (A) | Estimated 2011 | ||||||
(Unaudited) | ||||||||||
Continuing Operations - Diluted Earnings Per Share | $ 0.35 | $ 0.07 | $ 0.36 | $ 0.07 | $0.52 - $0.62 | |||||
Reconciling Items (B) | (0.11) | 0.17 | (0.10) | 0.17 | (0.07) | |||||
Adjusted EPS | $ 0.24 | $ 0.24 | $ 0.26 | $ 0.24 | $0.45 - $0.55 | |||||
(A) See Exhibit 1 - Note A of this Press Release. | ||||||||||
(B) For details related to the Reconciling Items, see Exhibit 4A of this Press Release. | ||||||||||
Covanta Holding Corporation | Exhibit 4A | |||||||||
Reconciling Items | ||||||||||
Three Months Ended | Nine Months Ended | |||||||||
September 30, | September 30, | |||||||||
2011 | 2010 | 2011 | 2010 | |||||||
(Unaudited) | ||||||||||
(In millions, except per share amounts) | ||||||||||
Reconciling Items | ||||||||||
Loss on extinguishment of debt | $ 1 | $ - | $ 1 | $ - | ||||||
Effect on income of derivative instruments not designated | ||||||||||
as hedging instruments | 1 | - | - | (1) | ||||||
Effect of foreign exchange loss on indebtedness | (5) | - | (2) | - | ||||||
Non-cash write-down of loan issued for the Harrisburg EfW | ||||||||||
facility to fund certain facility improvements (A) | - | 7 | - | 7 | ||||||
Non-cash write-down of capitalized costs related to the Dublin | ||||||||||
development project (A) | - | 23 | - | 23 | ||||||
Non-cash write-down of corporate real estate (A) | - | 2 | - | 2 | ||||||
Contractual liability to pre-petition creditors (B) | 15 | - | 15 | - | ||||||
Other | (1) | - | (1) | - | ||||||
Total Reconciling Items, pre-tax | 11 | 32 | 13 | 31 | ||||||
Proforma income tax impact (C) | (3) | (7) | (4) | (7) | ||||||
Grantor trust activity | 1 | 1 | 1 | 2 | ||||||
Reversal of uncertain tax positions related to pre-emergence tax | ||||||||||
matters (B) | (24) | - | (24) | - | ||||||
Total Reconciling Items, net of tax | $ (15) | $ 26 | $ (14) | $ 26 | ||||||
Diluted Earnings Per Share Impact | $ (0.11) | $ 0.17 | $ (0.10) | $ 0.17 | ||||||
Weighted Average Diluted Shares Outstanding | 140 | 154 | 144 | 155 | ||||||
(A) For additional information, see Exhibit 7 - Note C of this Press Release. | ||||||||||
(B) For the three 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. We had held since March 2004 $20 million in restricted funds intended to cover those uncertain tax positions. The restricted funds were included in other assets on our condensed consolidated balance sheet. The expiration of the statutes of limitations triggered a liability to pre-petition claimants of approximately 73% of the restricted fund balance. Therefore, we recorded approximately $15 million as other expense during the three months ended September 30, 2011. As of September 30, 2011, $15 million of the non-current restricted funds was reclassified to other current assets on our condensed consolidated balance sheet and is expected to be paid to third party claimants in the fourth quarter of 2011. The remaining $5 million was reclassified to cash and cash equivalents on our condensed consolidated balance sheet as of September 30, 2011. | ||||||||||
(C) There is no tax benefit from the contractual liability to pre-petition creditors and minimal tax benefit from the non-cash write-down related to the Dublin assets. As a result, these items had an impact on the effective tax rate in the third quarter of 2011 and 2010, respectively. Accordingly, 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 | Nine Months Ended | |||||||||
September 30, | September 30, | |||||||||
2011 | 2010 | 2011 | 2010 | |||||||
(Unaudited) | ||||||||||
Effective Tax Rate (A) | 5.0% | 51.0% | 6.0% | 46.3% | ||||||
(A) Our full year estimated effective tax rate ("ETR") decreased during the third quarter of 2011 compared to our prior estimate as a result of the reversal of uncertain tax positions related to pre-emergence tax matters resulting from the expiration of the related statute of limitations. This reversal triggered a contractual liability to pay pre-petition claimants from Covanta Energy's bankruptcy. This pre-tax expense is not deductible for income tax purposes and so this expense increases the ETR. GAAP requires the tax benefit from the reversal of the tax reserve to be recognized in full during the quarter while the ETR including the related non-deductible pre-tax expense is calculated on a full year basis. The result is a decrease of the ETR in the third quarter of 2011 followed by a large increase to the ETR for the fourth quarter of 2011. The ETR for the third quarter of 2011 was 5% and we expect the ETR for the fourth quarter of 2011 to be approximately 48%, absent discrete items. | ||||||||||
Covanta Holding Corporation | Exhibit 5 | |||||||||
Reconciliation of Net Income to Adjusted EBITDA | ||||||||||
Three Months Ended | Nine Months Ended | |||||||||
September 30, | September 30, | Full Year | ||||||||
2011 | 2010 (A) | 2011 | 2010 (A) | Estimated 2011 | ||||||
(Unaudited, in millions) | ||||||||||
Net Income from Continuing Operations Attributable to Covanta Holding Corporation | $ 49 | $ 10 | $ 52 | $ 10 | $74 - $88 | |||||
Depreciation and amortization expense | 48 | 47 | 142 | 142 | 196 - 192 | |||||
Debt service: | ||||||||||
Net interest expense on project debt | 8 | 10 | 24 | 30 | ||||||
Interest expense | 16 | 11 | 50 | 32 | ||||||
Non-cash convertible debt related expense | 9 | 10 | 20 | 30 | ||||||
Investment income | (1) | (1) | (1) | (1) | ||||||
Subtotal debt service | 32 | 30 | 93 | 91 | 128 - 124 | |||||
Income tax expense (adjusted for reversal of uncertain tax positions related to pre-emergence tax matters) (B) | 26 | 15 | 27 | 18 | 46 - 62 | |||||
Reversal of uncertain tax positions related to pre-emergence tax matters (B) | (24) | - | (24) | - | (24) | |||||
Contractual liability to pre-petition creditors (B) | 15 | - | 15 | - | 15 | |||||
Write-down of assets (C) | - | 32 | - | 32 | ||||||
Loss on extinguishment of debt | 1 | - | 1 | - | 1 | |||||
Net income attributable to noncontrolling interests in subsidiaries | 2 | 2 | 3 | 4 | 4 - 6 | |||||
Other adjustments: | ||||||||||
Debt service billings in excess of revenue recognized (D) | 3 | 8 | 21 | 24 | ||||||
Non-cash compensation expense | 4 | 3 | 13 | 13 | ||||||
Other non-cash items (E) | (4) | 3 | 3 | 7 | ||||||
Subtotal other adjustments | 3 | 14 | 37 | 44 | 45 - 41 | |||||
Total adjustments | 103 | 140 | 294 | 331 | ||||||
Adjusted EBITDA - Continuing Operations | $ 152 | $ 150 | $ 346 | $ 341 | $485 - $505 | |||||
(A) See Exhibit 1 - Note A of this Press Release. | ||||||||||
(B) See Exhibit 4A - Note B of this Press Release. | ||||||||||
(C) See Exhibit 7 - Note C of this Press Release. | ||||||||||
(D) Formally labeled "Decrease in Unbilled Service Receivables". This amount represents a true-up between (a) revenue recognized in the period for client payments of project debt principal under service fee contract structures, which is accounted for on a straight-line basis over the term of the project debt, and (b) actual billings to clients for debt principal payments in the period. As a result of this adjustment, Adjusted EBITDA reflects the actual amounts billed to clients for debt service principal, not the straight-lined revenue as recognized. | ||||||||||
(E) 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 | Nine Months Ended | |||||||||||||
September 30, | September 30, | Full Year | ||||||||||||
2011 | 2010 (A) | 2011 | 2010 (A) | Estimated 2011 | ||||||||||
(Unaudited, in millions) | ||||||||||||||
Cash flow provided by operating activities from continuing operations | $ 120 | $ 103 | $ 276 | $ 293 | $335 - $375 | |||||||||
Less: Maintenance capital expenditures (B) | (14) | (8) | (61) | (57) | (75) - (85) | |||||||||
Continuing Operations Free Cash Flow | $ 106 | $ 95 | $ 215 | $ 236 | $260 - $290 | |||||||||
Weighted Average Diluted Shares Outstanding | 140 | 154 | 144 | 155 | ||||||||||
Uses of Continuing Operations Free Cash Flow | ||||||||||||||
Investments: | ||||||||||||||
Acquisition of businesses, net of cash acquired | $ - | $ - | $ (10) | $ (128) | ||||||||||
Non-maintenance capital expenditures | (9) | (10) | (30) | (26) | ||||||||||
Acquisition of land use rights | - | (4) | (8) | (19) | ||||||||||
Acquisition of noncontrolling interests in subsidiaries | - | - | - | (2) | ||||||||||
Other investing activities, net (C) | (3) | - | (6) | (16) | ||||||||||
Total investments | $ (12) | $ (14) | $ (54) | $ (191) | ||||||||||
Return of capital to stockholders: | ||||||||||||||
Cash dividends paid to stockholders | $ (11) | $ (233) | $ (22) | $ (233) | ||||||||||
Common stock repurchased | (80) | (37) | (203) | (37) | ||||||||||
Total return of capital to stockholders | $ (91) | $ (270) | $ (225) | $ (270) | ||||||||||
Capital raising activities: | ||||||||||||||
Net proceeds from issuance of project debt | $ 7 | $ 2 | $ 15 | $ 5 | ||||||||||
Other financing activities, net | (1) | 4 | (3) | 17 | ||||||||||
Net proceeds from capital raising activities | $ 6 | $ 6 | $ 12 | $ 22 | ||||||||||
Debt repayments: | ||||||||||||||
Net cash used for scheduled principal payments on project debt (D) | $ (23) | $ (32) | $ (76) | $ (143) | ||||||||||
Net cash used for scheduled principal payments on long-term debt | (2) | (2) | (5) | (5) | ||||||||||
Optional repayment of corporate debt | (26) | - | (32) | - | ||||||||||
Total debt repayments | $ (51) | $ (34) | $ (113) | $ (148) | ||||||||||
Short-term borrowing activities - Financing of insurance premiums, net | $ - | $ (3) | $ - | $ (10) | ||||||||||
Distributions to partners of noncontrolling interests in subsidiaries | $ (2) | $ (1) | $ (5) | $ (4) | ||||||||||
Effect of exchange rate changes on cash and cash equivalents | $ (3) | $ 3 | $ (2) | $ - | ||||||||||
Net change in cash and cash equivalents from continuing operations | $ (47) | $ (218) | $ (172) | $ (365) | ||||||||||
(A) See Exhibit 1 - Note A of this Press Release. | ||||||||||||||
(B) 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: | ||||||||||||||
Maintenance capital expenditures | $ (14) | $ (8) | $ (61) | $ (57) | ||||||||||
Capital expenditures associated with project construction / development | (7) | (4) | (18) | (14) | ||||||||||
Capital expenditures associated with new technology | (1) | (1) | (3) | (4) | ||||||||||
Capital expenditures - other | (1) | (5) | (9) | (8) | ||||||||||
Total purchases of property, plant and equipment | $ (23) | $ (18) | $ (91) | $ (83) | ||||||||||
(C) Other investing activities is primarily comprised of net payments from the purchase/sale of investment securities and business development expenses. | ||||||||||||||
(D) Calculated as follows: | ||||||||||||||
Total principal payments on project debt | $ (6) | $ (7) | $ (83) | $ (102) | ||||||||||
(Increase) decrease in related restricted funds held in trust | (17) | (25) | 7 | (41) | ||||||||||
Net cash used for principal payments on project debt | $ (23) | $ (32) | $ (76) | $ (143) | ||||||||||
Covanta Holding Corporation | Exhibit 7 | |||||||||
Calculation of Key Metrics For The Three Months Ended March 31, 2010, June 30, 2010, September 30, 2010 and December 31, 2010 and for the year ended December 31, 2010 (A) | ||||||||||
Free Cash Flow | Three Months Ended | Year Ended | ||||||||
March 31, 2010 | June 30, 2010 | September 30, 2010 | December 31, 2010 | December 31, 2010 | ||||||
(Unaudited, in millions) | ||||||||||
Cash flow provided by operating activities from continuing operations | $ 116 | $ 74 | $ 103 | $ 99 | $ 392 | |||||
Less: Maintenance capital expenditures | (33) | (16) | (8) | (17) | (74) | |||||
Free Cash Flow - Continuing Operations | $ 83 | $ 58 | $ 95 | $ 82 | $ 318 | |||||
Maintenance capital expenditures | $ (33) | $ (16) | $ (8) | $ (17) | $ (74) | |||||
Capital expenditures associated with project construction / development | (3) | (7) | (4) | (7) | (21) | |||||
Capital expenditures associated with new technology | (2) | (1) | (1) | (2) | (6) | |||||
Capital expenditures - other | - | (3) | (5) | (6) | (14) | |||||
Total purchases of property, plant and equipment | $ (38) | $ (27) | $ (18) | $ (32) | $ (115) | |||||
Adjusted EBITDA | Three Months Ended | Year Ended | ||||||||
March 31, 2010 | June 30, 2010 | September 30, 2010 | December 31, 2010 | December 31, 2010 | ||||||
(Unaudited, in millions) | ||||||||||
Net (Loss) Income from Continuing Operations Attributable to Covanta Holding Corporation | $ (16) | $ 16 | $ 10 | $ 20 | $ 30 | |||||
Depreciation and amortization expense | 48 | 47 | 47 | 48 | 190 | |||||
Debt service | 29 | 32 | 30 | 30 | 121 | |||||
Income tax (benefit) expense | (10) | 13 | 15 | 6 | 24 | |||||
Net income attributable to noncontrolling interests in subsidiaries | 1 | 1 | 2 | 1 | 5 | |||||
Write-down of assets | - | - | 32 | 2 | 34 | |||||
Loss on extinguishment of debt | - | - | - | 15 | 15 | |||||
Debt service billings in excess of revenue recognized | 11 | 5 | 8 | 5 | 29 | |||||
Other | 6 | 8 | 6 | 2 | 22 | |||||
Adjusted EBITDA - Continuing Operations | $ 69 | $ 122 | $ 150 | $ 129 | $ 470 | |||||
Adjusted EPS | Three Months Ended | Year Ended | ||||||||
March 31, 2010 | June 30, 2010 | September 30, 2010 | December 31, 2010 | December 31, 2010 | ||||||
(Unaudited) | ||||||||||
Continuing Operations - Diluted (Loss) Earnings Per Share | $ (0.10) | $ 0.10 | $ 0.07 | $ 0.13 | $ 0.19 | |||||
Reconciling Items | (0.01) | 0.01 | 0.17 | 0.06 | 0.23 | |||||
Adjusted EPS | $ (0.11) | $ 0.11 | $ 0.24 | $ 0.19 | $ 0.42 | |||||
Three Months Ended | Year Ended | |||||||||
March 31, 2010 | June 30, 2010 | September 30, 2010 | December 31, 2010 | December 31, 2010 | ||||||
Reconciling Items | (Unaudited) | |||||||||
(In millions, except per share amounts) | ||||||||||
Loss on extinguishment of debt (B) | $ - | $ - | $ - | $ 15 | $ 15 | |||||
Effect on income of derivative instruments not designated | ||||||||||
as hedging instruments | (2) | 1 | - | - | (1) | |||||
Non-cash write-down of loan issued for the Harrisburg EfW | ||||||||||
facility to fund certain facility improvements (C) | - | - | 7 | - | 7 | |||||
Non-cash write-down of capitalized costs related to the | ||||||||||
Dublin development project (C) | - | - | 23 | - | 23 | |||||
Non-cash write-down of corporate real estate (C) | - | - | 2 | 1 | 3 | |||||
Total Reconciling Items, pre-tax | (2) | 1 | 32 | 16 | 47 | |||||
Tax effect of reconciling items | 1 | (1) | (7) | (2) | (9) | |||||
Grantor trust activity | - | 1 | 1 | (4) | (2) | |||||
Total Reconciling Items, net of tax | $ (1) | $ 1 | $ 26 | $ 10 | $ 36 | |||||
Diluted Income (Loss) Per Share Impact | $ (0.01) | $ 0.01 | $ 0.17 | $ 0.06 | $ 0.23 | |||||
Weighted Average Diluted Shares Outstanding | 154 | 155 | 154 | 152 | 154 | |||||
(A) Prior year quarterly information is presented since it was not previously provided for continuing operations. See Exhibit 1 - Note A of this Press Release. | ||||||||||
(B) During the fourth quarter of 2010, as a result of the tender offer to purchase our outstanding Debentures, we recorded a loss on extinguishment of debt which is comprised of the difference between the fair value and carrying value of the liability component of the Debentures tendered, the write-off of deferred financing costs and fees incurred in conjunction with the tender offer. For details related to the tender offer transaction, see Note 12 — Long-Term Debt of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2010. | ||||||||||
(C) In 2010, we recorded a non-cash write-down of assets related to a notes receivable from our Harrisburg EfW facility and the write-down of assets related to the Dublin project, and the write-down to fair value of corporate real estate and certain other assets. For additional information, see Note 16 — Supplementary Information of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2010. | ||||||||||
Covanta Holding Corporation | Exhibit 8 | |||||||||||
Capitalization Information | ||||||||||||
As of | ||||||||||||
September 30, | December 31, | |||||||||||
2011 | 2010 | |||||||||||
Cash and Cash Equivalents: | (Unaudited, in millions) | |||||||||||
Domestic | $ 56 | $ 68 | ||||||||||
International | 132 | 52 | ||||||||||
Insurance | 7 | 6 | ||||||||||
Total Cash and Cash Equivalents | $ 195 | $ 126 | ||||||||||
Restricted Funds Held in Trust: (A) | ||||||||||||
Debt Service - Principal | $ 145 | $ 157 | ||||||||||
Debt Service - Interest | 8 | 6 | ||||||||||
Debt Service Funds - Total | 153 | 163 | ||||||||||
Revenue Funds | 47 | 18 | ||||||||||
Other Funds | 61 | 52 | ||||||||||
Total Restricted Funds Held in Trust | $ 261 | $ 233 | ||||||||||
(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, 2011 | As of December 31, 2010 | |||||||||||
Face Value | Book Value | Face Value | Book Value | |||||||||
Corporate Debt: | (Unaudited, in millions) | |||||||||||
Revolving Credit Facility | $ - | $ - | $ - | $ - | ||||||||
Term Loan Facility | 621 | 621 | 626 | 626 | ||||||||
7.25% Senior Notes due 2020 | 400 | 400 | 400 | 400 | ||||||||
3.25% Cash Convertible Senior Notes due 2014 | 460 | 459 | 460 | 485 | ||||||||
1.00% Senior Convertible Debentures due 2027 | 25 | 25 | 57 | 54 | ||||||||
Total corporate debt (including current portion) | $ 1,506 | $ 1,505 | $ 1,543 | $ 1,565 | ||||||||
Project Debt: | ||||||||||||
Domestic project debt - service fee facilities | $ 334 | $ 339 | $ 395 | $ 402 | ||||||||
Domestic project debt - tip fee facilities | 365 | 369 | 386 | 391 | ||||||||
International project debt | 26 | 26 | 10 | 10 | ||||||||
Total project debt (including current portion) | $ 725 | $ 734 | $ 791 | $ 803 | ||||||||
Total Debt Outstanding | $ 2,231 | $ 2,239 | $ 2,334 | $ 2,368 | ||||||||
Net Debt (A) | $ 1,891 | $ 2,051 | ||||||||||
Availability for Borrowings under the Revolving Credit Facility | $ 300 | $ 300 | ||||||||||
(A) 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 year ended December 31, 2010 and the nine months ended September 30, 2011, the following amounts were returned to stockholders: | |||||||||
Amount | Shares | Weighted Average | % of Common | ||||||
Common Stock Repurchased (A) | |||||||||
Q3 2010 | $ 37 | 2.5 | $ 14.69 | 1.6% | |||||
Q4 2010 | 58 | 3.6 | $ 16.16 | 2.4% | |||||
FY 2010 sub-total: | $ 95 | 6.1 | $ 15.56 | 4.0% | |||||
Q1 2011 | 54 | 3.2 | $ 16.84 | 2.1% | |||||
Q2 2011 | 70 | 4.2 | $ 16.58 | 2.9% | |||||
Q3 2011 (B) | 81 | 5.2 | $ 15.58 | 3.6% | |||||
FY 2011 sub-total: | $ 205 | 12.6 | $ 16.24 | 8.6% | |||||
Total Common Stock Repurchased | $ 300 | 18.7 | $ 16.02 | 12.1% | |||||
Cash Dividends Declared to Stockholders (C) | |||||||||
FY 2010 | $ 233 | ||||||||
Q1 2011 | 11 | ||||||||
Q2 2011 | 11 | ||||||||
Q3 2011 | 10 | ||||||||
FY 2011 sub-total: | $ 32 | ||||||||
Total Cash Dividends Declared to Stockholders | $ 265 | ||||||||
Total Return to Stockholders | $ 565 | ||||||||
(A) On June 17, 2010, the Board of Directors increased the authorization to repurchase shares of outstanding common stock to $150 million. On March 14, May 6, and September 22, 2011, the Board of Directors approved an additional $50 million, $100 million and $100 million, respectively, of share repurchase authorization, bringing the total authorized amount to $400 million. As of September 30, 2011, the amount remaining under our currently authorized share repurchase program is $100 million. | |||||||||
(B) Approximately $2 million of common stock repurchased during the three months ended September 30, 2011 was paid in October 2011. | |||||||||
(C) On June 17, 2010, the Board of Directors declared a special cash dividend of $1.50 per share (approximately $233 million in aggregate) which was paid on July 20, 2010. On March 14, 2011, the Board of Directors approved a quarterly regular cash dividend of $0.075 per share. The Q1 2011 payment was made on April 12, 2011 to stockholders of record as of the close of business on March 30, 2011. The Q2 2011 payment was made on July 6, 2011 to stockholders of record as of the close of business on June 22, 2011. The Q3 2011 payment was made on October 14, 2011 to stockholders of record as of the close of business on October 3, 2011. | |||||||||
Covanta Holding Corporation | Exhibit 10 | |||||||||
Consolidated Reconciliation of Cash Flow Provided by Operating Activities to Adjusted EBITDA | ||||||||||
Three Months Ended | Nine Months Ended | |||||||||
September 30, 2010 | September 30, 2010 | Full Year | ||||||||
2011 | 2010 (A) | 2011 | 2010 (A) | Estimated 2011 | ||||||
(Unaudited, in millions) | ||||||||||
Cash flow provided by operating activities from continuing operations | $ 120 | $ 103 | $ 276 | $ 293 | $335 - $375 | |||||
Debt service | 32 | 30 | 93 | 91 | 128 - 124 | |||||
Change in working capital | (35) | 1 | (77) | (53) | ||||||
Change in restricted funds held in trust | 26 | 20 | 35 | 21 | ||||||
Non-cash convertible debt related expense | (9) | (10) | (20) | (30) | ||||||
Equity in net income from unconsolidated investments | 1 | 1 | 3 | 1 | ||||||
Dividends from unconsolidated investments | (1) | (2) | (5) | (4) | ||||||
Current tax provision | (23) | (1) | (20) | (3) | ||||||
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 (C) | (5) | - | (5) | - | ||||||
Other | 22 | 8 | 42 | 25 | ||||||
Sub-total | - | 17 | (23) | (43) | 22 - 6 | |||||
Adjusted EBITDA - Continuing Operations | $ 152 | $ 150 | $ 346 | $ 341 | $485 - $505 | |||||
(A) See Exhibit 1 - Note A of this Press Release. | ||||||||||
(B) See Exhibit 4A - Note C of this Press Release. | ||||||||||
(C) See Exhibit 4A - Note B of this Press Release. | ||||||||||
Covanta Holding Corporation | Exhibit 11 | ||||||
Energy Revenue - Volume and Unit Statistics - Americas | |||||||
Nine Months Ended September 30, 2011 | |||||||
Revenue ($) | Covanta Share(A) | Avg. Revenue | |||||
(Unaudited, in millions, except per unit amounts) | |||||||
Contracted and Hedged (B) | $ 216 | 3.0 | $ 73 | ||||
Exposed (C) | 67 | 1.1 | $ 60 | ||||
Total | $ 283 | 4.1 | $ 69 | ||||
(A) Covanta share of energy sold (both electricity and steam sales). The MWhs shown above include steam sales converted to MWhs. | |||||||
(B) Reflects energy that is sold at contractual rates that are not subject to significant market price fluctuation or that is hedged at fixed prices. | |||||||
(C) Reflects energy that is sold at or indexed to volatile market prices, whether or not under contract. This includes certain facilities that sell energy at "avoided cost" rates that are linked to energy commodities with volatile pricing. | |||||||
Covanta Holding Corporation | Exhibit 12 | |||||||||||
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 | Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||
(Unaudited, in millions) | ||||||||||||
Plant Operating Expenses: | ||||||||||||
Plant maintenance (A) | $ 38 | $ 39 | $ 187 | $ 176 | ||||||||
All other | 176 | 173 | 532 | 520 | ||||||||
Plant operating expenses | $ 214 | $ 212 | $ 719 | $ 696 | ||||||||
(A) Plant maintenance costs include our internal maintenance team and non facility employee costs for facility scheduled and unscheduled equipment maintenance and repair expenses. | ||||||||||||
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 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, 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.
Under these credit facilities, 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, 2011. 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 3.50 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, 2011 and 2010, reconciled for each such periods to net loss 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 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 or make principal payments on debt.
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, 2011 and 2010, 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 (Loss) 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 write-down of assets, the effect of derivative instruments not designated as hedging instruments, significant gains or losses from the disposition 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, 2011 and 2010, 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.
SOURCE Covanta Holding Corporation
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