Covanta Holding Corporation Reports 2017 Second Quarter Results And Reaffirms 2017 Guidance

Three Months Ended June 30,

2016

2017

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

Revenue

$418

$424

Net Loss

$(29)

$(37)

Adjusted EBITDA

$82

$93

Net cash provided by operating activities

$27

$16

Free Cash Flow

$(5)

$(21)

Diluted EPS

$(0.23)

$(0.28)

Adjusted EPS

$(0.22)

$(0.22)

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

(In millions)

Metric

2016
Actual

2017
Guidance Range ⁽¹⁾

Adjusted EBITDA

$410

$400 - $440

Free Cash Flow

$172

$100 - $150

⁽¹⁾

For additional information on the reconciliation of Free Cash Flow to Cash flow provided by operating activities, see Exhibit 5 of this press release.

Covanta Holding Corporation

Exhibit 1

Condensed Consolidated Statements of Operations

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

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

Operating revenue

Waste and service revenue

$

310

$

297

$

596

$

576

Energy revenue

75

86

161

187

Recycled metals revenue

15

17

31

30

Other operating revenue

24

18

40

28

Total operating revenue

424

418

828

821

Operating expense

Plant operating expense

319

314

651

629

Other operating expense

2

19

17

31

General and administrative expense

30

25

58

48

Depreciation and amortization expense

52

51

104

103

Impairment charges ^(a)

1

4

1

19

Total operating expense

404

413

831

830

Operating income (loss)

20

5

(3)

(9)

Other expense

Interest expense, net

(35)

(34)

(71)

(68)

Loss on asset sales ^(a)

(2)

—

(6)

—

Loss on extinguishment of debt

(13)

—

(13)

—

Other income, net

—

2

—

—

Total other expense

(50)

(32)

(90)

(68)

Loss before income tax (expense) benefit and equity in net income from
  unconsolidated investments

(30)

(27)

(93)

(77)

Income tax (expense) benefit

(8)

(3)

3

7

Equity in net income from unconsolidated investments

1

1

1

4

Net Loss Attributable to Covanta Holding Corporation

$

(37)

$

(29)

$

(89)

$

(66)

Weighted Average Common Shares Outstanding:

Basic

130

129

129

129

Diluted

130

129

129

129

Loss Per Share:

Basic

$

(0.28)

$

(0.23)

$

(0.69)

$

(0.51)

Diluted

$

(0.28)

$

(0.23)

$

(0.69)

$

(0.51)

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

Condensed Consolidated Balance Sheets

As of

June 30, 2017

December 31, 2016

(Unaudited)

ASSETS

(In millions, except per share amounts)

Current:

Cash and cash equivalents

$

48

$

84

Restricted funds held in trust

50

56

Receivables (less allowances of $10 million and $9 million, respectively)

302

332

Prepaid expenses and other current assets

77

72

Total Current Assets

477

544

Property, plant and equipment, net

3,113

3,024

Restricted funds held in trust

55

54

Waste, service and energy contract intangibles, net

257

263

Other intangible assets, net

39

34

Goodwill

312

302

Other assets

67

63

Total Assets

$

4,320

$

4,284

LIABILITIES AND EQUITY

Current:

Current portion of long-term debt

$

10

$

9

Current portion of project debt

22

22

Accounts payable

54

98

Accrued expenses and other current liabilities

292

289

Total Current Liabilities

378

418

Long-term debt

2,368

2,243

Project debt

436

361

Deferred income taxes

606

617

Other liabilities

186

176

Total Liabilities

3,974

3,815

Equity:

Covanta Holding Corporation stockholders' equity:

Preferred stock ($0.10 par value; authorized 10 shares; none issued and
outstanding)

—

—

Common stock ($0.10 par value; authorized 250 shares; issued 136 shares,
   outstanding 131 and 130, respectively)

14

14

Additional paid-in capital

816

807

Accumulated other comprehensive loss

(47)

(62)

Accumulated deficit

(436)

(289)

Treasury stock, at par

(1)

(1)

Total Covanta Holding Corporation stockholders' equity

346

469

Total Liabilities and Equity

$

4,320

$

4,284

Covanta Holding Corporation

Exhibit 3

Condensed Consolidated Statements of Cash Flow

Six Months Ended June 30,

2017

2016

(Unaudited, in millions)

OPERATING ACTIVITIES:

Net loss

$

(89)

$

(66)

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization expense

104

103

Impairment charges ^(a)

1

19

Loss on asset sales ^(a)

6

—

Loss on extinguishment of debt

13

—

Stock-based compensation expense

11

9

Deferred income taxes

(6)

(8)

Other, net

2

2

Change in restricted funds held in trust

(1)

3

Change in working capital, net of effects of acquisitions

(15)

—

Net cash provided by operating activities

26

62

INVESTING ACTIVITIES:

Purchase of property, plant and equipment

(152)

(184)

Acquisition of business, net of cash acquired

(16)

(9)

Property insurance proceeds

5

—

Other, net

(3)

2

Net cash used in investing activities

(166)

(191)

FINANCING ACTIVITIES:

Proceeds from borrowings on long-term debt

400

—

Proceeds from borrowings on revolving credit facility

633

515

Proceeds from Dublin financing

60

77

Payments of borrowings on revolving credit facility

(501)

(370)

Payments on long-term debt

(412)

(1)

Payments of equipment financing capital leases

(2)

(2)

Payments on project debt

(12)

(9)

Payments of deferred financing costs

(9)

(3)

Cash dividends paid to stockholders

(65)

(65)

Change in restricted funds held in trust

5

18

Common stock repurchased

—

(20)

Other, net

4

(1)

Net cash provided by financing activities

101

139

Effect of exchange rate changes on cash and cash equivalents

3

2

Net (decrease) increase in cash and cash equivalents

(36)

12

Cash and cash equivalents at beginning of period

84

96

Cash and cash equivalents at end of period

$

48

$

108

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

Covanta Holding Corporation

Exhibit 4

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

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

(Unaudited, in millions)

Net Loss Attributable to Covanta Holding Corporation

$

(37)

$

(29)

$

(89)

$

(66)

Depreciation and amortization expense

52

51

104

103

Interest expense, net

35

34

71

68

Income tax expense (benefit)

8

3

(3)

(7)

Impairment charges ^(a)

1

4

1

19

Loss on asset sales ^(b)

2

—

6

—

Loss on extinguishment of debt

13

—

13

—

Property insurance recoveries ^(c)

(3)

—

(3)

—

Other adjustments:

Capital type expenditures at service fee operated facilities ^(d)

12

12

26

23

Debt service billings in excess of revenue recognized

1

1

2

2

Severance and reorganization costs

1

1

1

2

Non-cash compensation expense

6

4

11

9

Other non-cash items

1

—

3

3

Other ^(e)

1

1

1

2

Adjusted EBITDA

$

93

$

82

$

144

$

158

Capital type expenditures at service fee operated facilities ^(d)

(12)

(12)

(26)

(23)

Cash paid for interest, net of capitalized interest

(41)

(45)

(67)

(67)

Cash paid for taxes, net

(2)

—

(1)

(4)

Adjustment for working capital and other

(22)

2

(24)

(2)

Net cash provided by operating activities

$

16

$

27

$

26

$

62

(a)

During the three months ended June 30, 2016, we recorded a non-cash impairment totaling $4 million, of which $3 million related to an investment in a joint venture to recover and recycle metals. During the six months ended June 30, 2016, we recorded non-cash impairment charges totaling $19 million, of which $13 million related to the previously planned closure of our Pittsfield EfW facility in March 2017, which we now continue to operate.

(b) 

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) 

During the three months ended June 30, 2017, we recorded a $3 million property insurance gain related to our Plymouth, Massachusetts EfW facility.

(d) 

 Adjustment for impact of adoption of  FASB ASC 853 - Service Concession Arrangements.  These types of expenditures at our service fee operated facilities were historically capitalized prior to adoption of this new accounting standard effective January 1, 2015.

(e) 

Includes certain other items that are added back under the definition of Adjusted EBITDA in Covanta Energy, LLC's credit agreement.

Covanta Holding Corporation

Exhibit 5

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow

Three Months Ended
June 30,

Six Months Ended
June 30,

Full  Year
Estimated 2017

2017

2016

2017

2016

(Unaudited, in millions)

Net cash provided by operating activities

$

16

$

27

$

26

$

62

$210 - $270

Less: Maintenance capital expenditures ^(a)

(37)

(32)

(64)

(68)

Free Cash Flow

$

(21)

$

(5)

$

(38)

$

(6)

Uses of Free Cash Flow

Investments:

Growth investments ^(b)

$

(45)

$

(66)

$

(95)

$

(125)

Property insurance proceeds

3

—

5

—

Capital expenditures associated with property insurance events

(8)

—

(9)

—

Other investing activities, net

(2)

2

(3)

2

Total investments

$

(52)

$

(64)

$

(102)

$

(123)

Return of capital to stockholders:

Cash dividends paid to stockholders

$

(32)

$

(32)

$

(65)

$

(65)

Common stock repurchased

—

—

—

(20)

Total return of capital to stockholders

$

(32)

$

(32)

$

(65)

$

(85)

Capital raising activities:

Net proceeds from issuance of corporate debt ^(c)

$

—

$

—

$

393

$

—

Proceeds from Dublin financing

27

40

60

77

Change in restricted funds held in trust

(4)

3

—

13

Other financing activities, net

8

(2)

4

(1)

Payment of deferred financing costs

(1)

—

(2)

(3)

Net proceeds from capital raising activities

$

30

$

41

$

455

$

86

Debt repayments:

Net cash used for scheduled principal payments on corporate debt

$

(1)

$

(1)

$

(2)

$

(1)

Net cash used for principal payments on project debt ^(d)

—

—

(7)

(4)

Voluntary prepayment of corporate debt

(410)

—

(410)

—

Payments of equipment financing capital leases

(1)

(1)

(2)

(2)

Total debt repayments

$

(412)

$

(2)

$

(421)

$

(7)

Borrowing activities - Revolving credit facility, net

$

89

$

64

$

132

$

145

Effect of exchange rate changes on cash and cash equivalents

$

2

$

—

$

3

$

2

Net change in cash and cash equivalents

$

(396)

$

2

$

(36)

$

12

(a)  Purchases of property, plant and equipment are also referred to as capital expenditures. Capital expenditures that primarily maintain existing facilities are classified as maintenance capital expenditures.  The following table provides the components of total purchases of property, plant and equipment:

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

Maintenance capital expenditures

$

(37)

$

(32)

$

(64)

$

(68)

Capital expenditures associated with construction of Dublin EfW facility

(36)

(48)

(56)

(73)

Capital expenditures associated with organic growth initiatives

(9)

(8)

(20)

(22)

Capital expenditures associated with the New York City MTS contract

—

(2)

—

(3)

Capital expenditures associated with Essex County EfW emissions control system

—

(8)

(3)

(18)

Total capital expenditures associated with growth investments

(45)

(66)

(79)

(116)

Capital expenditures associated with property insurance events

(8)

—

(9)

—

Total purchases of property, plant and equipment

$

(90)

$

(98)

$

(152)

$

(184)

(b)  Growth investments include investments in growth opportunities, including organic growth initiatives, technology, business development, and other similar expenditures.

Capital expenditures associated with growth investments

$

(45)

$

(66)

$

(79)

$

(116)

Acquisition of business, net of cash acquired

—

—

(16)

(9)

Total growth investments

$

(45)

$

(66)

$

(95)

$

(125)

(c)  Excludes borrowings under Revolving Credit Facility. Calculated as follows:

Proceeds from borrowings on long-term debt

$

—

$

—

$

400

$

—

Less: Financing costs related to issuance of long-term debt

—

—

(7)

—

Net proceeds from issuance of corporate debt

$

—

$

—

$

393

$

—

(d)  Calculated as follows:

Total principal payments on project debt

$

(3)

$

(1)

$

(12)

$

(9)

Change in related restricted funds held in trust

3

1

5

5

Net cash used for principal payments on project debt

$

—

$

—

$

(7)

$

(4)

Covanta Holding Corporation

Exhibit 6

Reconciliation of Diluted Loss Per Share to Adjusted EPS

Three Months Ended
June 30,

Six Months Ended
June 30,

2017

2016

2017

2016

(Unaudited)

Diluted Loss Per Share

$

(0.28)

$

(0.23)

$

(0.69)

$

(0.51)

Reconciling Items ^(a)

0.06

0.01

0.10

0.10

Adjusted EPS

$

(0.22)

$

(0.22)

$

(0.59)

$

(0.41)

(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,

2017

2016

2017

2016

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

Reconciling Items

Impairment charges ^(a)

$

1

$

4

$

1

$

19

Loss on asset sales ^(a)

2

—

6

—

Property insurance recoveries ^(a)

(3)

—

(3)

—

Severance and reorganization costs

1

1

1

2

Loss on extinguishment of debt

13

—

13

—

Effect on income of derivative instruments not designated as hedging instruments

—

(3)

—

1

Effect of foreign exchange loss on indebtedness

(1)

—

(1)

(1)

Total Reconciling Items, pre-tax

13

2

17

21

Pro forma income tax impact ^(b)

(5)

(1)

(5)

(8)

Grantor trust activity

—

—

1

—

Total Reconciling Items, net of tax

$

8

$

1

$

13

$

13

Diluted Earnings Per Share Impact

$

0.06

$

0.01

$

0.10

$

0.10

Weighted Average Diluted Shares Outstanding

130

129

129

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 and applicable blended state rate.

Covanta Holding Corporation

Exhibit 7

Supplemental Information

(Unaudited, $ in millions)

Three Months Ended June 30,

2017

2016

Revenue:

Waste and service:

EfW waste processing

$

242

$

238

Environmental services ^(a)

30

25

Municipal services ^(b)

52

49

Other revenue ^(c)

10

9

Intercompany ^(d)

(25)

(24)

Total waste and service

310

297

Energy:

EfW energy sales

64

76

EfW capacity

11

10

Total energy revenue

75

86

Recycled metals:

Ferrous

10

11

Non-ferrous

4

6

Total recycled metals

15

17

Other revenue

24

18

Total revenue

$

424

$

418

Operating expense:

Plant operating expense:

Plant maintenance

$

79

$

82

Other plant operating expense

240

232

Total plant operating expense

319

314

Other operating expense

2

19

General and administrative

30

25

Depreciation and amortization

52

51

Impairment charges

1

4

Total operating expense

$

404

$

413

Operating Income

$

20

$

5

Operating Income excluding Impairment charges:

$

21

$

9

(a) Includes the operation of material processing facilities and related services.

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

(c) Includes waste brokerage, debt service and other revenue unrelated to EfW waste processing.

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

Note: Certain amounts may not total due to rounding.

Covanta Holding Corporation

Exhibit 8

Revenue and Operating Income Changes - Q2 2016 to Q2 2017

(Unaudited, $ in millions)

Organic Growth
^(a)

Contract Transitions ^(b)

Q2 2016

Total

Waste

PPA

Trans-
actions
^(c)

Total
Changes

Q2 2017

Revenue:

Waste and service:

EfW waste processing

$

238

$

2

0.8

%

$

2

$

—

$

—

$

4

$

242

Environmental services

25

3

10.6

%

—

—

3

5

30

Municipal services

49

3

—

—

—

3

52

Other revenue

9

1

—

—

—

1

10

Intercompany

(24)

(1)

—

—

—

(1)

(25)

Total waste and service

297

7

2.4

%

2

—

3

12

310

Energy:

EfW energy sales

76

(5)

-6.3

%

1

(8)

—

(12)

64

EfW capacity

10

1

13.9

%

—

—

—

1

11

Total energy revenue

86

(3)

-4.1

%

1

(8)

—

(11)

75

Recycled metals: