Covanta Holding Corporation Reports 2016 Fourth Quarter And Full Year Results And Provides 2017 Guidance

FY 2015

FY 2016

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

Revenue

$1,645

$1,699

Net Income (Loss)

$68

$(1)

Adjusted EBITDA

$428

$410

Cash flow provided by operating activities

$249

$282

Free Cash Flow

$147

$172

Diluted EPS

$0.51

$(0.01)

Adjusted EPS

$0.07

$(0.15)

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

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.  Guidance as of February 15, 2017.

Exhibit 1

Covanta Holding Corporation 

Consolidated Statements of Operations

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2016

2015

2016

2015

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

Operating revenue

Waste and service revenue

$

312

$

299

$

1,187

$

1,104

Energy revenue

91

102

370

421

Recycled metals revenue

17

12

61

61

Other operating revenue

37

19

81

59

Total operating revenue

457

432

1,699

1,645

Operating expense

Plant operating expense

276

280

1,177

1,129

Other operating expense

41

18

86

73

General and administrative expense

29

22

100

93

Depreciation and amortization expense

52

50

207

198

Impairment charges ^(a)

1

19

20

43

Total operating expense

399

389

1,590

1,536

Operating income

58

43

109

109

Other income (expense)

Investment income

—

—

1

—

Interest expense

(35)

(32)

(139)

(134)

Gain on asset sales ^(a)

1

—

44

—

Loss on extinguishment of debt

—

—

—

(2)

Other expense, net

—

—

(1)

(1)

Total other expense

(34)

(32)

(95)

(137)

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

24

11

14

(28)

Income tax (expense) benefit

(14)

65

(19)

84

Equity in net income from unconsolidated investments

1

2

4

13

Net Income (Loss)

11

78

(1)

69

Less: Net income attributable to noncontrolling interests in subsidiaries

—

1

—

1

Net Income (Loss) Attributable to Covanta Holding Corporation

$

11

$

77

$

(1)

$

68

Weighted Average Common Shares Outstanding:

Basic

129

131

129

132

Diluted

131

133

129

133

Earnings Per Share:

Basic

$

0.10

$

0.59

$

(0.01)

$

0.52

Diluted

$

0.08

$

0.58

$

(0.01)

$

0.51

Cash Dividend Declared Per Share

$

0.25

$

0.25

$

1.00

$

1.00

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

Exhibit 2

Covanta Holding Corporation

Consolidated Balance Sheets

As of December 31,

2016

2015

(Unaudited)

ASSETS

(In millions, except per share amounts)

Current:

Cash and cash equivalents

$

84

$

94

Restricted funds held in trust

56

77

Receivables (less allowances of $9 million and $7 million, respectively)

332

312

Prepaid expenses and other current assets

72

117

Assets held for sale

—

97

Total Current Assets

544

697

Property, plant and equipment, net

3,024

2,690

Restricted funds held in trust

54

83

Waste, service and energy contract intangibles, net

263

284

Other intangible assets, net

34

38

Goodwill

302

301

Other assets

63

141

Total Assets

$

4,284

$

4,234

LIABILITIES AND EQUITY

Current:

Current portion of long-term debt

$

9

$

8

Current portion of project debt

22

16

Accounts payable

98

90

Accrued expenses and other current liabilities

289

234

Liabilities held for sale

—

23

Total Current Liabilities

418

371

Long-term debt

2,243

2,255

Project debt

361

182

Deferred income taxes

615

595

Waste, service and other contract intangibles, net

7

13

Other liabilities

168

178

Total Liabilities

3,812

3,594

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 130 and 131, respectively)

14

14

Additional paid-in capital

807

801

Accumulated other comprehensive loss

(62)

(34)

Accumulated deficit

(286)

(143)

Treasury stock, at par

(1)

—

Total Covanta Holding Corporation stockholders' equity

472

638

Noncontrolling interests in subsidiaries

—

2

Total Equity

472

640

Total Liabilities and Equity

$

4,284

$

4,234

Exhibit 3

Covanta Holding Corporation 

Consolidated Statements of Cash Flow

Twelve Months Ended December 31,

2016

2015

(Unaudited, in millions)

OPERATING ACTIVITIES:

Net (loss) income

$

(1)

$

69

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

Depreciation and amortization expense

207

198

Impairment charges ^(a)

20

43

Gain on asset sales ^(a)

(44)

—

Loss on extinguishment of debt

—

2

Stock-based compensation expense

16

18

Deferred income taxes

18

(11)

IRS audit settlement

—

(93)

Other, net

1

17

Change in restricted funds held in trust

22

28

Change in working capital, net of effects of acquisitions

43

(22)

Net cash provided by operating activities

282

249

INVESTING ACTIVITIES:

Proceeds from asset sales

109

—

Purchase of property, plant and equipment

(359)

(376)

Acquisition of business, net of cash acquired

(9)

(72)

Property insurance proceeds

3

1

Other, net

2

(1)

Net cash used in investing activities

(254)

(448)

FINANCING ACTIVITIES:

Proceeds from borrowings on long-term debt

—

294

Proceeds from borrowings on revolving credit facility

744

895

Proceeds from equipment financing capital leases

—

15

Proceeds from borrowings on project debt

—

59

Proceeds from Dublin financing

159

86

Payments on long-term debt

(4)

(196)

Payments of borrowings on revolving credit facility

(749)

(692)

Payments of equipment financing capital leases

(4)

(4)

Payments on project debt

(51)

(85)

Payments of deferred financing costs

(6)

(11)

Cash dividends paid to stockholders

(131)

(133)

Change in restricted funds held in trust

28

5

Common stock repurchased

(20)

(30)

Other, net

(6)

5

Net cash (used in) provided by financing activities

(40)

208

Effect of exchange rate changes on cash and cash equivalents

—

(4)

Net (decrease) increase in cash and cash equivalents

(12)

5

Cash and cash equivalents at beginning of period

96

91

Cash and cash equivalents at end of period

84

96

Less: Cash and cash equivalents of assets held for sale at end of period

—

2

Cash and cash equivalents of continuing operations at end of period

$

84

$

94

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

Exhibit 4

Covanta Holding Corporation

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

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2016

2015

2016

2015

(Unaudited, in millions)

Net Income (Loss) Attributable to Covanta Holding Corporation

$

11

$

77

$

(1)

$

68

Depreciation and amortization expense

52

50

207

198

Interest expense, net

35

32

138

134

Income tax expense (benefit)

14

(65)

19

(84)

Impairment charges ^(a)

1

19

20

43

Gain on asset sales ^(b)

(1)

—

(44)

—

Loss on extinguishment of debt

—

—

—

2

Net income attributable to noncontrolling interests in subsidiaries

—

1

—

1

Other adjustments:

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

10

6

39

31

Debt service billings in excess of revenue recognized

1

—

4

1

Severance and reorganization costs

—

1

3

4

Non-cash compensation expense ^(d)

3

3

16

18

Other non-cash items

1

—

6

6

Other ^(e)

1

3

3

6

Adjusted EBITDA

$

128

$

127

$

410

$

428

Cash paid for interest, net of capitalized interest

(44)

(48)

(135)

(131)

Cash paid for taxes, net

1

4

(6)

(2)

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

(10)

(6)

(39)

(31)

Adjustment for working capital and other

61

18

52

(15)

Net cash provided by operating activities

$

136

$

95

$

282

$

249

(a)    During the twelve months ended December 31, 2016, we recorded non-cash impairment charges totaling $20 million, of which $13 million 
         related to the planned closure of our Pittsfield EfW facility in March 2017 which is now expected to continue operating and $3 million related to an investment in a joint venture to 
         recover and recycle metals. 
         During the three and twelve months ended December 31, 2015, we recorded non-cash impairments of our biomass facility assets of 
         $19 million and $43 million respectively.

(b)    During the twelve months ended December 31, 2016, we recorded a $41 million gain on the sale of our interests in China.

(c)    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.

(d)    The twelve months ended December 31, 2015 includes $4 million of costs incurred in connection with separation agreements related to 
         the departure of two executive officers.

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

Exhibit 5

Covanta Holding Corporation 

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

Three Months Ended
December 31,

Twelve Months Ended
December 31,

Full  Year
Estimated 2017

2016

2015

2016

2015

(Unaudited, in millions)

Cash flow provided by operating activities

$

136

$

95

$

282

$

249

$210 - $270

Less: Maintenance capital expenditures ^(a)

(28)

(31)

(110)

(102)

(110) - (120)

Free Cash Flow

$

108

$

64

$

172

$

147

$100 - $150

Uses of Free Cash Flow

Investments:

Growth investments ^(b)

$

(44)

$

(80)

$

(253)

$

(346)

Other investing activities, net

(4)

—

4

—

Total investments

$

(48)

$

(80)

$

(249)

$

(346)

Return of capital to stockholders:

Cash dividends paid to stockholders

$

(33)

$

(33)

$

(131)

$

(133)

Common stock repurchased

—

(30)

(20)

(30)

Total return of capital to stockholders

$

(33)

$

(63)

$

(151)

$

(163)

Capital raising activities:

Net proceeds from issuance of corporate debt ^(c)

$

—

$

—

$

—

$

98

Net proceeds from issuance of project debt ^(d)

—

—

—

15

Proceeds from Dublin financing

20

—

159

85

Proceeds from equipment financing capital leases ^(e)

—

—

—

15

Change in restricted funds held in trust

12

64

29

—

Other financing activities, net

(6)

5

(6)

5

Deferred financing costs

(1)

(2)

(6)

(7)

Proceeds from sale of China assets

—

—

105

—

Net proceeds from capital raising activities

$

25

$

67

$

281

$

211

Debt repayments:

Net cash used for scheduled principal payments on corporate debt

$

(2)

$

—

$

(4)

$

(1)

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

(37)

(19)

(52)

(38)

Payments of equipment financing capital leases ^(e)

(1)

(1)

(4)

(4)

Total debt repayments

$

(40)

$

(20)

$

(60)

$

(43)

Borrowing activities - Revolving credit facility, net

$

(40)

$

57

$

(5)

$

203

Effect of exchange rate changes on cash and cash equivalents

$

(1)

$

—

$

—

$

(4)

Net change in cash and cash equivalents

$

(29)

$

25

$

(12)

$

5

(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
December 31,

Twelve Months Ended
December 31,

2016

2015

2016

2015

Maintenance capital expenditures

$

(28)

$

(31)

$

(110)

$

(102)

Capital expenditures associated with construction of Dublin EfW facility

(30)

(61)

(162)

(184)

Capital expenditures associated with organic growth initiatives

(8)

(7)

(46)

(34)

Capital expenditures associated with the New York City MTS contract

—

(2)

(3)

(30)

Capital expenditures associated with Essex County EfW emissions control system

(6)

(8)

(33)

(26)

Total capital expenditures associated with growth investments

(44)

(78)

(244)

(274)

Capital expenditures associated with property insurance events

(5)

—

(5)

—

Total purchases of property, plant and equipment

$

(77)

$

(109)

$

(359)

$

(376)

(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

$

(44)

$

(78)

$

(244)

$

(274)

Acquisition of business, net of cash acquired

—

(2)

(9)

(72)

Total growth investments

$

(44)

$

(80)

$

(253)

$

(346)

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

Proceeds from borrowings on long-term debt

$

—

$

—

$

—

$

294

Refinanced long-term debt

—

—

—

(195)

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

—

—

—

(1)

Net proceeds from issuance of corporate debt

$

—

$

—

$

—

$

98

(d) Calculated as follows:

Proceeds from borrowings on project debt

$

—

$

—

$

—

$

59

Refinanced project debt

—

—

—

(42)

Less: Financing costs related to the issuance of project debt

—

—

—

(2)

Net proceeds from issuance of project debt

$

—

$

—

$

—

$

15

(e)  During the twelve months ended December 31, 2015, we financed $15 million for transportation equipment 
       related to our contract with New York City

(f)  Calculated as follows:

Total principal payments on project debt

$

(34)

$

(22)

$

(51)

$

(43)

Change in related restricted funds held in trust

(3)

3

(1)

5

Net cash used for principal payments on project debt

$

(37)

$

(19)

$

(52)

$

(38)

Exhibit 6

Covanta Holding Corporation

Reconciliation of Diluted Earnings Per Share to Adjusted EPS

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2016

2015

2016

2015

(Unaudited)

Diluted Earnings Per Share

$

0.08

$

0.58

$

(0.01)

$

0.51

Reconciling Items ^(a)

—

(0.55)

(0.14)

(0.44)

Adjusted EPS

$

0.08

$

0.03

$

(0.15)

$

0.07

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

Exhibit 6A

Covanta Holding Corporation

Reconciling Items

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2016

2015

2016

2015

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

Reconciling Items

Impairment charges ^(a)

$

1

$

19

$

20

$

43

Gain on asset sales ^(a)

(1)

—

(44)

—

Severance and reorganization costs ^(b)

—

—

2

7

Loss on extinguishment of debt

—

—

—

2

Effect on income of derivative instruments not designated as hedging instruments

—

(3)

2

(6)

Effect of foreign exchange loss on indebtedness

—

1

(1)

3

Other

—

1

—

1

Total Reconciling Items, pre-tax

—

18

(21)

50

Pro forma income tax impact ^(c)

—

(2)

2

(20)

Impact of IRS audit settlement

—

(93)

—

(93)

Tax liability related to expected gain on sale of China assets

—

4

—

4

Grantor trust activity

—

(1)

1

—

Total Reconciling Items, net of tax

$

—

$

(74)

$

(18)

$

(59)

Diluted Earnings Per Share Impact

$

—

$

(0.55)

$

(0.14)

$

(0.44)

Weighted Average Diluted Shares Outstanding

131

133

129

133

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

(b) The twelve months ended December 31, 2015, includes $6 million of costs incurred in connection with separation 
      agreements related to the departure of two executive officers, of which $4 million related to non-cash compensation.

(c) 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)

Twelve Months Ended December 31,

2016

2015

Revenue:

Waste and service: ^(a)

EfW waste processing

$

962

$

929

Environmental services^(b)

99

56

Municipal services ^(c)

186

159

Other revenue ^(d)

36

38

Intercompany ^(e)

(96)

(78)

Total waste and service

1,187

1,104

Energy:

EfW energy sales

321

308

EfW capacity

40

38

Other revenue ^(f)

9

75

Total energy revenue

370

421

Recycled metals:

Ferrous

38

38

Non-ferrous

23

23

Total recycled metals

61

61

Other revenue

81

59

Total revenue

$

1,699

$

1,645

Operating expense:

Plant operating expense:

Plant maintenance

$

279

$

270

Other plant operating expense

898

859

Total plant operating expense

1,177

1,129

Other operating expense

86

73

General and administrative

100

93

Depreciation and amortization

207

198

Impairment charges

20

43

Total operating expense

$

1,590

$

1,536

Operating Income

$

109

$

109