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

Three Months Ended
September 30,

2017

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

Revenue

$421

$429

Net income

$54

$15

Adjusted EBITDA

$124

$117

Net cash provided by operating activities

$88

$88

Free Cash Flow

$74

$68

Diluted EPS

$0.42

$0.11

Adjusted EPS

$0.18

$0.12

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

(In millions)

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
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

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

OPERATING REVENUE:

Waste and service revenue

$

306

$

299

$

902

$

875

Energy revenue

80

92

241

279

Recycled metals revenue

23

14

54

44

Other operating revenue

20

16

60

44

Total operating revenue

429

421

1,257

1,242

OPERATING EXPENSE:

Plant operating expense

301

272

952

901

Other operating expense, net

7

14

24

45

General and administrative expense

24

23

82

71

Depreciation and amortization expense

51

52

155

155

Impairment charges ^(a)

—

—

1

19

Total operating expense

383

361

1,214

1,191

Operating income

46

60

43

51

OTHER INCOME (EXPENSE):

Interest expense, net

(35)

(35)

(106)

(103)

Gain (loss) on asset sales ^(a)

—

43

(6)

43

Loss on extinguishment of debt

—

—

(13)

—

Other income (expense), net

2

(1)

2

(1)

Total other (expense) income

(33)

7

(123)

(61)

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

13

67

(80)

(10)

Income tax benefit (expense)

2

(12)

5

(5)

Equity in net (loss) income from unconsolidated investments

—

(1)

1

3

Net Income (Loss)

$

15

$

54

$

(74)

$

(12)

Weighted Average Common Shares Outstanding:

Basic

130

129

129

129

Diluted

131

131

129

129

Income (Loss) Per Share

Basic

$

0.11

$

0.42

$

(0.58)

$

(0.09)

Diluted

$

0.11

$

0.42

$

(0.58)

$

(0.09)

Cash Dividend Declared Per Share

$

0.25

$

0.25

$

0.75

$

0.75

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

Covanta Holding Corporation

Exhibit 2

Condensed Consolidated Balance Sheets

As of

September 30, 2017

December 31, 2016

(Unaudited)

ASSETS

(In millions, except per share amounts)

Current:

Cash and cash equivalents

$

37

$

84

Restricted funds held in trust

56

56

Receivables (less allowances of $11 million and $9 million, respectively)

325

332

Prepaid expenses and other current assets

93

72

Total Current Assets

511

544

Property, plant and equipment, net

3,170

3,024

Restricted funds held in trust

32

54

Waste, service and energy contract intangibles, net

254

263

Other intangible assets, net

38

34

Goodwill

313

302

Other assets

43

63

Total Assets

$

4,361

$

4,284

LIABILITIES AND EQUITY

Current:

Current portion of long-term debt

$

10

$

9

Current portion of project debt

31

22

Accounts payable

64

98

Accrued expenses and other current liabilities

316

289

Total Current Liabilities

421

418

Long-term debt

2,365

2,243

Project debt

445

361

Deferred income taxes

605

617

Other liabilities

190

176

Total Liabilities

4,026

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

821

807

Accumulated other comprehensive loss

(44)

(62)

Accumulated deficit

(455)

(289)

Treasury stock, at par

(1)

(1)

Total Equity

335

469

Total Liabilities and Equity

$

4,361

$

4,284

Covanta Holding Corporation

Exhibit 3

Condensed Consolidated Statements of Cash Flow

Nine Months Ended September 30,

2017

2016

(Unaudited, in millions)

OPERATING ACTIVITIES:

Net loss

$

(74)

$

(12)

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

Depreciation and amortization expense

155

155

Amortization of deferred debt financing costs

5

5

Loss (gain) on asset sales ^(a)

6

(43)

Impairment charges ^(a)

1

19

Loss on extinguishment of debt

13

—

Stock-based compensation expense

16

13

Equity in net income from unconsolidated investments

(1)

(3)

Deferred income taxes

(7)

3

Other, net

—

3

Change in restricted funds held in trust

18

22

Change in working capital, net of effects of acquisitions

(18)

(12)

Net cash provided by operating activities

114

150

INVESTING ACTIVITIES:

Purchase of property, plant and equipment

(218)

(282)

Acquisition of businesses, net of cash acquired

(16)

(9)

Proceeds from asset sales

—

107

Property insurance proceeds

5

2

Other, net

(6)

4

Net cash used in investing activities

(235)

(178)

FINANCING ACTIVITIES:

Proceeds from borrowings on long-term debt

400

—

Proceeds from borrowings on revolving credit facility

806

658

Proceeds from borrowing on Dublin project financing

71

139

Payments of borrowings on revolving credit facility

(676)

(623)

Payments on long-term debt

(413)

(2)

Payments on equipment financing capital leases

(4)

(3)

Payments on project debt

(20)

(17)

Payment of deferred financing costs

(9)

(5)

Cash dividends paid to stockholders

(98)

(98)

Change in restricted funds held in trust

4

19

Common stock repurchased

—

(20)

Other, net

9

(4)

Net cash provided by financing activities

70

44

Effect of exchange rate changes on cash and cash equivalents

4

1

Net (decrease) increase in cash and cash equivalents

(47)

17

Cash and cash equivalents at beginning of period

84

96

Cash and cash equivalents at end of period

$

37

$

113

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

Covanta Holding Corporation

Exhibit 4

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

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

(Unaudited, in millions)

Net Income (Loss)

$

15

$

54

$

(74)

$

(12)

Depreciation and amortization expense

51

52

155

155

Interest expense, net

35

35

106

103

Income tax (benefit) expense

(2)

12

(5)

5

Impairment charges ^(a)

—

—

1

19

(Gain) loss on asset sales ^(b)

—

(43)

6

(43)

Loss on extinguishment of debt

—

—

13

—

Property insurance recoveries, net ^(c)

1

—

(2)

—

Adjustments for changes in working capital and other items:

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

10

6

36

29

Debt service billings in excess of revenue recognized

2

1

4

3

Severance and reorganization costs

—

1

1

3

Stock-based compensation expense

5

4

16

13

Other non-cash items

—

—

3

4

Other ^(e)

—

2

1

3

Subtotal other adjustments

17

14

61

55

Total adjustments

102

70

335

294

Adjusted EBITDA

$

117

$

124

$

261

$

282

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

(10)

(6)

(36)

(29)

Cash paid for interest, net of capitalized interest

(33)

(24)

(100)

(91)

Cash paid for taxes, net

1

(3)

—

(7)

Adjustment for working capital and other

13

(3)

(11)

(5)

Net cash provided by operating activities

$

88

$

88

$

114

$

150

(a)    During the nine months ended September 30, 2016, we recorded a non-cash impairment totaling $19 million, which primarily consisted of $13 
        million related to the previously planned closure of our Pittsfield EfW facility in March 2017, which we now continue to operate and $3 million
        related to an investment in a joint venture to recover and recycle metals. See Results of Operations - Impairment charges discussion above.

(b)    During the nine months ended September 30, 2017, we recorded a $6 million charge for indemnification claims related to the sale of our interests
        in China, which was completed in 2016.  During the three months ended September 30, 2016, we recorded a $41 million gain on the sale of our
        interests in China.

(c)    During the nine months ended September 30, 2017, we recorded a $2 million property insurance gain related to our property insurance recoveries.

(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
September 30,

Nine Months Ended
September 30,

Full  Year
Estimated 2017

2017

2016

2017

2016

(Unaudited, in millions)

Net cash provided by operating activities

$

88

$

88

$

114

$

150

$210 - $270

Less: Maintenance capital expenditures ^(a)

(20)

(14)

(84)

(82)

(110) - (120)

Free Cash Flow

$

68

$

74

$

30

$

68

$100 - $150

Uses of Free Cash Flow

Investments:

Growth investments ^(b)

$

(43)

$

(84)

$

(138)

$

(209)

Property insurance proceeds

—

2

5

2

Capital expenditures associated with property insurance events

(4)

—

(13)

—

Other investing activities, net

(2)

4

(5)

6

Total investments

$

(49)

$

(78)

$

(151)

$

(201)

Return of capital to stockholders:

Cash dividends paid to stockholders

$

(33)

$

(33)

$

(98)

$

(98)

Common stock repurchased

—

—

—

(20)

Total return of capital to stockholders

$

(33)

$

(33)

$

(98)

$

(118)

Capital raising activities:

Net proceeds from issuance of corporate debt ^(c)

$

—

$

—

$

393

$

—

Net proceeds from Dublin financing

11

60

69

134

Change in restricted funds held in trust

2

4

2

17

Proceeds from sale of China assets

—

105

—

105

Net proceeds from capital raising activities

$

13

$

169

$

464

$

256

Debt repayments:

Net cash used for scheduled principal payments on corporate
   debt

$

(1)

$

(1)

$

(3)

$

(2)

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

(11)

(11)

(18)

(15)

Voluntary prepayment of corporate debt

—

—

(410)

—

Payments of equipment financing capital leases

(2)

(1)

(4)

(3)

Total debt repayments

$

(14)

$

(13)

$

(435)

$

(20)

Borrowing activities - Revolving credit facility, net

$

(2)

$

(110)

$

130

$

35

Other financing activities, net

5

(3)

9

(4)

Effect of exchange rate changes on cash and cash equivalents

1

(1)

4

1

Net change in cash and cash equivalents

$

(11)

$

5

$

(47)

$

17

(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
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Maintenance capital expenditures

$

(20)

$

(14)

$

(84)

$

(82)

Capital expenditures associated with construction of Dublin
  EfW facility

(35)

(59)

(91)

(132)

Capital expenditures associated with organic growth initiatives

(7)

(16)

(27)

(38)

Capital expenditures associated with the New York City MTS
  contract

—

—

—

(3)

Capital expenditures associated with Essex County EfW
  emissions control system

—

(9)

(3)

(27)

Total capital expenditures associated with growth investments

(42)

(84)

(121)

(200)

Capital expenditures associated with property insurance events

(4)

—

(13)

—

Total purchases of property, plant and equipment

$

(66)

$

(98)

$

(218)

$

(282)

(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

$

(42)

$

(84)

$

(121)

$

(200)

Asset and business acquisitions

(1)

—

(17)

(9)

Total growth investments

$

(43)

$

(84)

$

(138)

$

(209)

(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

$

(8)

$

(8)

$

(20)

$

(17)

Change in related restricted funds held in trust

(3)

(3)

2

2

Net cash used for principal payments on project debt

$

(11)

$

(11)

$

(18)

$

(15)

Covanta Holding Corporation

Exhibit 6

Reconciliation of Diluted Loss Per Share to Adjusted EPS

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

(Unaudited)

Diluted Income (Loss) Per Share

$

0.11

$

0.42

$

(0.58)

$

(0.09)

Reconciling Items ^(a)

0.01

(0.24)

0.11

(0.14)

Adjusted EPS

$

0.12

$

0.18

$

(0.47)

$

(0.23)

(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
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

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

Reconciling Items

Impairment charges ^(a)

$

—

$

—

$

1

$

19

(Gain) loss on asset sales ^(a)

—

(43)

6

(43)

Property insurance recoveries ^(a)

1

—

(2)

—

Severance and reorganization costs

—

—

1

2

Loss on extinguishment of debt

—

—

13

—

Effect on income of derivative instruments not designated as hedging instruments

—

1

—

2

Effect of foreign exchange loss on indebtedness

(1)

—

(2)

(1)

Total Reconciling Items, pre-tax

—

(42)

17

(21)

Pro forma income tax impact ^(b)

—

10

(5)

2

Grantor trust activity

1

1

(2)

1

Total Reconciling Items, net of tax

$

1

$

(31)

$

14

$

(18)

Diluted Per Share Impact

$

0.01

$

(0.24)

$

0.11

$

(0.14)

Weighted Average Diluted Shares Outstanding

131

131

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
September 30,

2017

2016

Revenue:

Waste and service:

EfW waste processing

$

238

$

241

Environmental services ^(a)

32

26

Municipal services ^(b)

50

48

Other revenue ^(c)

12

10

Intercompany ^(d)

(26)

(26)

Total waste and service

306

299

Energy:

Energy Sales

68

81

Capacity

12

11

Total energy revenue

80

92

Recycled metals:

Ferrous

13

8

Non-ferrous

10

6

Total recycled metals

23

14

Other revenue

20

16

Total revenue

$

429

$

421

Operating expense:

Plant operating expense:

Plant maintenance

$

57

$

48

Other plant operating expense

243

224

Total plant operating expense

301

272

Other operating expense

7

14

General and administrative

24

23

Depreciation and amortization

51

52

Total operating expense

$

383

$

361

Operating Income

$

46

$

60

(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 - Q3 2016 to Q3 2017

(Unaudited, $ in millions)

Organic Growth ^(a)

Contract Transitions ^(b)

Q3 2016

Total

%

Waste

PPA

Trans-
actions ^(c)

Total Changes

Q3 2017

REVENUE:

Waste and service:

EfW waste processing

$

241

$

(5)

-2.3

%

$

3

$

—

$

—

$

(3)

$

238

Environmental services

26

4

14.4

%

—

—

3

6

32

Municipal services

48

2

4.7

%

—

—

—