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Covanta Holding Corporation Reports 2012 Full Year and Fourth Quarter Results Signed $2.5 Billion in Contracts During 2012 With Average Term of 12 Years


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© Marketwire 2013
2013-02-06 22:09:18 - Projecting 5% Adjusted EBITDA Growth for 2013

MORRISTOWN, NJ -- (Marketwire) -- 02/06/13 -- 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 twelve months ended December 31, 2012.




                                                    Full Year
                                     ---------------------------------------
                                                                   2012
Continuing Operations                    2011        2012      Guidance(1)
                                     ----------- ----------- ---------------

                                      (Unaudited, $ in millions, except per
                                                  share amounts)
Revenue                              $     1,650 $     1,644             N/A
Income from Continuing Operations    $        84 $       118             N/A
Adjusted EBITDA                      $       494 $       492 $   490 - $ 500
Free Cash Flow                       $       282 $       262 $   250 - $ 265
Adjusted EPS                         $      0.54 $      0.52 $ 0.50 - $ 0.55






(1) As of November 7, 2012.





Key Full Year 2012 Highlights:



  • Record year in terms of EfW Boiler availability;

  • Signed $2.5 billion of waste and energy contracts with average term of 12 years -- secured two million tons of waste and 750,000 MWh of generation per year;

  • Acquired ~2,700 ton per day Delaware Valley EfW facility; immediately accretive to key metrics;

  • Successfully refinanced $1.9 billion in debt, creating substantial financial flexibility;

  • Honolulu EfW project expansion successfully commenced commercial operation; and

  • Doubled dividend to $0.60/share annually; shareholder returns totaled $169 million.




Commenting on Covanta's 2012 results, Anthony Orlando, Covanta's President and CEO stated, "I'm pleased with both our 2012 operating performance and the execution of organic growth initiatives. This good work enabled us to offset the drop in energy and metals markets, as well as the impact of Hurricane Sandy. We also had a great year extending long-term waste and energy contracts. Our contracted revenue base, combined with our continued investment in organic growth initiatives, positions us to grow in the coming year. Our guidance calls for 5% Adjusted EBITDA growth in 2013, and maintaining our strong Free Cash Flow. Our focus is on investing in the business for the long-term, and we see a number of exciting opportunities that will allow us to grow this year and beyond."



Full Year 2012 Results
For the twelve months ended December 31, 2012, total operating revenues declined slightly to $1,644 million from $1,650 million in 2011. This was primarily due to the negative impacts of:



  • Lower revenues earned explicitly to service project debt;

  • Lower pricing for energy at EfW facilities and recycled metals; and

  • Hurricane Sandy impact, as certain facilities were briefly forced off-line.




These impacts were substantially offset by:



  • Organic growth initiatives in special waste, recycled metals and other;

  • Escalations in service fee contracts; and

  • New units coming online.




Excluding certain items(2), operating expenses were $1,420 million for 2012 compared to $1,427 million for 2011. The $7 million decrease was primarily due to:



  • The benefits from various operational improvements.




Offset by:



  • Expenses related to Hurricane Sandy for repairs at facilities; and

  • Lower alternative fuel tax credits.




Excluding the items noted above, and the net operating income negative effect of Hurricane Sandy of $9 million in 2012, operating income was $233 million for the year ended December 31, 2012, or an increase of $10 million compared to the prior year period. Operating income improved due to:



  • Organic growth initiatives; and

  • New units coming online.




Partially offset by:



  • Lower debt service pass through revenue;

  • Lower pricing for EfW energy and recycled metal; and

  • Lower alternative fuel tax credits.




Adjusted EBITDA declined $2 million to $492 million primarily due to lower debt service pass through revenue, lower EfW energy and lower recycled metal pricing, lower alternative fuel tax credits, and the impact of Hurricane Sandy, mostly offset by organic growth initiatives, and new units coming online.



Free Cash Flow was $262 million, down $20 million versus 2011. The decline was primarily due to net effect of Hurricane Sandy, increased maintenance capital expenditures and higher interest expense.



Adjusted EPS of $0.52 declined by $0.02 compared to $0.54 in 2011, due to a higher effective tax rate, increased interest expense and the negative impact of Hurricane Sandy. These factors were partially offset by higher pre-tax income, increased equity income, and a lower number of shares outstanding due to the Company's stock buyback program.



(2) Includes pension plan settlement expense, net (gains) write-offs and impact of adverse loss development and transition to run-off of our insurance business. For additional information, see Exhibit 4A - Note (a) - (f) of this press release.



Shareholder Returns and Liquidity
In 2012, the Company doubled its annual cash dividend to $0.60 per share and returned $169 million to shareholders, consisting of $81 million in cash dividends and $88 million in share repurchases (3.9% of common stock outstanding). Since the inception of its buyback program the Company has repurchased 25.8 million shares, or 16.7% of shares outstanding, at a weighted average cost of $16.00. As of December 31, 2012, Covanta had $87 million of share repurchase authorization remaining.



Sanjiv Khattri, Covanta's Chief Financial Officer, commented, "2012 was a solid year for us. We were very active in returning capital to shareholders through our dividend and stock repurchase program. We also took advantage of strong debt markets, financing over $1.9 billion of capital. We have a strong balance sheet with flexibility and ample liquidity. As a result of the financing, as well as increased depreciation associated with our Delaware Valley facility acquisition, our 2013 net income and EPS will be negatively impacted by higher interest expense and depreciation. Our other key financial metrics, Adjusted EBITDA and Free Cash Flow, remain strong and we have some nice growth prospects for 2013 and beyond."



Fourth Quarter Results
Operating revenues of $430 million were flat with the prior year period. Significant factors included the positive impacts of:



  • Organic growth initiatives in special waste, recycled metals and other; and

  • Escalations in service fee contracts.




Negative impacts were:



  • Hurricane Sandy as certain facilities were briefly forced off-line;

  • Lower revenues earned explicitly to service project debt;

  • Lower recycled metals pricing; and

  • Lower revenues from our insurance business.




Excluding the items noted above, operating expenses were $351 million in 2012 compared to $345 million for 2011, an increase of $6 million. Benefits from various operational improvements were more than offset by the negative impact of Hurricane Sandy and normal cost escalations.



Excluding the items noted above and the net operating income effects of Hurricane Sandy, operating income was $88 million for the year ended December 31, 2012, or an increase of $3 million compared to the prior year period.



Adjusted EBITDA declined $4 million to $143 million in 2012, primarily due to the negative impact of Hurricane Sandy, lower recycled metals pricing, lower alternative fuel tax credits, partially offset by the benefits of organic growth initiatives.



Free Cash Flow of $57 million in 2012 declined $6 million versus 2011 primarily due to higher interest expense, which was partially offset by the timing of other working capital.



Adjusted EPS of $0.20 declined by $0.07 from the prior year period due to a higher effective tax rate, increased interest expense and the negative impact of Hurricane Sandy. These declines were partially offset by a lower number of shares outstanding due to the Company's common stock buyback program.



2013 Guidance
The Company is establishing guidance for 2013 for the following key metrics:



(In millions, except per share amounts)




----------------------------------------------------------------------------
                         2012               2013
Metric                   Actual        Guidance Range   % Change At Midpoint
----------------------------------------------------------------------------
Adjusted EBITDA          $ 492         $ 500 - $ 530            +5%
----------------------------------------------------------------------------
Free Cash Flow           $ 262         $ 250 - $ 280            +1%
----------------------------------------------------------------------------
Adjusted EPS             $ 0.52       $ 0.40 - $ 0.50           -13%
----------------------------------------------------------------------------






Conference Call Information
Covanta will host a conference call at 8:30 am (Eastern) on Thursday, February 7, 2013 to discuss its fourth quarter results. The conference call will begin with prepared remarks, which will be followed by a question and answer session. To participate, please dial 800-860-2442 approximately 10 minutes prior to the scheduled start of the call. If calling from Canada, please dial 866-605-3852. If calling outside of the United States and Canada, please dial 412-858-4600. Please request the "Covanta Holding Corporation call" when prompted by the conference call operator. The conference call will also be webcast live from the Investor Relations section of the Company's website. A presentation will be made available during the call and will be found on the Investor Relations section of the Covanta website at www.covantaenergy.com : ctt.marketwire.com/?release=982248&id=2584015&type=1& .. .



A replay will be available one hour after the end of the conference call through 9:00 AM (Eastern) Friday, February 15, 2013. To access the replay, please dial 877-344-7529, or from outside of the United States 412-317-0088 and use the replay conference ID number 10023855. The webcast will also be archived on www.covantaenergy.com : ctt.marketwire.com/?release=982248&id=2584018&type=1& .. .



10-K Filing Update
The Company expects its 2012 Annual Report on Form 10-K to be filed the week of February 11, 2013.



About Covanta
Covanta Holding Corporation (NYSE: CVA) 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 approximately 9 billion pounds of steam that are sold to a variety of industries. For more information, visit www.covantaenergy.com : ctt.marketwire.com/?release=982248&id=2584021&type=1& .. .



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 Holding Corporation and its subsidiaries ("Covanta") or industry results, 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. For additional information see the Cautionary Note Regarding Forward-Looking Statements at the end of the Exhibits.



###PRECONTENT2###



###PRECONTENT3###



###PRECONTENT4###





(f) For additional information, see Exhibit 7A - Note (a) of this Press
Release. Calculated as follows:


Redemption of Term Loan
due 2014 $ -- $ -- $ (619) $ --
Redemption of
Convertible Debentures
(g) -- -- (2) (32)
-------- -------- ------- -------
Total optional
repayment of corporate
debt $ -- $ -- $ (621) $ (32)
======== ======== ======= =======


(g) As of December 31, 2011, there were $25 million aggregate principal
amount of the Debentures outstanding. On February 1, 2012, holders of
$23 million of outstanding Debentures exercised their option for us to
redeem the Debentures at par. The Debentures were also subject to
redemption at our option at any time on or after February 1, 2012, and
we subsequently redeemed the remaining $2 million of outstanding
Debentures on March 23, 2012.

(h) Calculated as follows:


Total optional
principal payments on
project debt $ (278) $ -- $ (278) $ --
Decrease in related
restricted funds held
in trust 40 -- 40 --
------- -------- ------- --------
Net cash used for
optional repayment of
project debt $ (238) $ -- $ (238) $ --
======= ======== ======= ========



Exhibit 7
Covanta Holding Corporation
Capitalization Information

As of December 31,
-------------------------
2012 2011
------------ ------------
(Unaudited, in millions)
Cash and Cash Equivalents:
Domestic $ 12 $ 49
International 215 174
Insurance Subsidiary 19 9
------------ ------------
Total Cash and Cash Equivalents $ 246 $ 232
============ ============

Restricted Funds Held in Trust: (a)(b)
Debt Service - Principal $ 72 $ 113
Debt Service - Interest 6 8
------------ ------------
Debt Service Funds - Total 78 121
Revenue Funds 9 16
Other Funds 127 54
------------ ------------
Total Restricted Funds Held in Trust $ 214 $ 191
============ ============


(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, operating lease reserves in
accordance with agreements with our clients and amounts held for future
scheduled distributions.
(b) During the three months ended December 31, 2012, we completed a Project
Debt Refinancing. For additional information, see Exhibit 7A - Note (a)
of this Press Release.



Exhibit 7A

As of December 31, As of December 31,
2012 2011
--------------------- ---------------------
Face Book Face Book
Value Value Value Value
---------- ---------- ---------- ----------
(Unaudited, in millions)
Corporate Debt:
Revolving Credit Facility (a) $ 60 $ 60 $ -- $ --
Term Loan due 2014 (a) -- -- 619 619
New Term Loan due 2019 (a) 298 297 -- --
7.25% Senior Notes due 2020 400 400 400 400
6.375% Senior Notes due 2022 (a) 400 400 -- --
3.25% Cash Convertible Senior
Notes due 2014 460 523 460 442
1.00% Senior Convertible
Debentures due 2027 (b) -- -- 25 25
---------- ---------- ---------- ----------
Sub-total $ 1,618 $ 1,680 $ 1,504 $ 1,486
---------- ---------- ---------- ----------
Tax-Exempt Bonds (a)
4.875% Massachusetts Series
2012A due 2027 $ 20 $ 20 $ -- $ --
4.875% Massachusetts Series
2012B due 2042 67 67 -- --
5.25% Massachusetts Series
2012C due 2042 83 83 -- --
5.25% Niagara Series 2012A due
2042 130 130 -- --
4.00% Niagara Series 2012B due
2024 35 35 -- --
---------- ---------- ---------- ----------
Sub-total Tax-Exempt Bonds $ 335 $ 335 $ -- $ --
---------- ---------- ---------- ----------
Total corporate debt (including
current portion) $ 1,953 $ 2,015 $ 1,504 $ 1,486
---------- ---------- ---------- ----------

Project Debt:
Domestic project debt - service
fee facilities (a) $ 223 $ 226 $ 291 $ 295
Domestic project debt - tip fee
facilities (a) 68 68 355 359
International project debt 23 23 26 26
---------- ---------- ---------- ----------
Total project debt (including
current portion) $ 314 $ 317 $ 672 $ 680
---------- ---------- ---------- ----------

Total Debt Outstanding $ 2,267 $ 2,332 $ 2,176 $ 2,166
========== ========== ========== ==========

Net Debt (c) $ 1,949 $ 1,831
========== ==========

Availability for Borrowings
under the Revolving Credit
Facility (a) $ 584 $ 300
========== ==========


(a) During the first quarter of 2012, we completed a refinancing of our
previously existing senior secured credit facilities, issued by our
subsidiary, Covanta Energy, which consisted of a $300 million revolving
credit facility, a $320 million funded letter of credit facility and a
$619 million term loan, by entering into $1.2 billion in new senior
secured credit facilities (the "2012 Credit Facilities") issued by our
subsidiary, Covanta Energy, comprised of a $900 million revolving credit
facility that expires in 2017 (the "Revolving Credit Facility") and a
$300 million term loan due 2019 (the "Term Loan"), and by issuing $400
million aggregate principal amount of 6.375% senior notes due 2022 (the
"6.375% Notes"). The proceeds from the Term Loan and a portion of the
proceeds from the 6.375% Notes were used to repay the previously
existing term loan, as well as to pay transaction expenses, while the
Revolving Credit Facility replaced the previously existing $300 million
revolving credit facility and $320 million funded letter of credit
facility. The Revolving Credit Facility is available for both the
issuance of letters of credit ($256 million outstanding as of December
31, 2012) and for cash borrowings for general corporate purposes ($60
million outstanding cash borrowings as of December 31, 2012). As a
result of the refinancing, we recognized a loss on extinguishment of
debt of approximately $2 million, pre-tax, which was comprised of the
write-off of deferred financing costs in connection with previously
existing financing arrangements. We incurred $26 million in offering
costs related to the refinancing which has been paid as of December 31,
2012.

In November 2012, we issued new tax-exempt corporate bonds totaling $335
million. Proceeds from the offerings were utilized to refinance tax-
exempt project debt at



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