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This preliminary prospectus supplement relates to an effective registration statement but it is not complete and may be changed. This preliminary prospectus supplement is not an offer to sell these securities and we are not soliciting offers to buy these securities in any state where the offer or sale is not permitted. |
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Public | Underwriting discounts | Proceeds, before | ||||
offering price(1) | and commissions | expenses, to us(1) | ||||
Per note | ||||||
Total | ||||||
(1) | Plus accrued interest, if any, from November , 2010. |
J.P. Morgan |
BofA Merrill Lynch |
Barclays Capital |
Citi |
Credit Agricole CIB | RBS |
HSBC | Mizuho Securities USA Inc. | TD Securities |
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LTM Revenue by Source ($1,696 million) | LTM Revenue by Facility Type ($1,696 million) | |
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Service fee | Service fee | |||||
Tip fee | (owned) | (operated) | ||||
Number of facilities: | 17 | 11 | 16 | |||
% of Tons Processed (LTM): | 37% | 23% | 40% | |||
Client(s): | Host community and/or merchant customers | Host community, with limited merchant capacity in some cases | Dedicated to host community exclusively | |||
Waste or service revenue: | Per ton “tipping fee” | Fixed fee, with performance incentives and inflation escalation | Fixed fee, with performance incentives and inflation escalation | |||
Energy revenue: | Covanta retains 100% | Share with client (typically retain 10%) | Share with client (typically retain 10%) | |||
Metals revenue: | Covanta retains 100% | Share with client | Share with client | |||
Operating costs: | Covanta responsible for all operating costs | Pass through certain costs to municipal client (e.g., ash disposal) | Pass through certain costs to municipal client (e.g., ash disposal) | |||
Project debt service: | Covanta project subsidiary responsible | Paid by client explicitly as part of service fee | Client responsible for debt service | |||
After service contract expiration: | N/A | Covanta owns the facility; clients have certain rights; new contract(s) negotiated | Client controls the facility; extend with Covanta or tender for new contract | |||
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Waste Tons Processed (millions)—Americas | Boiler Availability—Americas | |
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• | Maximize the value of our existing portfolio. We intend to maximize the long-term value of our existing portfolio by continuing to operate at our historic production levels, maintaining our facilities in optimal condition through our ongoing maintenance programs, extending or replacing waste and service contracts upon their expiration, seeking incremental revenue opportunities with our existing assets and expanding facility capacity where possible. |
• | Grow in selected attractive markets. We seek to grow our portfolio primarily through the development of new facilities where we believe that market and regulatory conditions will enable us to invest our capital at attractive risk-adjusted rates of return. We are currently focusing on development opportunities in the U.S., Canada and Europe, which we consider to be our core markets. We believe that there are numerous attractive opportunities in the United Kingdom in particular, where national policies, such as a substantial tax on landfill use, are intended to achieve compliance with the EU Landfill Directive, which we believe will result in the development of over 10 million tons of new energy-from-waste capacity within the next 10 years. |
• | Develop and commercialize new technology. We believe that our efforts to protect and expand our business will be enhanced by the development of additional technologies in such fields as emission controls, residue disposal, alternative waste treatment processes, and combustion controls. We have advanced our research and development efforts in these areas, and have developed and have patents pending for major advances in controlling nitrogen oxide (“NOx”) emissions and have a patent for a proprietary process to improve the handling of the residue from our energy-from-waste facilities. We have also entered into various agreements with multiple partners to invest in the development, testing or licensing of new technologies related to the transformation of waste materials into renewable fuels or the generation of energy, as well as improved environmental performance. |
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• | Advocate for public policy favorable to energy-from-waste.We seek to educate policymakers about the environmental and economic benefits of energy-from-waste and advocate for policies that appropriately reflect these benefits. Energy-from-waste is a highly regulated business, and as such we believe that it is critically important for us, as an industry leader, to play an active role in the debates surrounding potential policy developments that could impact our business. |
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(1) | As adjusted for the tender offer assuming 100% of the holders tender their Debentures in the tender offer. Under the terms of the tender offer we have offered to purchase any and all of the outstanding Debentures at a purchase price of $990 for each $1,000 principal amount of Debentures tendered. As of November 9, 2010, there was $373.75 million aggregate principal amount of Debentures outstanding. | |
(2) | As of September 30, 2010, we had no borrowings outstanding under our revolving credit facility, with the full $300 million of capacity available, of which up to $200 million may be utilized for letters of credit. For additional information, see “Management’s discussion and analysis of financial conditions and results of operations — Available Sources of Liquidity — Short-Term Liquidity” and “Description of other indebtedness.” | |
(3) | As of September 30, 2010, we had $294.5 million in letters of credit outstanding under our $320 million funded letter of credit facility, with remaining capacity of up to an additional $25.5 million. For additional information, see “Management’s discussion and analysis of financial conditions and results of operations — Available Sources of Liquidity — Short-Term Liquidity” and “Description of other indebtedness.” | |
(4) | Guaranteed by Covanta Holding and each of Covanta Energy’s domestic subsidiaries (as such term is defined in the Credit and Guaranty Agreement dated February 9, 2007). | |
(5) | Project debt is included as the principal portion of “Project debt (short- and long-term)” in our condensed consolidated financial statements incorporated by reference herein. Generally, project debt is secured by the revenues generated by the project and other project assets, including the related facility. The only recourse to Covanta Holding or Covanta Energy with respect to project debt arises under the operating performance guarantees described under “Description of other indebtedness.” Certain subsidiaries have project debt which is recourse to our subsidiary Covanta ARC LLC, but is non-recourse to Covanta Holding or Covanta Energy, which as of September 30, 2010 aggregated to $208.5 million. |
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Issuer | Covanta Holding Corporation. | |
Securities offered | $400 million aggregate principal amount of % Senior Notes due 2020. | |
Maturity date | , 2020. | |
Interest rate | % per year. | |
Interest payment dates | and , commencing , 2011. | |
Optional redemption | The notes will be redeemable at the Issuer’s option, in whole or in part, at any time on or after , 2015, at the redemption prices set forth in this prospectus supplement, together with accrued and unpaid interest, if any, to the date of redemption. | |
At any time prior to , 2013, we may redeem up to 35% of the original principal amount of the notes with the proceeds of certain equity offerings at a redemption price of % of the principal amount of the notes, together with accrued and unpaid interest, if any, to the date of redemption. | ||
At any time prior to , 2015, we may also redeem some or all of the notes at a price equal to 100% of the principal amount of the notes, plus accrued and unpaid interest, plus a “make-whole premium.” | ||
Mandatory offers to purchase | The occurrence of specific kinds of changes in control will be a triggering event requiring us to offer to purchase from you all or a portion of your notes at a price equal to 101% of their principal amount, together with accrued and unpaid interest, if any, to the date of purchase. | |
Certain asset dispositions will be triggering events that may require us to use the proceeds from those asset dispositions to make an offer to purchase the notes at 100% of their principal amount, together with accrued and unpaid interest, if any, to the date of purchase if such proceeds are not otherwise used within 365 days to repay indebtedness (with a corresponding permanent reduction in commitment, if applicable) or to invest or commit to invest such proceeds in additional assets related to our business or capital stock of a restricted subsidiary (as defined under the heading “Description of notes”). |
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Ranking | The notes will be the Issuer’s senior unsecured obligations and: | |
• will rank equally in right of payment with all of the Issuer’s existing and future senior unsecured indebtedness; | ||
• will rank senior in right of payment to all of the Issuer’s existing and future subordinated indebtedness; | ||
• will be effectively subordinated to any of the Issuer’s existing and future secured debt, to the extent of the value of the assets securing such debt; and | ||
• will be structurally subordinated to all of the existing and future liabilities (including trade payables) of each of our subsidiaries. | ||
As of September 30, 2010, after giving effect to this offering and the completion of the tender offer (assuming that 100% of the holders tender their Debentures (as defined below) in the tender offer) with the net proceeds from this offering: | ||
• we would have had approximately $2,375.5 million of total consolidated indebtedness (including the notes), of which $456.6 million would have ranked equally with the notes; | ||
• of our total consolidated indebtedness, Covanta Energy would have had approximately $627.3 million of secured indebtedness under our senior credit facility (excluding an additional $294.5 million represented by letters of credit under the senior credit facility) to which the notes would have been effectively subordinated; | ||
• Covanta Energy would have had commitments available to be borrowed under the senior credit facility of $325.5 million, after giving effect to $294.5 million of outstanding letters of credit; and | ||
• our subsidiaries would have had $2,849.0 million of total liabilities (including trade payables), all of which would have been structurally senior to the notes. | ||
Covenants | The Issuer will issue the notes under an indenture with Wells Fargo Bank, National Association, as trustee. The indenture will, among other things, limit the Issuer’s ability and the ability of its restricted subsidiaries to: | |
• incur additional indebtedness; | ||
• pay dividends or make other distributions or repurchase or redeem their capital stock; | ||
• prepay, redeem or repurchase certain debt; | ||
• make loans and investments; | ||
• sell assets; | ||
• incur liens; |
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• enter into transactions with affiliates; | ||
• alter the businesses they conduct; | ||
• enter into agreements restricting our subsidiaries’ ability to pay dividends; and | ||
• consolidate, merge or sell all or substantially all of their assets. | ||
These covenants will be subject to a number of important exceptions and qualifications. In addition, if and for so long as the notes have an investment grade rating from both Standard & Poor’s Ratings Group Inc. and Moody’s Investors Service, Inc. and no default under the indenture has occurred, certain of the covenants listed above will be suspended. For more details, see “Description of notes.” | ||
Absence of public market for the notes | The notes are a new issue of securities and there is currently no established trading market for the notes. We do not intend to apply for a listing of the notes on any securities exchange or an automated dealer quotation system. Accordingly, there can be no assurance as to the development or liquidity of any market for the notes. The underwriters have advised us that they currently intend to make a market in the notes. However, they are not obligated to do so, and any market making with respect to the notes may be discontinued without notice. | |
U.S. Federal Income Tax Considerations | Holders are urged to consult their own tax advisors with respect to the federal, state, local and foreign tax consequences of purchasing, owning and disposing of the notes. See “Certain United States federal income tax considerations.” | |
Use of proceeds | We estimate that our net proceeds from this offering will be approximately $ million, after deducting discounts and commissions and estimated offering expenses. We intend to use a portion of the net proceeds of this offering to finance our tender offer for any and all of the aggregate principal amount outstanding of our Debentures. Remaining proceeds will be used for general corporate purposes. If the tender offer is not consummated for any reason, all of the net proceeds of this offering will be used for general corporate purposes. Pending such uses, we intend to invest the net proceeds in short-term interest-bearing accounts, securities or similar investments. See “Use of proceeds.” |
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Twelve | ||||||||||||||||||||||||
Nine months ended | months ended | |||||||||||||||||||||||
Years ended December 31, | September 30, | September 30, | ||||||||||||||||||||||
(dollars in thousands) | 2007 | 2008 | 2009 | 2009 | 2010 | 2010(1) | ||||||||||||||||||
Income statement data: | ||||||||||||||||||||||||
Operating revenues: | ||||||||||||||||||||||||
Waste and service revenues | $ | 864,396 | $ | 934,527 | $ | 919,604 | $ | 667,298 | $ | 768,433 | $ | 1,020,739 | ||||||||||||
Electricity and steam sales | 498,877 | 660,616 | 580,248 | 439,751 | 438,005 | 578,502 | ||||||||||||||||||
Other operating revenues | 69,814 | 69,110 | 50,615 | 36,206 | 82,545 | 96,954 | ||||||||||||||||||
Total operating revenues | 1,433,087 | 1,664,253 | 1,550,467 | 1,143,255 | 1,288,983 | 1,696,195 | ||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Plant operating expenses | 801,560 | 999,674 | 946,166 | 703,888 | 813,086 | 1,055,364 | ||||||||||||||||||
Other operating expenses | 60,639 | 66,701 | 47,968 | 34,270 | 77,568 | 91,266 | ||||||||||||||||||
General and administrative expenses | 82,729 | 97,016 | 109,235 | 81,366 | 77,401 | 105,270 | ||||||||||||||||||
Depreciation and amortization expense | 196,970 | 199,488 | 202,872 | 150,717 | 146,527 | 198,682 | ||||||||||||||||||
Net interest expense on project debt | 54,579 | 53,734 | 48,391 | 37,511 | 31,266 | 42,146 | ||||||||||||||||||
Write-down of assets, net of insurance recoveries | – | (8,325 | ) | – | – | 32,321 | 32,321 | |||||||||||||||||
Total operating expenses | 1,196,477 | 1,408,288 | 1,354,632 | 1,007,752 | 1,178,169 | 1,525,049 | ||||||||||||||||||
Operating income | 236,610 | 255,965 | 195,835 | 135,503 | 110,814 | 171,146 | ||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Investment income | 10,578 | 5,717 | 4,007 | 3,136 | 1,669 | 2,540 | ||||||||||||||||||
Interest expense | (67,104 | ) | (46,804 | ) | (38,116 | ) | (27,291 | ) | (32,250 | ) | (43,075 | ) | ||||||||||||
Non-cash convertible debt related expense | (15,377 | ) | (17,979 | ) | (24,290 | ) | (14,562 | ) | (29,760 | ) | (39,488 | ) | ||||||||||||
Loss on extinguishment of debt | (32,071 | ) | – | – | – | – | – | |||||||||||||||||
Total other expenses | (103,974 | ) | (59,066 | ) | (58,399 | ) | (38,717 | ) | (60,341 | ) | (80,023 | ) | ||||||||||||
Income before income tax expense and equity in net income from unconsolidated investments | 132,636 | 196,899 | 137,436 | 96,786 | 50,473 | 91,123 | ||||||||||||||||||
Income tax expense | (24,483 | ) | (84,561 | ) | (50,044 | ) | (34,197 | ) | (23,348 | ) | (39,195 | ) | ||||||||||||
Equity in net income from unconsolidated investments | 22,196 | 23,583 | 23,036 | 17,091 | 18,024 | 23,969 | ||||||||||||||||||
NET INCOME | 130,349 | 135,921 | 110,428 | 79,680 | 45,149 | 75,897 | ||||||||||||||||||
Less: Net income attributable to noncontrolling interest in subsidiaries | (8,656 | ) | (6,961 | ) | (8,783 | ) | (6,312 | ) | (6,436 | ) | (8,907 | ) | ||||||||||||
NET INCOME ATTRIBUTABLE TO COVANTA HOLDING CORPORATION | $ | 121,693 | $ | 128,960 | $ | 101,645 | $ | 73,368 | $ | 38,713 | $ | 66,990 | ||||||||||||
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Twelve | ||||||||||||||||||||||||
Nine months ended | months ended | |||||||||||||||||||||||
Years ended December 31, | September 30, | September 30, | ||||||||||||||||||||||
(dollars in thousands) | 2007 | 2008 | 2009 | 2009 | 2010 | 2010(1) | ||||||||||||||||||
Other financial data: | ||||||||||||||||||||||||
Net cash provided by operating activities | $ | 363,591 | $ | 402,607 | $ | 397,238 | $ | 247,733 | $ | 328,107 | $ | 477,612 | ||||||||||||
Net cash used in investing activities | (179,910 | ) | (189,308 | ) | (387,240 | ) | (329,624 | ) | (247,573 | ) | (305,189 | ) | ||||||||||||
Net cash (used in) provided by financing activities | (268,335 | ) | (170,242 | ) | 230,950 | 261,902 | (437,395 | ) | (468,347 | ) | ||||||||||||||
Acquisition of businesses, net of cash acquired | (110,465 | ) | (73,393 | ) | (265,644 | ) | (251,734 | ) | (128,254 | ) | (142,164 | ) | ||||||||||||
Purchase of property, plant and equipment | (85,748 | ) | (87,920 | ) | (73,619 | ) | (59,109 | ) | (83,101 | ) | (97,611 | ) | ||||||||||||
Adjusted EBITDA(2)(3) | 549,181 | 573,789 | 515,098 | 375,109 | 383,794 | 523,783 | ||||||||||||||||||
Free Cash Flow(4) | 308,103 | 341,968 | 345,301 | 203,588 | 271,267 | 412,980 | ||||||||||||||||||
December 31, | September 30, | |||||||||||||||||||
(dollars in thousands) | 2007 | 2008 | 2009 | 2009 | 2010 | |||||||||||||||
Balance sheet data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 149,406 | $ | 192,393 | $ | 433,683 | $ | 372,600 | $ | 76,507 | ||||||||||
Restricted funds held in trust | 379,864 | 324,911 | 277,752 | 335,204 | 337,721 | |||||||||||||||
Property, plant and equipment, net | 2,620,507 | 2,530,035 | 2,582,841 | 2,612,304 | 2,526,291 | |||||||||||||||
Total assets | 4,368,499 | 4,279,989 | 4,934,282 | 4,974,026 | 4,652,714 | |||||||||||||||
Total debt, including current portion: | ||||||||||||||||||||
Covanta Energy debt | 1,925,957 | 1,717,507 | 1,592,235 | 1,656,906 | 1,518,904 | |||||||||||||||
Covanta Holding debt | 2,217,359 | 2,026,888 | 2,397,070 | 2,437,471 | 2,319,652 | |||||||||||||||
Total equity | 1,114,066 | 1,224,051 | 1,417,169 | 1,395,623 | 1,200,536 | |||||||||||||||
Twelve months ended | ||||||||
September 30, 2010 | ||||||||
Actual | As adjusted | |||||||
Credit Statistics: | ||||||||
Ratio of Covanta Energy Debt / Net cash provided by operating activities | 3.18 | x | 3.18 | x | ||||
Ratio of Covanta Holding Debt / Net cash provided by operating activities | 4.86 | x | 4.97 | x | ||||
Ratio of Covanta Energy Net Debt / Adjusted EBITDA(5) | 2.53 | x | 2.53 | x | ||||
Ratio of Covanta Holding Net Debt / Adjusted EBITDA(5) | 4.05 | x | 4.16 | x | ||||
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(1) | The Income statement data, Other financial data and other information presented for the twelve months ended September 30, 2010 have been derived from our audited and unaudited consolidated financial statements incorporated by reference herein for each item presented by subtracting the item for the nine months ended September 30, 2009 from the item for the year ended December 31, 2009, and adding the amount of the item for the nine months ended September 30, 2010. We believe that the presentation of information for the twelve months ended September 30, 2010 provides useful information to investors regarding our recent financial performance and we view the most recently completed twelve-month period as an important measurement period for investors to assess our historical results. We also use trailing four quarter financial data to test compliance with covenants under our senior credit facility. Our presentation of information for the twelve months ended September 30, 2010 should not be considered in isolation or to the exclusion of consideration of our annual audited financial statements or quarterly unaudited financial statements included in our period filings with the SEC which are incorporated by reference herein. | |
(2) | For all periods presented, Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, as adjusted for additional items subtracted from or added to net income. The presentation of Adjusted EBITDA is intended to enhance the usefulness of our financial information by providing a measure which management internally uses to assess and evaluate the overall performance of its business. 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, 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 business. The definition of Adjusted EBITDA is substantially similar to that of Consolidated Adjusted EBITDA as defined in the indenture, but may differ in certain respects. Adjusted EBITDA should not be considered as an alternative to net income or cash flow provided by operating activities as indicators of our performance or liquidity or any other measures of performance or liquidity derived in accordance with GAAP. The following are reconciliations of net income to Adjusted EBITDA and net cash provided by operating activities to Adjusted EBITDA for the three years ended December 31, 2009, 2008 and 2007, the nine months ended September 30, 2010 and 2009 and the twelve months ended September 30, 2010: |
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Twelve | ||||||||||||||||||||||||
Nine months ended | months ended | |||||||||||||||||||||||
Years ended December 31, | September 30, | September 30, | ||||||||||||||||||||||
(dollars in thousands) | 2007 | 2008 | 2009 | 2009 | 2010 | 2010 | ||||||||||||||||||
Computation of Adjusted EBITDA: | ||||||||||||||||||||||||
Net Income attributable to Covanta Holding Corporation | $ | 121,693 | $ | 128,960 | $ | 101,645 | $ | 73,368 | $ | 38,713 | $ | 66,990 | ||||||||||||
Depreciation and amortization expense | 196,970 | 199,488 | 202,872 | 150,717 | 146,527 | 198,682 | ||||||||||||||||||
Debt service: | ||||||||||||||||||||||||
Net interest expense on project debt | 54,579 | 53,734 | 48,391 | 37,511 | 31,266 | 42,146 | ||||||||||||||||||
Interest expense | 67,104 | 46,804 | 38,116 | 27,291 | 32,250 | 43,075 | ||||||||||||||||||
Non-cash convertible debt related expense | 15,377 | 17,979 | 24,290 | 14,562 | 29,760 | 39,488 | ||||||||||||||||||
Investment income | (10,578 | ) | (5,717 | ) | (4,007 | ) | (3,136 | ) | (1,669 | ) | (2,540 | ) | ||||||||||||
Subtotal debt service | 126,482 | 112,800 | 106,790 | 76,228 | 91,607 | 122,169 | ||||||||||||||||||
Income tax expense | 24,483 | 84,561 | 50,044 | 34,197 | 23,348 | 39,195 | ||||||||||||||||||
Other adjustments: | ||||||||||||||||||||||||
Write-down of assets | – | – | – | – | 32,321 | 32,321 | ||||||||||||||||||
Change in unbilled service receivables | 19,403 | 14,020 | 18,620 | 13,656 | 23,574 | 28,538 | ||||||||||||||||||
Non-cash compensation expense | 13,448 | 14,750 | 14,220 | 10,724 | 13,279 | 16,775 | ||||||||||||||||||
Transaction-related costs | – | – | 6,289 | 5,952 | 1,349 | 1,686 | ||||||||||||||||||
Loss on extinguishment of debt | 32,071 | – | – | – | – | – | ||||||||||||||||||
Other | 5,975 | 12,249 | 5,835 | 3,955 | 6,640 | 8,520 | ||||||||||||||||||
Subtotal other adjustments | 70,897 | 41,019 | 44,964 | 34,287 | 77,163 | 87,840 | ||||||||||||||||||
Net income attributable to noncontrolling interests in subsidiaries | 8,656 | 6,961 | 8,783 | 6,312 | 6,436 | 8,907 | ||||||||||||||||||
Total adjustments | 427,488 | 444,829 | 413,453 | 301,741 | 345,081 | 456,793 | ||||||||||||||||||
Adjusted EBITDA | $ | 549,181 | $ | 573,789 | $ | 515,098 | $ | 375,109 | $ | 383,794 | $ | 523,783 | ||||||||||||
Net cash provided by operating activities | $ | 363,591 | $ | 402,607 | $ | 397,238 | $ | 247,733 | $ | 328,107 | $ | 477,612 | ||||||||||||
Transaction-related costs | – | – | 6,289 | 5,952 | 1,349 | 1,686 | ||||||||||||||||||
Debt service | 126,482 | 112,800 | 106,790 | 76,228 | 91,607 | 122,169 | ||||||||||||||||||
Amortization of debt premium and deferred financing costs | 11,016 | 7,023 | 3,265 | 2,791 | 576 | 1,050 | ||||||||||||||||||
Other | 48,092 | 51,359 | 1,516 | 42,405 | (37,845 | ) | (78,734 | ) | ||||||||||||||||
Adjusted EBITDA | $ | 549,181 | $ | 573,789 | $ | 515,098 | $ | 375,109 | $ | 383,794 | $ | 523,783 | ||||||||||||
(3) | For all periods presented, Adjusted EBITDA (Restricted Group) is defined as earnings before interest, taxes, depreciation and amortization, as adjusted for additional items subtracted from or added to net income, as calculated for our Restricted Subsidiaries only. The Restricted Subsidiaries exclude our foreign subsidiaries that are involved in the operation or ownership of our businesses in Asia, much of which we intend to sell, and our insurance subsidiaries. Adjusted EBITDA (Restricted Group) should not be considered as an alternative to net income or cash flow provided by operating activities as indicators of our performance or liquidity or any other measures of performance or liquidity derived in |
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accordance with GAAP. The following are reconciliations of net income (Restricted Group) to Adjusted EBITDA (Restricted Group) and net cash provided by operating activities (Restricted Group) to Adjusted EBITDA (Restricted Group) for the three years ended December 31, 2009, 2008 and 2007, the nine months ended September 30, 2010 and 2009 and the twelve months ended September 30, 2010: |
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Nine months ended | months ended | |||||||||||||||||||||||
Years ended December 31, | September 30, | September 30, | ||||||||||||||||||||||
(dollars in thousands) | 2007 | 2008 | 2009 | 2009 | 2010 | 2010 | ||||||||||||||||||
Computation of Adjusted EBITDA (Restricted Group): | ||||||||||||||||||||||||
Net income | $ | 84,720 | $ | 95,497 | $ | 71,472 | $ | 50,830 | $ | 20,916 | $ | 41,558 | ||||||||||||
Depreciation and amortization expense | 187,973 | 190,856 | 195,281 | 145,069 | 140,838 | 191,050 | ||||||||||||||||||
Debt service: | ||||||||||||||||||||||||
Net interest expense on project debt | 51,208 | 46,184 | 42,327 | 32,699 | 27,646 | 37,274 | ||||||||||||||||||
Interest expense | 67,104 | 46,804 | 38,116 | 27,291 | 32,250 | 43,075 | ||||||||||||||||||
Non-cash convertible debt related expense | 15,377 | 17,979 | 24,290 | 14,562 | 29,760 | 39,488 | ||||||||||||||||||
Investment income | (10,578 | ) | (5,717 | ) | (4,007 | ) | (3,136 | ) | (1,669 | ) | (2,540 | ) | ||||||||||||
Subtotal debt service | 123,111 | 105,250 | 100,726 | 71,416 | 87,987 | 117,297 | ||||||||||||||||||
Income tax expense | 19,314 | 80,021 | 43,759 | 27,526 | 18,720 | 34,953 | ||||||||||||||||||
Other adjustments: | ||||||||||||||||||||||||
Write-off of assets | – | – | – | – | 32,321 | 32,321 | ||||||||||||||||||
Change in unbilled service receivables | 19,403 | 14,020 | 18,620 | 13,656 | 23,574 | 28,538 | ||||||||||||||||||
Non-cash compensation expense | 13,448 | 14,750 | 14,220 | 10,724 | 13,279 | 16,775 | ||||||||||||||||||
Transaction-related costs | – | – | 6,289 | 5,952 | 1,349 | 1,686 | ||||||||||||||||||
Loss on extinguishment of debt | 32,071 | – | – | – | – | – | ||||||||||||||||||
Other | 6,588 | 10,603 | 5,172 | 3,138 | 6,107 | 8,141 | ||||||||||||||||||
Subtotal other adjustments | 71,510 | 39,373 | 44,301 | 33,470 | 76,630 | 87,461 | ||||||||||||||||||
Total adjustments | 401,908 | 415,500 | 384,067 | 277,481 | 324,175 | 430,761 | ||||||||||||||||||
Adjusted EBITDA (Restricted Group) | $ | 486,628 | $ | 510,997 | $ | 455,539 | $ | 328,311 | $ | 345,091 | $ | 472,319 | ||||||||||||
Net cash provided by operating activities | $ | 322,612 | $ | 357,468 | $ | 360,254 | $ | 222,455 | $ | 298,115 | $ | 435,914 | ||||||||||||
Transaction-related costs | – | – | 6,289 | 5,952 | 1,349 | 1,686 | ||||||||||||||||||
Debt service | 120,101 | 106,882 | 102,935 | 73,126 | 89,814 | 119,623 | ||||||||||||||||||
Amortization of debt premium and deferred financing costs | 11,016 | 7,023 | 3,265 | 2,791 | 576 | 1,050 | ||||||||||||||||||
Other | 32,899 | 39,624 | (17,204 | ) | 23,987 | (44,763 | ) | (85,954 | ) | |||||||||||||||
Adjusted EBITDA (Restricted Group) | $ | 486,628 | $ | 510,997 | $ | 455,539 | $ | 328,311 | $ | 345,091 | $ | 472,319 | ||||||||||||
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(4) | For all periods presented, Free Cash Flow is defined as cash flow provided by operating activities 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 businesses, such as amounts available to make acquisitions, invest in construction of new projects or make principal payments on debt. Free Cash Flow should not be considered as an alternative to cash flow provided by operating activities as an indicator of our liquidity or any other measure of liquidity in accordance with GAAP. The following is a summary reconciliation of net cash provided by operating activities to Free Cash Flow for the three years ended December 31, 2009, 2008 and 2007, the nine months ended September 30, 2010 and 2009 and the twelve months ended September 30, 2010: |
Twelve | ||||||||||||||||||||||||
months | ||||||||||||||||||||||||
Nine months ended | ended | |||||||||||||||||||||||
Years ended December 31, | September 30, | September 30, | ||||||||||||||||||||||
(dollars in thousands) | 2007 | 2008 | 2009 | 2009 | 2010 | 2010 | ||||||||||||||||||
Computation of Free Cash Flow: | ||||||||||||||||||||||||
Net cash provided by operating activities | $ | 363,591 | $ | 402,607 | $ | 397,238 | $ | 247,733 | $ | 328,107 | $ | 477,612 | ||||||||||||
Less: Maintenance capital expenditures | (55,488 | ) | (60,639 | ) | (51,937 | ) | (44,145 | ) | (56,840 | ) | (64,632 | ) | ||||||||||||
Free Cash Flow | $ | 308,103 | $ | 341,968 | $ | 345,301 | $ | 203,588 | $ | 271,267 | $ | 412,980 | ||||||||||||
Maintenance capital expenditures | $ | 55,488 | $ | 60,639 | $ | 51,937 | $ | 44,145 | $ | 56,840 | $ | 64,632 | ||||||||||||
Capital expenditures associated with development projects | – | 1,208 | 13,233 | 9,794 | 13,943 | 17,382 | ||||||||||||||||||
Capital expenditures associated with technology development | – | 5,882 | 5,008 | 3,269 | 4,642 | 6,381 | ||||||||||||||||||
Capital expenditures associated with SEMASS fire | 18,144 | 3,065 | 2,088 | 821 | – | 1,267 | ||||||||||||||||||
Capital expenditures associated with certain acquisitions/other | 12,116 | 17,126 | 1,353 | 1,080 | 7,676 | 7,949 | ||||||||||||||||||
Total purchase of property, plant and equipment | $ | 85,748 | $ | 87,920 | $ | 73,619 | $ | 59,109 | $ | 83,101 | $ | 97,611 | ||||||||||||
(5) | For all periods presented, Net Debt is calculated as total debt, less restricted funds held in trust for the express purpose of repayment of debt principal. The definition of Net Debt is consistent with that of Consolidated Indebtedness as defined in the indenture, which is used in the calculation of Combined Leverage Ratio in the indenture. Net Debt should not be considered as an alternative to Total Debt as an indicator of our liquidity or any other measures of liquidity derived in accordance with GAAP. The following are reconciliations of Covanta Energy Debt to Covanta Energy Net Debt and Covanta Holding Debt to Covanta Holding Net Debt: |
September 30, 2010 | ||||||||
(dollars in thousands) | Actual | As adjusted | ||||||
Computation of Net Debt: | ||||||||
Covanta Energy Debt | $ | 1,518,904 | $ | 1,518,904 | ||||
Less: Restricted funds held in trust—principal related | 195,852 | 195,852 | ||||||
Covanta Energy Net Debt | $ | 1,323,052 | $ | 1,323,052 | ||||
Covanta Holding Debt | $ | 2,319,652 | $ | 2,375,554 | ||||
Less: Restricted funds held in trust—principal related | 195,852 | 195,852 | ||||||
Covanta Holding Net Debt | $ | 2,123,800 | $ | 2,179,702 | ||||
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• | supply interruptions; |
• | the breakdown or failure of equipment or processes; |
• | difficulty or inability to find suitable replacement parts for equipment; |
• | increases in the prices of commodities we need to continue operating our facilities; |
• | the unavailability of sufficient quantities of waste or fuel; |
• | fluctuations in the heating value of the waste we use for fuel at our energy-from-waste facilities; |
• | decreases in the fees for solid waste disposal and electricity generated; |
• | decreases in the demand or market prices for recovered ferrous or non-ferrous metal; |
• | disruption in the transmission of electricity generated; |
• | permitting and other regulatory issues, license revocation and changes in legal requirements; |
• | labor disputes and work stoppages; |
• | unforeseen engineering and environmental problems; |
• | unanticipated cost overruns; |
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• | weather interferences, catastrophic events including fires, explosions, earthquakes, droughts, pandemics and acts of terrorism; and |
• | the exercise of the power of eminent domain. |
• | difficulties in identifying, obtaining and permitting suitable sites for new projects; |
• | the inaccuracy of our assumptions with respect to the cost of and schedule for completing construction; |
• | difficulty, delays or inability to obtain financing for a project on acceptable terms; |
• | delays in deliveries of, or increases in the prices of, equipment sourced from other countries; |
• | the unavailability of sufficient quantities of waste or other fuels for startup; |
• | permitting and other regulatory issues, license revocation and changes in legal requirements; |
• | labor disputes and work stoppages; |
• | unforeseen engineering and environmental problems; |
• | unanticipated cost overruns; and |
• | weather interferences, catastrophic events including fires, explosions, earthquakes, droughts and acts of terrorism. |
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• | support agreements in connection with service or operating agreement-related obligations; |
• | direct guarantees of certain debt relating to our facilities; |
• | contingent obligations to pay lease payment installments in connection with certain of our facilities; |
• | agreements to arrange financing for projects under development; |
• | contingent credit support for damages arising from performance failures; |
• | environmental indemnities; and |
• | contingent capital and credit support to finance costs, in most cases in connection with a corresponding increase in service fees, relating to uncontrollable circumstances. |
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• | changes in law or regulations; |
• | changes in electricity pricing; |
• | changes in foreign tax laws and regulations; |
• | changes in United States federal, state and local laws, including tax laws, related to foreign operations; |
• | compliance with United States federal, state and local foreign corrupt practices laws; |
• | changes in government policies or personnel; |
• | changes in general economic conditions affecting each country, including conditions in financial markets; |
• | changes in labor relations in operations outside the United States; |
• | political, economic or military instability and civil unrest; |
• | expropriation and confiscation of assets and facilities; and |
• | credit quality of entities that purchase our power. |
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• | incurring additional indebtedness or issuing guarantees, in excess of specified amounts; |
• | creating liens, in excess of specified amounts; |
• | making certain investments, in excess of specified amounts; |
• | entering into transactions with its affiliates; |
• | selling certain assets, in excess of specified amounts; |
• | making cash distributions or paying dividends, in excess of specified amounts; |
• | redeeming capital stock or making other restricted payments, in excess of specified amounts; and |
• | merging or consolidating with any person. |
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• | making it difficult for us to meet our payment and other obligations under our outstanding indebtedness; |
• | limiting our ability to obtain additional financing to fund working capital, capital expenditures, acquisitions and other general corporate purposes; |
• | subjecting us to the risk of increased sensitivity to interest rate increases on indebtedness under Covanta Energy’s credit facilities; |
• | limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industries in which we operate and the general economy; and |
• | placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged. |
• | the continued operation and maintenance of our facilities, consistent with historical performance levels; |
• | maintenance or enhancement of revenue from renewals or replacement of existing contracts and from new contracts to expand existing facilities or operate additional facilities; |
• | market conditions affecting waste disposal and energy pricing, as well as competition from other companies for contract renewals, expansions and additional contracts, particularly after our existing contracts expire; |
• | the continued availability of the benefits of our NOLs; and |
• | general economic, financial, competitive, legislative, regulatory and other factors. |
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• | we were insolvent or rendered insolvent by reason of the issuance of the notes; |
• | the issuance of the notes left us with an unreasonably small amount of capital or assets to carry on the business; |
• | we intended to, or believed that we would, incur debts beyond our ability to pay as they mature; or |
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• | we were a defendant in an action for money damages, or had a judgment for money damages docketed against us the judgment is unsatisfied after final judgment. |
• | the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its assets; |
• | the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or |
• | it could not pay its debts as they became due. |
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• | our financial performance; |
• | the amount of indebtedness we have outstanding; |
• | market interest rates; |
• | the market for similar securities; |
• | competition; |
• | the size and liquidity of the market for the notes; and |
• | general economic conditions. |
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• | result in payment delays to you because the trustee will be sending distributions on the notes to DTC instead of directly to you; |
• | make it difficult or impossible for you to pledge certificates if physical certificates are required by the party demanding the pledge; and |
• | hinder your ability to resell notes because some investors may be unwilling to buy notes that are not in physical form. |
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Nine months ended | ||||||||||||||||||||||||
September 30, | For the years ended December 31, | |||||||||||||||||||||||
(dollars in thousands) | 2010 | 2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||||
Earnings | ||||||||||||||||||||||||
Income before income tax expense, equity in net income from unconsolidated investments and non-controlling interests in subsidiaries | $ | 50,473 | $ | 137,436 | $ | 196,899 | $ | 132,636 | $ | 122,228 | $ | 77,565 | ||||||||||||
Capitalized interest | – | (508 | ) | (346 | ) | – | – | – | ||||||||||||||||
Dividends from unconsolidated investments | 10,910 | 11,310 | 19,459 | 24,250 | 19,375 | 19,287 | ||||||||||||||||||
Fixed charges | 102,517 | 125,913 | 134,697 | 153,865 | 187,254 | 157,315 | ||||||||||||||||||
Total Earnings | $ | 163,900 | $ | 274,151 | $ | 350,709 | $ | 310,751 | $ | 328,857 | $ | 254,167 | ||||||||||||
Interest expense | $ | 93,276 | $ | 110,797 | $ | 118,517 | $ | 137,060 | $ | 169,717 | $ | 142,404 | ||||||||||||
Capitalized interest | – | 508 | 346 | – | – | – | ||||||||||||||||||
Imputed interest on operating leases | 9,241 | 14,608 | 15,834 | 16,805 | 17,537 | 14,911 | ||||||||||||||||||
Total Fixed Charges | $ | 102,517 | $ | 125,913 | $ | 134,697 | $ | 153,865 | $ | 187,254 | $ | 157,315 | ||||||||||||
Ratio of Earnings to Fixed Charges | 1.60 | x | 2.18 | x | 2.60 | x | 2.02 | x | 1.76 | x | 1.62 | x | ||||||||||||
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• | on an actual basis; and |
• | as adjusted to give effect to the issuance of $400.0 million in aggregate principal amount of the notes in this offering, after deducting discounts and commissions and estimated offering expenses of $10.2 million, and the completion of the tender offer (assuming that 100% of the holders tender their Debentures in the tender offer). |
As of September 30, 2010 | ||||||||
(dollars in millions) | Actual | As adjusted | ||||||
Cash and cash equivalents and restricted funds held in trust: | ||||||||
Cash and cash equivalents | $ | 76.5 | $ | 92.8 | ||||
Restricted funds held in trust | 337.7 | 337.7 | ||||||
Total cash and cash equivalents and restricted funds held in trust | $ | 414.2 | $ | 430.5 | ||||
Capitalization: | ||||||||
Debt: | ||||||||
Project debt(1) | $ | 877.4 | $ | 877.4 | ||||
Unamortized premium on project debt | 13.6 | 13.6 | ||||||
Other long-term debt | 0.6 | 0.6 | ||||||
Revolving credit facility(2) | – | – | ||||||
Covanta Energy’s term loan facility (due 2014) | 627.3 | 627.3 | ||||||
Notes offered hereby(3) | – | 400.0 | ||||||
Debentures(4) | 344.1 | – | ||||||
Cash Convertible Notes(5) | 456.6 | 456.6 | ||||||
Total debt | $ | 2,319.6 | $ | 2,375.5 | ||||
Equity: | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock ($0.10 par value; authorized 10,000 shares; none issued on an actual or as adjusted basis) | $ | – | $ | – | ||||
Common stock ($0.10 par value; authorized 250,000 shares; issued 156,723 shares and outstanding 153,407 shares on an actual and as adjusted basis)(6) | 15.6 | 15.6 | ||||||
Additional paid-in capital | 885.6 | 876.2 | ||||||
Accumulated other comprehensive income | 8.9 | 8.9 | ||||||
Accumulated earnings(7) | 256.9 | 249.0 | ||||||
Treasury stock, at par | (0.3 | ) | (0.3 | ) | ||||
�� | ||||||||
Stockholders’ equity | 1,166.7 | 1,149.4 | ||||||
Noncontrolling interests in subsidiaries | 33.8 | 33.8 | ||||||
Total equity | $ | 1,200.5 | $ | 1,183.2 | ||||
Total capitalization | $ | 3,520.1 | $ | 3,558.7 | ||||
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(1) | Consists of project debt of subsidiaries. | |
(2) | $300.0 million remains available to be drawn on the revolving credit facility. In addition, we have $294.5 million outstanding under our $320.0 million funded letter of credit facility, with remaining capacity of up to an additional $25.5 million. | |
(3) | Consists of face value of the notes offered hereby of $400.0 million. | |
(4) | Consists of face value of the Debentures of $373.75 million, net of debt discount of $29.6 million. | |
(5) | Consists of face value of the Cash Convertible Notes of $460.0 million, net of debt discount of $96.7 million plus the fair value of the cash conversion feature of $93.3 million. | |
(6) | The number of issued shares in the table above as of September 30, 2010 on an actual and as adjusted basis does not include (a) approximately 4.8 million shares of our common stock issuable upon exercise of outstanding stock options and upon vesting of restricted stock awards and units, (b) up to 27.2 million shares of our common stock that may be issued under the warrant transactions entered into in connection with the issuance of the Cash Convertible Notes and (c) solely on an actual basis, does not include up to approximately 14.6 million shares of our common stock issuable upon conversion of the Debentures. | |
(7) | As adjusted accumulated earnings reflects an estimated after-tax loss in connection with the completion of the tender offer. |
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Years ended December 31, | Nine months ended September 30, | |||||||||||||||||||||||||||
(dollars in thousands) | 2005 | 2006 | 2007 | 2008 | 2009 | 2009 | 2010 | |||||||||||||||||||||
Income statement data: | ||||||||||||||||||||||||||||
Operating Revenues: | ||||||||||||||||||||||||||||
Waste and service revenues | $ | 638,503 | $ | 817,633 | $ | 864,396 | $ | 934,527 | $ | 919,604 | $ | 667,298 | $ | 768,433 | ||||||||||||||
Electricity and steam sales | 322,770 | 433,834 | 498,877 | 660,616 | 580,248 | 439,751 | 438,005 | |||||||||||||||||||||
Other operating revenues | 17,490 | 17,069 | 69,814 | 69,110 | 50,615 | 36,206 | 82,545 | |||||||||||||||||||||
Total operating revenues | 978,763 | 1,268,536 | 1,433,087 | 1,664,253 | 1,550,467 | 1,143,255 | 1,288,983 | |||||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||||||
Plant operating expenses | 559,638 | 712,156 | 801,560 | 999,674 | 946,166 | 703,888 | 813,086 | |||||||||||||||||||||
Other operating expenses | 17,730 | 2,594 | 60,639 | 66,701 | 47,968 | 34,270 | 77,568 | |||||||||||||||||||||
General and administrative expenses | 67,481 | 73,599 | 82,729 | 97,016 | 109,235 | 81,366 | 77,401 | |||||||||||||||||||||
Depreciation and amortization expense | 124,925 | 193,217 | 196,970 | 199,488 | 202,872 | 150,717 | 146,527 | |||||||||||||||||||||
Net interest expense on project debt | 52,431 | 60,210 | 54,579 | 53,734 | 48,391 | 37,511 | 31,266 | |||||||||||||||||||||
Write-down of assets | – | – | – | – | – | – | 32,321 | |||||||||||||||||||||
Insurance recoveries, net of write-down of assets | – | – | – | (8,325 | ) | – | – | – | ||||||||||||||||||||
California Grantor Trust Settlement | 10,342 | – | – | – | – | – | – | |||||||||||||||||||||
Total operating expenses | 832,547 | 1,041,776 | 1,196,477 | 1,408,288 | 1,354,632 | 1,007,752 | 1,178,169 | |||||||||||||||||||||
Operating income | 146,216 | 226,760 | 236,610 | 255,965 | 195,835 | 135,503 | 110,814 | |||||||||||||||||||||
Other Income (Expense): | ||||||||||||||||||||||||||||
Investment income | 6,129 | 11,770 | 10,578 | 5,717 | 4,007 | 3,136 | 1,669 | |||||||||||||||||||||
Interest expense | (89,973 | ) | (109,507 | ) | (67,104 | ) | (46,804 | ) | (38,116 | ) | (27,291 | ) | (32,250 | ) | ||||||||||||||
Non-cash convertible debt related expense | – | – | (15,377 | ) | (17,979 | ) | (24,290 | ) | (14,562 | ) | (29,760 | ) | ||||||||||||||||
Loss on extinguishment of debt | – | (6,795 | ) | (32,071 | ) | – | – | – | – | |||||||||||||||||||
Gain on derivative instruments, ACL warrants | 15,193 | – | – | – | – | – | – | |||||||||||||||||||||
Total other expenses | (68,651 | ) | (104,532 | ) | (103,974 | ) | (59,066 | ) | (58,399 | ) | (38,717 | ) | (60,341 | ) | ||||||||||||||
Income before income tax expense and equity in net income from unconsolidated investments | 77,565 | 122,228 | 132,636 | 196,899 | 137,436 | 96,786 | 50,473 | |||||||||||||||||||||
Income tax expense | (34,651 | ) | (38,465 | ) | (24,483 | ) | (84,561 | ) | (50,044 | ) | (34,197 | ) | (23,348 | ) | ||||||||||||||
Equity in net income from unconsolidated investments | 25,609 | 28,636 | 22,196 | 23,583 | 23,036 | 17,091 | 18,024 | |||||||||||||||||||||
Net Income | 68,523 | 112,399 | 130,349 | 135,921 | 110,428 | 79,680 | 45,149 | |||||||||||||||||||||
Less: Net income attributable to noncontrolling interest in subsidiaries | (9,197 | ) | (6,610 | ) | (8,656 | ) | (6,961 | ) | (8,783 | ) | (6,312 | ) | (6,436 | ) | ||||||||||||||
Net Income Attributable to Covanta Holding Corporation | $ | 59,326 | $ | 105,789 | 121,693 | $ | 128,960 | $ | 101,645 | $ | 73,368 | $ | 38,713 | |||||||||||||||
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Years ended December 31, | Nine months ended September 30, | |||||||||||||||||||||||||||
(dollars in thousands) | 2005 | 2006 | 2007 | 2008 | 2009 | 2009 | 2010 | |||||||||||||||||||||
Other financial data: | ||||||||||||||||||||||||||||
Net cash provided by operating activities | 208,259 | $ | 318,989 | $ | 363,591 | $ | 402,607 | $ | 397,238 | $ | 247,733 | $ | 328,107 | |||||||||||||||
Net cash used in investing activities | (676,879 | ) | (66,904 | ) | (179,910 | ) | (189,308 | ) | (387,240 | ) | (329,624 | ) | (247,573 | ) | ||||||||||||||
Net cash (used in) provided by financing activities | 501,249 | (147,420 | ) | (268,335 | ) | (170,242 | ) | 230,950 | 261,902 | (437,395 | ) | |||||||||||||||||
Acquisition of businesses, net of cash acquired | (684,990 | ) | – | (110,465 | ) | (73,393 | ) | (265,644 | ) | (251,734 | ) | (128,254 | ) | |||||||||||||||
Purchase of property, plant and equipment | (23,527 | ) | (54,267 | ) | (85,748 | ) | (87,920 | ) | (73,619 | ) | (59,109 | ) | (83,101 | ) |
December 31, | September 30, | |||||||||||||||||||||||||||
(dollars in thousands) | 2005 | 2006 | 2007 | 2008 | 2009 | 2009 | 2010 | |||||||||||||||||||||
Balance sheet data: | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 128,556 | $ | 233,442 | $ | 149,406 | $ | 192,393 | $ | 433,683 | $ | 372,600 | $ | 76,507 | ||||||||||||||
Restricted funds held in trust | 447,432 | 407,921 | 379,864 | 324,911 | 277,752 | 335,204 | 337,721 | |||||||||||||||||||||
Property, plant and equipment, net | 2,724,843 | 2,637,923 | 2,620,507 | 2,530,035 | 2,582,841 | 2,612,304 | 2,526,291 | |||||||||||||||||||||
Total assets | 4,702,165 | 4,437,820 | 4,368,499 | 4,279,989 | 4,934,282 | 4,974,026 | 4,652,714 | |||||||||||||||||||||
Total debt, including current portion: | ||||||||||||||||||||||||||||
Covanta Energy debt | 2,906,403 | 2,696,070 | 1,925,957 | 1,717,507 | 1,592,235 | 1,656,906 | 1,518,904 | |||||||||||||||||||||
Covanta Holding debt | 2,906,403 | 2,696,070 | 2,217,359 | 2,026,888 | 2,397,070 | 2,437,471 | 2,319,652 | |||||||||||||||||||||
Total equity | 599,241 | 739,152 | 1,114,066 | 1,224,051 | 1,417,169 | 1,395,623 | 1,200,536 | |||||||||||||||||||||
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financial condition and results of operations
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• | investing in research and development of new technologies to enhance existing operations and create new business opportunities in renewable energy and waste management; |
• | exploring and implementing processes and technologies at our facilities to improve energy efficiency and lessen environmental impacts; and |
• | partnering with governments and non-governmental organizations to pursue sustainable programs, reduce the use of environmentally harmful materials in commerce and communicate the benefits of energy-from-waste. |
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• | Seasonal or long-term changes in market prices for waste, energy, or ferrous and non-ferrous metals for projects where we sell into those markets; |
• | Seasonal geographic changes in the price and availability of wood waste as fuel for our biomass facilities; |
• | Seasonal, geographic and other variations in the heat content of waste processed, and thereby the amount of waste that can be processed by an energy-from-waste facility; |
• | Our ability to avoid unexpected increases in operating and maintenance costs while ensuring that adequate facility maintenance is conducted so that historic levels of operating performance can be sustained; |
• | Contract counterparties’ ability to fulfill their obligations, including the ability of our various municipal customers to supply waste in contractually committed amounts, and the availability |
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of alternate or additional sources of waste if excess processing capacity exists at our facilities; and |
• | The availability and adequacy of insurance to cover losses from business interruption in the event of casualty or other insured events. |
• | Changes in fuel price for projects in which such costs are not completely passed through to the electricity purchaser through revenue adjustments, or delays in the effectiveness of revenue adjustments; |
• | The amounts of electricity actually requested by purchasers of electricity, and whether or when such requests are made, our facilities are then available to deliver such electricity; |
• | The financial condition and creditworthiness of purchasers of power and services provided by us; |
• | Fluctuations in the value of the domestic currency against the value of the U.S. dollar for projects in which we are paid in whole or in part in the domestic currency of the host country; and |
• | Political risks inherent to the international business which could affect both the ability to operate the project in conformance with existing agreements and the repatriation of dividends from the host country. |
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Segment | Description | |
Americas | Our business in the Americas is comprised primarily of energy-from-waste projects. For all of these projects, we earn revenue from two primary sources: fees charged for operating projects or processing waste received and payments for electricity and steam sales. We also operate, and in some cases have ownership interests in, transfer stations and landfills which generate revenue from waste and ash disposal fees or operating fees. In addition, we own and in some cases operate, other renewable energy projects primarily in the United States which generate electricity from wood waste (biomass), landfill gas, and hydroelectric resources. The electricity from these other renewable energy projects is sold to utilities. We may receive additional revenue from construction activity during periods when we are constructing new facilities or expanding existing facilities. | |
International | We have ownership interests in and/or operate facilities internationally, including independent power production facilities in the Philippines, Bangladesh, China and India where we generate electricity by combusting coal, natural gas and heavy fuel-oil, and energy-from-waste facilities in China and Italy. We are constructing energy-from-waste facilities in China. We earn revenue from operating fees, waste processing fees, electricity and steam sales, construction activities, and in some cases, we receive cash from equity distributions. | |
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Fees for operating | ||||||
Current | projects or for | Payments for | ||||
number of | processing waste | electricity and/or | ||||
Contract types | projects | received | steam we sell | |||
Service Fee | 27 | We charge a fixed fee (which adjusts over time pursuant to contractual indices that we believe are appropriate to reflect price inflation) for operation and maintenance services provided to these energy-from-waste projects. At projects that we own and where project debt is in place, a portion of our fee is dedicated to project debt service. Our contracts at Service Fee projects provide revenue that does not materially vary based on the amount of waste processed or energy generated and as such is relatively stable for the contract term. (27 Americas segment Service Fee projects). | At most of our Service Fee projects, the operating subsidiary retains only a fraction of the energy revenues generated, with the balance (generally 90%) used to provide a credit to the municipal client against its disposal costs. Therefore, in these projects, the municipal client derives most of the benefit and risk of energy production and changing energy prices. | |||
Tip Fee | 17 | We receive a per-ton fee under contracts for processing waste at Tip Fee projects. We generally enter into long-term waste disposal contracts for a substantial portion of the project’s disposal capacity. The waste disposal and energy revenue from these projects is more dependent upon operating performance and, as such, is subject to greater revenue fluctuation to the extent performance levels fluctuate. (14 Americas segment Tip Fee projects and 3 International segment Tip Fee projects). | Where Tip Fee structures exist, we generally retain 100% of the energy revenues as well as risk associated with energy production and changing energy pricing. | |||
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Facility/operating contract | Location | Year | Transaction | Type | Summary | |||||
Wallingford | CT | 2010 | Contract | EfW | We entered into new tip fee contracts which commenced upon expiration of the existing service fee contract in June 2010. These contracts in total are expected to supply waste utilizing most or all of the facility’s capacity through 2020. | |||||
Huntington | NY | 2010 | Acquisition | EfW | We acquired a nominal limited partnership interest held by a third party in Covanta Huntington Limited Partnership, our subsidiary which owns and operates an energy-from-waste facility in Huntington, New York. |
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Facility/operating contract | Location | Year | Transaction | Type | Summary | |||||
Dade Long Beach Hudson Valley MacArthur Plymouth York Burnaby Abington | FL CA NY NY PA PA Canada PA | 2010 2009 2009 2009 2009 2009 2009 2009 | Acquisition | EfW EfW EfW EfW EfW EfW EfW Trans.St. | We acquired seven energy-from-waste businesses and one transfer station business from Veolia Environmental Services North America Corp. (the “Veolia EfW Acquisition”). The acquired businesses have a combined capacity of 9,600 tons per day (“tpd”). Each of the operations acquired includes a long-term operating contract with the respective municipal client. Six of the energy-from-waste facilities and the transfer station are publicly-owned facilities. We acquired a majority ownership stake in one of the energy-from-waste facilities and subsequently purchased the remaining ownership stake in this facility. | |||||
Stanislaus County | CA | 2009 | Contract | EfW | The service fee contract with Stanislaus County was extended from 2010 to 2016. | |||||
Philadelphia Transfer Stations | PA | 2009 | Acquisition | Transfer Stations | We acquired two waste transfer stations with combined capacity of 4,500 tpd in Philadelphia, Pennsylvania. | |||||
Maine Biomass Energy Facilities | ME | 2008 | Acquisition | Biomass | We acquired Indeck Maine Energy, LLC which owned and operated two biomass energy facilities. The two nearly identical facilities, located in West Enfield and Jonesboro, Maine, added a total of 49 megawatts (“MW”) to our renewable energy portfolio. We sell the electric output and renewable energy credits from these facilities into the New England electricity market. | |||||
Tulsa | OK | 2008 | Acquisition/ Contract | EfW | The design capacity of the facility is 1,125 tpd of waste and gross electric capacity of 16.5 MW (185,000 pounds of steam generated per hour). This facility was shut down by the prior owner in the summer of 2007 and we returned two of the facility’s three boilers to service in 2008. In 2009, we entered into a new tip fee agreement with the City of Tulsa which expires in 2012 and a new steam contract for a term of 10 years expiring in 2019. | |||||
Peabody | MA | 2008 | Acquisition | Ash Landfill | We acquired a landfill for the disposal of ash. | |||||
Harrisburg | PA | 2008 | Contract | EfW | We entered into a ten year agreement to maintain and operate an 800 tpd energy-from-waste facility located in Harrisburg, Pennsylvania and obtained a right of first refusal to purchase the facility. See “Energy-From-Waste Advanced Development or Construction Projects” discussion below related to this facility. |
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Facility/operating contract | Location | Year | Transaction | Type | Summary | |||||
Indianapolis | IN | 2008 | Contract | EfW | We entered into a new tip fee contract for a term of 10 years which commenced upon expiration of the existing service fee contract in December 2008. This contract represents approximately 50% of the facility’s capacity. (91 pounds of steam generated per day). | |||||
Kent County | MI | 2008 | Contract | EfW | We entered into a new tip fee contract which commenced on January 1, 2009 and extended the existing operating contract from 2010 to 2023. This contract is expected to supply waste utilizing most or all of the facility’s capacity. Previously this was a service fee contract. | |||||
Pasco County | FL | 2008 | Contract | EfW | We entered into a new service fee contract which commenced on January 1, 2009 and extended the existing contract from 2011 to 2016. | |||||
Holliston | MA | 2007 | Acquisition | Transfer Station | We acquired a waste transfer station with total waste capacity of 700 tpd. In addition, we invested a total of $5.2 million in 2007 and 2008 in capital improvements to enhance the environmental and operational performance of the transfer station. | |||||
Massachusetts EfW Facilities and Transfer Stations | MA NY | 2007 | Acquisition | EfW / Ash Landfill / Transfer Stations | We acquired the operating businesses of EnergyAnswers Corporation. These businesses include a 400 tpd energy-from-waste facility in Springfield, Massachusetts and a 240 tpd energy-from-waste facility in Pittsfield, Massachusetts. Both energy-from-waste projects have tip fee type contracts. Approximately 75% of waste revenues are contracted for at these facilities. In addition, we acquired businesses that include a landfill operation for ash disposal in Springfield, Massachusetts and two transfer stations, one in Canaan, New York, permitted to transfer 600 tpd of waste, and the other located at the Springfield energy-from-waste facility, permitted to transfer 500 tpd of waste. |
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Facility/operating contract | Location | Year | Transaction | Type | Summary | |||||
California Biomass Energy Facilities | CA | 2007 | Acquisition | Biomass | We acquired Central Valley Biomass Holdings, LLC which owned two biomass energy facilities and a biomass energy fuel management business, all located in California’s Central Valley. These facilities added 75 MW to our portfolio of renewable energy projects. In addition, we invested a total of $19 million in 2007 and 2008 in capital improvements to increase the facilities’ productivity and improve environmental performance. | |||||
Westchester Transfer Stations | NY | 2007 | Acquisition | Transfer Stations | We acquired two waste transfer stations with combined capacity of 1,150 tpd in Westchester County, New York. | |||||
Hempstead | NY | 2007 | Contract | EfW | We entered into a new tip fee contract for a term of 25 years which commenced upon expiration of the previous contract in August 2009. This contract provides approximately 50% of the facility’s capacity. We also entered into new tip fee contracts with other customers that expire between February 2011 and December 2014. These contracts provide an additional 40% of the facility’s capacity. | |||||
ADVANCED DEVELOPMENT OR CONSTRUCTION PROJECTS
Project/facility | Location | Summary | ||
Technology Development | We entered into various agreements with multiple partners to invest in the development, testing or licensing of new technologies related to the transformation of waste materials into renewable fuels or the generation of energy. Licensing fees and demonstration unit purchases aggregated $4.4 million during the nine months ended September 30, 2010 and, $4.7 million and $6.5 million during the years ended December 31, 2009 and 2008, respectively. | |||
AMERICAS | ||||
Honolulu | HI | We operate and maintain the energy-from-waste facility located in and owned by the City and County of Honolulu, Hawaii. In December 2009, we entered into agreements with the City and County of Honolulu to expand the facility’s waste processing capacity from 2,160 tpd to 3,060 tpd and to increase the gross electricity capacity from 57 MW to 90 MW. The agreements also extend the service contract term by 20 years. The $302 million expansion project is a fixed-price construction project which will be funded and owned by the City and County of Honolulu. Construction commenced at the end of 2009. |
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Project/facility | Location | Summary | ||
Harrisburg | PA | See operating contract discussion above. We have an agreement to provide construction management services and advance up to $25.5 million (of which $21.7 million has been advanced and $19.8 million is outstanding as of September 30, 2010) in funding for certain facility improvements required to enhance facility performance, which were substantially completed during 2010. The repayment of this funding is guaranteed by the City of Harrisburg, but is otherwise unsecured, and is junior to project bondholders’ rights. Four repayment installments under this funding arrangement, which were due to us on April 1, 2010, July 1, 2010 August 1, 2010 and October 1, 2010, totaling an aggregate of $2.0 million, have not been paid. The City of Harrisburg requested a forbearance period in April 2010, but meaningful discussion of forbearance and of the City’s related plan for financial recovery did not develop on a timely basis. On October 5, 2010, we filed suit against the City of Harrisburg in the Dauphin County Court of Common Pleas seeking to enforce our rights under the City’s guaranty. We believe that the City of Harrisburg is in a precarious financial condition with substantial obligations, and it has reported both its inability to pay its obligations and consideration of various future options (including state oversight and seeking bankruptcy protection). We intend to pursue our lawsuit in parallel with efforts to work with the City of Harrisburg and other stakeholders to protect the full recovery of our advance and to maintain our position in the project. See discussion in Note 8 to our interim financial statements incorporated herein by reference for accounting information regarding the Harrisburg facility. | ||
Hillsborough | FL | During the third quarter of 2009, we completed the expansion and commenced the operations of the expanded energy-from-waste facility located in Hillsborough County, Florida. We expanded waste processing capacity from 1,200 tpd to 1,800 tpd and increased gross electricity capacity from 29.0 MW to 46.5 MW. As part of the agreement to implement this expansion, we received a long-term operating contract extension to 2029. | ||
Lee | FL | In December 2007, we completed the expansion and commenced the operation of the expanded energy-from-waste facility located in and owned by Lee County, Florida. We expanded waste processing capacity from 1,200 tpd to 1,836 tpd and increased gross electricity capacity from 36.9 MW to 57.3 MW. As part of the agreement to implement this expansion, we received a long-term operating contract extension expiring in 2024. | ||
INTERNATIONAL | ||||
Dublin | Ireland | In 2007, we entered into agreements to build, own, and operate a 1,700 metric tpd energy-from-waste project serving the City of Dublin, Ireland and surrounding communities at an estimated cost of €350 million. Dublin Waste to Energy Limited, which we control and co-own with DONG Energy Generation A/S, developed the project and has a 25 year tip fee type contract to provide disposal service for 320,000 metric tons of waste annually, representing approximately 60% of the facility’s processing capacity. The project is expected to sell electricity into the local electricity grid, at rates partially supported by a preferential renewable tariff. While the primary approvals and licenses for the project have been obtained, the longstop date for acquiring necessary property rights and achieving certain other conditions precedent under the project agreement expired on September 4, 2010. As a result, the parties will need to agree to proceed and are currently working toward that objective. See discussion in Note 8 to our interim financial statements incorporated herein by reference for accounting information for the Dublin project. | ||
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Project/facility | Location | Summary | ||
Taixing | China | Taixing Covanta Yanjiang Cogeneration Co., Ltd., in which we have an 85% economic interest, entered into a 25 year concession agreement and waste supply agreements to build, own and operate a 350 metric tpd energy-from-waste facility for Taixing Municipality, in Jiangsu Province, People’s Republic of China. The project, which will be built on the site of our existing coal-fired facility in Taixing, will supply steam to an adjacent industrial park under short-term arrangements. We will continue to operate our existing coal-fired facility. The project company has obtained Rmb 165 million in project financing which, together with available cash from existing operations will fund construction costs. The Taixing project commenced construction in late 2009. | ||
Chengdu | China | We and Chongqing Iron & Steel Company (Group) Limited have entered into an agreement to build, own, and operate an 1,800 metric tpd energy-from-waste facility for Chengdu Municipality in Sichuan Province, People’s Republic of China. We also executed a 25 year waste concession agreement for this project. In connection with this project, we acquired a 49% equity interest in the project company. Construction of the facility has commenced and the project company has obtained Rmb 480 million in project financing, of which 49% is guaranteed by us and 51% is guaranteed by Chongqing Iron & Steel Company (Group) Limited until the project has been constructed and for one year after operations commence. | ||
Sanfeng | China | We purchased a 40% equity interest in Chongqing Sanfeng Covanta Environmental Industry Co., Ltd. (“Sanfeng”), a company located in Chongqing Municipality, People’s Republic of China. Sanfeng is engaged in the business of owning and operating energy-from-waste projects and providing design and engineering, procurement and construction services for energy-from-waste facilities in China. Sanfeng currently owns minority equity interests in two 1,200 metric tpd 24 MW mass-burn energy-from-waste projects. Chongqing Iron & Steel Company (Group) Limited holds the remaining 60% equity interest in Sanfeng. | ||
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Facility/operating | ||||||||||
contract | Location | Year | Transaction | Type | Summary | |||||
Detroit | MI | 2009/2010 | Contract | EfW | On June 30, 2009, our long-term operating contract with the Greater Detroit Resource Recovery Authority (“GDRRA”) to operate the 2,832 tpd energy-from-waste facility located in Detroit, Michigan (the “Detroit Facility”) expired. Effective June 30, 2009, we purchased an undivided 30% owner-participant interest in the Detroit Facility and entered into certain agreements for continued operation of the Detroit Facility for a term expiring June 30, 2010. During this one-year period, we were unable to secure an acceptable steam off-take arrangement. Effective June 30, 2010, we agreed to sell our entire interest in the Detroit Facility, subject to the buyer’s due diligence and any required regulatory approvals, and to continue operating the Detroit Facility under commercial arrangements until the earlier of the closing of the sale transaction or September 30, 2010. The sale agreement did not close or extend on September 30, 2010, and the commercial arrangements expired on that date at which time we decided that it was in our best interest to shut down the Detroit Facility. Regardless of whether the Detroit Facility is permanently shut down, re-started or sold, we do not expect it to have a material effect on our condensed consolidated financial statements. | |||||
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For the nine | ||||||||||||
months ended | Variance | |||||||||||
September 30, | increase/(decrease) | |||||||||||
(unaudited, dollars in thousands) | 2010 | 2009 | Nine month | |||||||||
Consolidated results of operations: | ||||||||||||
Total operating revenues | $ | 1,288,983 | $ | 1,143,255 | $ | 145,728 | ||||||
Total operating expenses | 1,178,169 | 1,007,752 | 170,417 | |||||||||
Operating income | 110,814 | 135,503 | (24,689 | ) | ||||||||
Other income (expense): | ||||||||||||
Investment income | 1,669 | 3,136 | (1,467 | ) | ||||||||
Interest expense | (32,250 | ) | (27,291 | ) | 4,959 | |||||||
Non–cash convertible debt related expense | (29,760 | ) | (14,562 | ) | 15,198 | |||||||
Total other expenses | (60,341 | ) | (38,717 | ) | 21,624 | |||||||
Income before income tax expense and equity in net income from unconsolidated investments | 50,473 | 96,786 | (46,313 | ) | ||||||||
Income tax expense | (23,348 | ) | (34,197 | ) | (10,849 | ) | ||||||
Equity in net income from unconsolidated investments | 18,024 | 17,091 | 933 | |||||||||
Net income | 45,149 | 79,680 | (34,531 | ) | ||||||||
Less: Net income attributable to noncontrolling interests in subsidiaries | (6,436 | ) | (6,312 | ) | 124 | |||||||
Net income attributable to Covanta Holding Corporation | $ | 38,713 | $ | 73,368 | (34,655 | ) | ||||||
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For the nine months | Variance | |||||||||||
ended September 30, | increase/(decrease) | |||||||||||
(unaudited, dollars in thousands) | 2010 | 2009 | Nine month | |||||||||
Waste and service revenues | $ | 765,431 | $ | 664,430 | $ | 101,001 | ||||||
Electricity and steam sales | 300,200 | 301,831 | (1,631 | ) | ||||||||
Other operating revenues | 68,072 | 22,010 | 46,062 | |||||||||
Total operating revenues | 1,133,703 | 988,271 | 145,432 | |||||||||
Plant operating expenses | 695,620 | 595,812 | 99,808 | |||||||||
Other operating expense | 62,603 | 18,800 | 43,803 | |||||||||
General and administrative expenses | 55,381 | 61,464 | (6,083 | ) |
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For the nine months | Variance | |||||||||||
ended September 30, | increase/(decrease) | |||||||||||
(unaudited, dollars in thousands) | 2010 | 2009 | Nine month | |||||||||
Depreciation and amortization expense | 140,652 | 144,816 | (4,164 | ) | ||||||||
Net interest expense on project debt | 29,473 | 34,409 | (4,936 | ) | ||||||||
Write–down of assets | 9,191 | – | 9,191 | |||||||||
Total operating expenses | 992,920 | 855,301 | 137,619 | |||||||||
Operating income | $ | 140,783 | $ | 132,970 | 7,813 | |||||||
• | Revenues from Service Fee arrangements increased by $81.1 million for the nine month comparative period primarily due to the acquisition of Veolia EfW businesses and by the Hillsborough expansion coming on line plus service fee contract escalations, partially offset by the Detroit facility’s contract transition and lower revenues earned explicitly to service project debt of $9.1 million. |
• | Revenues from Tip Fee arrangements decreased by $0.6 million for the nine month comparative period primarily due to lower waste volumes and tip fee pricing, offset by the acquisition of Veolia EfW businesses and the Philadelphia Transfer Stations. |
• | Recycled metal revenues increased by $20.5 million for the nine month comparative period primarily due to higher pricing. Historically, we have experienced volatile prices for recycled metal which has affected our recycled metal revenue as reflected in the table below: |
For the quarters ended | ||||||||||||
Total recycled metal revenues (dollars in millions) | 2010 | 2009 | 2008 | |||||||||
March 31, | $ | 12.6 | $ | 5.2 | $ | 11.4 | ||||||
June 30, | 14.8 | 5.8 | 19.0 | |||||||||
September 30, | 13.3 | 9.1 | 17.3 | |||||||||
December 31, | – | 9.1 | 5.9 | |||||||||
Total for the Year Ended December 31, | $ | N/A | $ | 29.2 | $ | 53.6 | ||||||
• | Electricity and steam sales decreased by $1.6 million for the nine month comparative period due to contract transitions at our Hempstead, Union and Detroit facilities and lower production primarily due to economically dispatching one of our biomass facilities offset by the acquisition of Veolia EfW businesses and higher pricing at other facilities primarily at our biomass facilities. |
• | Other operating revenues for existing business increased primarily due to increased construction revenue related to the Honolulu expansion project. |
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For the nine | ||||||||||||
months ended | Variance | |||||||||||
September 30, | increase/(decrease) | |||||||||||
(unaudited, dollars in thousands) | 2010 | 2009 | Nine month | |||||||||
Waste and service revenues | $ | 3,002 | $ | 2,868 | $ | 134 | ||||||
Electricity and steam sales | 137,805 | 137,920 | (115 | ) | ||||||||
Total operating revenues | 140,807 | 140,788 | 19 | |||||||||
Plant operating expenses | 117,466 | 108,076 | 9,390 | |||||||||
Other operating income | (382 | ) | (54 | ) | (328 | ) | ||||||
General and administrative expenses | 20,458 | 18,064 | 2,394 | |||||||||
Depreciation and amortization expense | 5,798 | 5,819 | (21 | ) | ||||||||
Net interest expense on project debt | 1,793 | 3,102 | (1,309 | ) | ||||||||
Write–down of assets | 23,130 | – | 23,130 | |||||||||
Total operating expenses | 168,263 | 135,007 | 33,256 | |||||||||
Operating (loss) income | $ | (27,456 | ) | $ | 5,781 | (33,237 | ) | |||||
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• | Americas segment revenue declined $25.2 million or 1.8% to $1,346 million. New business revenue was $72.5 million, related primarily to the Veolia EfW Acquisition. Existing business revenues declined by $97.7 million, of which $55.7 million was largely due to the impact of the slow economy which caused lower recycled metal, energy and waste prices. In addition, lower debt service revenue, a decline in construction activity, and net contract changes at various facilities contributed approximately $32.3 million to the decline. |
• | Americas segment operating expenses during the year increased by $35.0 million. New business operating expenses were $77.8 million and we also incurred acquisition-related transaction costs of $6.8 million, both of which were primarily associated with the Veolia EfW Acquisition. Existing business operating expenses decreased by $49.6 million primarily attributable to a $12.7 million decline in energy related expenses and greater internalization of waste disposal. In addition, lower levels of construction activity and the contract changes at various facilities contributed $36.8 million to the expense reduction. Reductions in existing business expenses were also attributable to lower depreciation expense, lower interest expense and reduced plant operating expense for renewable energy credits sold totaling $13.3 million. In 2008, operating expenses were lower by $13.5 million due to insurance recoveries recorded for the settlement of property damages and business interruption losses related to the SEMASS energy-from-waste facility. |
• | International segment revenue decreased $95.2 million during the year while operating expenses declined by $97.4 million, resulting in operating income that was essentially flat with |
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the prior year comparable period. The decreases in revenues and operating expenses resulted primarily from lower fuel costs at our Indian facilities. |
For the years ended | Increase | |||||||||||
December 31, | (decrease) | |||||||||||
(dollars in thousands) | 2009 | 2008 | 2009 vs 2008 | |||||||||
Consolidated results of operations: | ||||||||||||
Total operating revenues | $ | 1,550,467 | $ | 1,664,253 | $ | (113,786 | ) | |||||
Total operating expenses | 1,354,632 | 1,408,288 | (53,656 | ) | ||||||||
Operating income | 195,835 | 255,965 | (60,130 | ) | ||||||||
Other income (expense): | ||||||||||||
Investment income | 4,007 | 5,717 | (1,710 | ) | ||||||||
Interest expense | (38,116 | ) | (46,804 | ) | (8,688 | ) | ||||||
Non-cash convertible debt related expense | (24,290 | ) | (17,979 | ) | 6,311 | |||||||
Total other expenses | (58,399 | ) | (59,066 | ) | (667 | ) | ||||||
Income before income tax expense and equity in net income from unconsolidated investments | 137,436 | 196,899 | (59,463 | ) | ||||||||
Income tax expense | (50,044 | ) | (84,561 | ) | (34,517 | ) | ||||||
Equity in net income from unconsolidated investments | 23,036 | 23,583 | (547 | ) | ||||||||
Net income | 110,428 | 135,921 | (25,493 | ) | ||||||||
Less: Net income attributable to noncontrolling interests in subsidiaries | (8,783 | ) | (6,961 | ) | 1,822 | |||||||
Net income attributable to Covanta Holding Corporation | $ | 101,645 | $ | 128,960 | (27,315 | ) | ||||||
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• | decreased electricity and steam sales revenue due to lower fuel pass through costs at our Indian facilities and foreign exchange impacts in 2009, and |
• | decreased waste and service revenues and decreased recycled metal revenues at our existing energy-from-waste facilities in our Americas segment, offset by |
• | increased waste and services revenues at our new businesses in our Americas segment, primarily due to the Veolia EfW Acquisition, and |
• | increased electricity and steam sales in our Americas segment due to the Veolia EfW Acquisition, other acquired businesses and new contracts at our Indianapolis and Kent facilities. |
• | decreased plant operating expenses at our Indian facilities resulting primarily from lower fuel costs and foreign exchange impacts in 2009, and |
• | decreased plant operating expenses at our existing energy-from-waste facilities resulting primarily from lower energy costs, greater internalization of waste disposal and reduced maintenance expense due to less unscheduled down time, offset by |
• | increased plant operating expenses at our existing energy-from-waste facilities resulting from cost escalations, and |
• | increased operating costs resulting from the Veolia EfW Acquisition, and |
• | $6.3 million of acquisition-related transaction costs primarily related to the Veolia EfW Acquisition, and |
• | $13.5 million of insurance recoveries recorded in 2008 for the settlement of property damages and business interruption losses related to the SEMASS energy-from-waste facility, and |
• | higher costs resulting from the transition of the Indianapolis and Kent facilities from Service Fee to Tip Fee contracts, and |
• | additional operating costs, net of contra expenses recorded related to the generation of renewable energy credits, from new businesses acquired in the Americas segment. |
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For the years ended | Increase | |||||||||||
December 31, | (decrease) | |||||||||||
(dollars in thousands) | 2009 | 2008 | 2009 vs 2008 | |||||||||
Waste and service revenues | $ | 915,364 | $ | 930,537 | $ | (15,173 | ) | |||||
Electricity and steam sales | 399,715 | 384,640 | 15,075 | |||||||||
Other operating revenues | 31,138 | 56,254 | (25,116 | ) | ||||||||
Total operating revenues | 1,346,217 | 1,371,431 | (25,214 | ) | ||||||||
Plant operating expenses | 802,638 | 753,848 | 48,790 | |||||||||
Depreciation and amortization expense | 194,925 | 190,659 | 4,266 | |||||||||
Net interest expense on project debt | 44,536 | 47,816 | (3,280 | ) | ||||||||
General and administrative expenses | 82,580 | 76,090 | 6,490 | |||||||||
Insurance recoveries, net of write-down of assets | – | (8,325 | ) | 8,325 | ||||||||
Other operating expenses | 26,785 | 56,336 | (29,551 | ) | ||||||||
Total operating expenses | 1,151,464 | 1,116,424 | 35,040 | |||||||||
Operating income | $ | 194,753 | $ | 255,007 | (60,254 | ) | ||||||
Americas segment operating revenue variances | ||||||||||||
Existing | New | |||||||||||
(dollars in millions) | business | business(A) | Total | |||||||||
Waste and service revenues | ||||||||||||
Service fee | $ | (60.5 | ) | $ | 38.9 | $ | (21.6 | ) | ||||
Tip fee | 17.7 | 13.1 | 30.8 | |||||||||
Recycled metal | (25.0 | ) | 0.6 | (24.4 | ) | |||||||
Total waste and service revenues | (67.8 | ) | 52.6 | (15.2 | ) | |||||||
Electricity and steam sales | (4.0 | ) | 19.1 | 15.1 | ||||||||
Other operating revenues | (25.9 | ) | 0.8 | (25.1 | ) | |||||||
Total operating revenues | $ | (97.7 | ) | $ | 72.5 | $ | (25.2 | ) | ||||
(A) | The results of acquisitions are included in the new business variance through four quarters after acquisition or commencement of operation. |
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• | Revenues from Service Fee arrangements for existing business decreased primarily due to the cessation of contracts at our Indianapolis, Kent, and Detroit facilities and lower revenues earned explicitly to service project debt of $22.5 million, of which $9.7 million was related to our Stanislaus client’s decision to repay project debt ahead of schedule in 2008, partially offset by contractual escalations. |
• | Revenues from Tip Fee arrangements for existing business increased primarily due to the new contracts at our Indianapolis and Kent facilities, offset by lower waste prices and increased levels of waste disposal internalization. |
• | Recycled metal revenues were $29.2 million which decreased compared to the same prior year period due to lower pricing, partially offset by increased recovered metal volume. During the second and third quarters of 2008, we experienced historically high prices for recycled metal which declined significantly during the fourth quarter of 2008. The impact these changes had on revenue is reflected in the table below: |
For the quarters ended | ||||||||||||
Total recycled metal revenues (dollars in millions) | 2009 | 2008 | 2007 | |||||||||
March 31, | $ | 5.2 | $ | 11.4 | $ | 7.0 | ||||||
June 30, | 5.8 | 19.0 | 7.5 | |||||||||
September 30, | 9.1 | 17.3 | 7.9 | |||||||||
December 31, | 9.1 | 5.9 | 9.1 | |||||||||
Total for the Year Ended December 31, | $ | 29.2 | $ | 53.6 | $ | 31.5 | ||||||
• | Electricity and steam sales for existing business decreased by $4.0 million due to lower energy pricing, lower production and the contract change at the Detroit facility, offset by increased revenues of $20.4 million related to contract changes at our Indianapolis and Kent facilities. |
• | Other operating revenues for existing business decreased primarily due to the timing of construction activity. |
Americas segment plant operating expense variances | ||||||||||||
Existing | New | |||||||||||
(dollars in millions) | business | business(A) | Total | |||||||||
Total plant operating expenses | $ | (17.7 | ) | $ | 66.5 | $ | 48.8 | |||||
(A) | The results of acquisitions are included in the new business variance through four quarters after acquisition or commencement of operation. |
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For the years ended | Increase | |||||||||||
December 31, | (decrease) | |||||||||||
(dollars in thousands) | 2009 | 2008 | 2009 vs 2008 | |||||||||
Waste and service revenues | $ | 4,240 | $ | 3,990 | $ | 250 | ||||||
Electricity and steam sales | 180,533 | 275,976 | (95,443 | ) | ||||||||
Total operating revenues | 184,773 | 279,966 | (95,193 | ) | ||||||||
Plant operating expenses | 143,528 | 245,826 | (102,298 | ) | ||||||||
Depreciation and amortization expense | 7,834 | 8,751 | (917 | ) | ||||||||
Net interest expense on project debt | 3,855 | 5,918 | (2,063 | ) | ||||||||
General and administrative expenses | 24,325 | 18,684 | 5,641 | |||||||||
Other operating income | (74 | ) | (2,274 | ) | (2,200 | ) | ||||||
Total operating expenses | 179,468 | 276,905 | (97,437 | ) | ||||||||
Operating income | $ | 5,305 | $ | 3,061 | 2,244 | |||||||
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For the years ended | Increase | |||||||||||
December 31, | (decrease) | |||||||||||
(dollars in thousands) | 2008 | 2007 | 2008 vs 2007 | |||||||||
CONSOLIDATED RESULTS OF OPERATIONS: | ||||||||||||
Total operating revenues | $ | 1,664,253 | $ | 1,433,087 | $ | 231,166 | ||||||
Total operating expenses | 1,408,288 | 1,196,477 | 211,811 | |||||||||
Operating income | 255,965 | 236,610 | 19,355 | |||||||||
Other income (expense): | ||||||||||||
Investment income | 5,717 | 10,578 | (4,861 | ) | ||||||||
Interest expense | (46,804 | ) | (67,104 | ) | (20,300 | ) | ||||||
Non-cash convertible debt related expense | (17,979 | ) | (15,377 | ) | 2,602 | |||||||
Loss on extinguishment of debt | – | (32,071 | ) | (32,071 | ) | |||||||
Total other expenses | (59,066 | ) | (103,974 | ) | (44,908 | ) | ||||||
Income before income tax expense and equity in net income from unconsolidated investments | 196,899 | 132,636 | 64,263 | |||||||||
Income tax expense | (84,561 | ) | (24,483 | ) | 60,078 | |||||||
Equity in net income from unconsolidated investments | 23,583 | 22,196 | 1,387 | |||||||||
NET INCOME | 135,921 | 130,349 | 5,572 | |||||||||
Less: Net income attributable to noncontrolling interests in subsidiaries | (6,961 | ) | (8,656 | ) | (1,695 | ) | ||||||
NET INCOME ATTRIBUTABLE TO COVANTA HOLDING CORPORATION | $ | 128,960 | $ | 121,693 | 7,267 | |||||||
• | increased waste and energy revenues at our existing energy-from-waste facilities, and |
• | additional revenues from new businesses acquired in the Americas segment, and |
• | increased demand from the electricity offtaker and resulting higher electricity generation at our Indian facilities in the International segment. |
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• | increased plant operating expenses at our existing energy-from-waste facilities resulting from increased plant maintenance and cost escalations in the Americas segment, and |
• | increased plant operating expenses resulting from additional operating and maintenance costs from new businesses acquired in the Americas segment, and |
• | higher fuel costs, resulting from increased demand from the electricity offtaker and resulting higher electricity generation, at our Indian facilities in the International segment, and |
• | higher general and administrative expenses primarily due to increased efforts to grow the business and normal wage and benefit escalations. |
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For the years ended | Increase | |||||||||||
December 31, | (decrease) | |||||||||||
(dollars in thousands) | 2008 | 2007 | 2008 vs 2007 | |||||||||
Waste and service revenues | $ | 930,537 | $ | 860,252 | $ | 70,285 | ||||||
Electricity and steam sales | 384,640 | 325,804 | 58,836 | |||||||||
Other operating revenues | 56,254 | 59,561 | (3,307 | ) | ||||||||
Total operating revenues | 1,371,431 | 1,245,617 | 125,814 | |||||||||
Plant operating expenses | 753,848 | 664,641 | 89,207 | |||||||||
Depreciation and amortization expense | 190,659 | 187,875 | 2,784 | |||||||||
Net interest expense on project debt | 47,816 | 48,198 | (382 | ) | ||||||||
General and administrative expenses | 76,090 | 71,022 | 5,068 | |||||||||
Insurance recoveries, net of write-down of assets | (8,325 | ) | – | (8,325 | ) | |||||||
Other operating expenses | 56,336 | 53,789 | 2,547 | |||||||||
Total operating expenses | 1,116,424 | 1,025,525 | 90,899 | |||||||||
Operating income | $ | 255,007 | $ | 220,092 | 34,915 | |||||||
Americas segment operating revenue variances | ||||||||||||
Existing | New | |||||||||||
(dollars in millions) | business | business(A) | Total | |||||||||
Waste and service revenues | ||||||||||||
Service fee | $ | 13.3 | $ | 0.6 | $ | 13.9 | ||||||
Tip fee | 3.9 | 30.4 | 34.3 | |||||||||
Recycled metal | 21.1 | 1.0 | 22.1 | |||||||||
Total waste and service revenues | 38.3 | 32.0 | 70.3 | |||||||||
Electricity and steam sales | 36.7 | 22.1 | 58.8 | |||||||||
Other operating revenues | (3.3 | ) | – | (3.3 | ) | |||||||
Total operating revenues | $ | 71.7 | $ | 54.1 | $ | 125.8 | ||||||
(A) | The results of acquisitions are included in the new business variance through four quarters after acquisition or commencement of operation. |
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• | Revenues from Service Fee arrangements for existing business increased primarily due to contractual escalations, partially offset by lower revenues earned explicitly to service project debt of $1.4 million. |
• | Revenues from Tip Fee arrangements for existing business increased due to increased waste volume handled in part due to the impact of a fire in 2007 at our SEMASS energy-from-waste facility, partially offset by slightly lower pricing. |
• | Recycled metal revenues for existing business increased primarily due to higher pricing on average for the year. In addition, recovered metal volume increased due to the installation of new metal recovery systems, as well as due to enhancements made to existing systems. |
• | Electricity and steam sales for existing business increased primarily due to higher energy rates, and increased production primarily resulting from capital improvements to increase productivity and improve environmental performance at the biomass facilities. |
For the quarters ended | ||||||||
Total recycled metal revenues (dollars in millions) | 2008 | 2007 | ||||||
March 31, | $ | 11.4 | $ | 7.0 | ||||
June 30, | 19.0 | 7.5 | ||||||
September 30, | 17.3 | 7.9 | ||||||
December 31, | 5.9 | 9.1 | ||||||
Total for the Year Ended December 31, | $ | 53.6 | $ | 31.5 | ||||
Americas segment | ||||||||||||
plant operating expense variances | ||||||||||||
Existing | New | |||||||||||
(dollars in millions) | business | business(A) | Total | |||||||||
Total plant operating expenses | $ | 36.8 | $ | 52.4 | $ | 89.2 | ||||||
(A) | The results of acquisitions are included in the new business variance through four quarters after acquisition or commencement of operation. |
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Insurance recoveries recorded | Cash proceeds received | |||||||||||||||
For the years ended December 31, | ||||||||||||||||
(dollars in millions) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Repair and reconstruction costs (Insurance recoveries, net of write-down of assets) | $ | 8.3 | $ | 17.3 | $ | 16.2 | $ | 9.4 | ||||||||
Clean-up costs (reduction to plant operating expenses) | $ | – | $ | 2.7 | $ | – | $ | 2.7 | ||||||||
Business interruption losses (reduction to plant operating expenses) | $ | 5.2 | $ | 2.0 | $ | 7.2 | $ | – | ||||||||
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For the years ended | Increase | |||||||||||
December 31, | (decrease) | |||||||||||
(dollars in thousands) | 2008 | 2007 | 2008 vs 2007 | |||||||||
Waste and service revenues | $ | 3,990 | $ | 4,144 | $ | (154 | ) | |||||
Electricity and steam sales | 275,976 | 173,073 | 102,903 | |||||||||
Total operating revenues | 279,966 | 177,217 | 102,749 | |||||||||
Plant operating expenses | 245,826 | 136,919 | 108,907 | |||||||||
Depreciation and amortization expense | 8,751 | 8,998 | (247 | ) | ||||||||
Net interest expense on project debt | 5,918 | 6,381 | (463 | ) | ||||||||
General and administrative expenses | 18,684 | 8,584 | 10,100 | |||||||||
Other operating income | (2,274 | ) | (3,848 | ) | (1,574 | ) | ||||||
Total operating expenses | 276,905 | 157,034 | 119,871 | |||||||||
Operating income | $ | 3,061 | $ | 20,183 | (17,122 | ) | ||||||
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Nine months ended September 30, | ||||||||
(dollars in thousands) | 2010 | 2009 | ||||||
Computation of Adjusted EBITDA: | ||||||||
Net Income attributable to Covanta Holding Corporation | $ | 38,713 | $ | 73,368 | ||||
Depreciation and amortization expense | 146,527 | 150,717 | ||||||
Debt service: | ||||||||
Net interest expense on project debt | 31,266 | 37,511 | ||||||
Interest expense | 32,250 | 27,291 | ||||||
Non-cash convertible debt related expense | 29,760 | 14,562 | ||||||
Investment income | (1,669 | ) | (3,136 | ) | ||||
Subtotal debt service | 91,607 | 76,228 | ||||||
Income tax expense | 23,348 | 34,197 | ||||||
Other adjustments: | ||||||||
Write-down of assets | 32,321 | – | ||||||
Change in unbilled service receivables | 23,574 | 13,656 | ||||||
Non-cash compensation expense | 13,279 | 10,724 | ||||||
Transaction-related costs(A) | 1,349 | 5,952 | ||||||
Other(B) | 6,640 | 3,955 | ||||||
Subtotal other adjustments | 77,163 | 34,287 | ||||||
Net income attributable to noncontrolling interests in subsidiaries | 6,436 | 6,312 | ||||||
Total adjustments | 345,081 | 301,741 | ||||||
Adjusted EBITDA | $ | 383,794 | $ | 375,109 | ||||
(A) | This amount relates primarily to transaction costs related to exploring the sale of our fossil fuel independent power production facilities in the Philippines, India and Bangladesh in 2010 and transaction costs associated with the acquisition of Veolia energy-from-waste businesses primarily in 2009. | |
(B) | Includes certain non-cash items that are added back under the definition of Adjusted EBITDA in Covanta Energy’s credit agreement. |
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For the nine months ended | ||||||||
September 30, | ||||||||
(dollars in thousands) | 2010 | 2009 | ||||||
Cash flow provided by operating activities | $ | 328,107 | $ | 247,733 | ||||
Debt service | 91,607 | 76,228 | ||||||
Change in working capital | (28,383 | ) | 27,511 | |||||
Change in restricted funds held in trust | 12,881 | 2,824 | ||||||
Non–cash convertible debt related expense | (29,760 | ) | (14,562 | ) | ||||
Amortization of debt premium and deferred financing costs | 576 | 2,791 | ||||||
Equity in net income from unconsolidated investments | 18,024 | 17,091 | ||||||
Dividends from unconsolidated investments | (10,910 | ) | (2,941 | ) | ||||
Current tax provision | 2,585 | 19,585 | ||||||
Other | (933 | ) | (1,151 | ) | ||||
Adjusted EBITDA | $ | 383,794 | $ | 375,109 | ||||
Years ended December 31, | ||||||||
(dollars in thousands) | 2009 | 2008 | ||||||
Computation of Adjusted EBITDA: | ||||||||
Net Income attributable to Covanta Holding Corporation | $ | 101,645 | $ | 128,960 | ||||
Depreciation and amortization expense | 202,872 | 199,488 | ||||||
Debt service: | ||||||||
Net interest expense on project debt | 48,391 | 53,734 | ||||||
Interest expense | 38,116 | 46,804 | ||||||
Non-cash convertible debt related expense | 24,290 | 17,979 | ||||||
Investment income | (4,007 | ) | (5,717 | ) | ||||
Subtotal debt service | 106,790 | 112,800 | ||||||
Income tax expense | 50,044 | 84,561 | ||||||
Other adjustments: | ||||||||
Change in unbilled service receivables | 18,620 | 14,020 | ||||||
Non-cash compensation expense | 14,220 | 14,750 | ||||||
Transaction-related costs | 6,289 | – | ||||||
Other(A) | 5,835 | 12,249 | ||||||
Subtotal other adjustments | 44,964 | 41,019 | ||||||
Net income attributable to noncontrolling interests in subsidiaries | 8,783 | 6,961 | ||||||
Total adjustments | 413,453 | 444,829 | ||||||
Adjusted EBITDA(B) | $ | 515,098 | $ | 573,789 | ||||
(A) | These items represent amounts that are non-cash in nature. | |
(B) | Adjusted EBITDA for 2008 includes the impact of $13.5 million related to insurance recoveries for repair, reconstruction and business interruption losses related to the SEMASS energy-from-waste facility fire on March 31, 2007. |
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For the years ended December 31, | ||||||||
(dollars in thousands) | 2009 | 2008 | ||||||
Cash flow provided by operating activities | $ | 397,238 | $ | 402,607 | ||||
Acquisition-related costs | 4,619 | – | ||||||
Debt service | 106,790 | 112,800 | ||||||
Amortization of debt premium and deferred financing costs | 3,265 | 7,023 | ||||||
Other | 3,186 | 51,359 | ||||||
Adjusted EBITDA | $ | 515,098 | $ | 573,789 | ||||
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For the nine months | Increase | |||||||||||
ended September 30, | (decrease) | |||||||||||
(unaudited, dollars in thousands) | 2010 | 2009 | 2010 vs 2009 | |||||||||
Net cash provided by operating activities | $ | 328,107 | $ | 247,733 | $ | 80,374 | ||||||
Net cash used in investing activities | (247,573 | ) | (329,624 | ) | (82,051 | ) | ||||||
Net cash (used in) provided by financing activities | (437,395 | ) | 261,902 | (699,297 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | (315 | ) | 196 | (511 | ) | |||||||
Net (decrease) increase in cash and cash equivalents | $ | (357,176 | ) | $ | 180,207 | (537,383 | ) | |||||
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For the years ended December 31, | Increase (decrease) | |||||||||||||||||||
(dollars in thousands) | 2009 | 2008 | 2007 | 2009 vs 2008 | 2008 vs 2007 | |||||||||||||||
Net cash provided by operating activities | $ | 397,238 | $ | 402,607 | $ | 363,591 | $ | (5,369 | ) | $ | 39,016 | |||||||||
Net cash used in investing activities | (387,240 | ) | (189,308 | ) | (179,910 | ) | 197,932 | 9,398 | ||||||||||||
Net cash provided by (used in) financing activities | 230,950 | (170,242 | ) | (268,335 | ) | 401,192 | (98,093 | ) | ||||||||||||
Effect of exchange rate changes on cash and cash equivalents | 342 | (70 | ) | 618 | 412 | (688 | ) | |||||||||||||
Net increase (decrease) in cash and cash equivalents | $ | 241,290 | $ | 42,987 | $ | (84,036 | ) | 198,303 | 127,023 | |||||||||||
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• | $192.3 million related to higher acquisition of businesses in 2009, primarily the Veolia EfW Acquisition; |
• | $23.7 million to acquire the non-controlling interests of one of the subsidiaries acquired in the Veolia EfW Acquisition; |
• | $16.2 million of property insurance proceeds received in 2008; |
• | $3.0 million related to a loan issued for the Harrisburg energy-from-waste facility; and |
• | net $2.9 million of outflows relating to investing activity at our insurance subsidiary, comprising of $13.5 million lower proceeds from sales of investments in fixed maturities offset by $10.6 million lower outflows for purchase of investments in fixed maturities. |
• | $14.3 million in capital expenditures primarily due to lower maintenance capital expenditures; |
• | $16.7 million in purchases to acquire land use rights in the United Kingdom and United States in connection with development activities in 2008; and |
• | $9.6 million related to lower purchases of equity interests in 2009. |
• | proceeds of $460.0 million from the sale of the Cash Convertible Notes; |
• | proceeds of $54.0 million from the sale of Warrants (as defined below); |
• | use of cash of $112.4 million to purchase the Note Hedge (as defined below); and |
• | use of cash of $14.3 million for transaction related costs. |
• | release of $33.0 million from restricted funds; offset by a |
• | payment of $9.8 million of interest rate swap termination costs; |
• | net increase in project debt payments of $3.6 million; and |
• | payment of $3.9 million in higher distributions to partners of noncontrolling interests in subsidiaries. |
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• | $29.8 million from a combination of improved operating performance and lower net interest expense; and |
• | an increase in non-property insurance proceeds of $9.2 million (including $7.2 million of business interruption recoveries related to the SEMASS energy-from-waste facility). |
• | $16.7 million to acquire land use rights in the United Kingdom and United States in connection with development activities; |
• | an increase of $18.0 million related to investments in fixed maturities at our insurance subsidiary, partially offset by an increase of $5.2 million in proceeds from the sale of investments in fixed maturities at our insurance subsidiary; |
• | $7.3 million of equity investments, of which $17.1 million related to the Chengdu project, offset by the $10.3 million equity investment in Sanfeng during the comparative period; |
• | an increase in capital expenditures of $2.2 million; |
• | $8.2 million related to a loan issued for the Harrisburg energy-from-waste facility; and |
• | $6.1 million of cash outflows comprised primarily of business development activities. |
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Total | Outstanding letters | |||||||||||||||
available | of credit as of | Available as of | ||||||||||||||
(dollars in thousands) | under facility | Maturing | September 30, 2010 | September 30, 2010 | ||||||||||||
Revolving Loan Facility(1) | $ | 300,000 | 2013 | $ | – | $ | 300,000 | |||||||||
Funded L/C Facility | $ | 320,000 | 2014 | $ | 294,471 | $ | 25,529 | |||||||||
(1) | Up to $200 million of which may be utilized for letters of credit. |
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For the nine months ended | ||||||||
September 30, | ||||||||
(dollars in thousands) | 2010 | 2009 | ||||||
Cash flow provided by operating activities | $ | 328,107 | $ | 247,733 | ||||
Less: Maintenance capital expenditures(A) | (56,840 | ) | (44,145 | ) | ||||
Free cash flow | $ | 271,267 | $ | 203,588 | ||||
Selected Uses of Free Cash Flow: | ||||||||
Principal payments on long–term debt | $ | (4,999 | ) | $ | (5,009 | ) | ||
Principal payments on project debt, net of restricted funds used(B) | $ | (149,054 | ) | $ | (89,113 | ) | ||
Distributions to partners of noncontrolling interests in subsidiaries | $ | (7,098 | ) | $ | (9,596 | ) | ||
Acquisition of businesses, net of cash acquired | $ | (128,254 | ) | $ | (251,734 | ) | ||
Acquisition of land use rights | $ | (18,545 | ) | $ | – | |||
Acquisition of noncontrolling interests in subsidiary | $ | (2,000 | ) | $ | – | |||
Purchase of equity interests | $ | – | $ | (8,938 | ) | |||
Other investment activities, net(C) | $ | (15,673 | ) | $ | (9,843 | ) | ||
Cash dividends paid to shareholders | $ | (232,671 | ) | $ | – | |||
Common stock repurchased | $ | (36,708 | ) | $ | – | |||
Purchases of Property, Plant and Equipment: | ||||||||
Maintenance capital expenditures(A) | $ | (56,840 | ) | $ | (44,145 | ) | ||
Capital expenditures associated with development projects | (13,943 | ) | (9,794 | ) | ||||
Capital expenditures associated with technology development | (4,642 | ) | (3,269 | ) | ||||
Capital expenditures–other | (7,676 | ) | (1,901 | ) | ||||
Total purchases of property, plant and equipment | $ | (83,101 | ) | $ | (59,109 | ) | ||
(A) | Capital Expenditures primarily to maintain existing facilities. Purchases of property, plant and equipment is also referred to as Capital Expenditures. | |
(B) | Principal payments on project debt are net of changes in restricted funds held in trust used to pay debt principal of $(37.5) million and $31.0 million for the nine months ended September 30, 2010 and 2009, respectively. Principal payments on project debt excludes principal repayments on working capital borrowings relating to the operations of our Indian facilities of $11.8 million and $9.8 million for the nine months ended September 30, 2010 and 2009, respectively. Principal payments on project debt excludes a project debt refinancing transaction of $63.7 million related to a domestic energy-from-waste facility during the third quarter 2009. | |
(C) | For the nine months ended September 30, 2010, other investing activities is primarily comprised of net payments from the purchase/sale of investment securities and business development expenses. For the nine months ended September 31, 2009, other investing activities is primarily comprised of a loan issued for the Harrisburg energy-from-waste facility to fund certain facility improvements, net of repayments. |
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For the years ended December 31, | ||||||||
(dollars in thousands) | 2009 | 2008 | ||||||
Cash flow provided by operating activities(A) | $ | 397,238 | $ | 402,607 | ||||
Less: Maintenance capital expenditures(B) | (51,937 | ) | (60,639 | ) | ||||
Free cash flow | $ | 345,301 | $ | 341,968 | ||||
Selected Uses of Free Cash Flow: | ||||||||
Principal payments on long-term debt | $ | (6,591 | ) | $ | (6,877 | ) | ||
Principal payments on project debt, net of restricted funds used(C) | (129,183 | ) | (166,225 | ) | ||||
Distributions to partners of noncontrolling interests in subsidiaries | (11,004 | ) | (7,061 | ) | ||||
Non-maintenance capital expenditures(D) | (21,682 | ) | (27,281 | ) | ||||
Acquisition of businesses, net of cash acquired | (265,644 | ) | (73,393 | ) | ||||
Acquisition of noncontrolling interests in subsidiary | (23,700 | ) | – | |||||
Purchase of equity interests | (8,938 | ) | (18,503 | ) | ||||
Other investment activities, net | (15,339 | ) | (9,492 | ) | ||||
Purchases of Property,Plant and Equipment: | ||||||||
Maintenance capital expenditures(B) | $ | (51,937 | ) | $ | (60,639 | ) | ||
Pre-construction development projects(E) | (13,233 | ) | (1,208 | ) | ||||
Capital expenditures associated with technology development(F) | (5,008 | ) | (5,882 | ) | ||||
Capital expenditures associated with certain acquisitions(G) | (1,353 | ) | (17,126 | ) | ||||
Capital expenditures associated with SEMASS fire(H) | (2,088 | ) | (3,065 | ) | ||||
Total purchases of property, plant and equipment | $ | (73,619 | ) | $ | (87,920 | ) | ||
(A) | Cash flow provided by operating activities was negatively affected by $4.6 million of payments made for acquisition-related costs related to acquisitions, primarily the Veolia EfW Acquisition, for the year ended December 31, 2009. | |
(B) | Capital Expenditures primarily to maintain existing facilities. Purchase of property, plant and equipment is also referred to as Capital Expenditures. | |
(C) | Principal payments on project debt are net of restricted funds held in trust used to pay debt principal of $54.6 million and $21.6 million for the years ended December 31, 2009 and 2008, respectively. Principal payments on project debt excludes a project debt refinancing transaction related to a domestic energy-from-waste facility in 2009 ($63.7 million) and excludes principal repayments on working capital borrowings relating to the operations of our Indian facilities ($9.8 million). | |
(D) | Non-maintenance capital expenditures include certain capital expenditures made at our facilities described in notes E through H below. | |
(E) | Covanta has entered into definitive agreements for the development of a 1,700 metric tpd energy-from-waste project serving the City of Dublin, Ireland and surrounding communities. Construction commenced in the fourth quarter of 2009. Covanta incurred capital expenditures related to pre-construction activities, such as site preparation costs, for this project. | |
(F) | Capital Expenditures related to internal development efforts and/or agreements with multiple partners for the development, testing or licensing of new technologies related to the transformation of waste materials into renewable fuels, methods for the generation of alternative energy, and other development activity. | |
(G) | Capital Expenditures were incurred at four facilities that we acquired in 2008 and 2007 primarily to improve the productivity or environmental performance of those facilities. | |
(H) | Capital Expenditures were incurred that related to the repair and replacement of assets at the SEMASS energy-from-waste facility that were damaged by a fire on March 31, 2007. The cost of repair or replacement was insured under the terms of the applicable insurance policy, subject to deductibles. Settlement of the property damage insurance claim occurred in December 2008. |
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Effect if actual | ||||
results differ from | ||||
Policy | Judgments and estimates | assumptions | ||
Purchase Accounting | ||||
We allocate acquisition purchase prices to identified tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition, with any residual amounts allocated to goodwill. The fair value estimates used reflect our best estimates for the highest and best use by market participants. | These estimates are subject to uncertainties and contingencies. For example, we used the discounted cash flow method to estimate the value of many of our assets, which entailed developing projections about future cash flows and applying an appropriate market participant discount rate. | If the cash flows from the acquired net assets differ significantly from our estimates, the amounts recorded could be subject to impairments. Furthermore, to the extent we change our initial estimates of the remaining useful life of the assets or liabilities, future depreciation and amortization expense could be impacted. |
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Effect if actual | ||||
results differ from | ||||
Policy | Judgments and estimates | assumptions | ||
Goodwill and Indefinite Lived Intangibles | ||||
Our reporting units are Americas and International. The accounting standard related to goodwill defines a reporting unit as an operating segment or a component of an operating segment. Components of operating segments can be aggregated, provided they share similar economic characteristics. As our energy-from-waste facilities in the Americas share similar economic characteristics, we have aggregated them for the determination of our reporting units. | Our judgments regarding the existence of impairment indicators are based on regulatory factors, market conditions, anticipated cash flows and operational performance of our assets. When determining the fair value of our reporting units and intangible assets for impairment assessments, we make assumptions regarding their fair values which are dependent on estimates of future cash flows, discount rates, and other factors. | The impairment assessments of goodwill and indefinite lived intangible assets performed in the periods presented resulted in reporting unit and indefinite lived intangible assets fair values significantly in excess of carrying values and were, therefore, not at risk of failing any applicable impairment test. In future years, if the assessed fair values were to significantly decrease, there could be impairments which could materially impact our results of operations. | ||
We evaluate our goodwill and indefinite lived intangible assets for impairment at least annually or when indications of impairment exist. The impairment assessment for goodwill and indefinite lived intangible assets involves a comparison of the fair values of the reporting units carrying the goodwill and the intangible assets to their respective carrying values. |
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Effect if actual | ||||
results differ from | ||||
Policy | Judgments and estimates | assumptions | ||
Pensions and Other Post-Retirement Benefits | ||||
The expense and the related obligations arising from the pension and other post-retirement benefit plans are based on actuarially-determined estimates. We record a liability equal to the amount by which the present value of the projected benefit obligations exceeded the fair value of pension assets. | On an annual basis, we evaluate the assumed discount rate and expected return on plan assets used to determine pension benefit and other post-retirement benefit expenses and obligations. The discount rate is based on the estimated timing of future benefit payments and expected rates of return currently available on high quality fixed income securities whose cash flows match the estimated timing and amount of future benefit payments of the plan. | A 1% change in the discount rate would change pension and other post-retirement benefit expense and the obligations by approximately $1 million and $10 million, respectively. A 1% change in the return on plan assets would change pension and otherpost-retirement benefit expense by approximately $0.5 million. | ||
Our expected return on plan assets is based on historical experience and by evaluating input from the trustee managing the plan assets. | ||||
Financial Instruments | ||||
We record the conversion feature in our cash convertible notes and the related hedges at fair value, with the changes in fair value recorded in income. | We estimate the fair value of the conversion feature and the related hedges utilizing observable inputs such as implied volatility and risk-free rates. With respect to the hedges, we record a credit valuation adjustment based on observed credit spreads of our hedge counterparties in the credit default swaps market. | The conversion feature and note hedge have similar terms and therefore the changes in their fair values offset each other, before taking into account the credit valuation adjustment. We are subject to variability in our results of operations related to the changes in the credit valuation adjustment, which is dependent on the fair value of the hedge and on observed credit spreads. A 10% change in the note hedge valuation would change the credit valuation adjustment by approximately $0.5 million, and a change in credit spreads of 1% would change the credit valuation adjustment by approximately $5 million. |
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Effect if actual | ||||
results differ from | ||||
Policy | Judgments and estimates | assumptions | ||
In our insurance business, our debt and equity securities are classified as“available-for-sale” and are carried at fair value, with changes in fair value recorded in other comprehensive income. To the extent we have other than temporary impairments related to our debt securities, we will record the amounts related to credit losses in income. | The fair value of our debt and equity securities are based on quoted prices from dealers or national securities exchanges. | |||
Deferred Tax Assets | ||||
As described in Note 16 to our audited financial statements incorporated herein by reference, we have recorded a deferred tax asset related to our NOLs. The NOLs will expire in various amounts beginning on December 31, 2011 through December 31, 2028, if not used. Deferred tax assets are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. | We estimated that we have NOLs of approximately $545 million for federal income tax purposes as of the end of 2009. The amount recorded was calculated based upon future taxable income arising from (a) the reversal of temporary differences during the period the NOLs are available and (b) future operating income expected from our Americas and International segment businesses, to the extent it is reasonably predictable. Judgment is involved in assessing whether a valuation allowance is required on our deferred tax assets. | To the extent our estimation of the reversal of temporary differences and operating income generated differs from actual results, we could be required to adjust the carrying amount of the deferred tax assets. The Internal Revenue Service (“IRS”) has not audited any of our tax returns for the years in which the losses giving rise to the NOLs were reported, and the IRS could challenge any past and future use of the NOLs. |
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Effect if actual | ||||
results differ from | ||||
Policy | Judgments and estimates | assumptions | ||
Unpaid Loss Reserves and Loss Adjustment Expenses Our insurance subsidiaries establish loss and loss adjustment expense (“LAE”) reserves that are estimates of amounts needed to pay claims and related expenses in the future for insured events that have already occurred. | The process of estimating reserves involves a considerable degree of judgment by management. Reserves are typically comprised of (1) case reserves for claims reported and (2) reserves for losses that have occurred but for which claims have not yet been reported, referred to as incurred but not reported (“IBNR”) reserves, which include a provision for expected future development on case reserves. Case reserves are estimated based on the experience and knowledge of claims staff regarding the nature and potential cost of each claim and are adjusted as additional information becomes known or payments are made. IBNR reserves are derived by subtracting paid loss and LAE and case reserves from estimates of ultimate loss and LAE. Like case reserves, IBNR reserves are adjusted as additional information becomes known or payments are made. | If our actual claims experience is not consistent with the assumptions utilized in the determination of the loss reserves, we may be subject to adjustments that would impact our results from operations. | ||
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• | Maximize the value of our existing portfolio. We intend to maximize the long-term value of our existing portfolio by continuing to operate at our historic production levels, maintaining our facilities in optimal condition through our ongoing maintenance programs, extending or replacing waste and service contracts upon their expiration, seeking incremental revenue opportunities with our existing assets and expanding facility capacity where possible. |
• | Grow in selected attractive markets. We seek to grow our portfolio primarily through the development of new facilities where we believe that market and regulatory conditions will enable us to invest our capital at attractive risk-adjusted rates of return. We are currently focusing on development opportunities in the U.S., Canada and Europe, which we consider to be our core markets. We believe that there are numerous attractive opportunities in the United Kingdom in particular, where national policies, such as a substantial tax on landfill use, are intended to achieve compliance with the EU Landfill Directive, which we believe will result in the development of over 10 million tons of new energy-from-waste capacity within the next 10 years. |
• | Develop and commercialize new technology. We believe that our efforts to protect and expand our business will be enhanced by the development of additional technologies in such fields as emission controls, residue disposal, alternative waste treatment processes, and combustion controls. We have advanced our research and development efforts in these areas, and have developed and have patents pending for major advances in controlling nitrogen |
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oxide (“NOx”) emissions and have a patent for a proprietary process to improve the handling of the residue from our energy-from-waste facilities. We have also entered into various agreements with multiple partners to invest in the development, testing or licensing of new technologies related to the transformation of waste materials into renewable fuels or the generation of energy, as well as improved environmental performance. |
• | Advocate for public policy favorable to energy-from-waste.We seek to educate policymakers about the environmental and economic benefits of energy-from-waste and advocate for policies that appropriately reflect these benefits. Energy-from-waste is a highly regulated business, and as such we believe that it is critically important for us, as an industry leader, to play an active role in the debates surrounding potential policy developments that could impact our business. |
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• | We design the facility, help to arrange for financing and then we either construct and equip the facility on a fixed price and schedule basis, or we undertake an alternative role, such as construction management, if that better meets the goals of our municipal client. |
• | For the energy-from-waste projects we own, financing is generally accomplished through tax-exempt and taxable revenue bonds issued by or on behalf of the client community. For these facilities, the bond proceeds are loaned to us to pay for facility construction and to fund a debt service reserve for the project, which is generally sufficient to pay principal and interest for one year. Project-related debt is included as “project debt” and the debt service reserves are included as “restricted funds held in trust” in our consolidated financial statements incorporated by reference herein. Generally, project debt is secured by the project’s revenue, contracts and other assets of our project subsidiary. |
• | Following construction and during operations, we receive revenue from two primary sources: fees we receive for operating projects or for processing waste received, and payments we receive for electricityand/or steam we sell. |
• | We agree to operate the facility and meet minimum waste processing capacity and efficiency standards, energy production levels and environmental standards. Failure to meet these requirements or satisfy the other material terms of our agreement (unless the failure is caused by our client community or by events beyond our control), may result in damages charged to us or, if the breach is substantial, continuing and unremedied, termination of the applicable agreement. These damages could include amounts sufficient to repay project debt (as reduced by amounts held in trustand/or proceeds from sales of facilities securing project debt) and as such, these contingent obligations cannot readily be quantified. We have issued performance guarantees to our client communities and, in some cases other parties, which guarantee that |
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our project subsidiaries will perform in accordance with contractual terms including, where required, the payment of such damages. If one or more contracts were terminated for our default, these contractual damages may be material to our cash flow and financial condition. To date, we have not incurred material liabilities under such performance guarantees. |
• | The client community generally must deliver minimum quantities of municipal solid waste to the facility on aput-or-pay basis and is obligated to pay a fee for its disposal. Aput-or-pay commitment means that the client community promises to deliver a stated quantity of waste and pay an agreed amount for its disposal, regardless of whether the full amount of waste is actually delivered. Where a Service Fee structure exists, portions of the service fee escalate to reflect indices for inflation, and in many cases, the client community must also pay for other costs, such as insurance, taxes, and transportation and disposal of the ash residue to the disposal site. Generally, expenses resulting from the delivery of unacceptable and hazardous waste on the site are also borne by the client community. In addition, the contracts generally require the client community to pay increased expenses and capital costs resulting from unforeseen circumstances, subject to specified limits. At three publicly-owned facilities we operate, our client community may terminate the operating contract under limited circumstances without cause. |
• | Our returns are expected to be stable if we do not incur material unexpected operation and maintenance costs or other expenses. In addition, most of our energy-from-waste project contracts are structured so that contract counterparties generally bear, or share in, the costs associated with events or circumstances not within our control, such as uninsured force majeure events and changes in legal requirements. The stability of our revenues and returns could be affected by our ability to continue to enforce these obligations. Also, at some of our energy-from-waste facilities, commodity price risk is mitigated by passing through commodity costs to contract counterparties. With respect to our other renewable energy projects, such structural features generally do not exist because either we operate and maintain such facilities for our own account or we do so on a cost-plus basis rather than a fixed-fee basis. |
• | We receive the majority of our revenue under short- and long-term contracts, with little or no exposure to price volatility, but with adjustments intended to reflect changes in our costs. Where our revenue is received under other arrangements and depending upon the revenue source, we have varying amounts of exposure to price volatility. The largest component of our revenue is waste revenue, which has generally been subject to less price volatility than our revenue derived from the sale of energy and metals. During 2008, pricing for energy and recycled metals reached historically high levels and has subsequently declined materially. At some of our renewable energy projects, our operating subsidiaries purchase fuel in the open markets which exposes us to fuel price risk. |
• | We generally sell the energy output from our projects to local utilities pursuant to long-term contracts. At several of our energy-from-waste projects, we sell energy output under short-term contracts or on a spot-basis to our customers. |
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Design capacity | ||||||||||||||||||||||
Waste | Gross | Contract expiration dates | ||||||||||||||||||||
disposal | electric | Service/waste | ||||||||||||||||||||
Location | (TPD) | (MW) | Nature of interest | disposal | Energy | |||||||||||||||||
A. | ENERGY-FROM-WASTE PROJECTS | |||||||||||||||||||||
TIP FEE STRUCTURES | ||||||||||||||||||||||
1. | Southeast Massachusetts(1) | Massachusetts | 2,700 | 78.0 | Owner/Operator | N/A | 2015 | |||||||||||||||
2. | Delaware Valley | Pennsylvania | 2,688 | 87.0 | Lessee/Operator | 2017 | 2016 | |||||||||||||||
3. | Hempstead | New York | 2,505 | 72.0 | Owner/Operator | 2034 | N/A | |||||||||||||||
4. | Indianapolis(3) | Indiana | 2,362 | 6.5 | Owner/Operator | 2018 | 2028 | |||||||||||||||
5. | Niagara(3) | New York | 2,250 | 50.0 | Owner/Operator | N/A | 2010-2020 | |||||||||||||||
6. | Haverhill | Massachusetts | 1,650 | 44.6 | Owner/Operator | N/A | 2019 | |||||||||||||||
7. | Union County(2) | New Jersey | 1,440 | 42.1 | Lessee/Operator | 2023 | N/A | |||||||||||||||
8. | Tulsa(3) | Oklahoma | 1,125 | 16.5 | Owner/Operator | 2012 | 2019 | |||||||||||||||
9. | Alexandria/Arlington | Virginia | 975 | 22.0 | Owner/Operator | 2013 | 2023 | |||||||||||||||
10. | Kent County(3) | Michigan | 625 | 16.8 | Operator | 2023 | 2023 | |||||||||||||||
11. | Warren County | New Jersey | 450 | 13.5 | Owner/Operator | N/A | 2013 | |||||||||||||||
12. | Springfield | Massachusetts | 400 | 9.4 | Owner/Operator | 2014 | 2010 | |||||||||||||||
13. | Pittsfield | Massachusetts | 240 | 8.6 | Owner/Operator | 2015 | 2015 | |||||||||||||||
14. | Wallingford(2) | Connecticut | 420 | 11.0 | Owner/Operator | 2020 | N/A | |||||||||||||||
SERVICE FEE STRUCTURES | ||||||||||||||||||||||
15. | Dade | Florida | 3,000 | 77.0 | Operator | 2023 | 2013 | |||||||||||||||
16. | Fairfax County | Virginia | 3,000 | 93.0 | Owner/Operator | 2011 | 2015 | |||||||||||||||
17. | Essex County(2) | New Jersey | 2,277 | 66.0 | Owner/Operator | 2020 | 2020 | |||||||||||||||
18. | Honolulu(1)(4) | Hawaii | 2,160 | 90.0 | Operator | 2032 | 2015 | |||||||||||||||
19. | Hartford(1)(5) | Connecticut | 2,000 | 68.5 | Operator | 2012 | 2012 | |||||||||||||||
20. | Lee County | Florida | 1,836 | 57.3 | Operator | 2024 | 2015 | |||||||||||||||
21. | Montgomery County | Maryland | 1,800 | 63.4 | Operator | 2016 | 2011 | |||||||||||||||
22. | Hillsborough County | Florida | 1,800 | 46.5 | Operator | 2029 | 2025 | |||||||||||||||
23. | Long Beach | California | 1,380 | 36.0 | Operator | 2018 | 2018 | |||||||||||||||
24. | York | Pennsylvania | 1,344 | 42.0 | Operator | 2015 | 2016 | |||||||||||||||
25. | Plymouth | Pennsylvania | 1,216 | 32.0 | Owner/Operator | 2014 | 2012 | |||||||||||||||
26. | Hennepin County(3) | Minnesota | 1,212 | 38.7 | Operator | 2018 | 2018 | |||||||||||||||
27. | Lancaster County | Pennsylvania | 1,200 | 33.1 | Operator | 2016 | 2016 | |||||||||||||||
28. | Pasco County | Florida | 1,050 | 29.7 | Operator | 2016 | 2024 | |||||||||||||||
29. | Onondaga County | New York | 990 | 39.2 | Owner/Operator | 2015 | 2025 | |||||||||||||||
30. | Stanislaus County | California | 800 | 22.4 | Owner/Operator | 2016 | 2010 | |||||||||||||||
31. | Harrisburg(2) | Pennsylvania | 800 | 20.8 | Operator | 2018 | N/A | |||||||||||||||
32. | Huntington(6) | New York | 750 | 24.3 | Owner/Operator | 2012 | 2012 | |||||||||||||||
33. | Babylon | New York | 750 | 16.8 | Owner/Operator | 2019 | 2018 | |||||||||||||||
34. | Burnaby | British Columbia | 720 | 25.0 | Operator | 2025 | 2013 | |||||||||||||||
35. | Huntsville(3) | Alabama | 690 | – | Operator | 2016 | 2014 | |||||||||||||||
36. | Southeast Connecticut | Connecticut | 689 | 17.0 | Owner/Operator | 2015 | 2017 | |||||||||||||||
37. | Bristol | Connecticut | 650 | 16.3 | Owner/Operator | 2014 | 2014 | |||||||||||||||
38. | Marion County | Oregon | 550 | 13.1 | Owner/Operator | 2014 | 2014 | |||||||||||||||
39. | Lake County | Florida | 528 | 14.5 | Owner/Operator | 2014 | 2014 | |||||||||||||||
40. | MacArthur | New York | 486 | 12.0 | Operator | 2015 | 2010 | |||||||||||||||
41. | Hudson Valley | New York | 450 | 9.8 | Operator | 2014 | 2014 | |||||||||||||||
SUBTOTAL | 53,958 | 1,482.4 | ||||||||||||||||||||
B. | ANCILLARY WASTE PROJECTS | |||||||||||||||||||||
ASH and LANDFILLS | ||||||||||||||||||||||
42. | CMW—Semass | Massachusetts | 1,700 | N/A | Operator | 2016 | N/A | |||||||||||||||
43. | Peabody (ash only) | Massachusetts | 700 | N/A | Owner/Operator | N/A | N/A | |||||||||||||||
44. | Haverhill | Massachusetts | 555 | N/A | Lessee/Operator | N/A | N/A | |||||||||||||||
45. | Springfield (ash only) | Massachusetts | 175 | N/A | Owner/Operator | N/A | N/A | |||||||||||||||
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Design capacity | ||||||||||||||||||||||
Waste | Gross | Contract expiration dates | ||||||||||||||||||||
disposal | electric | Service/waste | ||||||||||||||||||||
Location | (TPD) | (MW) | Nature of interest | disposal | Energy | |||||||||||||||||
SUBTOTAL | 3,130 | |||||||||||||||||||||
TRANSFER STATIONS | ||||||||||||||||||||||
46. | Derwood | Maryland | 2,500 | N/A | Operator | 2015 | N/A | |||||||||||||||
47. | Girard Point | Pennsylvania | 2,500 | N/A | Owner/Operator | 2012 | N/A | |||||||||||||||
48. | 58th Street | Pennsylvania | 2,000 | N/A | Owner/Operator | 2012 | N/A | |||||||||||||||
49. | Braintree | Massachusetts | 1,200 | N/A | Owner/Operator | 2015 | N/A | |||||||||||||||
50. | Abington | Pennsylvania | 940 | N/A | Operator | 2014 | N/A | |||||||||||||||
51. | Lynn | Massachusetts | 885 | N/A | Owner/Operator | N/A | N/A | |||||||||||||||
52. | Mamaroneck | New York | 800 | N/A | Owner/Operator | 2015 | N/A | |||||||||||||||
53. | Holliston | Massachusetts | 700 | N/A | Owner/Operator | N/A | N/A | |||||||||||||||
54. | Canaan | New York | 600 | N/A | Owner/Operator | N/A | N/A | |||||||||||||||
55. | Springfield | Massachusetts | 500 | N/A | Owner/Operator | N/A | N/A | |||||||||||||||
56. | Mt. Kisco | New York | 350 | N/A | Owner/Operator | 2016 | N/A | |||||||||||||||
57. | Danvers | Massachusetts | 250 | N/A | Operator | 2011 | N/A | |||||||||||||||
58. | Essex | Massachusetts | 6 | N/A | Operator | 2015 | N/A | |||||||||||||||
SUBTOTAL | 13,231 | |||||||||||||||||||||
C. | OTHER RENEWABLE ENERGY PROJECTS | |||||||||||||||||||||
BIOMASS | ||||||||||||||||||||||
59. | Delano | California | N/A | 49.5 | Owner/Operator | N/A | 2017 | |||||||||||||||
60. | Pacific Ultrapower Chinese Station(7) | California | N/A | 25.6 | Part Owner | N/A | 2017 | |||||||||||||||
61. | Mendota | California | N/A | 25.0 | Owner/Operator | N/A | 2014 | |||||||||||||||
62. | Jonesboro(2) | Maine | N/A | 24.5 | Owner/Operator | N/A | N/A | |||||||||||||||
63. | West Enfield(2) | Maine | N/A | 24.5 | Owner/Operator | N/A | N/A | |||||||||||||||
64. | Pacific Oroville | California | N/A | 18.7 | Owner/Operator | N/A | 2016 | |||||||||||||||
65. | Burney Mountain | California | N/A | 11.4 | Owner/Operator | N/A | 2015 | |||||||||||||||
66. | Mount Lassen | California | N/A | 11.4 | Owner/Operator | N/A | 2015 | |||||||||||||||
SUBTOTAL | 190.6 | |||||||||||||||||||||
HYDROELECTRIC | ||||||||||||||||||||||
67. | Rio Volcan(8) | Costa Rica | N/A | 17.0 | Part Owner/Operator | N/A | 2010 | |||||||||||||||
68. | Don Pedro(8) | Costa Rica | N/A | 14.0 | Part Owner/Operator | N/A | 2010 | |||||||||||||||
69. | Koma Kulshan(9) | Washington | N/A | 12.0 | Part Owner/Operator | N/A | 2037 | |||||||||||||||
70. | South Fork(9) | Washington | N/A | 5.0 | Part Owner | N/A | 2022 | |||||||||||||||
SUBTOTAL | 48.0 | |||||||||||||||||||||
LANDFILL GAS | ||||||||||||||||||||||
71. | Otay | California | N/A | 7.4 | Owner/Operator | N/A | 2011-2019 | |||||||||||||||
72. | Haverhill | Massachusetts | N/A | 1.6 | Lessee/Operator | N/A | N/A | |||||||||||||||
73. | Stockton | California | N/A | 0.8 | Owner/Operator | N/A | 2012 | |||||||||||||||
SUBTOTAL | 9.8 | |||||||||||||||||||||
(1) | These facilities use a refuse-derived fuel technology. | |
(2) | These facilities sell electricity into the regional power pool at prevailing rates. | |
(3) | These facilities have been designed to export steam for sale. | |
(4) | With respect to this project, we have entered into agreements to expand waste processing capacity from 2,160 tpd to 3,060 tpd and to increase gross electricity capacity from 57 MW to 90 MW. The agreements also extend the service contract term by 20 years. Environmental and other project related permits have been received and expansion construction has commenced. | |
(5) | Under contracts with the Connecticut Resource Recovery Authority, we operate only the boilers and turbines for this facility. | |
(6) | Owned by a limited partnership in which limited partners are not affiliated with us. | |
(7) | We have a 55% ownership interest in this project. | |
(8) | We have nominal ownership interests in these projects. | |
(9) | We have a 50% ownership interest in these projects. |
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Design capacity | ||||||||||||||||||||
Waste | Gross | Contract expiration dates | ||||||||||||||||||
disposal | electric | Nature | Service/waste | |||||||||||||||||
Location | (Metric TPD) | (MW) | of interest | disposal | Energy | |||||||||||||||
A. ENERGY-FROM-WASTE TIP FEE STRUCTURES | ||||||||||||||||||||
1. Fuzhou(1) | China | 1,200 | 24 | Part Owner | 2032 | N/A | ||||||||||||||
2. Tongqing(1) | China | 1,200 | 24 | Part Owner | 2027 | N/A | ||||||||||||||
3. Trezzo | Italy | 500 | 18 | Part Owner | 2023 | 2023 | ||||||||||||||
SUBTOTAL | 2,900 | 66 | ||||||||||||||||||
B. ENERGY-FROM-WASTE— ADVANCED DEVELOPMENT/ UNDER CONSTRUCTION | ||||||||||||||||||||
4. Chengdu | China | 1,800 | 36 | Part Owner | ||||||||||||||||
5. Dublin | Ireland | 1,700 | 68 | Part Owner/Operator | ||||||||||||||||
6. Taixing | China | 350 | 30 | Part Owner/Operator | ||||||||||||||||
SUBTOTAL | 3,850 | 134 | ||||||||||||||||||
C. INDEPENDENT POWER PROJECTS COAL | ||||||||||||||||||||
7. Quezon(2)(3) | Philippines | N/A | 510 | Part Owner/Operator | N/A | 2025 | ||||||||||||||
8. Yanjiang (Taixing)(4) | China | N/A | 24 | Part Owner/Operator | N/A | N/A | ||||||||||||||
SUBTOTAL | 534 | |||||||||||||||||||
NATURAL GAS | ||||||||||||||||||||
9. Haripur(3)(5) | Bangladesh | N/A | 126 | Part Owner/Operator | N/A | 2014 | ||||||||||||||
HEAVY FUEL-OIL | ||||||||||||||||||||
10. Madurai(3)(6) | India | N/A | 106 | Part Owner/Operator | N/A | 2016 | ||||||||||||||
11. Samalpatti(3)(7) | India | N/A | 106 | Part Owner/Operator | N/A | 2016 | ||||||||||||||
SUBTOTAL | 212 | |||||||||||||||||||
(1) | We have a 40% equity interest in Sanfeng, which owns equity interests of approximately 32% and 25% in the Fuzhou and Tongqing projects, respectively. Sanfeng operates the Tongqing project. The Fuzhou project company, in which Sanfeng has a 32% interest, operates the Fuzhou project. Ownership of these projects transfers to the applicable municipality at the expiration of the applicable concession agreement. | |
(2) | We have a 26% ownership interest in this project. | |
(3) | We are currently exploring a sale of this project. | |
(4) | We have an 85% economic interest in this project. Assets of this project revert back to the local Chinese partner at the expiration of the joint venture contract in 2034. | |
(5) | We have a 45% ownership interest in this project. This project is capable of operating through combustion of diesel oil in addition to natural gas. | |
(6) | We have a 77% ownership interest in this project. | |
(7) | We have a 60% ownership interest in this project. |
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• | regional population and overall waste production rates; |
• | the number of other waste disposal sites (including principally landfills and transfer stations) in existence or in the planning or permitting process; |
• | the available disposal capacity (in terms of tons of waste per day) that can be offered by other regional disposal sites; and |
• | the availability and cost of transportation options (e.g., rail, inter-modal, trucking) to provide access to more distant disposal sites, thereby affecting the size of the waste shed itself. |
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• | Avoids CO2 emissions from fossil fuel power plants, |
• | Avoids methane emissions from landfills, |
• | Avoids habitat destruction and contamination from landfilling, and |
• | Avoids GHG emissions from mining and processing metal because it recovers and recycles scrap metals from waste. |
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Name | Age | Position | ||||
Anthony J. Orlando | 51 | President, Chief Executive Officer and Director | ||||
Sanjiv Khattri | 45 | Executive Vice President and Chief Financial Officer | ||||
John M. Klett | 64 | Executive Vice President and Chief Operating Officer | ||||
Timothy J. Simpson | 52 | Executive Vice President, General Counsel and Secretary | ||||
Seth Myones | 52 | President—Americas, Covanta Energy | ||||
Scott Whitney | 52 | President—Europe, Covanta Energy | ||||
Thomas E. Bucks | 54 | Vice President and Chief Accounting Officer | ||||
Samuel Zell | 69 | Chairman | ||||
David M. Barse | 48 | Director | ||||
Ronald J. Broglio | 70 | Director | ||||
Peter C.B. Bynoe | 59 | Director | ||||
Linda J. Fisher | 58 | Director | ||||
Joseph M. Holsten | 58 | Director | ||||
William C. Pate | 46 | Director | ||||
Robert S. Silberman | 53 | Director | ||||
Jean Smith | 55 | Director | ||||
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• | maximum Covanta Energy leverage ratio of 3.75 to 1.00 for the four quarter period ended December 31, 2009, which measures Covanta Energy’s principal amount of consolidated debt less certain restricted funds dedicated to repayment of project debt principal and construction costs (“Consolidated Adjusted Debt”) to its adjusted earnings before interest, taxes, depreciation and amortization, as calculated under the Credit Facilities (“Adjusted EBITDA”). The definition of Adjusted EBITDA in the Credit Facilities excludes certain non-cash charges, and for purposes of calculating the leverage ratio and interest coverage ratios is adjusted on a pro forma basis for acquisitions and dispositions made during the relevant period. The maximum Covanta Energy leverage ratio allowed under the Credit Facilities adjusts in future periods as follows: |
• | 3.75 to 1.00 for each of the four quarter periods ended March 31, June 30 and September 30, 2010; |
• | 3.50 to 1.00 for each four quarter period thereafter; |
• | maximum Covanta Energy capital expenditures incurred to maintain existing operating businesses of $100 million per fiscal year, subject to adjustment due to an acquisition by Covanta Energy; 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. |
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• | We purchased, for $112.4 million, cash-settled call options on our common stock (the “Note Hedge”) initially correlating to the same number of shares as those initially underlying the Cash Convertible Notes subject to generally similar customary adjustments, which have economic characteristics similar to those of the cash conversion option embedded in the Cash Convertible Notes. The Note Hedge is a derivative which is recorded at fair value quarterly and is recorded in other noncurrent assets in our consolidated balance sheets. |
• | We sold, for $54.0 million, warrants (the “Warrants”) correlating to the same number of shares as those initially underlying the Cash Convertible Notes, which are net share settled and could have a dilutive effect to the extent that the market price of our common stock exceeds the then effective strike price of the Warrants. The strike price of the Warrants is approximately $23.45 per share and is subject to customary adjustments. The Warrants are recorded at the amounts received net of expenses within additional paid-in capital in our consolidated balance sheets. |
• | Holders may require us to repurchase the Cash Convertible Notes, if a fundamental change occurs; and |
• | Holders may exercise their conversion rights upon the occurrence of certain events, which would require us to pay the conversion settlement amount in cash. |
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• | prior to February 1, 2025, on any date during any fiscal quarter beginning after March 31, 2007 (and only during such fiscal quarter) if the closing sale price of our common stock was more than 130% of the then effective conversion price for at least 20 trading days in the period of the 30 consecutive trading days ending on the last trading day of the previous fiscal quarter; |
• | at any time on or after February 1, 2025; |
• | with respect to any Debentures called for redemption, until 5:00 p.m., New York City time, on the business day prior to the redemption date; |
• | during a specified period, if we distribute to all or substantially all holders of our common stock, rights or warrants entitling them to purchase, for a period of 45 calendar days or less, shares of our common stock at a price less than the average closing sale price for the ten trading days preceding the declaration date for such distribution; |
• | during a specified period, if we distribute to all or substantially all holders of our common stock, cash or other assets, debt securities or rights to purchase our securities, which distribution has a per share value exceeding 10% of the closing sale price of our common stock on the trading day preceding the declaration date for such distribution; |
• | during a specified period, if we are a party to a consolidation, merger or sale, lease, transfer, conveyance or other disposition of all or substantially all of our assets and those of our subsidiaries taken as a whole that does not constitute a fundamental change, in each case pursuant to which our common stock would be converted into cash, securitiesand/or other property; |
• | during a specified period if a fundamental change occurs; and |
• | during the five consecutive business day period following any five consecutive trading day period in which the trading price for the Debentures for each day during such five trading day period was less than 95% of the product of the closing sale price of our common stock on such day multiplied by the then effective conversion rate. |
• | Holders may require us to repurchase their Debentures on February 1, 2012, February 1, 2017 and February 1, 2022; |
• | Holders my require us to repurchase their Debentures, if a fundamental change occurs; and |
• | Holders may exercise their conversion rights upon the occurrence of certain events, which would require us to pay the conversion settlement amount in cashand/or our common stock. |
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As of September 30, 2010 | As of December 31, 2009 | |||||||||||||||
(dollars in thousands) | Current | Noncurrent | Current | Noncurrent | ||||||||||||
Debt service funds | $ | 142,730 | $ | 73,157 | $ | 73,406 | $ | 101,376 | ||||||||
Revenue funds | 31,967 | – | 13,061 | – | ||||||||||||
Other funds | 53,373 | 36,494 | 44,756 | 45,153 | ||||||||||||
Total | $ | 228,070 | $ | 109,651 | $ | 131,223 | $ | 146,529 | ||||||||
Commitments expiring by period | ||||||||||||
(dollars in thousands) | Total | Less than one year | More than one year | |||||||||
Letters of credit | $ | 300,434 | $ | 10,576 | $ | 289,858 | ||||||
Surety bonds | 111,893 | – | 111,893 | |||||||||
Total other commitments—net | $ | 412,327 | $ | 10,576 | $ | 401,751 | ||||||
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• | will be general unsecured, senior obligations of the Company; |
• | will be limited to an aggregate principal amount of $400.0 million, subject to our ability to issue Additional Notes; |
• | mature on , 2020; |
• | will be issued in denominations of $2,000 and integral multiples of $1,000 in excess thereof; |
• | will rank equally in right of payment with any existing and future senior Indebtedness of the Company, without giving effect to collateral arrangements; |
• | will be effectively subordinated to all Secured Indebtedness of the Company (including Obligations under the Senior Credit Facility) to the extent of the value of the pledged assets; |
• | will be senior in right of payment to any future Subordinated Obligations of the Company; |
• | will be structurally subordinated to obligations, including Obligations under the Senior Credit Facility, of any of our Subsidiaries, none of which will Guarantee the Notes; and |
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• | will be represented by one or more registered Notes in global form, but in certain circumstances may be represented by Notes in definitive form. |
• | accrue at the rate of % per annum; |
• | accrue from the date of original issuance or, if interest has already been paid, from the most recent interest payment date; |
• | be payable in cash semi-annually in arrears on and , commencing on 2011; |
• | be payable to the Holders of record at the close of business on the and immediately preceding the related interest payment dates; and |
• | be computed on the basis of a360-day year comprised of twelve30-day months. |
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Year | Percentage | |||
2015 | % | |||
2016 | % | |||
2017 | % | |||
2018 and thereafter | % | |||
100.00% | ||||
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• | outstanding Indebtedness of the Company (including its Guarantee under the Senior Credit Facility) would have been $2,375.5 million, $627.3 million of which would have been secured, |
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and Covanta Energy Corporation would have additional commitments of $325.5 million under the Senior Credit Facility available to it, (after giving effect to $294.5 million of outstanding letters of credit), all of which would, if drawn, be Guaranteed by the Company on a senior secured basis; |
• | the Company would have had no Subordinated Obligations; and |
• | the Company’s Subsidiaries, none of which will Guarantee the Notes, would have had $2,849.0 million of liabilities (excluding intercompany liabilities). |
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• | “—Repurchase at the option of holders—Asset sales,” |
• | “—Limitation on indebtedness,” |
• | “—Limitation on restricted payments,” |
• | “—Limitation on restrictions on distributions from restricted subsidiaries,” |
• | “—Limitation on affiliate transactions” and |
• | Clause (4) of the first paragraph of “—Merger and consolidation,” |
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(2) | (a) all Notes not theretofore delivered to the Trustee for cancellation have become due and payable by reason of the giving of a notice of redemption or otherwise, will become due and payable within one year or may be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company has irrevocably deposited or caused to be deposited with the Trustee, as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the Notes not theretofore delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest to the date of maturity or redemption; |
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• | tax consequences to holders who may be subject to special tax treatment, including dealers in securities or currencies, financial institutions, regulated investment companies, real estate investment trusts, tax- exempt entities, insurance companies, or traders in securities that elect to use amark-to-market method of accounting for their securities; |
• | tax consequences to persons holding notes as a part of a hedging, integrated or conversion transaction or a straddle or persons deemed to sell notes under the constructive sale provisions of the Code; |
• | tax consequences to U.S. holders (as defined below) of notes whose “functional currency” is not the U.S. dollar; |
• | tax consequences to U.S. expatriates; |
• | tax consequences to investors in pass-through entities; |
• | alternative minimum tax consequences, if any; |
• | any state, local or foreign tax consequences; and |
• | except where specifically described below, any U.S. federal tax consequences, such as the estate and gift tax or the Medicare tax on net investment income, other than U.S. federal income tax consequences. |
• | an individual citizen or resident of the United States; |
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• | a corporation (or any other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; |
• | an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
• | a trust, if it (i) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
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• | thenon-U.S. holder does not actually or constructively own 10% or more of the total combined voting power of all classes of our stock that are entitled to vote within the meaning of section 871(h)(3) of the Code; |
• | thenon-U.S. holder is not a controlled foreign corporation that is related to us (actually or constructively) through stock ownership; |
• | interest paid on the note is not effectively connected with thenon-U.S. holder’s conduct of a trade or business in the United States; |
• | thenon-U.S. holder is not a bank whose receipt of interest on a note is described in section 881(c)(3)(A) of the Code; and |
• | either (a) thenon-U.S. holder provides its name and address, and certifies, under penalties of perjury, that it is not a U.S. person (which certification may be made on an IRSForm W-8BEN (or other applicable form)) or (b) thenon-U.S. holder holds the notes through specified foreign intermediaries or specified foreign partnerships, and thenon-U.S. holder and the foreign intermediaries or foreign partnerships satisfy the certification requirements of applicable Treasury regulations. |
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• | that gain is effectively connected with anon-U.S. holder’s conduct of a trade or business in the United States (and, if required by an applicable income treaty, is attributable to a U.S. permanent establishment); or |
• | thenon-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of that disposition, and other conditions are met. |
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Principal | ||||
Underwriter | amount | |||
J.P. Morgan Securities LLC | $ | |||
Merrill Lynch, Pierce, Fenner & Smith Incorporated | ||||
Barclays Capital Inc. | ||||
Citigroup Global Markets Inc. | ||||
Credit Agricole Securities (USA) Inc. | ||||
RBS Securities Inc. | ||||
HSBC Securities (USA) Inc. | ||||
Mizuho Securities USA Inc. | ||||
TD Securities (USA) LLC | ||||
Total | $ | 400,000,000 | ||
Paid by us | ||||
Per note | % | |||
• | We will not offer or sell any of our debt securities (other than the notes) for a period of 90 days after the date of this prospectus supplement without the prior consent of J.P. Morgan Securities LLC. |
• | We will pay our expenses related to the offering, which we estimate will be approximately $ . |
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• | We will indemnify the underwriters against certain liabilities, including liabilities under the Securities Act of 1933, or contribute to payments that the underwriters may be required to make in respect of those liabilities. |
• | to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; |
• | to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual |
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net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or |
• | in any other circumstances which do not require the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive. |
• | (a) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business and (b) it has not offered or sold and will not offer or sell the notes other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses; |
• | it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000) received by it in connection with the issue or sale of the notes in circumstances in which Section 21(1) of the Financial Services and Markets Act 2000 does not apply to us; and |
• | it has complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000 with respect to anything done by it in relation to the notes in, from or otherwise involving the United Kingdom. |
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Attn: Marisa Jacobs
40 Lane Road
Fairfield, New Jersey 07004
(973) 882-4196
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PREFERRED STOCK
WARRANTS
DEBT SECURITIES
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• | shares of our common stock, $0.10 par value per share; | |
• | shares of our preferred stock, $0.10 par value per share; | |
• | warrants exercisable for our common stock; or | |
• | debt securities. |
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