UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): December 18, 2003
Covanta Energy Corporation
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(Exact Name of Registrant as Specified in Charter)
Delaware 1-3122 13-5549268
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(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) Identification No.)
40 Lane Road, Fairfield, New Jersey 07004
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (973) 882-9000
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
Item 2. Acquisition or Disposition of Assets.
As previously reported, on September 5, 2003, Covanta Energy Corporation, a
Delaware corporation ("Covanta" or the "Company") and certain of its
subsidiaries (collectively, the "Sellers") executed an ownership interest
purchase agreement (as amended, the "Original Agreement") with certain
affiliates of ArcLight Energy Partners Fund I, L.P. and Caithness Energy, L.L.C
(collectively, the "Stalking Horse Buyers") providing, among other things, for
the sale of the Sellers' interests in Heber Geothermal Company, Heber Field
Company, Second Imperial Geothermal Company, and Mammoth-Pacific L.P (a
non-debtor affiliate of Covanta) (the "Geothermal Business") for a purchase
price of $170,000,000, subject to higher or better offers. The Original
Agreement entitled the Stalking Horse Buyers to a break-up fee of $5,375,000
(the "Break-Up Fee") in the event that a higher or better offer was chosen in
the auction. On September 29, 2003, the United States Bankruptcy Court for the
Southern District of New York (the "Court") entered an order approving the
competitive bidding and auction procedures, including the Break-Up Fee, for the
purpose of obtaining the highest or best offer for the Geothermal Business (the
"Bidding Procedures Order"). On November 19, 2003, the Court held an auction to
consider bids for the Geothermal Business pursuant to the Court-approved bidding
procedures. During the auction, Covanta and its creditor representatives
considered various bids for the Geothermal Business. Following the auction,
Covanta, with the consent of its creditor representatives, determined that the
bid submitted by certain affiliates of Ormat Nevada, Inc. ("Ormat"), which
offered a purchase price of $214,000,000, subject to a working capital
adjustment, represented the highest or best offer for the Geothermal Business.
On November 21, 2003, the Court entered an order approving the sale of the
Geothermal Business to Ormat pursuant to a purchase agreement that was executed
on November 21, 2003 (the "Purchase Agreement"). Because Ormat's bid was
determined to be the highest or best offer for the Geothermal Business, as
required by the Original Agreement and the Bidding Procedures Order, Covanta
will pay the Stalking Horse Buyers the Break-Up Fee.
On December 18, 2003 Covanta sold the Geothermal Business to Ormat pursuant to
the Purchase Agreement for cash consideration of $214,000,000, subject to a
working capital adjustment. Ormat is a power technology firm in the area of
distributed generation using locally available energy sources, including
geothermal energy. The Geothermal Business consists of assets and liabilities
related to the generation and sale of electrical output and the production and
sale of geothermal fluid, including related equity interests and partnership
interests and certain contracts and leases. Specific assets included in the sale
a 100% ownership in the Heber Geothermal power plant, having a nameplate
capacity of 52 MW and located near Heber in Imperial County, Southern
California, 100% ownership in the lessee position of the SIGC geothermal power
plant having a nameplate capacity of 48 MW, adjacent to the Heber Geothermal
plant, and 50% ownership interest in the 40 MW Mammoth Geothermal power plant,
located near the city of Mammoth, Mono County, California.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial Statements of business acquired: Not applicable.
(b) Pro forma financial information:
Pro forma financial information for the Registrant, including the
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 2002, the Unaudited Pro Forma Statement of Operations for
the nine months ended September 30, 2003 and the Unaudited Pro Forma Balance
Sheet as of September 30, 2003 and the Notes to the Unaudited Pro Forma
Condensed Consolidated Financial Statements, are filed herewith.
(c) Exhibits: Not applicable.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
The pro forma financial information represents, in the opinion of management,
all adjustments necessary to present the Company's pro forma results of
operations and financial position in accordance with Article 11 of Regulation
S-X and is based upon available information and certain assumptions considered
reasonable under the circumstances. The pro forma statements of operations also
exclude any gains on the sale of the Geothermal Business (as defined above), and
any other non-recurring charges or credits attributable to the transaction. The
unaudited pro forma condensed consolidated financial statements present
financial information for Covanta giving effect to the sale of the Geothermal
Business, which was effective as of December 18, 2003. The unaudited pro forma
condensed consolidated balance sheet as of September 30, 2003 is presented as if
the transaction occurred on that date. The historical amounts were derived from
unaudited financial statements included in Covanta's quarterly report on Form
10-Q for the period ended September 30, 2003. The unaudited pro forma
consolidated statement of operations for the year ended December 31, 2002 is
presented as if the transaction had occurred on December 31, 2001. The
historical amounts were derived from audited financial statements included in
Covanta's annual report on Form 10-K for the year ended December 31, 2002. The
pro forma financial statements should be read in conjunction with the Company's
unaudited consolidated financial statements and notes thereto included in the
Company's Quarterly Report on Form 10-Q for the period ended September 30, 2003
and audited consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 2002, filed
on November 14, 2003 and March 31, 2003, respectively. The pro forma information
may not necessarily be indicative of what the Company's financial position or
results of operations would have been had the transaction been in effect as of
and for the periods presented, nor is such information necessarily indicative of
the Company's results of operations or financial position for any future period
or date.
COVANTA ENERGY CORPORATION (DEBTOR IN POSSESSION) AND SUBSIDIARIES
UNAUDITED PROFORMA CONDENSED STATEMENT OF CONSOLIDATED
OPERATIONS AND COMPREHENSIVE (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003
Business To Be Pro Forma
As Reported Disposed Adjustment Pro Forma
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(In Thousands of Dollars, Except Per Share Amounts)
Service revenues $390,270 $ 153 $ - $390,117
Electricity and steam sales 277,669 54,233 223,436
Construction revenues 11,194 - 11,194
Other revenues-net 8 - 8
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Total revenues 679,141 54,386 624,755
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Plant operating expenses 411,336 10,722 400,614
Construction costs 15,412 - 15,412
Depreciation and amortization 62,794 6,862 55,932
Debt service charges-net 59,933 961 58,972
Other operating costs and expenses 4,685 - 4,685
Net gain on sale of businesses (1,136) - (1,136)
Selling, administrative and general expenses 27,815 7,919 19,896
Other (income) expense-net 13,801 - 13,801
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Total costs and expenses 594,640 26,464 568,176
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Equity in income from
unconsolidated investments 17,921 2,026 15,895
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Operating income (loss) 102,422 29,948 72,474
Interest expense (net of interest income
of $3,074, and excluding post-petition
contractual interest of $728) (30,686) (483) (30,203)
Reorganization items (60,726) (3,300) (57,426)
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Income (loss) from continuing operations
before income taxes, minority interests,
discontinued operations and the
cumulative effect of change in accounting
principle 11,010 26,165 (15,155)
Income tax (expense) benefit (4,124) - (10,728) (1) 6,604
Minority interests (6,648) - - (6,648)
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Income (loss) from continuing operations
before discontinued
operations and change in accounting principle $ 238 $ 26,165 $ (10,728) $ (15,199)
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Basic income (loss) per share:
Income (loss) from continuing operations $ - $ 0.53 $ 0.22 $ (0.31)
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Diluted income (loss) per share:
Income (loss) from continuing operations $ - $ 0.53 $ 0.22 $ (0.31)
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COVANTA ENERGY CORPORATION (DEBTOR IN POSSESSION) AND SUBSIDIARIES
UNAUDITED PROFORMA CONDENSED STATEMENT OF CONSOLIDATED
OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEAR ENDED DECEMBER 31, 2002
Business To Be Pro Forma
As Reported Disposed Adjustment Pro Forma
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(In Thousands of Dollars, Except Per Share Amounts)
Service revenues $ 514,450 $ 235 $ - $ 514,215
Electricity and steam sales 363,290 65,229 298,061
Construction revenues 42,277 - 42,277
Other revenues-net 263 - 263
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Total revenues 920,280 65,464 854,816
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Plant operating expenses 539,409 8,033 531,376
Construction costs 42,699 - 42,699
Depreciation and amortization 89,363 9,088 80,275
Debt service charges-net 88,293 1,928 86,365
Other operating costs and expenses 23,352 - 23,352
Net loss on sale of businesses 1,943 - 1,943
Selling, administrative and general expenses 55,003 9,406 45,597
Project development expenses 3,844 - 3,844
Other (income) expense-net 15,908 (24) 15,932
Write-down of assets held for use 101,211 - 101,211
Obligations related to assets held for sale 46,000 - 46,000
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Total costs and expenses 1,007,025 28,431 978,594
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Equity in income from unconsolidated investments 25,076 2,321 22,755
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Operating income (loss) (61,669) 39,354 (101,023)
Interest expense (net of interest
income of $3,074 and excluding post-petition
contractual interest of $728) (46,754) (1,859) (44,895)
Reorganization items (49,106) - (49,106)
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Income (loss) from continuing operations before
income taxes, minority interests,
discontinued operations and the cumulative
effect of change in accounting principle (157,529) 37,495 (195,024)
Income tax (expense) benefit 13,446 - (15,082) (1) 28,528
Minority interests (9,104) - - (9,104)
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Loss from continuing operations before discontinued
operations and change in accounting principle $(153,187) $ 37,495 $ (15,082) $(175,600)
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Basic Income (loss) per share:
Income (loss) from continuing operations $ (3.08) $ 0.75 $ 0.30 $ (3.53)
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Diluted Income (loss) per share:
Income (loss) from continuing operations $ (3.08) $ 0.75 $ 0.30 $ (3.53)
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COVANTA ENERGY CORPORATION (DEBTOR IN POSSESSION) AND SUBSIDIARIES
UNAUDITED PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2003
Remove Net Pro forma
As Reported Assets Sold Adjustments Pro forma
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(In Thousands of Dollars, Except Share and Per Share Amounts)
Assets
Current Assets:
Cash and cash equivalents $ 138,414 $ (92) $ 199,902 (2) $ 338,408
Restricted funds held in trust 142,681 2,340 - 140,341
Receivables (less allowances: 2003, $23,230) 254,245 13,304 - 240,941
Deferred income taxes 11,200 15 - 11,185
Prepaid expenses and other current
assets (less allowance 2003, $3,000) 75,843 121 - 75,722
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Total current assets 622,383 15,688 199,902 806,597
Property, plant and equipment-net 1,538,002 71,561 1,466,441
Restricted funds held in trust 152,028 3,003 149,025
Unbilled service and other receivables
(less allowances of $2,957 in 2003) 134,441 - - 134,441
Unamortized contract acquisition costs-net 56,390 - - 56,390
Other intangible assets-net 7,213 - - 7,213
Investments in and advance to investees and
joint ventures 173,659 41,169 - 132,490
Other assets 56,237 245 - 55,992
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Total Assets $2,740,353 $ 131,666 $ 199,902 $2,808,589
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Liabilities and Shareholders' Deficit
Liabilities:
Current Liabilities:
Current portion of long-term debt $ 14,788 $ 6,388 $ - $ 8,400
Current portion of project debt 108,695 6,211 - 102,484
Accounts payable 28,424 693 - 27,731
Accrued expenses 232,867 9,515 2,469 (3) 225,821
Deferred income 38,388 - - 38,388
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Total current liabilities 423,162 22,807 2,469 402,824
Long-term debt 24,105 - - 24,105
Project debt 1,020,666 15,528 - 1,005,138
Deferred income taxes 243,303 - - 243,303
Deferred income 143,176 - - 143,176
Other liabilities 89,746 2,452 - 87,294
Liabilities subject to compromise 932,746 - - 932,746
Minority interests 40,905 - - 40,905
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Total Liabilities 2,917,809 40,787 2,469 2,879,491
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Shareholders' Deficit:
Serial cumulative convertible preferred
stock, par value $1.00 per share, authorized,
4,000,000 shares; shares outstanding: 33,049 in
2003 net of treasury shares of 29,820 in 2003 33 - - 33
Common stock, par value $.50 per share; authorized,
80,000,000 shares; outstanding: 49,824,251 in
2003, net of treasury shares of 4,125,350 in 2003 24,912 - - 24,912
Capital surplus 188,156 - - 188,156
Notes receivable from key employees for common (870) - - (870)
stock issuance
Unearned restricted stock compensation (14) - - (14)
Deficit (392,473) 90,879 197,433 (285,919)
Accumulated other comprehensive income 2,800 - - 2,800
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Total Shareholders' Deficit (177,456) 90,879 197,433 (70,902)
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Total Liabilities and Shareholders' Deficit $ 2,740,353 $ 131,666 $ 199,902 $2,808,589
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NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
Basis of Presentation
The above unaudited pro forma consolidated financial statements present
financial information for Covanta giving effect to the sale of the Geothermal
Business, which was effective as of December 18, 2003. The unaudited pro forma
condensed consolidated balance sheet as of September 30, 2003 is presented as if
the transaction occurred on that date. The historical amounts were derived from
unaudited financial statement included in Covanta's quarterly report on Form
10-Q for the period ended September 30, 2003. The unaudited pro forma
consolidated statements of operations for the year ended December 31, 2002 are
presented as if the transaction had occurred on December 31, 2001 and exclude
the anticipated gain to be realized. The historical amounts were derived from
audited financial statements included in Covanta's annual report on Form 10-K
for the year ended December 31, 2002.
Unaudited Pro Forma Financial Information
(1) Pro forma adjustment for income taxes reflecting the Company's reduction of
income tax expense for income generated by the Geothermal Business sold.
(2) Reflects the sale on December 18, 2003 of the net assets of Geothermal
Business for gross proceeds of $215.2 million less settlement of
obligations of approximately $9.9 million and related transaction costs,
estimated to be $5.4 million.
(3) Reflects the assumption of $2.5 million in state income taxes by Covanta.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereto duly authorized.
Date: December 23, 2003
COVANTA ENERGY CORPORATION
By: /s/ Jeffrey R. Horowitz
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Name: Jeffrey R. Horowitz
Title: Senior Vice President, General
Counsel and Secretary