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Covanta Holding Corporation Reports 2012 Full Year and Fourth Quarter Results

MORRISTOWN, NJ--(Marketwire - Feb 6, 2013) - Covanta Holding Corporation ( NYSE : CVA ) ("Covanta" or the "Company"), a leading global owner and operator of Energy-from-Waste ("EfW") projects, reported financial results today for the three and twelve months ended December 31, 2012.

     
    Full Year
Continuing Operations   2011   2012   2012 Guidance1
             
    (Unaudited, $ in millions, except per share amounts)
Revenue   $ 1,650   $ 1,644     N/A
Income from Continuing Operations   $ 84   $ 118     N/A
Adjusted EBITDA   $ 494   $ 492   $ 490 - $ 500
Free Cash Flow   $ 282   $ 262   $ 250 - $ 265
Adjusted EPS   $ 0.54   $ 0.52   $ 0.50 - $ 0.55
                   
                   

1 As of November 7, 2012.

Key Full Year 2012 Highlights:

  • Record year in terms of EfW Boiler availability;
  • Signed $2.5 billion of waste and energy contracts with average term of 12 years -- secured two million tons of waste and 750,000 MWh of generation per year;
  • Acquired ~2,700 ton per day Delaware Valley EfW facility; immediately accretive to key metrics;
  • Successfully refinanced $1.9 billion in debt, creating substantial financial flexibility;
  • Honolulu EfW project expansion successfully commenced commercial operation; and
  • Doubled dividend to $0.60/share annually; shareholder returns totaled $169 million.

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

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

  • Lower revenues earned explicitly to service project debt;
  • Lower pricing for energy at EfW facilities and recycled metals; and
  • Hurricane Sandy impact, as certain facilities were briefly forced off-line.

These impacts were substantially offset by:

  • Organic growth initiatives in special waste, recycled metals and other;
  • Escalations in service fee contracts; and
  • New units coming online.

Excluding certain items2, operating expenses were $1,420 million for 2012 compared to $1,427 million for 2011. The $7 million decrease was primarily due to:

  • The benefits from various operational improvements.

Offset by:

  • Expenses related to Hurricane Sandy for repairs at facilities; and
  • Lower alternative fuel tax credits.

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

  • Organic growth initiatives; and
  • New units coming online.

Partially offset by:

  • Lower debt service pass through revenue;
  • Lower pricing for EfW energy and recycled metal; and
  • Lower alternative fuel tax credits.

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

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

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

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

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

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

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

  • Organic growth initiatives in special waste, recycled metals and other; and
  • Escalations in service fee contracts.

Negative impacts were:

  • Hurricane Sandy as certain facilities were briefly forced off-line;
  • Lower revenues earned explicitly to service project debt;
  • Lower recycled metals pricing; and
  • Lower revenues from our insurance business.

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

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

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

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

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

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

(In millions, except per share amounts)

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

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

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

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

About Covanta
Covanta Holding Corporation ( NYSE : CVA ) is an internationally recognized owner and operator of large-scale Energy-from-Waste and renewable energy projects and a recipient of the Energy Innovator Award from the U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy. Covanta's 44 Energy-from-Waste facilities provide communities with an environmentally sound solution to their solid waste disposal needs by using that municipal solid waste to generate clean, renewable energy. Annually, Covanta's modern Energy-from-Waste facilities safely and securely convert approximately 20 million tons of waste into 9 million megawatt hours of clean renewable electricity and approximately 9 billion pounds of steam that are sold to a variety of industries. For more information, visit www.covantaenergy.com.

Cautionary Note Regarding Forward-Looking Statements
Certain statements in this press release may constitute "forward-looking" statements as defined in Section 27A of the Securities Act of 1933 (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), the Private Securities Litigation Reform Act of 1995 (the "PSLRA") or in releases made by the Securities and Exchange Commission ("SEC"), all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Covanta Holding Corporation and its subsidiaries ("Covanta") or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Statements that are not historical fact are forward-looking statements. For additional information see the Cautionary Note Regarding Forward-Looking Statements at the end of the Exhibits.  

   
   
Exhibit 1  
Covanta Holding Corporation  
Consolidated Statements of Income  
   
    Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
    2012     2011     2012     2011  
    (Unaudited)
(In millions, except per share amounts)
 
Operating revenues                                
  Waste and service revenues   $ 264     $ 263     $ 1,011     $ 1,008  
  Recycled metals revenues     17       19       72       74  
  Electricity and steam sales     97       99       394       400  
  Other operating revenues     52       49       167       168  
    Total operating revenues     430       430       1,644       1,650  
Operating expenses                                
  Plant operating expenses     228       222       963       962  
  Other operating expenses (a)     56       36       156       138  
  General and administrative expenses     23       29       97       103  
  Depreciation and amortization expense     50       51       195       193  
  Net interest expense on project debt     5       7       27       31  
  Net (gains) write-offs (b)     (44 )     5       (46 )     5  
    Total operating expenses     318       350       1,392       1,432  
Operating income     112       80       252       218  
Other income (expense)                                
  Investment income     1       --       1       1  
  Interest expense     (27 )     (17 )     (94 )     (67 )
  Non-cash convertible debt related expense     (6 )     (5 )     (25 )     (25 )
  Loss on extinguishment of debt (c)     (1 )     --       (3 )     (1 )
  Other (expense) income, net (d)     --       (6 )     3       (19 )
    Total other expenses     (33 )     (28 )     (118 )     (111 )
Income from continuing operations before income tax expense and equity in net income from unconsolidated investments     79       52       134       107  
Income tax benefit (expense) (d)     4       (25 )     (26 )     (28 )
Equity in net income from unconsolidated investments     --       2       10       5  
Income from continuing operations     83       29       118       84  
(Loss) income from discontinued operations, net of income tax expense of $0, $0, $1 and $3, respectively     --       (1 )     (2 )     143  
Net Income     83       28       116       227  
Noncontrolling interests:                                
Less: Net income from continuing operations attributable to noncontrolling interests in subsidiaries     (1 )     (2 )     (2 )     (5 )
Less: Net income from discontinued operations attributable to noncontrolling interests in subsidiaries     --       --       --       (3 )
Total net income attributable to noncontrolling interests in subsidiaries     (1 )     (2 )     (2 )     (8 )
Net Income Attributable to Covanta Holding Corporation   $ 82     $ 26     $ 114     $ 219  
                                 
                                 
                                 
Covanta Holding Corporation
Consolidated Statements of Income (continued)
 
    Three Months Ended
December 31,
    Twelve Months Ended
December 31,
    2012   2011     2012     2011
    (Unaudited)
(In millions, except per share amounts)
Amounts Attributable to Covanta Holding Corporation stockholders:                            
  Continuing operations   $ 82   $ 27     $ 116     $ 79
  Discontinued operations     --     (1 )     (2 )     140
Net Income Attributable to Covanta Holding Corporation   $ 82   $ 26     $ 114     $ 219
                             
Earnings Per Share Attributable to Covanta Holding Corporation stockholders:                            
Basic                            
  Continuing operations   $ 0.63   $ 0.20     $ 0.88     $ 0.56
  Discontinued operations     --     (0.01 )     (0.01 )     0.99
  Covanta Holding Corporation   $ 0.63   $ 0.19     $ 0.87     $ 1.55
Weighted Average Shares     130     136       132       141
                             
Diluted                            
  Continuing operations   $ 0.62   $ 0.20     $ 0.87     $ 0.56
  Discontinued operations     --     (0.01 )     (0.01 )     0.98
  Covanta Holding Corporation   $ 0.62   $ 0.19     $ 0.86     $ 1.54
Weighted Average Shares     132     137       133       142
                             
Cash Dividend Declared Per Share:   $ 0.15   $ 0.075     $ 0.60     $ 0.30
                             
Supplemental Information - Non-GAAP                            
  Adjusted EPS (e)   $ 0.20   $ 0.27     $ 0.52     $ 0.54
                             
   
(a) For additional information, see Exhibit 4A - Note (a) and (f) of this Press Release.
(b) For additional information, see Exhibit 4A - Note (b) - (e) of this Press Release.
(c) For additional information, see Exhibit 7A - Note (a) and (b) of this Press Release.
(d) For additional information, see Exhibit 4A - Note (i) - (j) of this Press Release.
(e) For additional information, see Exhibit 4 of this Press Release.
   
   
   
Exhibit 1A  
Covanta Holding Corporation  
Consolidated Statements of Comprehensive Income  
   
    Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
    2012     2011     2012     2011  
    (Unaudited, in millions)  
       
Net income   $ 83     $ 28     $ 116     $ 227  
  Foreign currency translation     3       11       1       --  
  Adjustment for pension plan settlement, net of tax expense (a)     6       --       7       --  
  Pension plan and postretirement plan unrecognized benefits, net of tax benefit     --       (8 )     --       (8 )
  Net unrealized gain (loss) on derivative instruments, net of tax benefit     --       2       (2 )     2  
  Net unrealized loss on available for sale securities, net of tax     (1 )     --       --       --  
Other comprehensive income (loss) attributable to Covanta Holding Corporation     8       5       6       (6 )
Comprehensive income     91       33       122       221  
Less:                                
  Net income attributable to noncontrolling interests in subsidiaries     (1 )     (2 )     (2 )     (8 )
  Foreign currency translation attributable to noncontrolling interests in subsidiaries     --       1       --       2  
Comprehensive income attributable to noncontrolling interests in subsidiaries     (1 )     (1 )     (2 )     (6 )
Comprehensive income attributable to Covanta Holding Corporation   $ 90     $ 32     $ 120     $ 215  
                                 
   
(a) For additional information, see Exhibit 4A - Note (f) of this Press Release.
   
   
   
Exhibit 2  
Covanta Holding Corporation  
Consolidated Balance Sheets  
   
    As of December 31,  
    2012     2011  
    (Unaudited)        
ASSETS   (In millions, except per share amounts)  
Current:            
  Cash and cash equivalents   $ 246     $ 232  
  Restricted funds held in trust     53       101  
  Receivables (less allowances of $6 and $5, respectively)     256       260  
  Unbilled service receivables     18       20  
  Deferred income taxes     18       28  
  Prepaid expenses and other current assets     97       105  
  Assets held for sale     --       18  
Total Current Assets     688       764  
  Property, plant and equipment, net     2,561       2,423  
  Investments in fixed maturities at market (cost: $36 and $31, respectively)     36       31  
  Restricted funds held in trust     161       90  
  Unbilled service receivables     17       25  
  Waste, service and energy contracts, net     399       434  
  Other intangible assets, net     23       78  
  Goodwill     249       232  
  Investments in investees and joint ventures     49       43  
  Other assets     343       265  
Total Assets   $ 4,526     $ 4,385  
LIABILITIES AND EQUITY                
Current:                
  Current portion of long-term debt   $ 3     $ 32  
  Current portion of project debt     80       147  
  Accounts payable     41       25  
  Deferred revenue     31       61  
  Accrued expenses and other current liabilities     205       211  
  Liabilities held for sale     --       3  
Total Current Liabilities     360       479  
  Long-term debt     2,012       1,454  
  Project debt     237       533  
  Deferred income taxes     691       633  
  Waste and service contracts     35       76  
  Other liabilities     136       122  
Total Liabilities     3,471       3,297  
Equity:                
Covanta Holding Corporation stockholders' equity:                
  Preferred stock ($0.10 par value; authorized 10 shares; none issued and outstanding)     --       --  
  Common stock ($0.10 par value; authorized 250 shares; issued 159 and 158 shares; outstanding 132 and 136 shares)     16       16  
  Additional paid-in capital     806       824  
  Accumulated other comprehensive income     7       1  
  Accumulated earnings     222       244  
  Treasury stock, at par     (3 )     (2 )
    Total Covanta Holding Corporation stockholders equity     1,048       1,083  
  Noncontrolling interests in subsidiaries     7       5  
Total Equity     1,055       1,088  
Total Liabilities and Equity   $ 4,526     $ 4,385  
                 
                 
                 
Exhibit 3  
Covanta Holding Corporation  
Consolidated Statements of Cash Flow  
   
    Twelve Months Ended
December 31,
 
    2012     2011  
    (Unaudited, in millions)  
OPERATING ACTIVITIES:                
Net income   $ 116     $ 227  
  Less: (Loss) income from discontinued operations, net of tax expense     (2 )     143  
Income from continuing operations     118       84  
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities from continuing operations:                
  Depreciation and amortization expense     195       193  
  Net (gains) write-offs (a)     (46 )     5  
  Loss on extinguishment of debt (b)     3       1  
  Non-cash convertible debt related expense     25       25  
  Stock-based compensation expense     17       18  
  Deferred income taxes     15       30  
  Pension plan settlement expense (c)     11       --  
  Other, net     (3 )     (1 )
  Reversal of uncertain tax positions related to pre-emergence tax matters (d)     --       (24 )
  Contractual liability to pre-petition creditors (d)     --       15  
  Change in restricted funds-other related to contractual liability to pre-petition creditors (d)     --       5  
  Change in restricted funds held in trust     34       4  
  Change in working capital, net of effects of acquisitions     (27 )     5  
  Net cash provided by operating activities from continuing operations     342       360  
  Net cash provided by operating activities from discontinued operations     --       1  
Net cash provided by operating activities     342       361  
INVESTING ACTIVITIES:                
  Proceeds from assets sales     --       12  
  Purchase of property, plant and equipment     (126 )     (118 )
  Acquisition of businesses, net of cash acquired     (94 )     (10 )
  Acquisition of land use rights     (1 )     (8 )
  Property insurance proceeds     8       1  
  Other, net     (11 )     (13 )
Net cash used in investing activities from continuing operations     (224 )     (136 )
Net cash provided by investing activities from discontinued operations     11       243  
Net cash (used in) provided by investing activities     (213 )     107  
FINANCING ACTIVITIES:                
  Proceeds from borrowing on long-term debt (b)     1,034       --  
  Payment of deferred financing costs (b)     (33 )     --  
  Principal payments on long-term debt (b)     (622 )     (7 )
  Principal payments on project debt     (424 )     (137 )
  Convertible debenture repurchases     (25 )     (32 )
  Payments of borrowings on revolving credit facility     (191 )     --  
  Proceeds from borrowings on revolving credit facility     251       --  
  Proceeds from borrowings on project debt     --       15  
  Change in restricted funds held in trust     65       38  
  Cash dividends paid to stockholders     (90 )     (32 )
  Common stock repurchased     (88 )     (229 )
  Financing of insurance premiums, net     (10 )     10  
  Payments to pre-petition creditors     --       (12 )
  Decrease in restricted funds to pre-petition creditors     --       12  
  Distributions to partners of noncontrolling interests in subsidiaries     (1 )     (6 )
  Other financing, net     19       (1 )
Net cash used in financing activities from continuing operations     (115 )     (381 )
Net cash (used in) provided by financing activities from discontinued operations     (2 )     8  
Net cash used in financing activities     (117 )     (373 )
Effect of exchange rate changes on cash and cash equivalents     --       (1 )
Net increase in cash and cash equivalents     12       94  
Cash and cash equivalents at beginning of period     234       140  
Cash and cash equivalents at end of period     246       234  
Less: Cash and cash equivalents of discontinued operations at end of period     --       2  
Cash and cash equivalents of continuing operations at end of period   $ 246     $ 232  
                 
   
(a) For additional information, see Exhibit 4A - Note (b) - (e) of this Press Release.
(b) For additional information, see Exhibit 7A - Note (a) - (b) of this Press Release.
(c) For additional information, see Exhibit 4A - Note (f) of this Press Release.
(d) For additional information, see Exhibit 4A - Note (i) of this Press Release.
   
   
   
Exhibit 4
Covanta Holding Corporation
Reconciliation of Diluted Earnings Per Share to Adjusted EPS
 
    Three Months Ended
December 31,
  Twelve Months Ended
December 31,
     
    2012     2011   2012     2011     Full Year
Estimated 2013
 
    (Unaudited)      
Continuing Operations - Diluted Earnings Per Share   $ 0.62     $ 0.20   $ 0.87     $ 0.56       $0.40 - $0.50
Reconciling Items (a)     (0.42 )     0.07     (0.35 )     (0.02 )     --
Adjusted EPS   $ 0.20     $ 0.27   $ 0.52     $ 0.54       $0.40 - $0.50
                                     
   
(a) For details related to the Reconciling Items, see Exhibit 4A of this Press Release.
   
   
   
Exhibit 4A
Covanta Holding Corporation  
Reconciling Items  
   
    Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
    2012     2011     2012     2011  
    (Unaudited)
(In millions, except per share amounts)
 
Reconciling Items                                
Operating loss related to insurance subsidiaries (a)   $ 1     $ 1     $ 10     $ 2  
Write-off of intangible liability (b)     --       --       (29 )     --  
Write-off of renewable fuels project (c)     --       --       16       --  
Development costs (d)     --       5       11       5  
Net gain related to lease termination (e)     (44 )     --       (44 )     --  
Gain on sales of business     --       (8 )     --       (9 )
Pension plan settlement expense (f)     11       --       11       --  
Loss on extinguishment of debt (g)     1       --       3       1  
Effect on income of derivative instruments not designated as hedging instruments     --       (2 )     (1 )     (2 )
Effect of foreign exchange loss (gain) on indebtedness (h)     --       6       (3 )     4  
Contractual liability to pre-petition creditors (i)     --       --       --       15  
Other     (1 )     1       --       1  
  Total Reconciling Items, pre-tax     (32 )     3       (26 )     17  
Proforma income tax impact (j)     (24 )     8       (22 )     4  
Grantor trust activity     1       --       1       1  
Reversal of uncertain tax positions related to pre-emergence tax matters (i)     --       --       --       (24 )
  Total Reconciling Items, net of tax   $ (55 )   $ 11     $ (47 )   $ (2 )
                                 
Diluted (Loss) Earnings Per Share Impact   $ (0.42 )   $ 0.07     $ (0.35 )   $ (0.02 )
Weighted Average Diluted Shares Outstanding     132       137       133       142  
                                 
                                 
(a) During the year ended December 31, 2012, we transitioned our remaining insurance business to run-off and recorded additional losses and reserve increases of $7 million primarily relating to adverse loss development.
(b) During the year ended December 31, 2012, our service contract for the Essex EfW facility was amended and we recorded a non-cash write-off of an intangible liability of $29 million related to the below-market service contract which was recorded at fair value upon acquisition of the facility.
(c) During the year ended December 31, 2012, we suspended the construction of a facility that transformed waste materials into renewable liquid fuels. We recorded a non-cash write-off of $16 million representing the capitalized costs related to this project.
(d) During the year ended December 31, 2012, we recorded a non-cash write-off of $11 million comprised of capitalized development costs related to a development project which we ceased to pursue in the United Kingdom. During the year ended December 31, 2011, we recorded a non-cash write-off of $5 million comprised of capitalized development costs and land related to a development project which we ceased to pursue in the United Kingdom.
(e) During the year ended December 31, 2012, we recorded a net gain related to the termination of the pre-existing lease in connection with the acquisition of the Delaware Valley energy-from-waste facility.
(f) During the three months ended December 31, 2012, we recorded a pension settlement charge of $11 million.
(g) For additional information, see Exhibit 7A - Note (a) - (b) of this Press Release.
(h) During the year ended December 31, 2012 and 2011, we recorded a foreign exchange (gain) loss related to intercompany loans, respectively.
(i) For additional information, see Item 8. Financial Statements and Supplementary Data - Note 16. Income Taxes of Covanta's Annual Report on Form 10-K for the year ended December 31, 2011.
    (i) The expiration of the statute of limitations in 2011 triggered a contractual liability to pay restricted funds to third party claimants and resulted in other non-operating expense for the year ended December 31, 2011 of $15 million with no related income tax benefit. These payments related to tax liabilities set up in connection with Covanta Energy's emergence from bankruptcy.
    (ii) For the year ended December 31, 2011, the income tax provision includes a $24 million benefit due to the reversal of uncertain tax positions, following the expiration of applicable statutes of limitations related to pre-emergence tax matters in the Covanta Energy bankruptcy.
(j) We are presenting this proforma calculation of the income tax effect on all reconciling items for each period to illustrate the proforma impact on income tax expense and net income. The proforma income tax impact represents the tax provision amount related to the overall tax provision calculated without the reconciling items when compared to the tax provision reported under GAAP in the condensed consolidated statement of income.
   
   
   
Exhibit 4B
Covanta Holding Corporation  
Effective Tax Rate "ETR"  
   
    Three Months Ended
December 31,
    Twelve Months Ended
December 31,
 
    2012     2011     2012     2011  
    (Unaudited)  
Effective Tax Rate (a)   (5.2 )%   48.7 %   19.3 %   26.8 %
                         
   
(a) The ETR decrease during 2012 was primarily due to the impact of no tax expense on the gain on settlement of the pre-existing lease recorded in connection with the Delaware Valley energy-from-waste facility acquisition (see Exhibit 4A - Note (e) above). In 2011, the ETR included the impact of the reversal of uncertain tax positions in 2011 (see Exhibit 4A - Note (i) above). There is no tax benefit from the contractual liability to pre-petition creditors and as a result, this item had an impact on the effective tax rate in 2011.
   
   
   
...
Exhibit 5
Covanta Holding Corporation
Reconciliation of Net Income to Adjusted EBITDA
 
    Three Months Ended
December 31,
    Twelve Months Ended
December 31,
     
    2012     2011     2012     2011     Full Year
Estimated 2013
 
    (Unaudited, in millions)      
Net Income from Continuing Operations Attributable to Covanta Holding Corporation   $ 82     $ 27     $ 116     $ 79     $53 - $66
                                     
Operating loss related to insurance subsidiaries (a)     1       1       10       2     (5) - 0
                                     
Depreciation and amortization expense     50       51       195       193     220 - 210
                                     
Debt service:                                    
  Net interest expense on project debt     5       7       27       31      
  Interest expense     27       17       94       67      
  Non-cash convertible debt related expense     6       5       25       25      
  Investment income     (1 )     --       (1 )     (1 )    
Subtotal debt service     37       29       145       122     171 - 155
                                     
Income tax expense (b)     (4 )     25       26       52     40 - 65
                                     
Reversal of uncertain tax positions related to pre-emergence tax matters(b)     --       --       --       (24 )    
                                     
Contractual liability to pre-petition creditors (b)     --       --       --       15      
                                     
Write-off of intangible liability (c)     --       --       (29 )     --      
                                     
Write-off of renewable fuels project (d)     --       --       16       --      
                                     
Development costs (e)     --       5       11       5      
                                     
Net gain related to lease termination (f)     (44 )     --       (44 )     --      
                                     
Pension plan settlement expense (g)     11