COVANTA HOLDING CORP – 10-Q – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The terms "we," "our," "ours," "us," "Covanta" and "Company" refer to Covanta Holding Corporation and its subsidiaries; the term "Covanta Energy" refers to our subsidiary Covanta Energy Corporation and its subsidiaries. The following discussion addresses our financial condition as of March 31, 2012 and our results of operations for the three months ended March 31, 2012, compared with the same periods last year. It should be read in conjunction with our Audited Consolidated Financial Statements and Notes thereto for the year ended December 31, 2011 and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K for the year ended December 31, 2011 ("Form 10-K"), to which the reader is directed for additional information.

The preparation of interim financial statements necessarily relies heavily on estimates. Due to the use of estimates and certain other factors, such as the seasonal nature of our waste and energy services business, as well as competitive and other market conditions, we do not believe that interim results of operations are indicative of full year results of operations. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts and classification of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.

OVERVIEW

Covanta is one of the world's largest owners and operators of infrastructure for the conversion of waste to energy (known as "energy-from-waste" or "EfW"), as well as other waste disposal and renewable energy production businesses. Energy-from-waste serves two key markets as both a sustainable waste disposal solution that is environmentally superior to landfilling and as a source of clean energy that reduces overall greenhouse gas emissions and is considered renewable under the laws of many states and under federal law. Our facilities are critical infrastructure assets that allow our customers, which are principally municipal entities, to provide an essential public service.

Our EfW facilities earn revenue from both the disposal of waste and the generation of electricity, generally under long-term contracts, as well as from the sale of metal recovered during the energy-from-waste process. We process approximately 20 million tons of solid waste annually, representing approximately 5% of the solid waste generation in the United States. We operate and/or have ownership positions in 46 energy-from-waste facilities, which are primarily located in North America, and 15 additional energy generation facilities, including other renewable energy production facilities in North America (wood biomass and hydroelectric). In total, these assets produce approximately 10 million megawatt ("MW") hours of baseload electricity annually, representing approximately 7% of the nation's non-hydroelectric renewable power. We also operate a waste management infrastructure that is complementary to our core EfW business.

We hold equity interests in energy-from-waste facilities in China and Italy. We are pursuing additional growth opportunities in parts of Europe, primarily in the United Kingdom, where the market demand, regulatory environment or other factors encourage technologies such as energy-from-waste to reduce dependence on landfilling for waste disposal and fossil fuels for energy production in order to reduce greenhouse gas emissions.

We also have investments in subsidiaries engaged in insurance operations in California, primarily in property and casualty insurance; however these collectively account for less than 1% of our consolidated revenue.

We plan to allocate capital to maximize stockholder value by investing in: our existing businesses to maintain and enhance assets, high value core business development projects and strategic acquisitions when available, and by returning surplus capital to our stockholders. During the three months ended March 31, 2012, we declared a quarterly cash dividend of $0.15 per share and we repurchased 1.8 million shares of our common stock at a weighted average cost of $16.45 per share for an aggregate amount of approximately $30 million. For additional information, see Liquidity and Capital Resources below.

Strategy

Our mission is to be the leading energy-from-waste company in the world, which we intend to pursue through the following key strategies:

     •   Grow the value of our existing portfolio. We intend to maximize the long-term       value of our existing portfolio by continuously improving safety, health and       environmental performance, working in partnership with our client       communities, continuing to operate at our historic production levels,       maintaining our facilities in optimal condition, and managing our expenses.       We also intend to effect organic growth through adding or extending waste and       service contracts, seeking incremental revenue opportunities by investing in       and enhancing the capabilities of our existing assets, deploying new or       improved technologies targeted at increasing revenue or reducing costs and       expanding our customer base and service offerings.       •   Expand through development and/or acquisitions in selected attractive       markets. We seek to grow our portfolio primarily through the development of       new facilities and acquisitions 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 United States                                            27 

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  Table of Contents      and Canada, which we consider to be our core markets. In addition, we      believe that there are numerous attractive opportunities in the United      Kingdom, where national policies, such as a substantial tax on landfill use,      are intended to achieve compliance with the European Union ("EU") Landfill      Directive.  

We believe that our approach to development opportunities is highly-disciplined, both with regard to our required rates of return and the manner in which potential new projects will be structured and financed. In general, prior to the commencement of construction of a new facility, we intend to enter into long-term contracts with municipal and/or commercial customers for a substantial portion of the disposal capacity and obtain non-recourse project financing for a substantial portion of the capital investment. We intend to finance new projects in a prudent manner, minimizing the impact on our balance sheet and credit profile at the parent company level where possible.

     •   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, gasification, 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.       •   Advocate for public policy favorable to energy-from-waste. We seek to educate       policymakers and regulators about the environmental and economic benefits of       energy-from-waste and advocate for policies and regulations 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.       •   Allocate capital efficiently. We plan to allocate capital to maximize       stockholder value by: investing in our existing businesses to maintain and       enhance assets; effecting organic growth; investing in high value core       business development projects and strategic acquisitions when available; and       by returning surplus capital to our stockholders.  

Factors Affecting Business Conditions and Financial Results

Economic - The economic slowdown reduced demand for goods and services generally, which reduced overall volumes of waste requiring disposal and the pricing at which we can attract waste to fill available capacity. 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. Waste markets tend to be affected by local and regional economic activity. The downturn in economic activity has reduced waste generation rates in the northeast United States which subsequently caused market waste disposal prices to decline modestly.

Furthermore, global demand and pricing of certain commodities, such as the scrap metals we recycle from our energy-from-waste facilities have also been materially affected by economic activity in recent years. Metal markets tend to be affected by national and global economic activity. Pricing for recycled metals reached historically high levels in 2008, and declined significantly in 2009 due to the downturn in economic activity. Since 2010, pricing for recycled metals has recovered from the economically deflated rates in 2009.

At the same time, the declines in United States natural gas prices have pushed electricity and steam pricing generally lower, which causes lower revenue for the portion of the energy we sell which is not under fixed-price contracts. Energy markets tend to be affected by regional and national economic activity and regulations. The decline in gas prices in 2011 and the first quarter of 2012 was attributed to several factors such as increased gas supply from shale formations, generally mild weather conditions, and the continued sluggish economy and associated economic uncertainty.

At our biomass facilities, lower energy prices combined with higher fuel prices have caused us to economically dispatch operations where continued operations are not currently profitable. We will continue to consider this practice until we experience increased energy revenue, or decreased fuel costs or both.

The downturn in economic activity has also affected many municipalities and public authorities, some of which are our customers. Many local and central governments are seeking to reduce expenses in order to address declining tax revenues. We work closely with these municipal customers, with many of whom we have shared a long-term relationship, to effectively counter some of these economic challenges.

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Market Pricing for Waste, Energy and Metal - Global and regional economy activity, as well as technological advances, regulations and a variety of other factors, will affect market supply and demand and therefore prices for waste disposal services, energy (including electricity and steam) and other commodities such as ferrous and non-ferrous metals. As market prices for waste disposal, electricity, steam and recycled metal rise it benefits our existing business as well as our prospects for growth through expansions or new development. Conversely, market price declines for these services and commodities will adversely affect both our existing business and growth prospects.

Seasonal - Our quarterly operating income within the same fiscal year typically differs substantially due to seasonal factors, primarily as a result of the timing of scheduled plant maintenance. We typically conduct scheduled maintenance periodically each year, which requires that individual boiler and/or turbine units temporarily cease operations. During these scheduled maintenance periods, we incur material repair and maintenance expenses and receive less revenue until the boiler and/or turbine units resume operations. This scheduled maintenance typically occurs during periods of off-peak electric demand and/or lower waste volumes, which are our first, second and fourth fiscal quarters. The first half of the year scheduled maintenance period is typically the most extensive. The third quarter scheduled maintenance period is typically the least extensive. Given these factors, we typically experience our lowest operating income from our projects during our first half of each year.

In addition, at certain of our project subsidiaries, distributions of excess earnings (above and beyond monthly operation and maintenance service payments) are subject to periodic tests of project debt service coverage or requirements to maintain minimum working capital balances. While these distributions occur throughout the year based upon the specific terms of the relevant project debt arrangements, they are typically highest in the fourth quarter. Our net cash provided by operating activities exhibits seasonal fluctuations as a result of the timing of these distributions, including a benefit in the fourth quarter compared to the first nine months of the year.

Performance - We have historically performed our operating obligations without experiencing material unexpected service interruptions or incurring material increases in costs. In addition, with respect to many of our contracts, we generally have limited our exposure for risks not within our control. For additional information about such risks and damages that we may owe for unexcused operating performance failures, see Item 1A. Risk Factors included in our Form 10-K. In monitoring and assessing the ongoing operating and financial performance of our businesses, we focus on certain key factors: tons of waste processed, electricity and steam sold, and boiler availability.

Our ability to meet or exceed historical levels of performance at projects, and our general financial performance, is affected by the following:

     •   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 or 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 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.  

General financial performance at our international projects is also affected by the financial condition and creditworthiness of our international customers and partners, fluctuations in the value of the domestic currency against the value of the U.S. dollar, and political risks inherent to the international business.

Business Segment

We have one reportable segment which is Americas and is comprised of waste and energy services operations primarily in the United States and Canada.

The Americas segment is comprised primarily of energy-from-waste projects. Our energy-from-waste projects generate revenue from three main sources: (1) fees charged for operating projects or processing waste received, (2) the sale of electricity and/or steam, and (3) the sale of ferrous and non-ferrous metals that are recycled as part of the energy-from-waste process. We may also generate additional revenue from the construction or expansion of a facility when a municipal client owns the facility. Our customers for waste disposal or facility operations are principally municipal entities, though we also market disposal capacity at certain facilities to commercial and special waste customers. Our facilities sell energy primarily to utilities at contracted rates or, in situations where a contract is not in place, at prevailing market rates in regional markets (primarily PJM, NEPOOL and NYISO in the Northeastern United States).

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We also operate, and in some cases have ownership interests in, transfer stations and landfills which generate revenue from ash disposal fees or operating fees. In addition, we own, and in some cases operate, other renewable energy projects in the Americas segment which generate electricity from wood waste (biomass) and hydroelectric resources. The electricity from these other renewable energy projects is sold to utilities under contracts or into the regional power pool at short-term rates. For these projects, we receive revenue from sales of energy, capacity and/or cash from equity distributions and additional value from the sale of renewable energy credits.

Contract Structures

We currently operate energy-from-waste projects in 16 states and one Canadian province, and are constructing an energy-from-waste project in a second Canadian province. Most of our energy-from-waste projects were developed and structured contractually as part of competitive procurement processes conducted by municipal entities. As a result, many of these projects have common features. However, each service agreement is different reflecting the specific needs and concerns of a client community, applicable regulatory requirements and other factors. The following describes features generally common to these agreements, as well as important distinctions among them:

     •   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 our       municipal client so desires.       •   Our projects were generally financed at construction with project debt in the       form of tax-exempt municipal bonds issued by a sponsoring municipality, which       generally mature at the same time the initial term of our service contract       expires and are repaid over time based on set amortization schedules. At Tip       Fee facilities, our project subsidiary is responsible for meeting any debt       service or lease payment obligations out of the revenue generated by the       facility. At Service Fee projects that we own and where project debt is in       place, a portion of our monthly fee from the municipal client is dedicated,       dollar-for-dollar, to project debt service. 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 condensed consolidated financial statements.       Generally, project debt is secured by the project's revenue, contracts and       other assets of our project subsidiary. When the service contract expires and       the debt is paid off, the project owner (either Covanta or the municipal       entity) will determine the form of any new contractual arrangements. We are       not responsible for debt service for projects that we neither own nor lease.       •   Following construction and during operations, we receive revenue from two       primary sources: fees we receive for operating and maintaining projects or       for processing waste received, and payments we receive for electricity and/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 trust and/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 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 a put-or-pay basis and is obligated to pay a       fee for its disposal. A put-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. Client communities have consistently met their commitment to       deliver the stated quantity of waste. 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 financial 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.                                            30 

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  Table of Contents   •   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. 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.  

Contracted and Merchant Capacity

Our service and waste disposal agreements, as well as our energy contracts, expire at various times. The extent to which any such expiration will affect us will depend upon a variety of factors, including whether we own the project, market conditions then prevailing, and whether the municipal client exercises options it may have to extend the contract term. As our contracts expire, we will become subject to greater market risk in maintaining and enhancing our revenues. As service agreements at municipally-owned facilities expire, we intend to seek to enter into renewal or replacement contracts to operate such facilities. We will also seek to bid competitively in the market for additional contracts to operate other facilities as similar contracts of other vendors expire. As our service and waste disposal agreements at facilities we own or lease expire, we intend to seek replacement or additional contracts, and because project debt on these facilities will be paid off at such time, we expect to be able to offer rates that will attract sufficient quantities of waste while providing acceptable revenues to us. At facilities we own, the expiration of existing energy contracts will require us to sell our output either into the local electricity grid at prevailing rates or pursuant to new contracts.

To date, we have been successful in extending a majority of our existing contracts to operate energy-from-waste facilities owned by municipal clients where market conditions and other factors make it attractive for both us and our municipal clients to do so. See Growth and Development discussion below for additional information. The extent to which additional extensions will be attractive to us and to our municipal clients who own their projects will depend upon the market and other factors noted above. However, we do not believe that either our success or lack of success in entering into additional negotiated extensions to operate such facilities will have a material impact on our overall cash flow and profitability for the next several years.

As we seek to enter into extended or new contracts, we expect that medium- and long-term contracts for waste supply, at least for a substantial portion of facility capacity, will be available on acceptable terms in the marketplace. We also expect that medium- and long-term contracts for sales of electricity will be less available than in the past, while medium- and long-term contracts for sales of other energy products may be more attainable. As a result, following the expiration of these long-term contracts, we expect to have on a relative basis more exposure to market risk, and therefore revenue fluctuations, in energy markets than in waste markets. We have entered into contractual arrangements in order to mitigate our exposure to revenue fluctuations in energy markets through a variety of hedging techniques, and we expect to continue to do so in the future. Our efforts in this regard will involve only mitigation of price volatility for the energy we produce, and will not involve speculative energy trading.

In conjunction with our energy-from-waste business, we also own and/or operate 13 transfer stations and four ash landfills in the northeast United States, which we utilize to supplement and manage more efficiently the fuel and ash disposal requirements at our energy-from-waste operations. We provide waste procurement services to our waste disposal and transfer facilities which have available capacity to receive waste. With these services, we seek to maximize our revenue and ensure that our energy-from-waste facilities are being utilized most efficiently, taking into account maintenance schedules and operating restrictions that may exist from time to time at each facility. We also provide management and marketing of ferrous and non-ferrous metals recovered from energy-from-waste operations, as well as services related to non-hazardous special waste destruction and ash residue management for our energy-from-waste projects.

Growth and Development

We intend to grow our business through expanding the capabilities of our existing business, and adding new projects through development and/or acquisition, all with the goal of maximizing long-term stockholder return. Our growth opportunities include: organic growth, new energy-from-waste and other renewable energy projects, existing project expansions, acquisitions, and businesses ancillary to our existing business, such as additional waste transfer, transportation, processing and disposal businesses. We also intend to maintain a focus on research and development of technologies that we believe will enhance our competitive position, and offer new technical solutions to waste and energy problems that augment and complement our business.

We will effect organic growth through adding or extending waste and service contracts, seeking incremental revenue opportunities by investing in and enhancing the capabilities of our existing assets, deploying new or improved technologies targeted at increasing revenue or reducing costs in areas such as metals recovery, and expanding our customer base and service offerings.

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We also have extensive experience in developing, constructing, operating, acquiring and integrating waste and energy services businesses. We intend to continue our efforts on pursuing acquisition-based growth in the United States, Canada, and the United Kingdom. We will also continue to pursue growth through development opportunities in the same markets, where the demand, regulatory environment or other factors encourage technologies such as energy-from-waste to reduce dependence on landfilling for waste disposal and fossil fuels for energy production.

We have a project development pipeline and continue to pursue several billion dollars worth of energy-from-waste opportunities. However, there is substantial time and uncertainty involved in the bidding and permitting process for each project opportunity. If, and when, these development efforts are successful, we plan to invest in these projects to achieve an attractive return on capital particularly when leveraged with project debt which we intend to utilize for all of our development projects.

BUSINESS DEVELOPMENT AND ORGANIC GROWTH

Alexandria/Arlington County Energy-from-Waste Facility

We entered into a new tip fee contract with the City of Alexandria and Arlington County to provide for continued waste supply to our Alexandria energy-from-waste facility through 2025. Both parties have the option to terminate the agreement in 2019. The agreement also provides the City of Alexandria and Arlington County with the option to extend the agreement to 2038.

Braintree Transfer Station

In March 2012, we began a major renovation project to increase recycling capacity at the Braintree transfer station located near our Southeast Massachusetts energy-from-waste facility. The project is expected to cost approximately $7 million and is expected to be completed by the end of 2012. The town of Braintree extended the site lease agreement with the facility to 2030.

Montgomery County Energy-from-Waste Facility

We extended the service agreement for our Montgomery County energy-from-waste facility and Derwood transfer station from 2016 to 2021 on substantially the same terms as in the existing agreement.

Niagara Energy-from-Waste Facility

During the first quarter of 2012, we extended a steam sale contract from 2013 to 2021 for our Niagara EfW facility. This contract combined with new and extended contracts entered in 2011 will increase the steam demand from our customer base and will require us to invest a total of approximately $10 million in capital expenditures in 2012 and 2013 to install a new natural gas package boiler and steam line to connect to our new customers.

Springfield Energy-from-Waste Facility

On April 2, 2012, we extended the tip fee agreement for our Springfield, Massachusetts energy-from-waste facility from 2014 to 2024. This contract represents about one-third of the capacity at our Springfield EfW facility. The agreement also includes an amendment to our contract relating to the ash landfill that is directly adjacent to the facility which will support our plan to build and operate a new metal recovery and recycling facility at the ash landfill.

Organic Growth Investments

During the three months March 31, 2012, we invested approximately $4 million in various organic growth initiatives by enhancing the capabilities of our existing assets, deploying new or improved technologies targeted at increasing revenue and expanding our customer base and service offerings.

ASSETS HELD FOR SALE AND DISPOSITIONS

In 2010, we adopted a plan to sell our interests in certain fossil fuel independent power production facilities in the Philippines, India, and Bangladesh. During 2011, we sold the majority of those assets and have one remaining asset held for sale for our interest in a barge-mounted 126 MW (gross) diesel/natural gas-fired electric power generation facility located near Haripur, Bangladesh. On April 16, 2012, we completed the sale of our interest in the Haripur project. With this sale, we have realized total net proceeds of approximately $268 million, net of transaction costs, for these four IPP asset sales.

The assets and liabilities associated with these businesses are presented in our condensed consolidated balance sheets as "Current Assets Held for Sale" and "Current Liabilities Held for Sale." The results of operations of these businesses are included in the condensed consolidated statements of operations as "Income from discontinued operations, net of tax." The cash flows of these businesses are also presented separately in our condensed consolidated statements of cash flows.

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RESULTS OF OPERATIONS

The comparability of the information provided below with respect to our revenues, expenses and certain other items for the periods presented was affected by several factors. As outlined above under Overview - Growth and Development, our business development initiatives resulted in various additional projects which increased comparative revenues and expenses. These factors must be taken into account in developing meaningful comparisons between the periods compared below.